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Intel files counterfeit chip suit

The suit against an alleged racket claims Intel's chips have been tampered with and stamped with false speed ratings before being sold at higher prices.

Chip behemoth Intel today filed suit and won a restraining order against an alleged racket that tampers with its microprocessors and stamps them with false speed ratings before selling them at higher prices.

Intel lawyers reportedly told Australian Federal Court Justice Brian Tamberlin that a "remarking" scheme involving Pentium and Pentium II chips originated in Asia and had spread to Australia. Since reports of fake chips first surfaced, fears of counterfeit proliferation have spread.

Angela Bowne, a lawyer for Intel and its Australian subsidiary, said that chips marked with a speed of 233 MHz, for example, had a faster speed such as 300 MHz put on them.

"Price is related to speed, and what the remarkers are doing is selling the lower speed at the higher price," the Associated Press quoted Bowne as saying.

Subsequently, Justice Tamerlin issued orders restraining Jerry Jiyan Huang, an individual trading as Australia Galaxy Electronics, and another company called Galas Electronics from receiving or dealing with the goods in a seized shipment. Neither party was represented in court.

The principal reason for the counterfeiting of Pentium II chips is the difference in price. In quantities of 1,000, 300-MHz Pentium II chips cost $375 per processor, while 266-MHz Pentium II chips cost $246 per processor, according to Intel.

An unscrupulous reseller can make money off the price difference if it takes chips designated as 266-MHz processors and then puts them into computers sold as 300-MHz boxes. Because both versions of the Pentium II are manufactured on the same silicon wafer, the lower-speed chips will run at a higher speed only for a limited time.

Bowne alleged the restrained individuals are trading in chips that have been altered by the removal of "pins" that act as speed governors, allowing the processor to run at a higher speed than originally intended by Intel. Intel cannot guarantee that the chips will work or that they won't damage the computer if they are run at the higher speeds, she said.

Tamberlin was told that a shipment of 300 microprocessors chips had been seized after Intel issued a notice asking Australian customs to look out for products which might infringe its trademarks. Customs officers were able to pinpoint suspicious shipments because Intel has only a limited number of authorized distributors in Australia, Bowne said.

Last month, Taiwan, under new threat of U.S. sanctions for intellectual property theft, seized nearly 1,000 counterfeit Intel Pentium chips worth "tens of millions" of Taiwan dollars.

Meanwhile, as fake and remarket Pentium chip distribution has grown, Intel and other software companies have devised ways to assist users in spotting the bogus processors.

For instance, suspicious PC owners who believe they may have been sold a fake 300-MHz Pentium II processor can run a simple test to find out whether they've been duped. The test, devised by German publication c't, indicates whether a system is running a 266- or 300-MHz Intel chip.

Intel is an investor in CNET: The Computer Network.

Reuters contributed to this report.