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December 22, 2003 01:00 AM

Parts counterfeiters getting bolder

Sherri Begin
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    -Automotive parts counterfeiters are getting bolder and more pervasive, causing increasing problems for traditional suppliers of the components.

    Counterfeiting costs the global automotive industry a reported $12 billion annually-$3 billion in the U.S. alone-and about 750,000 jobs, according to the Motor & Equipment Manufacturers Association (MEMA). This contributes to safety risks, inferior quality or performance, lost sales and damage to a brand's reputation for vehicle and component makers alike, the association claimed.

    Tenneco Automotive Inc., for example, seized allegedly counterfeit parts on display by four separate foreign companies at the recent Automotive Aftermarket Products Expo in Las Vegas.

    The issue mainly affects aftermarket parts for the passenger and heavy-duty vehicle segments, but it's also making its way into the original equipment parts sector as car makers migrate to China, suppliers say.

    Counterfeiting is the theft of the goodwill associated with a trademark, said Sharon R. Barner, chairperson of the intellectual property litigation practice at Foley & Lardner Global Partnership. There's no law prohibiting a company's competitors from copying a product as long as there's no confusion about the source. But using a trademark to confuse the consumer and present their products ``as the real McCoy'' is not fair competition, she said. ``It's trading on someone else's mark and goodwill.''

    China is the primary source of counterfeit products, accounting for 70 percent of the $98 million worth of goods seized in the U.S. last year, Ms. Barner said. But the booming country is not the only source.

    Federal-Mogul Corp., which inherited a slew of counterfeiting problems with its acquisition of T&N P.L.C., is monitoring about 50 cases worldwide, including in Asia, Northern Africa, the Middle East, eastern Europe, South America and the Caribbean, said Jon Shackelford, patent counsel for the supplier.

    A firm used to be able to scan a region for counterfeit activity by checking for underpriced products, said Tom Strohm, general director of marketing for General Motors Corp.'s ACDelco division. But counterfeiters are getting more sophisticated, ``raising their price points so they don't stick out like a sore thumb.''

    Counterfeiters also are growing bolder.

    One that had knocked off parts originally made by lighting producer Electronic Controls Co. was brazen enough to display them as their own at a trade show in the U.S., said Ed Zimmer, president and CEO.

    Another company in Pakistan was attempting to register Federal-Mogul's trademarks and get injunctions against the supplier, prohibiting it from making its own products, Mr. Shackelford said. And still another bragged about its expertise in copying Hella North America Inc.'s processes as well as its components and then proposed a joint venture with Hella, said Jason Bonin, Hella's vice president of business development and lighting technology.

    It is difficult for a manufacturer to get a grasp on the issue as it affects its own operations, but that is a vital first step, suppliers said during an October conference on the subject, organized by the Original Equipment Suppliers Association and sponsored by Foley & Lardner.

    Auto makers like GM and Ford Motor Co. long have dedicated resources to combating counterfeit operations. GM has conducted more than 475 raids, Mr. Strohm said. That's led to the breakup of nearly 400 counterfeiting schemes and the seizure and destruction of $180 million worth of counterfeit goods. But the true costs are on the brand equity side, he said, and in the safety hazards caused by things like brake shoe linings made from wood chips, cardboard, sawdust and grass.

    It's important for manufacturers to ``plug in,'' he said. ``If you have a recognized brand in the marketplace, you're a target.''

    Parts makers like Federal-Mogul, Freudenberg-NOK G.P. and Mark IV Automotive Inc. are forming task teams to locate and stop counterfeiting.

    Identifying and stopping counterfeiters takes an organized effort, Mr. Shackelford said. Manufacturers need to preselect attorneys in problem regions and give them official power of attorney to avoid delays in raiding alleged counterfeiting operations, he said, adding that they also should register their trademarks and brands in all problem countries and use them consistently to make identifying problems easier.

    But trademark registration takes time, said Susan McFee, trademark counsel for Ford Global Technologies L.L.C. The fastest she was ever able to get one was in 18 months, ``and that was at a good clip.'' Suppliers should consider that with the launch of new products in other countries, she advised.

    It also is important for manufacturers to monitor their suppliers or partners in foreign places, said Michael Hathaway, a partner with Nathan Associates Inc. A company inadvertently can contribute to counterfeiting by not closely monitoring all production shifts at the operations of its foreign partners or vendors.

    ``As people look for lower-cost places to manufacture, that increases intelligence and the ability to compete there,'' said Ronald W. Wangerow, intellectual property counsel for Freudenberg-NOK.

    While many manufacturers see counterfeit products aimed at their replacement market offerings, Mark IV is battling the problem in the OE market. ``Of concern to us is we've seen our (customers) go over to (offshore) markets and source components that are counterfeit parts of our own,'' said Dan Engler, vice president of supply management, engineering and product development.

    The questionable parts are exact duplicates of the tensioners Mark IV produces, he said.

    ``We're having very sensitive discussions with our customer right now,'' Mr. Engler said. ``We are assessing the ethical, confidentiality and infringement issues.''

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