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Anti-Counterfeiting Forum

About Counterfeiting

Why are counterfeit components such an issue?

Counterfeit goods of all types have had a significant detrimental effect on the UK economy for some time and could be costing £30bn and 14,800 jobs. The increasing volume of counterfeit electronic components entering the UK is of particular concern to UK -based electronic component and original equipment manufacturers (OEMs). The consequences of counterfeiting of electronic components are particularly pervasive as electronic technology plays such an important part in so many areas of our daily lives from the obvious mobile phones and laptops to the less obvious such our cars, public transport systems and medical equipment. Counterfeiting represents a threat to this technology as, while we may be sure that the mobile phone or laptop we own is genuine, the components inside may not be. 

The Alliance for Grey Market and Counterfeit Abatement (AGMA), based in the USA, estimates that, in 2006, up to 10% of technology products sold worldwide were counterfeit, which amounted to US$100bn of sales revenues. However, this does not take into account consequential losses. In 2007, the US Patent and Trademark Office estimated that total 'counterfeiting and piracy (activity) drains about US$250bn out of the US economy each year and 75,000 jobs.' The Counterfeiting Intelligence Bureau estimates that counterfeiting accounts for between 5-7% of world trade, worth an estimated $350 billion a year.

The volume of counterfeit electronic goods is increasing rapidly. The US Patent and Trademark Office stated that, 'in 2006, in terms of seizures – which is going to under-account for the real amount (of counterfeit goods) – 5% of the total value seized was consumer electronics. In 2007, it was 9%. Footwear and apparel are number one and two, followed by pharmaceuticals and electronics.'

In June 2007 the Organisation for Cooperation and Economic Development (OECD) released a report entitled 'The Economic Impact of Counterfeiting and Piracy' which stated that 'up to US$200bn of international trade could have been in counterfeit or pirated products in 2005' and, if EU produced goods and Internet transactions were included, 'could well be several hundred billion dollars more.'

Orgalime, the European Engineering Industries Association, states that, 'even if it were to reach a level of only 1% for the engineering products, this would represent an annual loss of over €10bn to the European engineering industry.'

There are no comparable figures for the UK. However, we should have every reason to assume that the consequences of counterfeit goods to the UK economy are proportionate to those already identified in the USA and across the European Community. Taking the US Patent and Trademark Office estimates, proportionately, counterfeiting could be costing the UK economy £30bn and 14,800 jobs.

In the UK, as in the USA, while the volume of locally manufactured consumer electronics is relatively small, there is still a vibrant and highly innovative electronics sector specialising in the design and manufacture of professional, industrial and high-reliability electronic systems and equipment that is vulnerable to the problem of counterfeit electronic components.

The consequences of counterfeiting of electronic components are particularly pervasive for a number of reasons:

  • While environmental system testing should detect counterfeit components, functional testing may not. In-service failure is often costly to rectify in any application but the consequences of system down-time or even critical system failure where counterfeit components are used in safety critical applications, such as public transport, could be catastrophic
  • Failure analysis in many applications often investigates the causes of failure at board (or lowest replaceable unit) level and may not detect a counterfeit component as the cause. Although analysis using a specialist test facility usually detects fault at component level, many OEMs may consider it uneconomic to do so
  • Often, counterfeits are made of components that are difficult to source through official channels, which often forces component users to source parts through unofficial channels – the 'grey market' – through which counterfeit components invariably get into the supply chain. Sourcing of genuine parts, especially to replace failed counterfeit components, is invariably problematic
  • Business relationships within the supply chain may be severely damaged and disputes may result in legal action especially to recover the cost of consequential loss liability including loss of revenue, profit, jobs and potential damage to reputation. The loss of royalties where IP is counterfeited is particularly important to the UK electronics industry for companies such as ARM and CSR where the bulk of their revenue comes from this source
  • Component users may have unwittingly used non-RoHS compliant devices in a RoHS process, or more critically, safety-critical RoHS exempt applications such as avionics may have unwittingly used RoHS compliant devices in a non-RoHS process in contravention of EC legislation passed into law in 2006.

Where are counterfeit components coming from and what is being done to stop it?

Increased levels of global trading and, in particular, the increase in manufacturing operations in low cost regions such as Asia and Eastern Europe, in part as a result of off-shoring from relatively high cost regions, has enabled the proliferation of counterfeit goods.

In the electronics industry in particular, the supply network of OEMs has increased in complexity, in many cases spanning multiple partners spread around the globe. Controlling the activities of partners in this complex supply network, in a market where there is constant competitive pressure to reduce manufacturing costs, has become increasingly difficult. There is anecdotal evidence, for example, of 'unofficial' production runs of components that have taken place in original component manufacturers' offshore facilities, which are then passed off in the grey market.

More worryingly, these unofficial production runs can and frequently do find their way into the franchised supply chain. The ever-lengthening of the supply chain provides an increasing number of process steps where counterfeit devices can be inserted. The theft and high-jacking of work in progress material, that is being trans-shipped from one facility to another, happens frequently and this material is then processed and finished outside of the OEM's supply chain. Growth in the use of the internet as a trading platform has also increased the speed and ease with which buyers and sellers conduct transactions, which are often conducted with very little knowledge of each others' organisations and without verbal, let alone face-to-face, contact.

The RoHS Directive in Europe has led many large electronic component manufacturers to produce both compliant and non-compliant versions of their products. In response to changing demand, many electronic component manufacturers no longer produce non-RoHS compliant components, which has made component sourcing difficult for OEMs who are exempt from the RoHS Directive. At the same time, the rapid increase in demand for RoHS compliant components generated short-term shortages and, in some cases, the total discontinuation of certain components. In both cases, an increasing number of components have been sourced on the grey market, which has further encouraged the proliferation of counterfeit components.

Technology now exists to optically copy semiconductors and create a layout design from this copy at lower cost than using previous technology, which makes it increasingly profitable and therefore likely that the range and volume of counterfeit components will further increase in the future. Companies doing business in China are especially vulnerable to the problems of counterfeit components in China. The British Electrotechnical and Allied Manufacturers' Association (BEAMA) states that 'China remains a problem area as 95% of counterfeit products that potentially could kill are made there.'

In the past, only limited types of companies were licensed to export products from China. However, since the lifting of the state monopoly on export trading rights in December 2003, exports of counterfeit goods have increased. The Quality Brands Protection Committee (QBPC) based in China, is an association of enterprises with investment in China, which works with the Chinese government to promote greater protection of IPR. QBPC members include Cisco, Epson, General Electric, Hewlett Packard, Intel, Motorola, Nokia, Philips and Sony.

In 2007, Orgalime, the European Engineering Industries Association, joined a joint EU – China Working Group comprising EC officials, European industry representatives and Chinese administration officials, whose objective is to resolve IPR issues across a broad range of products. While a significant proportion of counterfeit goods originate today in China, there is evidence that counterfeit components are produced in other Far East countries, Eastern Europe and even in the USA. In any case, it should be anticipated that supply has the potential to move to other countries, such as Brazil, India and Russia, to meet growing demand or even if IP enforcement were tightened in China and other countries where counterfeiting is already taking place.

What type of components are being counterfeited?

The following list is drawn from several sources and demonstrates, not only the wide range of components that are known to be subject to counterfeiting, but also that the counterfeiting of relatively low unit cost components is considered to be profitable. Although, the majority of industry activity appears to be focused on the counterfeiting of semiconductors, other component types are also subject to counterfeiting. Please note this is not a comprehensive list - new component types, not listed here, are being added to the counterfeiters' list on a regular basis:

  • Amplifiers
  • Batteries
  • Capacitors (ceramic chip, electrolytic, tantalum)
  • Circuit breakers
  • Comparators
  • Connectors
  • CPUs
  • Diodes
  • DRAMs and DRAM modules
  • Ferrites
  • Filters
  • Inductors
  • Lead-free solder
  • Linear ICs
  • Mil spec semiconductors
  • MOSFETS
  • NVSRAM modules
  • Opto couplers
  • Programmable logic devices
  • Power and power management devices
  • Potentiometers
  • Printed circuit boards
  • Resistors
  • Radio Frequency ICs
  • Software
  • Thermistors
  • Transistors

How are components being counterfeited?

The following list, adapted from a report on the Counterfeit Components Symposium and Workshop, November 2006 by IGG and an article entitled 'Dealing with the problems of piracy' by Adam Fletcher of AFDEC in Component in Electronics, December 2007, illustrates the range of counterfeiting activities and the difficulties faced by component users in trying to detect components that may be counterfeit, bearing in mind the large number of different component types, different shipments and different suppliers that even relatively small companies have to deal with:

  • Components marked or stamped as Lead Free are actually PbSn (lead tin) or were PbSn but are stripped and re-plated with pure Sn (tin)
  • Components with gross manufacturing errors such as no die inside or wires
  • Components with a different manufacturer's die to that indicated by external marking
  • Components with original component manufacturer (OCM) markings
    • made by an authorised OCM offshore site no longer under their control
    • made by an unauthorised manufacturer with original component manufacturer markings and / or recent date code, may use cheaper or incorrect materials including plastics or plating
    • made by licensed offshore facility but marked as more expensive part
    • may be parts not electrically tested and/or non functioning reclaimed failures
    • may be unauthorized product overruns with no classification testing
  •  Copyright infringement
    • stolen masks used to build product in unauthorized factories
    • stolen designs of an entire product by de-processing parts
    • optical copying and generation of masks without making improvements or innovations to the original design
  • Document falsification – the provision of forged Certificates of Conformance (C of C) and other documents purporting to provide evidence of traceability or even falsely claiming devices to have higher performance capability of specification
  • Recycled components are counterfeit if sold as new but may in any case be ESD-damaged during clean-up
  • Re-marked components
    • incorrectly marked for example to pass off as a more expensive military or industrial spec part or part with higher electrical performance
    • incorrectly marked to pass off non RoHS compliant parts as compliant or vice-versa
    • date code updated
  • Unmarked surface-mount component visually unidentifiable

Where can I read more?

The following is a selection of useful articles, papers, presentations and publications on the issue of counterfeit components, in descending date sequence (most recent first): 

 

Counterfeiting and piracy: not just about fake watches
Article by Amar Breckenridge, World Intellectual Property Review - 15 March 2017
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Chinese official pledges anti-counterfeit push
Article by Phil Taylor, Securing Industry - 13 March 2017
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DOD scientists say microchips in weapons can be hacked
Article by Shaun Waterman, Cyberscoop - 13 March 2017
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Counterfeit guidance books on electrical wiring: alert
Announcement by IET - 9 March 2017
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Lexmark patents magnetic anti-counterfeit particles
Article by Phil Taylor, Securing Industry - 6 March 2017
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NMI Promoted: 8th Anti-Counterfeiting Forum Seminar
Announcement by NMI - 3 March 2017
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Rockwell Collins First Company to Achieve CAAP Accreditation for Supply Chain Management Involving Counterfeit Risks
Press release by Rockwell Collins - 2 March 2017
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The economic cost of IPR infringement in the smartphones sector
Overview  by European Union Intellectual Property Office
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Anti­Counterfeiting Forum announces further details of its 8th annual seminar
Press release by Securing Industry - 21 February 2017
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Anti-counterfeiting Forum 8th Annual Seminar
Article by Elektor - 13 February 2016
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The Secure E-Waste Export and Recycling Act (SEERA)
Overview paper by Coalition for American Recycling Electronics - 9 February 2017
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Toll of counterfeiting and piracy predicted to top $2.3 trillion as call made for governments to do more
Article by Trevor Little, World Trademark Review - 6 February 2017
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SKF destroys €1m-worth of fake bearings
Article by Phil Taylor, Securing Industry - 2 February 2017
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Watch what happens when a counterfeit cable undergoes a burn test
Article by Cabling and Installation Maintenance - 2 February 2017
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Smart label market 'poised for strong growth'
Article by Phil Taylor, Securing Industry - 1 February 2017
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New gadget to detect counterfeit cables
Article by Katrina Megget, Securing Industry - 30 January 2017
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Approved CabIes Initiative : Dressed to impress
Video by Approved CabIes Initiative - 26 January 2017
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Anti-Counterfeiting Forum
Press release by Peggy Lee, New Electronics - 25 January 2016
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Fake cables present 'serious' fire safety risk
Article by Staff reporter, Securing Industry - 23 January 2017
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Details of the 8th annual Anti-Counterfeiting Forum announced
Article by Electronic Specifier - 20 January 2017
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'Malicious insiders' undermine electronics anti-counterfeiting
Article by Katrina Megget, Securing Industry - 20 January 2017
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Anti-Countering Forum announces the details of its 8th annual seminar
Press release by Securing Industry - 18 January 2017
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DoD Policy Takes Aim at Counterfeit Electronics
Article by Hailey Lynne McKeefry, EBNOnline - 18 January 2017
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Alibaba files first lawsuit over counterfeit goods sold on e-commerce site
Article by  Eileen Yu, ZDNet - 6 January 2017
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Alibaba steps up supply chain control with shipping line deal
Article by Katrina Megget, Securing Industry - 6 January 2017
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University Experts to Perform Independent Review of IACC Anti-Counterfeiting Program for Alibaba Platforms
Press release by International AntiCounterfeiting Coalition
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CBP seizes $1.1 Million in Counterfeit Electronics in Joint Operation with Hong Kong Customs
Press release by U.S Customs and Border Protection - 3 January 2017
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Anti-Counterfeit Electronics and Automobiles Packaging Market Size, Share, Growth Trends and Analysis to 2023
Article by Serenapeter, The Republic of East Vancouver - 2 January 2017
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Can DNA technology thwart military supply chain threats?
Article by Adam Stone, C4ISRNET - 29 December 2016
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Govt invites bids: Study to ascertain reach of counterfeit electronic goods in domestic market
Article by Indian Express - 24 December 2016
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Operation Surge Protector: a U.S. Government Mission Against Dangerous Counterfeit Electronics
Article by Courtney A. H. Thompson, Lexology - 22 December 2016
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U.S. Blacklists Alibaba Unit Over Counterfeit Sales
Article by Reuters, New York Times - 21 December 2016
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US launches clampdown on fake electronics
Article by Phil Taylor, Securing Industry - 20 December 2016
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New enforcement effort targets dangerous electronics
Announcement by U.S. Immigration and Customs Enforcement (ICE) - 14 December 2016
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Obama cracks down on counterfeit consumer electronics
Article by  Pete Kasperowicz, Washington Examiner - 14 December 2016
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99% of Counterfeit Apple Chargers Bought Online Fail a Basic Safety Test
Article by iClarified - 2 December 2016
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DNA technology secures microchips, blocks counterfeit
Article by Kris Osborn, Defense News - 28 November 2016
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The Pentagon Uses Plant DNA to Catch Counterfeit Parts
Article by Kyle Mizokami, Popular Mechanics - 21 November 2016
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Industry alliance warns against fake steel in the Middle East
Article by Katrina Megget, Securing Industry - 12 November 2016
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Hungarian Officials Seize Counterfeit Electronic Devices with Unlicensed Software
Article by Tatjana Krivszka, Mondaq - 9 November 2016
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AS/EN 9120:2016 – Quality Management Systems - requirements for aviation, space and defense distributors
Article by Henry Livingston, Counterfeit Parts - 8 November 2016
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AlpVision Announces Smart Embossing - New Overt Security Technology
Announcement by AlpVision, 31 October 2016
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Apple sues distributor for supplying fakes on Amazon
Article by Katrina Megget, Securing Industry - 20 October 2016
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DoD Amends Acquisition Rules to Stem Flow of Counterfeit Electronics
Article by Murray Slovick, TTI Asia - 27 September 2016
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Counterfeit Parts Of Aircraft And Defense Products Could Proliferate Through 3D Printing
Article by Defense World - 14 September 2016
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Microparticle arrays "have potential as covert markers"
Article by Phil Taylor, Securing Industry - 13 September 2016
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ePaper firm patents anti-counterfeit film
Article by Staff reporter, Securing Industry - 6 September 2016
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DoD puts safe harbour in place for electronics contractors
Article by Phil Taylor, Securing Industry - 31 August 2016
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Maxim offers data counterfeit protection for IoT
Article by David Manners, Electronics Weekly - 30 August 2016
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California tops electronics theft leaderboard in US
Article by Phil Taylor, Securing Industry - 12 August 2016
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Researchers unveil covert anti-counterfeit holograms
Article by Phil Taylor, Securing Industry - 10 August 2016
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When it Comes to Counterfeit Part Prevention, Semantics Matter
Article by Kevin Sink, TTI Market Eye - 2 August 2016
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DOD Takes Steps To Halt Purchase Of Counterfeit Parts
Article by Rick Archer, Law 360 - 1 August 2016
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Fifteen-Month Prison Sentence for Trafficking in Counterfeit Computer Chips
Announcement by Sandler, Travis & Rosenberg - 13 July 2016
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Amazon criticised for counterfeits
Article by Katrina Meggett, Securing Industry - 11 July 2016
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Be aware of the dangers of counterfeit electrical goods
Article by Leek Post and Times - 16 June 2016
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Printed Memory to Secure IoT
Article by Gary Hilson, EE Times - 13 June 2016
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Placon bags US patent for tamper-evident container
Article by Phil Taylor, Securing Industry - 6 June 2016
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How to Spot Counterfeit Electronic Components
Article by Robin Mitchell, All About Circuits - 22 May 2016
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Alibaba Founder Cancels Speech at Anti-Counterfeit Conference
Article by Voice of America News - 18 May 2016
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Anti-Counterfeit Group Suspends Alibaba After a Month
Article by Spencer Soper, Bloomberg Technology - 13 May 2016
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Protecting creativity, supporting innovation: IP enforcement 2020
Announcement by UK Intellectual Property Office
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DoD Proposes Cost Allowability Rule for Correcting Counterfeit Electronic Parts
Article by Emily A Theriault, Sheppard Mullen Richter and Hampton LLP - 25 April 2016
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Citizen of China Pleads Guilty to Trafficking in Counterfeit Computer Chips
Press release by U.S. Attorney’s Office, District of Connecticut - 15 April 2016
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What You Need to Know About Counterfeit Cable and Connectors
Article by Jessica McCarthy, ADIGlobal.com - 13 April 2016
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FAR / DFAR Case Update
Article by Henry Livingston, Counterfeit Parts - 12 April 2016
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New Standard Supports Ongoing Efforts to Combat Counterfeit Semiconductors
Article by Lisa Maestas, EE Times - 11 April 2016
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The problem with forced tech obsolescence
Article by Dave Lee, BBC - 8 April 2016
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Update: Prepare for Tight Supply of Mil-Spec Connectors
Article by Gina Roos, Electronics Purchasing Strategies - 31 March 2016
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Guard against fakes, says ESCO
Article by Graham Pitcher, New Electronics - 22 March 2016
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JEDEC tackles counterfeiters with new standard
Article by Graham Pitcher, New Electronics - 18 March 2016
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Aviation company head arrested for supplying defective parts
Article by Phil Taylor, Securing Industry - 9 March 2016
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President Of Aviation Parts Company Arrested For Fraudulently Supplying Defective Airplane Parts To U.S. Government
Announcement by U.S Department of Justice - 29 February 2016
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NSWC Crane helps to prevent counterfeit parts
Article by Grant Karazsia, Greene County Daily World - 29 February 2016
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Chipmaker FTDI takes another tack in counterfeit battle
Article by Phil Taylor, Securing Industry - 17 February 2016
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U.S GAO Report on the Number of Suspect Counterfeit Reports for Fiscal Years 2011–2015
Report by U.S Government Accountability Office - 16 February 2016
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Obama to Sign Bill Combating Counterfeit Chips
Article by Dylan McGrath, EE Times - 12 February 2016
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FTDI abuses Windows Update, pushing driver that breaks counterfeit chips
Article by James Sanders, Tech Republic - 2 February 2016
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DOD Needs to Improve Reporting and Oversight to Reduce Supply Chain Risk
Report by United States Government Accountability Office - 1 February 2016
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Countering the Growing Intellectual Property Theft Threat
Announcement by Federal Bureau of Investigation - 22 January 2016
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Anti-theft marking system seeks crowd-funding backers
Article by Phil Taylor, Securing Industry - 22 January 2016
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Electronics Counterfeiters Get Their Day in Court
Article by Lisa Cairns, Electronics Purchasing Strategies - 15 January 2016
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China Remains Top Source of Counterfeit Tech Goods, Industry Group Says
Article by Don Tennant, IT Business Edge - 11 January 2016
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This is a real problem – counterfeit military-grade semiconductors Read more: http://evertiq.com/design/38425
Article by Evertiq - 8 January 2016
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If you are aware of any other useful articles, papers presentations or publications on counterfeiting that you think should be listed here please contact us.