Beware the lure of cheap chips

Counterfeit microprocessors are on the market. Most counterfeit chips work, to a varying degree, so do purchasers and wholesalers...

Counterfeit microprocessors are on the market. Most counterfeit chips work, to a varying degree, so do purchasers and wholesalers need to worry? writes Stephen Reid.

A "counterfeit" article purports to be something that it is not. Normally, a trade mark belonging to one company is applied to chips not manufactured by that company. The advantage to the counterfeiter is the ability to sell something at a higher price than it would otherwise command. This often results in customers being supplied with a quality or specification that is lower than they expected.

From my experience advising on this, the chip makers are keen to enforce their legal rights and will work with private investigators to trace illegal sources if necessary.

There are many situations where chips are tampered with to artificially upgrade their performance. This "over-clocking" of chips will often result in their failure.

Even where the performance of a chip has not been tampered with, the customer is not getting what they bargained for. The chip is likely to be old, below specification, or of a cheaper make.

Using such chips could invalidate service or other warranties pertaining to the machine in which they are used. Selling such chips can also lead to civil and criminal legal liability.

Trade marks

Anyone selling or offering counterfeit chips will be guilty of trade mark infringement and will be open to legal proceedings commenced by the trade mark owner. A lack of knowledge about the counterfeit nature of the chips is irrelevant to liability.

If the seller can be shown to have known that the chips were counterfeit, they will be at risk of criminal prosecution by trading standards bodies and a face a fine or custodial sentence.

Patent infringement

If the maker of the genuine product owns relevant patents, keeping and selling the chips in the course of business could also amount to patent infringement, whether or not there has been trade mark infringement.

Damages will be payable once the infringer is on notice of the fact that the chips may infringe. Usually, the patent holder will concentrate on the main importer (assuming the counterfeit chips are made in the Far East) or large distributors. They may take steps to have goods detained by Customs & Excise.

Contractual liability

If you find that you have been sold counterfeit chips, there is legal recourse available. The seller of the chips will have breached the terms implied by law into the contract of sale that they have the right to sell you those goods and that you will enjoy "quiet possession".

Even if you have not yet been sued, you will still be able to make a claim against the seller on this basis.

Furthermore, if the sale was by reference to a brand (ie, you were offered "chips manufactured by brand X"), there is likely to have been a breach of the contract of sale, which will give you a right of action. However, many sales are by specification or by price only. In these circumstances it may be difficult to make a case.

Avoiding the problem

Identifying counterfeit chips can be difficult. They will normally be passable imitations of the real thing. However, two minutes spent on a close examination may reveal that all is not well.

The brand of the real manufacturer is likely to be found somewhere on the chip as it is often deemed too costly to erase. The circumstances of the sale may also indicate that the chips are not genuine. If a price seems too good to be true, it probably is.

In circumstances of doubt, a call to the alleged manufacturer should clarify matters. If it is essential that you obtain a certain brand of memory or processor, check with the manufacturer to identify authorised distribution routes.

Stephen Reid is a solicitor at City law firm Simmons & Simmons

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