Agilent Technologies Inc., Palo Alto, Calif., met with its first instance of counterfeiting earlier this year after a customer returned an optocoupler for failure analysis. The parts, which were bought through an unauthorized distributor, came under suspicion after the unidentified customer recognized "Singapore" was spelled incorrectly.

In June, member companies of the ERAI discovered two other lots of counterfeit Agilent parts, one of which purported to be an RF integrated circuit (INA32063-TR1); the other a monolithic gallium aconite amplifier (MGA8356301).

"I know independent distributors list counterfeit parts on their Websites, trying to police the industry, but part of the reason there is an authorized channel is to guarantee the parts are genuine from silicon to packaged goods," said Frank Robertazzi, vice president of worldwide distribution for Agilent.

"These counterfeit Agilent devices are products procured via independent channels or parts brokers," Robertazzi said. "Customers who wish to avoid these issues should avoid the independent channel and broker."

In an effort to help customers distinguish reputable independent distributors from thieves and opportunists, the ERAI, a nine-year-old Plymouth, Mass., company that investigates incidents of high-tech fraud and counterfeiting, set up offices last month in Seoul, Korea, and Shenzhen, China. The new sites are designed to combat the increasing problem of counterfeit and substandard parts coming from Asia in addition to helping manage financial transactions for U.S. companies buying components overseas.

Is China trying?

Gloria Kamph, chief executive of Interliance LLC, Costa Mesa, Calif., said the problem stems not so much from a lack of will on the part of China to curb illegal trafficking in electronic components and IP, but rather from an inability to effectively police its industry.

"China has established courts in all provinces and major cities to handle IP rights," said Kamph, whose global management consulting and investment advisory firm specializes in Chinese government policies.

"With the help of the U.S. government and U.S. businesses, judicial training on IP is occurring at Beijing University, Qinqhua University, The People's University, and others."

Still, some question if the Chinese government is moving fast enough given the high-profile nature of some of the cases. Earlier this year, Cisco Systems Inc. filed suit in Texas charging Chinese network equipment manufacturer Huawei Technologies Co. Ltd. and its subsidiaries with the theft of IP used to design routers, technical documents, and IOS software, including source code. The suit is pending.

More Asian manufacturers are reverse-engineering brand-name products and either selling them under their own label or re-labeling them to look like the name brand, according to NEDA's Gray.

Europe is also beginning to take a harder line on the issue. The European Union on July 22 adopted a proposal pertaining to IP rights and counterfeit material in an attempt to stem the flow of bad parts.

The European Union said the new ruling, which becomes effective July 1, 2004, elaborates on the Council Regulation (EC) No. 3295/94 by granting customs authorities the power to seize goods entering member countries if they are suspected of being counterfeit or pirated.

Other sources of counterfeiting

China is not the only source of counterfeit and substandard products. In fact, some companies claim that California is sprouting a cottage industry of counterfeit parts.

SND Electronics Inc., a hybrid independent/authorized distributor that is based in Greenwich, Conn., has developed what it says is an "extensive black list" of brokers and independent distributors that it forbids its procurement specialists from doing business with.

Even so, the company recently bought Vishay Intertechnology Inc. resistors from a California broker that was not on its list, only to find that the color-coding was off on most of the shipment, according to Christopher DeNisco, SND's president and chief executive.

"The shipment arrived in April with an original label on one box. The other box labels in the shipment were photocopied," DeNisco said. "The color banding on the resistors inside the box was slightly different, which prompted our quality assurance manager to contact Vishay."

The Vishay part number engraved on the resistors, which DeNisco declined to disclose, does not exist. SND is working with the FBI in the hope of resolving the issue.

EMS provider Sparton Electronics, Jackson, Mich., said that it received faulty engineering samples in May and bought bogus components for a production run in January. The company said it has since reduced the amount of product it procures from the independent channel.