Counterfeit Products in the Supply Chain ( Part 1 ) Breakout Session: 11:40 AM – 12:40 PM Doris H. Gray, Esq. Senior Contracts Manager Avnet, Inc.
Counterfeit Products in the Supply Chain(Part 1)Breakout Session: 11:40 AM – 12:40 PMDoris H. Gray, Esq.Senior Contracts ManagerAvnet, Inc.
This presentation represents the views of the speaker and not Avnet, Inc. These materials should not be construed as legal advice or opinion. The contents are intended for information purposes only. Anyone needing specific advice should confer with an attorney.
 “Ain’t Nothing Like the Real Thing” was a popular R&B song released by
Tammy Terrell and Marvin Gaye on the Tamla label in 1968.
Prohibits intentionally trafficking
Prohibits knowingly using a counterfeit mark
$250,000 fine and up to 5 years imprisonment
STOP ACT – Stop Counterfeiting in Manufactured Goods Act, H.R. 4279 would permit:
Criminal remedies against counterfeiting
Civil forfeiture of counterfeit products
Civil forfeiture to any property used to commit a violationSelling Counterfeits Is A Crime
It shall be unlawful to import into the US any merchandise of foreign manufacture if such merchandise…bears a trade-mark owned by a citizen of…the US and registered in the Patent Office by a person domiciled in the US.
Fastener Quality Act, P.L. 101-592
Requires that fasteners in critical applications conform to their specifications and provides for inspection, testing and certification of fasteners.Selling Counterfeits Is A Crime
A counterfeit is anelectronic part that is not genuine because it
meets one of the 5 criteria:
Is an unauthorized copy
Does not conform to the Original Component Manufacturer’s (OCM) design, model and/or performance standards
Is not produced by the OCM or is produced by unauthorized contractors
Is an off-specification, defective or used OCM product sold as “new” or working
Has incorrect or false markings and/or documentationDefinitions of Counterfeit (cont’d.)
U.S. Losses as a % of total loss worldwide of $500B/Yr:
Factoid: 80% of all Counterfeits are produced in China
Alliance for Gray Market & Counterfeit Abatement (AGMA)
Business Software Alliance
World Customs Organization
Department of Homeland Security
New anti-counterfeit Technology: encryption, coded markings, RFID tags and laser markings
3M has developed a new range of innovative and highly efficient counterfeit-proofing products.
3M Deutschland GmbH, Identification and Converter Division, e-mail: email@example.com
45 No.29 Gov’t Contractor ¶317
Rochester Electronics White Paper and
“Grey Marketers – Insidious Image Thieves”
by 3M Innovation NetworkWays to Combat Counterfeiting (cont.’d)
60% of semiconductors are used by computer and telecommunication companies
1% of semiconductors are used by the military
Original Component Manufacturers (OCMs) sell directly to customers or through indirect distribution channels
Rochester Electronics White PaperThe Market for Semiconductors
BusinessWeek, October 2, 2008 http://www.businessweek.com/magazine/content/08_41/b4103034193886.htm?chan=top+news_top+news+index+-+temp_top+story
The need to replace obsolete or discontinued parts
The profitability of the parts counterfeited
Rochester Electronics White PaperWhy are Semiconductors Susceptible to Counterfeiting?
Factoid: 45% of all semiconductors
are manufactured in Asia
To quantify reported counterfeits
To document industry and government practices
To identify best practices
Response to BIS’ survey was required by law
Survey was very extensive covering:
Counterfeit handling and notifications
Reasons for and cost of counterfeits
CertificationBUREAU OF INDUSTRY AND SECURITY
Factoid: Seizures of counterfeits in 2006 rose 83% to $155M
Source: Department of Homeland Security
Mark H. Crawford
Industrial Base Studies
Office of Technology Evaluation
Advance U.S. national security, foreign policy and economic interests.
BIS develops export control policies, issues export licenses, prosecutes violators, as well as monitors the capabilities of the defense industrial base.
Tried to keep questions uniform across surveys.
Top Countries Suspected/Confirmed to be Sources of Counterfeits*
* Each company was asked to provide their top five suspected countries
Only 56% of Distributors and Board Assemblers test products they purchase before placing them in inventory.
This is an area that deserves further analysis.
56% of OCMs,
65% of Distributors, and
75% of Board Assemblers DO NOT KNOW what authorities to contact when they encounter counterfeits.
71% of distributors tell customers to contact their firm if they encounter a counterfeit product.
Ensure proper disposal of all scrap – crush all defective/unused products to prevent re-circulation.
Train all employees on how to identify and handle counterfeit parts.
Tighten contractual obligations with contract manufacturers regarding disposal of unused product.
From Circuit Board Assemblers:
Audit OCMs/OEMs to ensure that the purchased part is made within their facility and not contracted out.
Perform destructive testing if a part cannot be verified by other means.
Establish qualifications for supplier purchases.Industry Best Practices – 500!
Most common responses – Don’t buy from China – Be wary of Brokers
Ask for Certificates of Compliance for all products purchased.
Educate your sales team regarding the risk of parts brokers.
Create a central database for identifying counterfeit suppliers.
Do not approve returns in greater quantities than the original purchase.
From Independent Distributors/Brokers:
Always purchase parts via escrow payments – Suppliers that believe in their product will not mind waiting for their money.
Audit all inventory purchased before anti-counterfeiting measures were put in place.
Follow IDEA 1010 for incoming inspections.
Use www.icphotos.org for visual verification of parts.Industry Best Practices (cont.)