Counterfeit parts pose safety risks along with cutting into business success

Oct. 6, 2019
Dan Ingber, SEMA's Washington, D.C.-based vice president of government and legal affairs, discusses the industry impact of counterfeit auto parts.

Prior to joining the Specialty Equipment Market Association (SEMA) in 2016 as the organization’s Washington, D.C.-based vice president of government and legal affairs, Daniel Ingber served as litigation counsel for Feld Entertainment Inc., working on numerous issues related to its Monster Jam Monster Truck business unit.

He received his undergraduate degree from the University of Pennsylvania, earned a masters from Johns Hopkins and his law degree from the University of Chicago. In addition to his varied employment in the business world, he also served as a law clerk with the U.S. Court of Appeals for the Seventh Circuit.

Responding to questions posed by Aftermarket Business World, Ingber recently discussed the industry impact of counterfeit auto parts:

What are some of the key takeaway points on this issue, and how do they it relate to establishing an exporting presence in the industry?

SEMA is committed to helping member companies grow their businesses through various channels. As automotive customization grows throughout the world, exporting can be a great way to members to expand their markets. SEMA offers information and resources to help members determine if exporting is right for their business. Providing information and resources that help SEMA member companies export their products is a high priority for SEMA.

Why should a parts distributor or retailer be concerned about counterfeit auto parts? Why does it matter if a counterfeit part looks the same and safely performs (fit, form and function) on the vehicle, yet is cheaper in price?

Counterfeit products are fake goods meant to imitate authentic parts. They usually have fake company logos so that the good looks the same as the genuine product, but they are generally of much lower quality, so safety becomes an issue. It is in the best interest of the distributor, retailer and customer to only use authentic products.

It is useful to distinguish between “counterfeit” and “knock-off” parts. As described, counterfeit products are outright illegal, deceiving individuals that it is the real good. Knock-offs imitate the physical appearance of another product but are sold under a different brand name or logo. Whether they are legal or illegal generally depends on whether they are distinguishably different from the original product under trademark laws so as not to cause consumer confusion, or infringe on a patent or copyright holder’s rights.

Why should a repair shop owner be concerned about counterfeit parts? Why does it matter if a counterfeit part looks the same and safely performs (fit, form and function) on the vehicle, yet is cheaper in price?

The premise that counterfeit products perform safely is incorrect. It is not known what materials were used to produce the part. The part could include toxic elements including lead and it was probably not tested for durability or compliance with any safety standards. Why would a shop owner or consumer assume that a fake product is safe?

How can a distributor or retailer spot/protect himself or herself from purchasing counterfeit parts?

There are many tips for spotting counterfeit products. Here are a few:

  • Distributors, retailers and repair shop owners should purchase products through authorized channels of distribution.
  • Don’t purchase from an untrusted or dubious website.
  • If the price seems too good to be true, it is probably fraudulent.
  • Examine for product labeling or packaging errors: typos, different typing font or colors, missing warranty information, etc.
  • Watch for missing safety seals.
  • Confirm authenticity of manufacturer’s contact information on packaging.
  • Look for missing sales tax charges (since counterfeiters don’t usually register and report sales to state authorities).
  • Only make purchases using secure transactions.
  • Identify the source country. For example, it is estimated that over 63 percent of counterfeit goods in the U.S., European Union and Japan were exported from China.

What types of services do you provide related to counterfeit auto parts?

Protecting intellectual property (IP) rights (IPR) has always been a high priority for SEMA and the organization provides companies with a variety of tools to achieve that goal. SEMA seeks to educate its members on the importance of safeguarding intellectual property through patents, trademarks or copyrights.

SEMA has published guides explaining IP fundamentals and the need to register IP rights with the government (www.sema.org/ipr). SEMA has provided numerous seminars and webinars on the topic, sponsored free one-on-one meetings with IP experts at the SEMA Show, and provides attorney referrals upon request.

SEMA has an extensive policy for enforcing IP rights at the SEMA Show: https://www.semashow.com/sites/default/files/pdfs/property-rights.pdf

Are you contacted by manufacturers concerned that their parts are being counterfeited?

Yes, SEMA has been alerted when manufacturers become aware of counterfeiting activities.  SEMA has sought to assist, including connecting members with the FBI or other law enforcement officials.

How do counterfeit parts typically fare in meeting manufacturer fit, form and function standards?

Counterfeit products are fake products. SEMA is only interested in taking them out of the marketplace. Besides being a potential safety risk, counterfeit products cost the U.S. auto parts industry lost sales and jobs.

How common are counterfeit auto parts across the globe? Is it especially bad in certain countries?

The Organisation for Economic Co-operation and Development (OECD) is an international group that seeks to help governments shape fair trade policies to foster prosperity, equality and opportunity. As of 2016, the OECD estimated that the trade in counterfeit goods was about half a trillion dollars a year, or around 2.5 percent of global imports. China accounted for 63 percent of fake goods.

Fake products span a variety of commodities, from watches, handbags and perfumes to toys and pharmaceuticals. The categories of fake goods include auto parts of all different types.  They range from airbags to spark plugs, oil and air filters, brake pads, gauges and ignition boxes and more.

Does the “counterfeit” realm also include large shipments/amounts of stolen parts set to be sold to unsuspecting buyers? Or does it just entail fakes that are produced?

It is primarily newly produced fake products.

Are there certain types of parts that are counterfeited more often than others?

The type of parts is only limited by the ability of counterfeiters to make a profit.

Is most counterfeiting done by small operators in a decrepit garage located down a back alley? Or are there large factories that do this?

Most counterfeit products are manufactured overseas in factories. U.S. and international law enforcement have been consistently warning about an increase in counterfeit auto parts along with most other commodity sectors.

In 2016, Robert C. Hutchinson, acting special agent in charge at the U.S. Immigration and Customs Enforcement's Homeland Security Investigations Miami field office noted: “The whole car, every part of the car, can be counterfeited.  Our customs fraud group leads the nation in these investigations."  https://www.local10.com/consumer/call-christina/feds-warn-of-counterfeit-auto-parts

International Chamber of Commerce’s (ICC) Business Action to Stop Counterfeiting and Piracy (BASCAP) has monitored the program and published an alert: https://www.worldtrademarkreview.com/anti-counterfeiting/counterfeit-automotive-parts-increasingly-putting-consumer-safety-risk

Are there particular nations that are known for producing counterfeit auto parts?

The U.S. Trade Representative (USTR) serves as a clearinghouse for tracking IP rights and working with foreign governments to provide adequate and effective protection. Each year, the USTR asks U.S. industry to assist in identifying problems, and then publishes a special report.  The most recent report compiles data for 2018 and places China, India, Indonesia, Columbia and several other countries on the priority watch list.

With respect to China, the U.S. is currently seeking to negotiate a trade agreement to address market access to U.S. goods, additional protection of IP rights, cybertheft, and the forced transfer of U.S. company IP to Chinese companies or the government.

https://ustr.gov/sites/default/files/files/Press/Reports/2018%20Special%20301.pdf

Do governments actually get involved in counterfeiting? Or does government involvement mostly entail just looking the other way?

Many years ago, manufacturers, trade associations and the U.S. government sought to establish an ongoing partnership to combat counterfeiting. Creating a line of communications was one key for identifying problems and pursuing enforcement in the U.S. and globally.

The National Intellectual Property Rights Coordination Center (https://www.iprcenter.gov/) serves as a clearinghouse for connecting all of the U.S. government agencies and for helping connect government/business community. These government resources include the Office of Intellectual Property Rights within the U.S. Department of Commerce, FBI, U.S. Customs and Border Security, and U.S. Trade Representative.

The IPR Center operates the “stopfakes.gov” website, a one-stop resource for IPR information and assistance: https://www.stopfakes.gov. In 2017, more than 11 million maritime containers arrived at U.S. seaports, with another 10 million arriving by truck and 3 million by rail. This did not include the estimated 250 million packages that arrived through air travel. Monitoring shipments for IPR infringement and pursuing enforcement requires dedicated resources and collaboration.

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