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Auto brands must confront counterfeiting in China

In October 2012, the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) issued a consumer safety advisory to alert vehicle owners and repair professionals to the dangers of counterfeit airbags. NHTSA had become aware of problems ranging from non-deployment to expulsion of metal shrapnel during deployment. The airbags look nearly identical to certified … Continued

In October 2012, the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) issued a consumer safety advisory to alert vehicle owners and repair professionals to the dangers of counterfeit airbags.

NHTSA had become aware of problems ranging from non-deployment to expulsion of metal shrapnel during deployment. The airbags look nearly identical to certified original parts, with leading manufacturers’ branding marks.

The move follows police seizing nearly 1,600 counterfeit airbags from a North Carolina mechanic in August 2012: a counterfeit automotive parts ring was buying fake airbags from a plant in China, where the bags were sold for a fraction of the usual cost. In the first nine months of 2012, US Immigration and Customs Enforcement was reported to have seized around 2,500 counterfeit airbags.

It is this lack of political will in the Chinese provinces that is hindering national efforts to deliver a lasting defence against counterfeiters

Brand protection in China can be a very frustrating enterprise for brand owners, as the victims of Chinese counterfeiters, and for those professionals trying to help them by providing effective solutions. It is also frustrating for EU and US government officials trying to encourage China to overcome and remove everyday obstacles to the effective enforcement of trademark and design rights.

It is this lack of political will in the Chinese provinces that is hindering national efforts to deliver a lasting defence against counterfeiters. While the central government in Beijing has stepped up and improved intellectual property laws and guiding policies, everyday trademark enforcement and anti-counterfeiting actions are handled locally. In such a huge country, local enforcement authorities are usually physically very far from Beijing and are often inclined to serve local economic and political interests, rather than closely following national policies and the rule of law.

Trademark enforcement authorities, including local judges and other officials, are appointed by the local governments and municipalities, which often have interests in economic activities which may directly or indirectly profit from business generated by counterfeiters. In some cases, local governments have invested financial resources in the construction of markets where counterfeit spare parts are sold.

It is often forgotten that counterfeiting businesses also create satellite industries of a lawful nature which benefit the local economy and labour market. For example, lawfully operating trading and shipping companies may be involved in the sale and distribution of counterfeit goods. Local governments, especially those at municipal and district level, are therefore reluctant to implement anti-counterfeiting policies, for fear of damaging the local economy and labour market.

In spite of this hostile environment, short term enforcement through investigation and administrative raiding of counterfeit spare part factories and warehouses is a necessary evil for OEMs. The best way to reduce the risk in this unfavourable legal environment is for manufacturers to set clear objectives when determining their brand protection budgets and strategies, and the tools they choose to implement these strategies.

Local governments, especially those at municipal and district level, are reluctant to implement anti-counterfeiting policies, for fear of damaging the local economy and labour market

In particular, OEMs need to adjust their intellectual property rights portfolios in China in order to respond effectively to the different types of threats posed by counterfeiters. A strong IP portfolio is a precondition for successful enforcement; flawed portfolios may be used by authorities as an excuse to deny enforcement. Manufacturers must also bear in mind that brand protection should not focus only on trademarks, but also design patents.

OEMs should concentrate and even intensify raiding and administrative enforcement in key Chinese regions to create good relations with local enforcement authorities. Eventually, to efficiently allocate financial resources, intense enforcement should be focused only on counterfeit of goods where the added value is not based only on the brand, but also on the related technical performance and safety of the product. By actively preventing such key spare parts from entering global markets, risks deriving from warranty and safety claims arising from malfunctions and accidents caused by non-genuine parts will also be prevented.

The automotive and manufacturing industries need to recognise that brand protection accomplishes more than protection of the brand name: it helps to avoid the warranty, safety and legal risks related to product malfunctions and personal injuries caused by flawed non-genuine parts.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Dr. Paolo Beconcini is a Partner at CBM International Lawyers. He specialises in intellectual property and product liability law and has worked for many leading automotive brands. Now based in Beijing with CBM Lawyers International, Beconcini has been working in China for over 11 years.

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