Trade Agreement Could Reduce Chip Counterfeiting

The planned international trade agreement to fight piracy and counterfeiting could help reduce the distribution of fake semiconductors, analysts said Wednesday.

The U.S. Trade Representative on Tuesday announced that the U.S., European Union and other countries will negotiate to establish the Anti-Counterfeiting Trade Agreement (ACTA), which will encourage countries to follow intellectual-property rights established by the World Trade Organization and other global trade groups. The discussions will focus on better international cooperation, best practices and the establishment of a legal framework to protect intellectual-property rights.

ACTA is needed to tackle the proliferation of intellectual-property infringements and to reduce the distribution of counterfeit items, the European Commission said in a study released Tuesday. More than 130 million counterfeit items were seized in 2006.

Companies are already taking losses from counterfeit chips, so cracking down on piracy and counterfeiting will ensure reliable electronics and more savings, analysts said.

Effective anticounterfeiting measures will ensure electronics contain genuine semiconductors and deliver full performance and reliability, said the Semiconductor Industry Association (SIA) in a statement, lauding the ACTA announcement. SIA already has its own measures to combat semiconductor counterfeiting, SIA said.

Semiconductor counterfeiting revolves around replacing labels, said Daryl Hatano, vice president of public policy at the SIA. Semiconductor labels could be changed by counterfeiters to indicate a different brand or better performance, which could affect devices, Hatano said.

"If there's one bad chip, it can cause the failure of the computer," Hatano said. People who buy counterfeit chips could lose money too by overpaying for fake chips, Hatano said.

Cases of counterfeit semiconductors in distribution has increased over the years, though SIA couldn't provide numbers. SIA is already working with the U.S. government to combat semiconductor counterfeiting, Hatano said.

Counterfeit chips could affect research and development of semiconductor companies, said Jim Handy, an analyst with research firm Objective Analysis. Losses from fake chips cause semiconductor companies to tap into research and development budgets, a move that affects the development of future technologies, Handy said.

Many cases of counterfeit semiconductors originate from China, which lacks strong intellectual-property enforcement laws, Handy said. Chinese courts tend to support local companies in patent-infringement cases, Handy said.

International treaties need to be written in such a way that Chinese courts are motivated to be unbiased, Handy said.

The trade agreement is not about ganging up against China or other countries that are not part of the group, the Commission said in its study. Countries are invited to join the initiative for "stronger enforcement to deal with the challenges of piracy and counterfeiting today," the Commission said.

The U.S. will engage in trade agreement discussions Canada, the E.U., Japan, South Korea, Mexico, New Zealand and Switzerland, U.S. Trade Representative Susan Schwab said.

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