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Freeway to Fakes

Methods of distributing and selling counterfeits vary as much as methods of making them do. Counterfeits are most prevalent online, say experts, but you can get stuck with bogus gear at retailers, too. The major pathways are via national and regional distributors; in many cases these firms are unwitting participants. Parts manufacturers use intermediaries to get their products into stores. A maker may sell a huge lot of CD drives to a national distributor, which resells portions of the shipment to regional distributors, which in turn sell to local stores or Web sites.

"Counterfeiting is getting progressively worse," says Dan DiMase, president of SemiXchange, a Rhode Island distributor of computer and electronic parts. "Ten years ago, all we were concerned about was whether the item was new or used. Now we go to great lengths to make sure what we buy from suppliers isn't fake."

Despite such checks, distributors and retailers may sell counterfeit goods unknowingly. Independent computer-parts distributor Resilien maintains it was unaware that HP memory modules it was selling were counterfeit until the company slapped it with a lawsuit last April.

"We bought the memory modules from a trusted European distributor," says Michael Walsh, Resilien's director of operations. HP had traced the memory back to Resilien after an end user installed the memory module in a computer server and the server malfunctioned. The court case between HP and Resilien was settled in October 2005, with Resilien agreeing to pay undisclosed damages to HP.

Europe is but one potential source of pirated goods. A report by the U.S. Patent and Trademark Office says that 66 percent of the counterfeit goods seized at U.S. borders in 2004 came from mainland China, up from 16 percent five years earlier. U.S. Customs says substantial quantities of seized goods in recent months have come from Russia, Malaysia, and Latin America--where anticounterfeiting enforcement is not a high priority.

Nearly every company representative interviewed for this story said that China holds the key to solving the problem. Lots of legitimate--and phony--gear is made there, as China has become a center for low-cost labor and global distribution. But the Chinese government has done little to stop counterfeiters, critics charge.

Siva Yam, president of the U.S. China Chamber of Commerce, says China could do a much better job of combating fakes. The UCCC is an independent U.S.-based nonprofit funded in part by U.S. companies doing business in China and in part by Chinese companies doing business in the United States. In Yam's view, though China bears much of the responsibility for piracy, so do foreign buyers who reward that piracy with their dollars.

Chinese government officials did not respond to our requests for comment on the counterfeiting situation in their country.