The problem is huge by all accounts, and probably underreported. The fake semiconductor market has reached $75 billion according to Industry Week, while Havocscope estimates that $169 billion in counterfeit parts have flooded the marketplace. Meanwhile, the United States Government seized $123,892 million in counterfeit electronics in 2016 (the most current year tracked by the Department of Homeland Security in its Year End Intellectual Property Rights Review).

“No one is exempt,” said Steven Jeter, industry analyst and European SIA ACC founder in a recent webinar, SiliconExpert Market Insights: Counterfeit Risk & Mitigation Thought Leader Panel Discussion. “You will be affected sooner or later. From one original component maker’s perspective, the number of reported product counterfeits is three times greater in 2018 compared to 2017. It’s not an easy task to figure it out.”

The breadth of the problem can be traced to the numerous ways that counterfeiting occurs. Fake parts can be defined as “items produced or distributed in violation of international property rights, copyrights, or trademark laws; mis-represented in violation of intellectual property or other property law; and electronic components whose materials, performance, or characteristics are knowingly mis-represented by the vendor, supplier, distributor, or manufacturer,” said Robert Lowry, technical affiliate at Oneida Research Services, in a white paper.

The Semiconductor Industry Association (SIA) points to a handful of ways that authenticity can be compromised:

The device is an unauthorized copy
It does not conform to original OCM design, model, and/or performance standards
The part is not produced by the OCM or is produced by unauthorized contractors
The component is an off-specification, defective, or used OCM product sold as “new” or working
The part has incorrect or false markings and/or documentation

“Basically, a counterfeit part is when an incorrect product is received and is not what you expected,” Jeter said. “It’s a problem that impacts every industry vertical from commercial to military, and a broad variety of components from passives to semiconductors. All products that are at risk for being discontinued or put on allocation are at risk for counterfeiting,” Jeter added.

The current shortage of multilayer ceramic capacitors (MLCCs), for example, has likely fueled an increase in fakes, even though the parts may be priced at only a few cents. “One would think that the highest priced components are the most profitable targets for criminals,” said Barbara Jorgensen, managing editor, EBN’s sister publication EPSNews. “However, the incidents of counterfeits increase with demand in the market.”

Efforts to mitigate and control the influx of counterfeit components needs to be an industry- wide effort—a goal that has remained elusive. “There’s a lot of people doing a great job of policing,” said Jeter. “Everyone can and should play a role in this effort.”

Industry groups such as the Semiconductor Industry Association (SIA), the ERAI, the Government Industry Data Exchange Program (GIDEP), and the European Semiconductor Industry Association (ESIA) are doing what they can to police or track discovery of counterfeit components. The SIA, for example, trains customs and boarder protection officials on counterfeit components. However, those efforts rely on the willingness of OEMs, CMs, distributors, component makers, and other private organization to report problems as they are found.

Further, it will take cooperation across geographies and policing organizations to make a change. “The improvement of communications and exchange of data on an international basis is critical,” said Jeter. “You need a far-reaching exchange of data to create a successful operation.”

But companies don’t flag counterfeits for several reasons. “Companies hesitate to report because it implies a gap in supply chain or laxness in quality control on the part of the organization and its partners,” said Jorgensen. “The lack of communications between organizations is one of the most significant problems in policing counterfeits.” A promise of confidentiality on reports is a good step toward gaining better information, she added.

Further, organizations should be encouraged to report any suspected counterfeits. “People are afraid to report, but we need to change that because it’s the right thing to do,” said Vern Densler, senior manager, Project Management at SiliconExpert. “If you find out a suspect part is valid, there’s no harm done.”

In addition, organizations need to create solid processes around the handling of suspected counterfeit products. First, the product should be quarantined so that it isn’t used or sold inadvertently. Then, it should be handed over the appropriate authority. “You definitely have to make sure you know where it is,” said Densler.

Best practices include buying only through authorized channels. “It’s the best way of minimizing the risk of counterfeits,” said David Isaacs, vice president, Government Affairs, at the SIA. “Going through e-commerce portals increase the risk of getting illegitimate product or components that have been tampered with.” Organizations should require a certificate of conformance for any product they procure, panelists said.

Ironically, a primary goal of the procurement is to save money—and it is this pressure that can make alternative sources tempting. “Procurement is encouraged to buy at the lowest possible cost and counterfeits are bargains,” said Jorgensen. “Incentives to buy are biggest difficulty to stopping counterfeits.” The cost, however, may be high. Even components that work properly when used may have a shortened lifecycle that will impact the functioning of the product later—to the detriment of the brand and customer satisfaction.

When circumstances make buying through authorized channels impossible, then testing becomes an important tool. Visual inspection and electrical testing can be useful. However, spot-testing a group of components isn’t enough. The only way to be sure is to test every part, Jeter said.

Finally—since components are being cloned at legitimate fabs--component makers should adopt zero-balancing accounting for products and materials. “If you have a certain amount of materials, at the end of run, you should have nothing left over,” said Isaacs. “Clones of original products are indirect competition to the product. Although zero balancing is a complex activity, it is necessary.”

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Experts Advise on Avoiding Counterfeit Components