Military Hardware Security Compromised

The gloves are coming off in the government’s fight against counterfeit parts and intellectual property protection.

Brian Toohey, president of the Semiconductor Industry Association, testified Tuesday before the Senate Armed Services Committee calling counterfeit parts “a ticking time bomb.” China’s role in counterfeiting featured centrally in the Committee’s discussion of the problem. (If you have a few hours, I suggest you watch the hearing here.)

“The catastrophic failure risk inherently found in counterfeit semiconductors places our citizens and military personnel in unreasonable peril,” said Toohey. The SIA estimates that counterfeits cost US-based semiconductor companies more than $7.5 billion a year.

The SIA’s recommendations for stemming the tide of counterfeits includes strengthening the partnerships among the chip industry, the Department of Defense, the Department of Justice, and the US Customs and Border Patrol; better procurement procedures on the part of the DoD; and stronger international enforcement of intellectual property (IP) rights, including more aggressive prosecution of counterfeiters.

The Committee’s hearing comes on the heels of a report released last week to Congress by the Office of the National Counterintelligence Executive (NCIX) titled “Foreign Spies Stealing US Economic Secrets in Cyberspace.” Not surprisingly, the report fingers China as one of the two prime suspects in the illegal acquisition of US IP (the other was Russia):

    Chinese actors are the world’s most active and persistent perpetrators of economic espionage. US private sector firms and cyber security specialists have reported an onslaught of computer network intrusions that have originated in China, but the Intelligence Community cannot confirm who was responsible.

The report documents cases of employees at Boeing, DuPont, Ford, Rockwell, and Vaspar stealing IP by downloading documents to thumb drives or emailing the documents as attachments. (The report was unclear whether the employees named in the report were Chinese Americans or Chinese nationals.)

The report also described a more insidious cyber-attack of Google’s network in January 2010. NCIX “identified the Chinese Government as the sponsor of intrusions,” the report claims. “Google subsequently made accusations that its source code had been taken — a charge that Beijing continues to deny.”

There was a time not too long ago that the US government and the chip industry were loath to speak publicly about the problems of counterfeiting and corporate espionage. But as the threat has escalated, and the stakes have risen, the debate has become very public. And increasingly China is being held up as the evil perpetrator.

You have to start to wonder if the increasingly direct accusations within the US electronics industry and by the US government will contribute to a chilling of relationships between the two countries. If so, it could prove problematic if China retaliates, since many US electronics companies are deeply invested in design, supply, and manufacturing operations inside the PRC.

What’s needed to prevent this scuffle from escalating? Admission of the severity of the problem by the Chinese government would be a good starting point. Direct dialogue between China and the US is another good idea. And perhaps industry associations on both sides should convene a summit to address the problem. The economies of the US and China are too tightly connected to allow the pressure to build much further.

18 comments on “Military Hardware Security Compromised

    November 11, 2011

    With the massive trade between China and USA this is a difficult situation to address diplomatically but something definitely needs to happen.  I guess the USA could stop buying Chinese goods until China respects IP but I am not sure the USA public could stomach the increased costs.

  2. Ariella
    November 11, 2011

    The problems of counterfeiting in the military have escalated. According to reports that came out earlier this week:

    Dozens of suspected counterfeit parts have been installed on U.S. defense equipment from Raytheon Co. (RTN)L-3 Communications Holdings Inc. (LLL) and Boeing Co. (BA), including aircraft deployed to Afghanistan.

    The Senate Armed Services Committee found counterfeit parts — usually from China — on at least seven aircraft, including the   Lockheed Martin Corp. (LMT)  C-130J transport plane, Boeing P-8A Poseidon maritime patrol and L-3 27J Spartan transport.


    Though there have been no accidents due to te counterfeit parts, so far, there is huge potential for disaster here.

  3. saranyatil
    November 11, 2011

    Diplomatic solution will never happen, but now what my concern is how are we going to get out of china. They already have a good skill set and may try and start ruling over other companies.

  4. Clairvoyant
    November 11, 2011

    This is a serious issue where military products are meant to be highly reliable. Are healthcare electronics being affected by counterfeit components as well?

  5. Bruce Rayner
    November 13, 2011

    @clairvoyant.  The answer is yes. Counterfeiters are equal-opportunity suppliers, they don't discriminate when it comes to end markets. Medical is just as vulnerable as military, automotive, communications, etc. The issue with military is that the programs are funded by the government and there are geo-political issues associated with the sourcing of counterfeits from China. Also, the military buys a lot of replacement parts for ancient equipment and the only place you can find these parts is often through non-franchised independent distributors and brokers. So Congressional attention is focused there. The best defense for medical equipment companies is a systematic inspection and testing regime for all parts purchased through non-franchised distributors.

  6. garyk
    November 13, 2011

    This is a very serious problem and CHINA is the head of it. CHINA is controlling all the Contract Manufacturing, Celestica, Foxccon, Flextronics, etc. what do you expect.

    The biggest question to Rayheron, L3 and Lockheed Martin is what CM's are you using to build your assemblies? The US Government has to start addressing the problem.

  7. Taimoor Zubar
    November 14, 2011

    I don't think the US can afford to abandon trade with China or take any strict measures which will hurt the US-China relationship. I am in the favor of a diplomatic solution here which focuses on pointing out the benefits that China itself will have once they implement IP rights management and control counterfeiting.

  8. jbond
    November 14, 2011

    This is going to be a long drawn out process and a very difficult one to end. It is a shame that we are going to have to go to extremes to make sure we can prevent any serious damage. It would appear that these companies are going to have to get very strict on how they control their employees access to data and any removal procedures. 

  9. Houngbo_Hospice
    November 14, 2011


    For now China actions against conterfeit prducts will still be very limited because it is how chinese are learning new technologies. They copy to gain the knowledge to become more competitive. That is what the Japanese used to do in post wars periods (part of the second period of the 20th Century) until they become a well established industrial country and are able to offer competitive products. China will come to that, but we will have to wait.

  10. Mr. Roques
    November 14, 2011

    How does counterfiting mix with espionage? I understand both are issues and both involve China but I think they are different topics.

    Maybe I'm wrong, probably… are they related?

  11. garyk
    November 14, 2011

    It's hard to compare Japan to CHINA. Japan didn't want to control all the manufacturing in the world, them just want there fair share. When various free country's talk about loss of job's it's because CHINA has taken all the low pay, manufacturing job's out of there country. When a country wants to expand manufacturing in CHINA, they say NO, only if they switch manufacuring to CHINA.

    Do you all know that CELESTICA Canada is a Qualified Military CM owned by CHINA!!!! When will FOXCONN take over CELESTICA?

  12. Eldredge
    November 15, 2011

    Good point on the replacemen parts. The design and testing for military hardware has had such a long cycle time that some components become obsolete during production phases. There is often the chance to make a 'last time buy' purchase, but repairs may be needed much further dowm the road. 

  13. Bruce Rayner
    November 15, 2011

    @Mr. Roques – The are separate but the fear is that they have and will overlap. There was a rumored case a few years ago of communciations equipment used by the US Navy that provided access to unauthorized (potential enemy) sources. There's the potential to embed viruses, and malwear in software and programable devices that can bring down systems. This is suspected as the cause of problems reported in computers used at the Iranian Nuclear site. There was also a report recently that the US Air Force's drone operations were hit by a virus. So the threat is real.

  14. itguyphil
    November 18, 2011

    Anything related to the military should always be protected with accuracy and reliability. But I come across many reports citing China's involvement in many hacking plots and information espionage. So what I would recommend the US do is disallow (at least): any products made in China should not be included in military hardware. Whether this is a realistic goal is another point but it's a starting point.

  15. bolaji ojo
    November 18, 2011

    @pocharle, I realize the military is important but counterfeiting at any level can be extremely dangerous. In the medical industry, for instance, fake drugs, sub-par equipment and any other forms of counterfeiting can be as deadly as a weapons system with the wrong or faulty components. The story about the military grabs the headlines, however, counterfeiters are as active in other critical parts of the economy too. For instance, they are involved in aviation, industrial, home goods, etc. Counterfeiting is a danger to everyone.

  16. itguyphil
    November 20, 2011


    With some of the industries that you mentioned, is the distribution of the counterfeit goods widespread. Like, for example, aviation. I cannot fathom that Delta, for example, would buy goods from untrusted manufacturers. Don't suppliers/vendors have to gain some type of certification prior to selling goods?

  17. bolaji ojo
    November 20, 2011

    @pocharle, Counterfeiting is not widespread in aviation or anywhere else but it's no comfort. You only need one failed component to have a major calamity. Companies in the electronics industry are committed to fighting the problem but this is not enough. A more concerted effort is needed.

  18. Mr. Roques
    December 23, 2011

    Well, in that case the US has a strong argument to stop contracts being fulfilled by Chineses companies… but they will have to pay extra for that. In difficult times, maybe the budget constraints is too big to listen to conspiracy theories.

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