Technology: The True Cost Of High Tech Counterfeits

The most obvious impact of counterfeit high-tech goods might not be the most serious issue emanating from the current flood of fakes. Undoubtedly, fakes hurt the companies that developed and marketed the products in the first place, and estimates of the financial impact of intellectual property theft are hard to calculate. If losses in the U.S. total $250 billion a year (which experts believe is a conservative number), then the piracy also seriously hurts the economy, costing some 700,000 jobs in the U.S. alone. In addition, the government loses millions of dollars in legitimate taxes. This hurts us all in various ways – directly and indirectly. However, the high cost of counterfeiting does not stop there.

Most of us pay serious attention to preventing identity theft and attacks by cyber thieves. However, counterfeiting is another insidious way thieves can gain access to confidential data through pre-infected devices: USB memory sticks, GPS systems and other common plug-and-play components. This has been a matter of concern for major companies and government institutions for years, following incidents including the failure of interface cards in a financial network and disruptions to some government weather monitoring systems. These situations – and others – were discovered to be triggered by counterfeit software and hardware. In the war against cyber terrorism, authorities are aware of the wide-scale problems that could result from access opportunities created by counterfeit replacement parts.  

If major institutions have been waylaid by fakes, what can individual business owners do to protect their data? Some basic precautions will go a long way toward averting problems. Here are some pointers:

1. If the price of software or hardware parts seems too good to be true, it probably is. Rock-bottom prices should be a red flag. Don’t risk your business for the sake of a few dollars.
2. Counterfeit goods have a very high risk of failure, and faulty network hardware can be time-consuming and costly to fix.
3. Counterfeiting is big business – and growing fast. Many counterfeits are sold through well-known secondary channels. If you buy outside a vendor’s authorized distribution network, you are much more likely to end up with counterfeit goods.
4. Fakes exist throughout the high-tech industry. Counterfeiters don’t just produce major equipment, such as smart phones and hardware components. They also make ink cartridges and the other less costly supplies that you purchase more often.
5. Protection measures are in place for your benefit. Use them. Many manufacturers provide web-based serial number verification, as well as verification of authorized resellers and software products. Most authorized dealers are prohibited (by their contractual commitments to manufacturers) from participating in online auctions or other types of Internet-based bargain venues.
6. Counterfeiting is a worldwide problem. China is a significant contributor to this global problem, but other Asian countries, Eastern European nations and South American countries are also players. African nations are frequently major distribution points for fakes made elsewhere.

Counterfeiters cheat manufacturers and vendors and hurt the global economy and job creation. Fakes can undermine a business’ technology infrastructure, corrupt information systems and even launch viruses and malware. But counterfeiting is a problem with a solution, if we all take the right precautions when shopping for technology products.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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