Pirated Parts Create Liability For Distributors and Users

Counterfeit copies of truck body and trailer parts are finding their way into the parts distribution channels, according to industry trade associations and the US Customs Office. "Some form of parts pirating occurs in just about any industry," says Craig Fisher, vice-president of marketing at Morgan Corporation. "Our new concern in the body and trailer manufacturing industry is that offshore manufacturers are more brazen in their efforts to openly market pirated parts to unsuspecting fleet operators."

Pirated parts are being sold by unauthorized job shops and parts warehouses that cater to the repair needs of cargo carrying end users. In some cases, pirated parts are being sold as OEM replacement parts.

Most of the companies that manufacture unauthorized parts are outside the reach of the US legal system. This leaves only the distributors and end users readily available to pay for defective-product liability claims and patent infringement damages.

Defining the Shape of Pirated Parts There isn't a simple and easily recognizable definition of a pirated or knock-off part. Each allegation of parts pirating is tried on a case-by-case basis; however, legal professionals agree that the pirating of a part occurs when an unlicensed or unauthorized manufacturer produces a part copied directly from an OEM patented part.

Although there are cornerstones of evidentiary rulings that support the charge of manufacturing a knock-off or pirated part in a courtroom, the US Customs Office has struggled with the parameters of what defines a pirated part.

Many field agents look for direct patent and trademark infringements. In some cases, the Customs Office is alerted to the infringement because the OEM supplies drawings and patent documentation to help field agents spot a cargo of pirated or knock-off products.

Although not in all cases, pirated parts are usually manufactured overseas, imported into the United States, and sold to importing distributors, according to Judy Turner, a US Customs information officer based in Houston, Texas. She notes that a review of the enforcement efforts and the results show a dramatic rise in the attempted importation of copied parts.

Spokespersons of several key organizations, including the Truck Trailer Manufacturers Association (TTMA), the Motor and Equipment Manufacturers Association (MEMA), and the National Truck Equipment Association (NTEA), agree with this finding.

"As a manufacturing association, MEMA has produced documentation to help their members identify pirated or knock-off parts," says Margaret Beck Odem, a spokesperson for MEMA.

"The problem with definitions is that you can't just say it's pirated because the part looks similar to an OEM part, or that it's made with cheap materials, or that it isn't manufactured very well," says Odem. "Those may just be signs of a poorly defined and inferiorly manufactured legal part."

"Pirated parts can be made from an inferior blend of alloys or other materials," says Stan Cunningham, manager of branch parts operations for Great Dane Trailers. "However, a pirated part cannot simply be defined as a part that is cheaply constructed or put together. But it's accurate to say that the pirated parts are usually not subjected to the overall quality of material selection or the quality of manufacturing of most OEM parts."

Nevertheless, the quality of raw materials used and analysis of the manufacturing processes can help enforcement authorities to determine other important information. According to US Customs officials, these characteristics can be used to identify a manufacturer or even a region of a foreign country harboring companies suspected of manufacturing knock-off parts.

All these factors can help identify a signature of the suspected manufacturer that is producing a pirated part, says the US Customs Office. As an example, these signatures help authorities identify products that are produced in plants suspected of using political prisoners as labor, a known practice in countries with questionable human rights practices.

"China is using the labor of prisoners, some of whom are being held for alleged political abuses, to produce products that end up in America," says Harry Wu, a former political prisoner of China. Wu is president of the Laogai (political prisoner labor) Research Foundation in Washington DC. "These factories will produce any part that is easy to make and export it to the US to gain hard currency for China."

"The importation of parts made with Laogai labor is illegal," says Yael Fuchs, a spokesperson for the Laogai Foundation. "The US Customs Office will confiscate these shipments if they are thought to be from Chinese labor camps."

Turner agrees, saying that the US Customs inspectors will confiscate parts that can be tied to prison camp manufacturing. "There is an ongoing effort to stop these types of manufactured products from entering the US, including looking at where these parts are sent to."

Some manufacturers have studied and compiled extensive research into the quality and longevity issues posed by the use of pirated parts. Hutchens Industries, a manufacturer of axle suspensions and systems, conducted a study to compare the strength and durability of Hutch OEM parts against purportedly pirated parts.

The Hutch Project #911200 reviewed suspension rocker model 750-03. A group of 22 aftermarket rockers that were manufactured by five identifiable offshore manufacturers were subjected to laboratory testing to measure their quality against the OEM manufactured rocker. Results of this white paper are available from Hutchens Industries.

"As the test results show, the non-OEM parts just didn't hold up as well as the parts that were made to OEM standards," says Louis King of Hutchens Industries. The test data revealed that in nearly every example, the non-OEM manufacturing process produced questionable rocker geometry, which resulted in poor durability test performance. In addition, questionable welding practices were apparent in the pirated parts.

Test results indicated that in 9.5% of the non-OEM parts, the rockers showed less than 50% of the engineered articulation that is needed and designed into the OEM 750-03 rocker. In this test, incorrect product geometry and inferior welding techniques were found to cause non-OEM rocker failures.

Testing Parts To test bushing fatigue life, two servo-hydraulic actuators were utilized to maintain a vertical static load of 11,000 lb on the rocker while turning the bushing through a +/- 15 degree oscillation. The test progressed until a predetermined displacement of the bushing was obtained, at which time the bushing was considered worn out. Metal-to-metal contact between the bushing hub and the rocker occurred, thus causing failure. The test results showed that bushing life was 28% lower in the non-OEM rockers, as compared with the OEM product.

When the OEM and non-OEM rockers were submitted to vertical fatigue testing, serious degradation in strength and capacity became evident for the non-OEM parts. According to the study, when the parts were submitted to a vertical cylinder loading of zero to 24,000 lb @ 5 Hz rate, the life of the non-OEM part was 60% less than the average life of the OEM rocker.

"One of the reasons that OEM parts might seem to be higher in price is because the OEM puts so much effort into designing, producing, and continued testing of its parts," says King. "Hutch expends a great deal of effort to design the product and supervise its total manufacturing process. Researching the raw materials that go into the part are techniques that the pirated parts manufacturers probably don't do."

An OEM spreads the design and testing cost of the part over the patented lifetime of the part. Included in the sales price of the part are any additional monies spent to keep the part current. This cost can drive the consumer's price of the OEM replacement part to a higher level than the comparable pirated part, but it assures a quality level that is not usually available in a pirated part, says King.

"Cost savings usually come from some form of quality sacrifice," says Cunningham of Great Dane Trailers. "That sacrificed quality will hurt the user of a lesser-quality, pirated part somewhere down the line."

Unfortunately for OEMs, some consumers will buy the pirated parts without much concern for their ability to stand up to the intended use. There are documented cases of repair work being carried out with the use of substandard pirated parts.

Most pirated parts are used as will-fit replacement parts for the repair of an OEM product. The offshore manufacturers sell the parts to importing distributors that sell them to job-repair shops.

The market supplies pirated parts because of the increased demand by consumers to lower the overall operating and repair cost of their equipment, and an inability to closely police products that are aimed at America's shores.

Consumers use the parts because they are sometimes deceived about the jobber's claim to be an OEM distributor for a company's product line. In other instances, consumers initially feel there will be cost benefits to using pirated parts. They also believe there is a benefit to allowing any trailer or body repair shop to work on any manufacturer's product.

"Consumers might conceivably see the pirated parts as a benefit, but is this benefit what the consumers really need?" asks Bill Keen, director of leasing operations for Texas-based, Performance Trailer Leasing. "Pirated parts are less expensive because the manufacturers of the parts do not bear the cost of research and development into the manufacturing process.

"Consumers are lulled into thinking that the lower cost pirated parts will suffice for some applications. When the total cost of ownership (TCO) is analyzed, it can quickly become a different story."

In one case, Keen notes that he has seen pirated parts being sold for more than replacement OEM parts. "It's false to assume a retailer of a part from a remote place on the globe is asking less than the OEM would on a replacement part."

If the pirated part that is used as a replacement can't meet the OEM minimum level of quality, then possible problems requiring replacement of other parts, or further repair to the originally diagnosed problem, might occur.

"In a logistics environment where the speed of repair is as important as the quality of repair, some fleet operators will knowingly use a pirated part simply to expedite the repair," Keen says. "But we wouldn't risk that liability exposure for our trailers and van bodies."

However, potential liability issues present themselves to both the fleet owner and the importer of the parts. Users and distributors of automotive parts can face potential liability claims for failure to meet government imposed safety standards when pirated parts are found as a cause of damage or accident related mishaps. Along with these claims of liability, distributors and assemblers of pirated parts can find themselves at legal risk for false advertising, counterfeiting of trademarks, and patent infringement.

"Any distributor that sells or attempts to pass off parts made by an entity other than the OEM, and identifies them as the OEM's parts, runs the risk of legal action," says Elliot Olstein, an intellectual property attorney with Carella & Byrne, Roseland, New Jersey. "Federal Unfair Competition Law makes the sales of parts illegal when they are sold as OEM parts, when in fact they were not manufactured by the original manufacturer of the product, or their authorized agent."

Liability issues can come from other areas outside the patent and intellectual property concerns. As stated in the MEMA PR 33-99 report, the National Traffic and Motor Vehicle Safety Act prohibits any person from manufacturing for sale, offering for sale, introducing or delivering for introduction, or importing any motor vehicle or item of motor vehicle equipment unless it conforms with applicable federal safety standards (49 USC~30112a).

"Under certain circumstances, various federal and state laws may render an importer or reseller of parts for a truck body or trailer as liable as the manufacturer or designer of a defective product," says James E Hudson III, a patent attorney with the Keeling Law Firm in Houston, Texas. "Additionally, in certain cases if a repaired trailer failed because of a defectively designed or manufactured replacement part, each seller in the stream of commerce may be strictly liable."

In some recent product liability cases, the offshore manufacturers producing the pirated parts have not been held liable in US based lawsuits because they were outside US jurisdiction. However, the US distributor of the product was found strictly liable for the damage or injury that the product caused.

Ignorance of the risk of importation and use of a pirated part is not a sufficient legal defense. "In many cases, domestic distributors and resellers may be respondents in legal actions brought by patent holders for infringement or by customers for product defects," says Hudson.

In Hutson v Fehr Brothers Inc (584 F2d 833 & 439 US 983), a defective chain used to bind lumber during transport was the basis of a defective product suit. An American importer of a non-US manufacturer's chain was found strictly liable and was made by the court to bear sole responsibility for any losses and jury awards in the product liability case.

The court dismissed the importer's defense that the manufacturer should be held responsible for any product defects. Upholding previous rulings, the court said that the manufacturer was beyond the jurisdiction of the US court, and the US importer of the chain should have understood the risk and liabilities involved in the importation of the product.

Reasonable Care As highlighted in the MEMA Special Report (PR33-99), federal and state law requires that a reseller exercise reasonable care to prevent injury. A seller of products manufactured by another who knows or has reason to know that the goods are likely to be dangerouswhen used by the purchaser is subject to liability claims.

Product liability is not the only avenue of concern faced by pirated parts distributors in the US. In several patent infringement cases, the courts have ruled that no jurisdictional authority exists to hold the foreign manufacturer liable for damages caused by the infringement, explains Hudson. The courts have further ruled that the US distributors should have been aware of the patent liabilities faced by the importation of the pirated part and are liable for the infringement. In these cases, the US distributors have had to pay financial damages.

A pirated part without a copied trademark or counterfeit name attached to it can become the subject of a patent infringement case. The fact that the geometric design is directly taken from the OEM part is sufficient cause for legal action.

"Distributors are subject to legal action if they falsely claim to be an authorized distributor of a manufactured product," says Hudson. For example, a distributor of a pirated part cannot legally imply or advertise that the part is an OEM part without the expressed consent of the OEM.

Swift action by the OEMs is helping to curb the infringement abuse. Specific legal action against the offending distributors is taking place. Non-specific remedies include alerting customs officials to seize imported items that infringe on the patents of domestic OEMs.

Nevertheless, not every importation of parts includes pirated parts. "You have to be balanced and careful in the review of the pirated parts issue," says Cunningham of Great Dane Trailers. "In today's world of imported goods and services, there are legitimate offshore manufacturers of parts that work under the careful supervision of OEMs.

"We have to educate the customer about the pitfalls of cheap or inferior parts that are sometimes available. The issue centers around a question of authenticity. A company distributing parts that might fit a Great Dane trailer may not necessarily be an authorized distributor of Great Dane trailer parts."

Importation of pirated parts will continue. The demand for such items is driven partially by legitimate confusion from consumers and partially by distributors who hold themselves out to be something they are not - a legitimate distributor with a capital investment tied to an OEM product.o

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