Digital Nerd

Thursday, August 18, 2005

Counterfeiters Love Electronics

Via Wired:

Travel the world, and it's safe to assume the Gucci bags and Rolex watches for sale along city streets are counterfeits. Now, increasingly, shoppers can add name-brand electronics to the list of goods to distrust.

As many as one in 10 high-tech products sold worldwide are actually knockoffs, according to a survey by an anti-counterfeiting group. The study, released Tuesday by the accounting firm KPMG and the Alliance for Gray Market and Counterfeit Abatement, or AGMA, based its estimates on data gleaned from interviews with executives at 15 large IT manufacturers.


"It catches a lot of people off guard because they think that we're building very complex technologies that are very difficult to counterfeit," said Nick Tidd, president of AGMA and a vice president for sales and business compliance at 3Com.

In contrast to watches, DVDs and CDs, far more counterfeit technology products are hawked over the internet than on street corners. AGMA identified China as a hotbed for the origination of knockoffs, which range in quality from obviously inferior imitations to fakes that are hard to differentiate from the real thing. The variety of counterfeits on the market today is vast.

"At first it started with Rolexes and Louis Vuitton bags, and now it's spreading to everything you can think of," said Joseph Loomis, vice president of marketing for Net Enforcers, which provides brand-protection services to companies.

Today, Loomis is seeing more counterfeits of established brand-name products like the Sony PlayStation. He expects the enduring popularity of Apple Computer's iPod will spur knockoffs of the digital music player.

But imitations aren't limited to well-known consumer devices. According to Tidd, 3Com recently detected a counterfeiter selling a fake version of a switch used to network office equipment. Printer toner cartridges are also a favorite target for knockoffs.

In many cases, counterfeiters don't reproduce a device themselves. Instead, they take a DVD player or MP3 player from a low-cost manufacturer, and slap on a label of a more reputable company -- a practice known as "rebranding."

AGMA's definition of counterfeit also includes items made by contract manufacturers that contain unauthorized parts. Contractors, often based in developing nations, are hired by original equipment manufacturers, or OEMs, to make products carrying the OEM brand. But contract manufacturers don't always follow the OEM's specifications, Tidd said, and can produce shoddy products with high return rates.

Consumers generally can't tell if a product they buy contains unauthorized parts. According to Tidd, the responsibility lies with OEMs to determine whether a product is up to spec, following up on clues like a sudden spike in returns.

For shoppers, Loomis said, guidelines for avoiding counterfeits are pretty basic. If a price seems too low, there's probably a catch. This is particularly true of sellers on auction sites like eBay, where counterfeiters commonly hawk their wares.

EBay has a longstanding program in place for intellectual-property owners to identify unauthorized sales, but doesn't monitor each new listing added to the site to determine if it's a counterfeit, said Chris Donlay, an eBay spokesman. In addition to counterfeits, auction sites also attract sellers of gray-market goods, which are products sold through an unauthorized channel.

As for counterfeiters, the electronics sector is attractive because products have a high retail price compared to other watches or handbags, said Marie Myers, director of internal audits for Hewlett-Packard and a former AGMA president.

"If you counterfeit a handbag, the handbag may sell for $10 or $20," she said. "When you're counterfeiting electronics, the unit price is typically higher."

That's also why counterfeit technology will likely anger customers more than other types. After all, Myers noted, most people who buy a Gucci handbag from a street vendor for $10 know it is a fake. If it falls apart, they won't be especially surprised.

But an unwary online purchaser of a $2,500 computer, AGMA noted in its report, may not be as understanding when it breaks. They'll be even less understanding when they find out a warranty doesn't apply, since the product is a counterfeit.

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