Devices are connected to your computer using a serial port. Such devices include keyboards, mice, flash drives, printers, your iPhone, and so on. The original serial port standard called RS232 was created in 1962. It got faster over the years (75-bps to 115-kbps), but ultimately, the technology became obsolete.
USB standard. Not only is USB faster (a million times so), it's more complex and smarter. The initials stand for "Universal Serial Bus", and it truly is universal. Not only does your laptop have USB ports on the outside for connecting to things like flash drives, it interconnects much of the things on the inside of your computer, such as your keyboard, Bluetooth, SD card reader, and camera.
What FTDI sells is a chip that converts between the old RS232 and the new USB. It allows old devices to be connected to modern computers. Even new devices come with RS232 instead of USB simply because it's simple and reliable.
The FTDI chip is a simple devices that goes for about $2. While there are competitors (such as Silicon Labs), FTDI is by far the most popular vendor of RS232-to-USB converters. This $2 may sound cheap, but relatively expensive for small devices which cost less than $50. That $2 is often greater than the profit margin on the entire device. Therefore, device manufacturers have a strong incentive to find cheaper alternatives.
That's where clones come in. While the FTDI sells them for $2, the raw chips cost only pennies to manufacture. Clone chips are similarly cheap to manufacture, and can be sold for a fraction of FTDI's price. On Alibaba, people are advertising "real" FTDI chips for between $0.10 and $1 apiece, with the FTDI logo on the outside and everything. They are, of course, conterfeits.
FTDI is understandably upset about this. They have to sell millions of chips to make back development and support costs, which they can't do with clones undercutting them.
FTDI's strategy was to release a driver update that intentionally disabled the clone chips. Hardware devices in a computer need software drivers to operate. Clone chips use the same drivers from FTDI. Therefore, FTDI put code in their software that attacked the clones, disabling them. The latest FTDI driver through Windows Update contains this exploit. If your computer automatically updates itself, it may have downloaded this new driver.
Every USB devices comes with a vendor identifier (VID) and a product identifier (PID). It's these two numbers that tells operating systems like Windows or Linux which driver to load. What FTDI did was reprogram these numbers to zero. This, in effect, ruined the devices. From that point on, they can no longer be recognized, either by FTDI's driver or any other. In theory, somebody could write software that reprogrammed them back to the original settings, but for the moment, they are bricked (meaning, the hardware is no more useful than a brick).
This can have a devastating effect. One place that uses RS232 heavily is industrial control systems, the sort of thing that controls the power grid. This means installing the latest Windows update on one of these computers could mean blacking out an entire city.
FTDI's actions are unprecedented. Never before has a company released a driver that deliberately damages hardware. Bad driver updates are common. Counterfeits aren't perfect clones, therefore a new driver may fail to work properly, either intentionally or unintentionally. In such cases, users can simply go back to the older, working driver. But when FTDI changes the hardware, the old drivers won't work either.. Because the VID/PIDs have been reprogrammed, the operating system can no longer figure out which drives to load for the device..
Many people have gotten upset over this, but it's a complex debate.
One might think that the evil buyers of counterfeits are getting what they deserve. After all, satellite TV providers have been known to brick counterfeit access cards. But there is a difference. Buyers of satellite cards know they are breaking the rules, whereas buyers of devices containing counterfeit chips don't. Most don't know what chips are inside a device. Indeed, many times even the manufacturers don't know the chips are counterfeit.
On the other hand, ignorance of the law is no excuse. Customers buying devices with clone chips harm FTDI whether they know it or not. They have the responsibility to buy from reputable vendors. It's not FTDI's fault that the eventual end customer chose poorly.
It rankles that FTDI would charge $2 for a chip that costs maybe $0.02 to manufacturer, but it costs money to develop such chips. It likewise costs money to maintain software drivers for over 20 operating systems, ranging from Windows to Linux to VxWorks. It can easily cost $2 million for all this work, while selling only one million chips. If companies like FTDI cannot get a return on their investment in RND, then there will be a lot less RND -- and that will hurt all of us.
One way to protect RND investment is draconian intellectual-property laws. Right now, such laws are are a cure that's worse than the disease. The alternative to bad laws is to encourage companies like FTDI to protect themselves. What FTDI did is bad, but at least nobody held a gun to anybody's head.
Counterfeits have another problem: they are dangerous. From nuclear control systems to airplane navigation systems to medical equipment, electronics are used in places where failure costs human lives. These systems are validated using the real chips. Replacing them with counterfeits can lead to human lives lost. However, counterfeit chips have been widespread for decades with no documented loss of life, so this danger is so far purely theoretical.
Separate from the counterfeit issue is the software update issue. In the last decade we've learned that software is dynamic. It must be updated on a regular basis. You can't deploy a device and expect it to run unmodified for years. That's because hackers regularly find flaws in software, even simple drivers, so they must be patched to prevent hacker intrusions. Many industries, such as medical devices and industrial control systems, are struggling with this concept, putting lives at risk due to hackers because they are unwilling to put lives at (lesser) risk when changing software. They need more trust in the software update process. However, this action by FTDI has threatened that trust.
As a typical Libertarian, I simultaneously appreciate the value of protecting RND investments while hating the current draconian government regime of intellectual property protection. Therefore, I support FTDI's actions. On the other hand, this isn't full support -- there are problems with their actions.
Update: As Jose Nazario points out, when Microsoft used Windows Update to disable pirated copies of WinXP, pirates stopped updating to fix security flaws. This resulted in hackers breaking into desktops all over the Internet, endangering the rest of us. Trust in updates is a big thing.
@ErrataRob what happened then - "WGA will disable your pirated windows" - is ppl didn't update, including security patches. (tbc again)
— jnazario (@jnazario) October 28, 2014