Kris Munford had just started her shift as a 911 dispatcher for the Ogden, Utah, police department last February, when she felt a burning sensation from something in her fleece-jacket pocket. As she stood up, her Motorola V300 cell phone burned a hole through the pocket and fell to the floor, where it exploded on impact. She suffered minor burns. Though her phone was genuine, its battery was a fake.
WireFly.com, where Munford bought the battery, "looked reputable," she says. "I checked several other sites, and the prices were comparable. So I went with it." The site is an authorized Motorola reseller. WireFly spokesperson Tripp Donnelly says that company officials had no idea they had ever sold counterfeit goods. According to Donnelly, WireFly obtained the phone directly from T-Mobile.
Though unable to confirm that WireFly got the handset from it, T-Mobile issued the following statement: "This was an isolated incident, and T-Mobile has cooperated with the manufacturer to help determine the cause." T-Mobile also supplied Munford with another wireless phone.
Bogus cell phone batteries, shoddily made and potentially unsafe, are a specialty of counterfeiters. "It's one thing to buy a fake $30 Louis Vuitton bag on Canal Street in New York City. It's an entirely different matter when you buy a fake cell phone battery and it blows up," says Arch Ahern, Motorola's senior counsel for trademark and marketing. He says Motorola works with authorities around the world to seize millions of dollars' worth of counterfeit Motorola batteries each year. (See "Countering the Counterfeiters," for tips on avoiding fake goods.)
Besides endangering users, counterfeit products may perform poorly, corrupt a computer's data, or just plain not work.
And batteries aren't the only tech item that counterfeiters love. In October 2004, U.S. Customs and Border Protection officials in Anchorage, Alaska, seized 20,000 suspected fake Memorex USB memory key thumb drives from Asia. And last year, Miami officials seized 900 allegedly phony laptops valued at $700,000.
"Maybe it's a laptop, an MP3 player, or a component like a DVD drive--anything in the digital world can be counterfeited," says Therese Randazzo, a U.S. Customs Service counterfeiting expert. Fake software is rampant, too: As much as a third of the money spent on packaged software globally may go for counterfeits, say analysts. For more on this issue, see "Pirates Menace the Software Seas."
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To discover how prevalent counterfeit high-tech parts have become in the United States, PC World purchased seven hard drives, seven memory modules, and ten cell phone batteries online, using pricing search engines to find low prices. We then asked vendors to authenticate the gear. Of the two dozen products we bought, four (all cell phone batteries) were counterfeit. We also received at least one old or refurbished product masquerading as new, got one broken drive, and in a few cases ordered a specific brand but received a cheaper brand in its place. Worse, our reporter had his credit card number stolen and misused multiple times during the course of researching this story. Ultimately, only 15 of the 24 items we bought turned out to be exactly as advertised.
One fake, labeled as a Nokia BL-5C battery, came from a Web site called Genuine Cellular Accessories, which is based in Niland, California. Store manager George Heras says he had no inkling the battery he bought from a California distributor was phony. He declines to name the distributor. "We are careful who we buy [parts] from, but generally we look for the most competitive prices," he says.
Nokia includes a holographic seal of authenticity on its batteries, along with a blacked-out area users can scratch off to reveal a serial number they can check online. Our unit had such a seal, but when we scratched off the covering to verify its number, nothing was underneath. Nokia confirmed that the battery was a counterfeit. The company also identified a second battery we purchased as counterfeit; that one's source is still under investigation.
Motorola verified that a battery bearing its logo, which we bought from SimonCells.com, a Brooklyn, New York-based site, was fake, too. SimonCells.com's Sam Neuman says he did not know the battery was phony. He says he got it from Los Angeles-based distributor AA Wireless.
AA Wireless says it has no idea where this battery came from. "They make counterfeits so good these days, you really can't tell what is fake or real anymore," says AA Wireless vice president Frank Nozar. He stresses that AA Wireless inspects items it buys from distributors before selling them.
Kyocera also confirmed that a battery we sent for testing was counterfeit; we agreed not to reveal the source of that battery due to an ongoing investigation.
Sizing Up the Damage
Up to 10 percent of all high-tech products sold worldwide are phony, according to the Alliance for Gray Market and Counterfeit Abatement (AGMA), a trade association composed of high-tech firms. Printers, laptops, cell phones, and components such as memory chips and integrated circuits are the types of hardware most frequently counterfeited. Such knockoffs cost manufacturers $100 billion annually in lost sales, according to the AGMA.
A look at recent U.S. Customs and Border Protection seizures gives some idea of the problem's scope in the United States: Three of the top ten items that Customs agents seized in 2004 were consumer electronics, batteries, and computer hardware, according to U.S. Customs statistics. Although some of those seizures resulted from import law violations, the majority involve counterfeit goods, according to Customs agents.
U.S. Customs' Randazzo says the value of seized tech goods more than doubled between 2004 and 2005. The fakes ranged from PC components (such as hard drives and keyboards) to entire systems. Also on the rise: seizures of networking hardware.
In fiscal year 2004, at the port of Anchorage, items that violated intellectual-property rights accounted for 80 percent of all goods seized, says Lance Robinson, assistant area port director of trade operation; high-tech gear made up 20 percent of that contraband. That figure puts counterfeit gear on a par with the volume of illicit drugs Anchorage Customs hauled in during the same period.
In certain parts of the world--including some Asian nations--finding real brand-name goods is harder than locating bogus ones, says Jorge Barahona, a private investigator hired by U.S. tech firms to protect their brands outside the United States.
In many cases the counterfeiters don't make the phony hardware themselves. Instead, they take a legitimate but inexpensive hard drive or memory module from an undistinguished maker, slap on the label of a better-known firm, and charge a premium rate. Woody Taylor, who uncovers counterfeits for Seagate, says hard drives made by little-known companies and rebranded as Seagate models make up the bulk of the hundreds of phony Seagate drives he sees each year.
According to numerous experts, counterfeits may also come from manufacturers that have a legitimate contract with a brand-name company but make products containing unauthorized or substandard parts. For example, Kyocera Wireless asserts that it had this problem with Texas-based Hecmma, a company Kyocera hired to make some of its cell phone batteries. Kyocera subsequently filed suit against Hecmma in the U.S. District Court of the Southern District of California, claiming that batteries made by Hecmma were defective and prone to overheating, and that Hecmma sold excess substandard batteries bearing the Kyocera name to distributors after Kyocera stopped its order.
In its own court filing, Hecmma strongly denies these charges, arguing that it is the assembler--not the manufacturer--of the batteries, and that problems with components are thus beyond its control.
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.
Regardless of where a fake comes from, you probably won't know it's bogus until you try to get the nominal maker to service it. In one case, customers bought what they thought was high-performance PC RAM from OCZ Technology several years ago; it turned out to be an inferior phony product bearing the OCZ label.
According to Alex Mei, vice president of marketing for OCZ, the counterfeit memory led to freezes, crashes, or PCs that wouldn't start. OCZ traced the illegitimate memory to an online store and demanded that the store stop selling the fakes.
Though OCZ had no legal obligation to do so, it sent replacement RAM to many of the victims who had complained about the bogus modules; the complaints were dealt with case-by-case, Mei says.
OCZ's generous response is the exception, not the rule: Consumers have no legal recourse with the legitimate brand-name manufacturer; instead, they must try to get their money back from the store where they purchased the phony goods.
Many vendors state that the company's warranty doesn't cover bogus goods; others deal with each return separately. If you innocently obtain a fake copy of Windows, you may qualify for a legitimate replacement from Microsoft: Visit www.microsoft.com/genuine to find out more or to file a report if a seller is unhelpful when you try to return a suspect product.
Vendors such as HP, Kingston, and Motorola say they usually learn about counterfeiting problems as a result of consumer complaints like the ones OCZ received. Given the international scope of the problem, that's unlikely to change. Good bargains do exist: Most of the low-cost merchandise PC World bought for this story worked and was genuine. But your best safeguard against phony hardware is to shop skeptically.
Shopping Tips: Countering the Counterfeiters
Rock-bottom prices on brand-name technology gear may net you no real bargains. Unless you're careful you might get stuck with an unreliable product. Distinguishing the knockoffs from the genuine article is tricky, but here are some shopping tips, along with a few indicators that should raise red flags when you're hunting for good deals.
1. Be careful where you buy: To find a trusted reseller online or at a brick-and-mortar location near you, visit the product manufacturer's Web site. There, in many cases, you can find a complete list of authorized, legitimate dealers.
2. Avoid too-good-to-be-true pricing: Before you buy, find out the price that major sellers or the manufacturer charges for the product. Pricing can be competitive online, but there are limits. For example, PC World bought the counterfeit Nokia battery for less than half what the real one cost at authorized dealers. Such deep discounts are unlikely to be legitimate. Also, some dealers do a bait and switch: You think you're purchasing one set of parts--say, Micron memory--but the dealer sends you an obscure or less-costly (to the retailer) brand instead.
3. Pay attention to performance problems: Counterfeit computer memory can lead to PC system freezes or crashes. Fake inkjet cartridges may produce substandard printouts, have a shorter-than-expected life span, and leak all over the inside of your printer. A bogus cell phone battery may overheat, yield reduced airtime, or even explode. Make sure the product meets your PC's required specs before you buy, and keep track of your device's performance before and after the new purchase; if it isn't performing properly, demand your money back.
4. Check with vendors: Visit the vendor's Web site to see if it has an authentication program through which you can check serial numbers and the like to verify your product's legitimacy. For example, Nokia batteries have a holographic logo and a hidden serial number that customers can uncover and then look up online or via text message; Kingston offers a similar online verification method, where you type in the serial number of a suspect memory module to investigate it.
5. Beware of auctions: Many auction sites offer very competitive prices, but some may sell fake merchandise. Check seller ratings carefully, and consult with the Better Business Bureau to research sellers that operate storefronts at auction sites like eBay.
Consumer Alert: Pirates Menace the Software Seas
Pirates aren't just raking in the dough from hardware sales--illegitimate software provides a large chunk of income as well. Global spending on counterfeit, packaged PC software in 2004 was about $31 billion, according to a May 2005 global software piracy study conducted by research firm IDC and the Business Software Alliance. IDC estimates that in 2004, 35 percent of the software installed on PCs worldwide was pirated. Microsoft estimates that more than 192,000 copies of pirated Microsoft software, valued at $134 million, have been seized in the United States alone in the past 12 months.
Such bogus products can leave users with nasty surprises: Besides missing out on updates, tech support, and upgrade discounts, users may run into problems with corrupted data or malfunctioning systems. Pirated software may contain viruses too, says Samantha Kandah, group manager for antipiracy at Adobe Systems. And buying such products may subject users to financial fraud: Kurt Kolb, Microsoft vice president of system builder and license compliance, notes that credit cards used to buy pirated Microsoft goods have in some cases been reused for online theft.
Most U.S. consumers receive a plethora of counterfeit software offers daily via e-mail spam. The vast majority of consumers shy away from spam offers, says John Wolfe, investigations manager for the Business Software Alliance, but many buy dubious items from online auctions and never realize they're getting fakes. Worse, online storefronts hawking pirated software now look so professional that it's tough for buyers to tell real from fake, he says. Nearly 40 percent of software sold online may be counterfeits or illegally made copies, according to the BSA.
For Adobe products, a discount of more than 20 percent off the manufacturer's standard retail price (not counting Adobe rebates) is a likely sign of fraud, according to the company's Kandah.
You may even find illegitimate software at a retail store, says Wolfe. "The big counterfeit operations want to get it into the legitimate distribution channels," he observes. Unfortunately, consumers usually won't know a product is fake until they open the box--and perhaps not even then. If you see a paper label on the software CD, you can be fairly sure it's bogus: Today's original discs have the writing imprinted on them, Wolfe explains. Otherwise, it may be difficult to tell.
Be suspicious of any software marketed as a "backup copy" or as a compilation disc of multiple programs. After buying, make sure to seek mention of proof of authenticity, such as licensing and warranty documentation. (Download more safe-shopping tips.)