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Are you getting the real
thing?
Counterfeit Connectors
By Lynda Nolen, Bishop &
Associates Inc.
Fact:
The theft of intellectual property (IP) costs the global economy
between $500 and $600 billion or five to seven percent of world
trade annually. (Source:
World Customs Organization)
Fact:
Counterfeiting costs the global automotive parts industry $12
billion a year, $3 billion in the United States, alone.
(Source: Federal Trade Commission)
Fact:
Revenue lost to United States’ trademark holders is approximately
$200 billion annually.
(Source:
International AntiCounterfeiting Coalition)
Fact:
Approximately two percent (about 520,000) of the overall 26 million
active parts used in the aerospace industry annually are counterfeit
or unapproved.
(Source: FAA)
Fact:
The United States loses between $200 and $250 billion in sales due
to counterfeiting and piracy.
(Source: FBI)
Fact:
Once considered a
“victimless” crime, counterfeiting and intellectual property theft
is a major supporter and financier of organized crime and terrorism,
and is often used to launder drug money.
(Source: FBI and
Interpol)
Fact:
Counterfeiting
and piracy eliminates jobs. It has been shown that in the United
States alone, counterfeiting is responsible for the loss of 750,000
American jobs.
In
the automotive sector, an additional 250,000 autoworkers could be
hired if counterfeit
parts were
eliminated from the marketplace.
(Source:
Federal Trade Commission)
Fact:
Counterfeiting of goods and products can cause human injury, and in
some cases, death.
(Source:
International Intellectual Property Institute)
Fact:
Counterfeiting
can be found in EVERY market sector. Almost any product
CAN BE, and IS, counterfeited.
Although
counterfeiting is most often associated with currency and coins,
counterfeiting, in reality, reaches far beyond this.
Counterfeiting includes:
-
The fraudulent
manufacturing of product that intentionally copies another product
which is patented, copyrighted, or trademarked
-
The altering of
an original product with the intent to deceive or defraud
-
The distribution
of any product that is lesser in value than the genuine product
-
The
misrepresentation of a product’s properties or intent, including
warranty
Armed with this knowledge, one can only
ask, with counterfeiting and IP theft so prevalent and widespread, just
how do connector manufacturers and distributors protect themselves from
becoming victims? According to the connector manufacturers and
distributors we spoke with, one of the best ways to protect your product
is to have defined policies and procedures in place to monitor every
step of a product’s life cycle. This not only relates to the
manufacturing and selling of the physical connector, but also to the
registering, monitoring, and displaying of all appropriate intellectual
property associated with the development of this connector.
 To
protect their intellectual property, Gino Nanninga, vice president of
sales at Positronic Industries Inc., said, “We list our patent and
trademark numbers in our literature and on our website. If we do suspect
an infringement, we pursue it aggressively.” Nanninga also explains that
like many other connector manufacturers, Positronic takes extra steps in
the physical marking of their products. In addition to the part number,
“all Positronic connector insulators are identified with our company
logo and a cavity ID mark, all molded permanently into the part. This
sets a higher requirement for counterfeiting.”
 Instituting
an open communication policy between all departments involved in the
development, manufacturing, and sale of connectors is another way
manufacturers protect their products from being counterfeited. One
manufacturer that believes strongly in this is FCI.
François
Régi, IP manager for FCI, said, “FCI
protects its intellectual property primarily through three types of
measures. First, FCI has developed a procedure that is to be followed by
the R&D team to ensure all new products, at the early stage of their
development, are appropriately protected with patents, design patents,
trademarks, confidentiality agreements, etc. Secondly, FCI’s IP
department maintains a close relationship, holding regular meetings with
R&D, as well as sales and marketing teams, so as to make the IP
department aware of detected copies, and thirdly, FCI has a strong IP
enforcement policy. Based on this policy, FCI has sued several
competitors during the past years, and more recently, a distributor.”
 Closely
controlling overruns and building only to a customer’s current
requirements is an additional way connector manufacturers can reduce the
occurrence of counterfeiting. Mike Hynes, worldwide sales director at
Samtec, said, “Samtec only builds to-order. If a customer orders 10,000
pieces of a part and only wants 1,000 pieces now, we only build that
1,000.”
 HiRel
Connectors Inc. (HIRELCO), a manufacturer of high-reliability connectors
primarily for aerospace applications, has a similar policy in place.
Scott Snedigar, HIRELCO controller, said, “During the planning process,
HIRELCO assesses the customer, the part, and the program, prior to the
final decision on the quantity to produce. Any overruns are planned with
the expectation of providing small-quantity/short lead-time
requirements. Minimum quantity orders are not enforced on sensitive
designs. The objective of not enforcing minimum buys on sensitive
designs is to ensure that the extra connectors do not find themselves in
an ‘auction bin’ with other, non-needed items.”
One of HIRELCO’s primary strengths is “solution-based engineering, and
not ‘build-to-print’ products,” says Snedigar. HIRELCO also protects
their intellectual property by having specific customer policies in
place. “At the time the initial concept is produced, an agreement is
offered to the customer. This agreement states our claim to the
intellectual property contained in the design, and secondly, states that
the design will not be duplicated or replicated, and that the customer
will not attempt to acquire replicates of the design from other
suppliers. It also states that information will not be provided to
others, which could allow for replication. Once this agreement/document
is signed by the customer, the conceptual drawings are provided,” said
Snedigar.
 A
concept important to all of the manufacturers we spoke with was limiting
and closely monitoring their channels to market. Positronic’s Nanninga
said, “We do not sell to distributors in the U.S., thereby reducing the
possibility of goods ending up in the distribution chain, which can lead
to product being unloaded on the gray market. In other parts of the
world where we do use distributors, they are all authorized distributors
working under signed agreements. Limited products and amounts are sold
through these distributors. The majority of our customers know this
(that products are supplied through factory-direct channels), and would
be suspicious if a non-factory entity were to offer products with
Positronic markings.”
Positronic was not the only manufacturer who limited its use of
distribution as a channel to market. Snedigar, with HiRel Connectors,
said, “Authorized and value-added distribution are solid concepts for
‘standard’ products, but is not, for the most part, something that
HIRELCO has engaged in. We have had certain customers demand to buy
HIRELCO products through distribution, but this has been only on a
specific part number basis. When this occurs, HIRELCO has provided the
parts to the specific distributor selected by the OEM, thus, still
tightly controlling the channel to market.”
Distribution did not play an important role as a channel-to-market for
Positronic and HIRELCO because of the types of products they
manufacture, but for others, distribution does play a very important
role. For these manufacturers, once again, having the proper procedures
and policies in place regarding purchasing, returns, and scrapping of
product, was very important. FCI Business Development Director Bruno
Larcade, said, “FCI
has a strict policy of stock management, both internally and at the
distributors’. With first-line distributors, FCI has agreements related
to scrap and overruns. When a part is obsolete, either the distributors
scrap it on their own, and FCI sends someone into their plants to check
and control the way it is done. Or, when dealing with connectors for the
automotive industry, parts are returned to FCI for scraping 100 percent
of the time. The most efficient way to prevent the purchase of
counterfeited parts is to only work with official, first-line
distribution channels.”
Understanding
how FCI monitors the distributor side of its business, it’s interesting
to see how the distributor monitors their side of product protection.
Once again, it came down to having the proper policies and procedures in
place so as to not only protect themselves, but also the manufacturers
they support. This became even more significant when we spoke with a
distributor who purchases completed product, but also assembles
connectors through a value-added program. Distributors who value add
connectors not only have to monitor the scraping and return of completed
products, but also have to monitor scrap attributed to problems in
assembly, non-movement and defect, as well as the occasional component
that is purchased from another distributor due to an emergency
requirement, such as an AOG.
One value-added distributor who maintains explicit procedures for
purchasing components and disposing of unsold product is TTI Inc. Lew
LaFornara, vice president of supplier marketing and product management
at TTI Inc., said, “TTI only disposes of product not sold in two ways.
We either return it directly to the factory with an authorized stock
rotation, or we scrap it. When we scrap product, we have a process that
mandates the positive destruction of the parts, and we can provide a
certificate of destruction statement, if required.” When asked about the
purchasing of product, LaFornara said, “TTI only purchases parts or
components directly from the authorized manufacturer or one of their
authorized distributors. Certificates of Compliance are required for
acceptance.”
Because a distributor customer base is so much larger than that of the
manufacturers they support, we wondered how TTI monitors returns,
especially on valued-added connectors. What method is in place to
prevent a customer from inadvertently returning a part manufactured by
another supplier? LaFornara said, “If an assembled connector is returned
to TTI, we validate that the logo is of TTI origin, by confirming
against the original work order for the completed connector. The
original work order image includes a copy of the marking applied to the
part by TTI. TTI trains their salespeople to discuss with their
customers the importance of buying product from reliable sources, so as
to avoid the purchasing of questionable product.”
Of the four-connector manufacturers we spoke with, FCI, HiRel
Connectors, Positronic, and Samtec, only two of them were aware of or
concerned about incidents where their brand name or products had been
compromised. Hynes, with Samtec, said, “Samtec has not had it happen
enough to be alarmed.” Positronic’s Nanninga said, because of their
position as “a low- to mid-volume supplier of unique products, we do not
feel our products have been targeted for counterfeiting.” However, FCI
and HIRELCO have had incidents in which specified products were either
replaced with unauthorized products, or a product was advertised and
displayed so as to mislead the buyer into thinking the product was
manufactured by them.
Régi said, “Copies of FCI connectors (but without the FCI logo) were
being marketed by a distributor through the Internet. FCI requested and
obtained in Germany a preliminary injunction against this distributor.”
 Although
HIRELCO
commented that “the problem has occurred only a couple of times in the
past 10 years, there have been incidents where product designated for
military programs and designated as ‘HIRELCO-only’
have been fulfilled utilizing other sources. HIRELCO generally finds out
about this when a call comes in discussing a failure of the part, and
after some questioning, it clearly becomes apparent that non-approved
components have been used. These components were procured based on cost
savings, but in the end, expensive equipment and service men and women’s
lives were compromised,” he said.
“As a specific example, HIRELCO provides a ratcheting,
moisture-resistant cap for an air-to-air missile launcher system. This
cap was replaced with a sheet metal cap and a center screw. The cost
savings may have been $50. The issue that occurred was that this sheet
metal cap did not provide the moisture protection required, and during
the normal operation of the aircraft, moisture was trapped behind the
cap and in the connector. Once the launcher was energized, the moisture
created a path for the electricity, and the launcher plug shorted. The
replacement of the connector, along with the grounding of the aircraft,
most likely exceeded the initial savings 20 times. The idea of saving
dollars is understandable, but the results may be disastrous.”
LaFornara said TTI has not experienced any counterfeiting issues, to the
company’s knowledge, “But, we believe the counterfeiting of electronic
components has increased. Feedback from industry groups, industry
experts, government speakers, and customers all indicated that this is a
serious problem. Increased globalization of manufacturing, sharing of
technologies, outsourcing, easy access to information via the Internet,
and easy access to end markets or customers, are all factors that
contribute to this problem.”
“At first, I too, was skeptical as to the enormity of the
[counterfeiting] problem,” said Dr. Jim Williams, co-founder, vice
president, and chief technologist for
Polyonics
and a leading moderator and speaker on
the topic of counterfeiting in electronics.
But now, he will tell
you he is “a real convert. It is everywhere, all manufacturers need to
stop saying, ‘What do you do about it?’ and instead, start asking, ‘What
can you do about it?’” Unfortunately as Dr. Williams pointed out,
the biggest problem is, “making the decision to believe it is affecting
your company directly.” In fact, as he explains it, “counterfeiting cuts
across all industries, it is everywhere, you can no longer think that
just luxury items are being counterfeited.
“The biggest problem for most manufacturers is that they can’t measure
it or assign a dollar value to it,” said Williams. “The biggest source
of counterfeiting in electronics is clearly coming from China and other
Third World countries, and this is not some mom-and-pop operation run
out of a basement. Most of these operations are highly organized. In
these countries, if the counterfeiting or fraudulent representation of a
product can make $100 or $200, then the product becomes susceptible. The
first successful counterfeiting case in the electronics industry
involved computer chips that cost $50-$60 a piece, but now they are
attacking components that cost fractions of a cent. Why? Because
millions and millions of them are used.”
When we discussed the various ways in which counterfeit product get
introduced into the market, Dr. Williams explained how he likes to use
two examples. The first example comes from David Brown, marketing
director of Intel Enterprise Platforms and Services Division. In this
example, Brown equates a manufacturer to a castle surrounded by a moat.
If everything can be contained in that castle, then there are no
worries—meaning, the manufacturer has total control. Once you allow
someone or something into the castle, you lose control. For a
manufacturer, this someone or something can be as simple as selling a
product or printing a catalog.
In the other example Dr. Williams uses, he equates the supply chain to a
river that is fed by tributaries, representing your sources of material.
If there is a problem in one of the tributaries, it will affect the
whole river. Now look at two different rivers, the Mississippi River and
the Amazon River. Since the Amazon River is almost 60 percent longer
than the Mississippi and has close to 1,000 tributaries, the opportunity
for one of those tributaries to pollute the river is substantially
higher, meaning the greater number of sources there are, the greater
chance counterfeit parts will enter your supply chain.
He uses this same example to reinforce the concept of cross-talk between
industries. He explains that if a problem is detected in one of the
rivers, does it not make sense for the people overseeing the other river
to talk to and work with those involved in detecting and solving the
problem. “There are several industries that are far ahead of the
electronics industry as far as understanding counterfeiting. Why
reinvent the wheel, when these people have already invested tremendous
time and effort on this problem? Learn from their successes, as well as
their failures,” said Williams.
Dr. Williams realizes the problem can have greater consequences. “The
issue of counterfeiting becomes more pronounced when people are
seriously injured or die because of it. That is why you hear so much
about counterfeiting in the pharmaceutical industry. If people started
turning on their computers, plugged in their USB devices, and they all
caught on fire, you would probably hear more about counterfeiting in the
electronics industry. It is no longer what you know or who you know, but
what and who you trust.”
For additional information on counterfeiting in the electronics industry
and how to protect your company from becoming “just another victim,”
visit with Dr. Williams and other experts at these venues:
APEX Midwest
SMTA
International
Chicago, IL, September 23, 2009
San Diego, CA October 4-8
Strategies to Fight Counterfeit
Electronics
Strategies to Fight Counterfeiting in Electronics
PABSNA09 Conference
Chicago, IL, October
26, 27
Issues Facing Electronics
Manufacturers in the Fight Against Counterfeiting
Look for continuing coverage on this topic in the November 3 issue of
ConnectorSupplier.com.
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Lynda Nolen
Product Specialist, Bishop & Associates Inc.
Lynda Nolen has been in the interconnect
industry for
over 30 years.
She has worked in sales, sales management, marketing, and
product management for such companies as TRW Electronics
Components Group, Sunbelt Components, Cinch Connectors, Arrow
Electronics, PEI Genesis, and Delphi Interconnect. Nolen has
extensive experience in competitive cross-referencing, drawing,
web and catalog review, new product introduction programs,
harness and connector assembly programs, account management, and
customer service programs. Lynda received her Bachelor of Arts
degree from Roger Williams University in Rhode Island in 1979,
and has completed various electrical engineering courses.
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