SANTA CLARA, CA, March 18 -- Theft of high tech products and components from U.S. manufacturers and their customers could top more than $5 billion annually in direct and indirect costs, according to the results of a RAND study commissioned by the American Electronics Association (AEA) and the International Electronics Security Group (IESG).

The two-year study, released today, estimates that direct losses resulting from theft from high tech manufacturers and distributors amount to some $250 million per year. Indirect costs, such as lost business and added security and insurance needs, raise the total to more than $1 billion. Finally, theft of high tech products from the industry's customers could cost another $4 billion, bringing the total estimated loss to over $5 billion annually.

The researchers surveyed 95 high tech manufacturers that collectively account for 40 percent of the sales volume in the computer, semiconductor, hard disk drive and cellular phone industries. They also conducted in-depth interviews with numerous firms and law enforcement officials and utilized advanced analytical techniques to project estimates for the entire industry and to assess the likely magnitude of indirect costs.

William T. Archey, AEA President and CEO, said, "The results of this study finally provides AEA member companies, the high tech community and public policy officials with a valid estimate of the severity of the problem. Until now, the dimensions of high tech theft were largely guesswork arrived at anecdotally. The RAND results provide us not only with an accurate sizing of the problem, but with recommendations on policy actions that might be considered."

In California, legislation has been introduced to enhance the development and operations of the state-wide and regional high tech crime task forces (SB 157-Johnston) and to strengthen the prosecution of high tech crimes (AB 154-Cunneen).

John O'Loughlin, Director of Security, Sun Microsystems, Inc., stated, "Significantly, RAND found that beefing up private sector security efforts truly helps. Participating companies investing in improved security measures had dramatic declines in total theft losses. In fact, the study group's 1996 losses of more than $80 million fell by nearly 75 percent in 1997 after investments were made in more effective security measures."

James N. Dertouzos, the senior RAND economist who led the study, observed: "Our findings are apt to be conservative because there are many types of cost, such as warranty fraud and disruption of business, that we did not attempt to quantify."

Dertouzos also noted that a large part of the total cost of high tech theft is not borne by the victimized firms but is passed on to other firms and customers. "This demands a larger role for collective action on the part of the industry and the public sector," he said. Examples include collaborative efforts focusing on standards for shipping freight; methods that would help identify and disable stolen property; and additional information exchanges between industry and law enforcement agencies.

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Advancing the business of technology, AeA is the nation's largest high-tech trade association. AeA has more than 3,500 member companies that span the high-technology spectrum, from software, semiconductors and computers to Internet technology, advanced electronics and telecommunications systems and services. With 18 regional U.S. councils and offices in Brussels and Beijing, AeA offers a unique global policy grassroots capability and a wide portfolio of valuable business services and products for the high-tech industry. AeA has been the accepted voice of the U.S. technology community since 1943.

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