Protecting Intellectual Property in the Connector Industry
By Bob Hult, Bishop & Associates Inc.

The careful management of patents and trade secrets has always been key to limiting competitor access to the fruits of research and development. Patents covering everything from crimp technology to advanced high-speed interface design have enabled leading connector manufacturers to keep pace with evolving performance demands.

Development of intellectual property (IP) that fuels the introduction of new high-performance interfaces is an expensive process, and protecting that investment—and its pay-off—is a high priority. Emergence of the global economy, enabled by the Internet, has raised concerns about how easily IP can be pirated, with serious consequences for both the originator and consumer of next-generation connectors.

Knock-off Rolex watches and Gucci handbags have been the mainstay of pushcart vendors in Hong Kong for years, but today their product mix includes advanced electronic products. The media has been full of stories about the growing problem of counterfeit hardware and software originating in Asia. An October 2009 article in the New York Times reported the availability of bootleg copies of the new Microsoft Windows 7 operating system a week before its official release. These were being sold in Shanghai shops, next to fake Apple iPhones and Bose speakers.

A presentation at DesignCon 2009 on IP protection indicated that semiconductors might be the single biggest target of component counterfeiters today. Statistics presented indicate that as many as 10 percent of all information technology products contain counterfeit chips. A total of 17 percent of all products seized by U.S. Customs agents in 2008 were semiconductors. Re-marking a low-value chip to one with higher performance appears to be very common.

Patents can provide a degree of protection on a new product or process for a limited time. However, they also can provide valuable intelligence to a competitor. Depending on the nature of the patent and how well it is written, a patent can disclose sufficient information to allow modification adequate to avoid a patent infringement suit. The adapted IP can include improvements and allow the competitor to gain advantages over the originator at a much-reduced cost. In some cases, connector manufacturers have chosen to avoid patenting a process and rely on employee security to avoid disclosure to a competitor.

Another downside to filing a patent is that it can result in broad exposure not just to the counterfeiting world, but to competitors. Automated patent searches, augmented by human analysis, are being used by competitors to gain insight on new technologies. The data included in a patent can provide an early tip to competitors about technologies that are being investigated for possible new product development.

Development of next-generation, multi-gigabit connectors is an expensive, resource-intensive process that relatively few connector manufacturers are capable of supporting. Research and development, as well as marketing these state-of-the-art products, requires specialized signal integrity, materials, and manufacturing engineering expertise. Companies that have made the necessary commitments of personnel and equipment will make every effort to protect their internal knowledge investments. The availability of detailed information on the Internet, together with rapid employee turnover, has made this a more difficult challenge.

From a competitive perspective, the ability to participate in the advanced product market can open entirely new sources of growth revenue, as well as establish the manufacturer as an industry leader. Component suppliers that are capable of developing next-generation products often become preferred vendors at key high-volume customers, effectively shutting out others.

Competitors with fewer technical resources may be tempted to reverse-engineer legacy products, as well as emerging interfaces, to enable them to participate in volume markets. This may be particularly true of small offshore garage shops that have no development resources, but do have access to molding machines and hand-assembly labor.

The problem has been exacerbated as electronic product manufacturing is outsourced, often to sites located in Asia. Counterfeit components that may be “good enough,” and sold at a lower price, offer the potential of increased profits to the contract manufacturer. Common terminals and standard interfaces substituted for those on the bill of material may offer the same level of quality and reliability—but may not. Counterfeit connector housings made using flammable plastics, and contacts fabricated from inferior materials, substandard plating, or lacking nickel barriers, have been reported.

Simply measuring the profile of a standard connector very carefully can provide the counterfeiter with sufficient detail to create a new mold or stamping die. This process does not disclose manufacturing tolerances of the original product, but often generates enough information to produce a comparable finished connector. There have been reports of counterfeit product that was duplicated to include original mold marks. As connector centerlines have shrunk, duplication-by-measurement becomes more difficult, as minor variations in tolerances can mean the difference between mating properly and stubbing failure.

Overproduction from an outsourced manufacturing facility is another part of the problem. When a domestic connector supplier uses a contract manufacturer to produce a connector, it may be difficult to prevent greater than contract quantities to be built, creating the possibility that the excess parts will be sold on the black market. In this case, the connectors may be fully compliant to the qualified part, but rob the developer of earned sales.

Reverse engineering a multi-gigabit connector is even more problematic. Connectors designed for these applications are considered part of a controlled impedance transmission line. These highly engineered interfaces incorporate subtle internal features and materials that contribute to the high-speed performance of the product. Failure to understand the principals behind a design can lead to a connector that looks identical, but performs differently. Lack of engineering resources at this level can discourage second- and third-tier suppliers from entering the market, but may not deter small shops with nothing to lose.

The motivation to resist sharing critical IP with a direct competitor makes good business sense, but it’s becoming more difficult. Limiting the exposure of design details for advanced products is becoming more common in this connected environment. A relatively recent trend in the high-speed backplane arena is the mandate to offer a licensed second source. These connectors have become recognized as a critical element in the design of high-performance systems. Design engineers work closely with their selected connector vendor to develop high-performance channels that satisfy system requirements. The specific high-speed connector is a critical part of that channel. Rather than being dependent on that single source for such a key component, OEMs have demanded that their connector vendors license a fully compliant second source.

In the past, licenses like these would often address the mating interface and the footprint. Everything in between was left open to whatever the second source chose to design. Given the impact every nuance of design can make on performance, these new sourcing licenses are much more detailed to insure identical electrical and mechanical connectors. The vast majority of new high-speed backplane connectors have at the least an announced plan for a tooled second source. In some cases, suppliers collaborate during the development process to insure an identical performance of the two competitive product lines. While OEMs see second sources as a key requirement for selection on new projects, critical IP is now shared outside of the control of the originator. Legal constrictions and proper information security management limit access to critical information, but the fact that entirely new eyes have exposure increases the potential for loss.

OEMs fully recognize the potential problems associated with the use of counterfeit connectors. Connectors not purchased from the specified supplier may not be compatible with automated assembly equipment, or may simply not mate properly. Substandard connectors may cause premature failure in the field, necessitating costly service calls. Even more importantly, product failures can quickly create an image of poor quality, severely damaging the reputation of the company. Most OEMs and their contract manufacturers work together to insure that only components defined on the bill of materials are purchased. Audits of inventory insure that they receive what was ordered. Very large global companies maintain direct personnel at manufacturing sites to verify genuine components.

The extent of counterfeit connectors resulting from loss of intellectual property has not been quantified, but product managers at major domestic suppliers are aware that the problem exists. Quality control managers report that failed connectors returned for examination are often revealed to be counterfeit.

Proposed solutions to limiting the proliferation of counterfeit components include: 

1. Legal action, including aggressive global patent enforcement, stepped-up U.S. Customs inspection, pressing criminal charges when evidence is available.

2. Operational procedures, including verifying the supply chain, working only with trusted suppliers, test buys to identify sources.

3. Using technology to scour the Internet for unauthorized suppliers. Below-market prices can be a flag.

4. Improving the security of sensitive information; training employees in proper information management techniques.

Electronic connectors are a $45 billion industry, which makes it likely to attract more attention from counterfeiters in the future. The ability to duplicate a product has become a highly refined capability. Equipment designed for analysis can be used to replicate a connector down to the manufacturer’s logo in a matter of hours. Counterfeiters have already produced products considerably more complex then connectors.

An investment in new interconnect technology has become a key factor to maintaining industry leadership in a highly fragmented industry. The costs associated with developing advanced technology makes stringent protection of that IP essential. Loss of IP and resulting counterfeit connectors will not only reduce sales revenue for the developer, but the performance of those counterfeit connectors can damage the quality reputation of the manufacturer. This is a problem that must be dealt with now.

Bishop & Associates Comments: 

1. Although semiconductors are the most common target of counterfeiters today, unauthorized connectors are appearing on the market. It is currently difficult to gauge the extent of loss resulting from counterfeit connectors.

2. The global market, enabled by the Internet, has allowed small garage shops to market counterfeit electronic components online.

3. The practice of outsourcing the manufacture of connectors creates the potential for critical IP to be exposed, as well as over-produced parts to enter the market illegally.

4. OEM demands for licensed second sources provide additional opportunity for loss of IP.

5. High-performance/high-density connectors are more difficult to reverse engineer, and although they may look like authentic parts, they will likely perform differently in applications.

6. Improved control of sensitive documents and aggressive enforcement of patent protection are two of the tools used to combat counterfeit components.

Bishop & Associates is considering a more extensive examination of IP protection and counterfeiting in the connector industry. We need your input to determine the extent of the threat and possible solutions. If you have experienced a loss of IP, or encountered connectors from unlicensed sources, we would like to hear from you. Please e-mail your comments to rhult@bishopinc.com.

Robert Hult
Director of Product Technology, Bishop & Associates Inc.
Robert Hult has been in the connector industry for more than 36 years. Hult began his career as a sales engineer for Amphenol. He joined AMP in 1972 and served in several management positions through 1996. In 1997, Hult joined Foxconn as group marketing manager for Intel in Chandler, Arizona, U.S. Prior to joining Bishop & Associates, Hult was the regional application engineering manager for Tyco Electronics.

Hult graduated in 1968 from Bradley University with a bachelor of science degree in electronics technology and a minor in business.