Editor’s note: This is Part 1 of an ongoing series. Part 2 is also posted.
Counterfeit brake parts are a big, international, complex — and most of all murky — problem.
The BRAKE Report spoke with industry leaders, attorneys, investigators, and researchers to try and define and explain the problem and examine best practices to mitigate it.
How Many, How Much?
A lot of guesswork is required to try and figure out the extent of the problem.
A good place to start is with U.S. Customs seizure records, some rare hard data in the world of fake goods.
In 2016, customs seized about $1.3 billion worth of counterfeits headed across the border. Auto parts accounted for about $55 million of that total.
Some back-of-the-envelope math: Let’s say that customs catches 10% of all counterfeits. That would mean about $500 million in fake auto parts make it across the U.S. border in one year alone.
Let’s say that brake parts make up 10% of that $500 million. That equals $50 million in fake brake parts entering the U.S. each year.
The United States accounts for about 20% of all new cars that are sold, so let’s assume that it’s also the market for 20% of all counterfeits. That would mean, globally, counterfeit brake parts are a $250 million problem, year in and year out.
That $250 million figure may be too high. Then again, it may be too low, perhaps by a very large amount. Other economies may be more vulnerable to counterfeits. Border enforcement and proximity to where the fake parts are made are two big factors, as is the general affluence of drivers.
From a safety perspective, the problem of counterfeit brake parts is even murkier. After an accident, it’s very rare for anyone to examine the parts to see if they are genuine or not. Brand owners only become involved when a pattern emerges.
In 2016, according to FARS data from the National Highway Safety Traffic Administration, about 51,000 accidents in the United States had a contributing factor of brake systems, with 117 fatalities. This was .3% of all traffic fatalities in the U.S.
Extrapolating to a global scale: About 1.3 million people die worldwide in crashes each year, with 50 million injured. If .3% of these accidents involve brake systems, that’s about 4,000 people around the globe who die each year in brake-related accidents, with an additional 150,000 injured. Were 5% of these accidents caused by fake brakes? 20%?
The exact impact of fake brakes is unknowable, but counterfeits clearly cost the industry many millions of dollars while making roadways less safe.
Like legitimate entrepreneurs, counterfeiters run the gamut in terms of sophistication.
Karen Abraham is a Malaysian attorney. She helps companies fight IP theft and counterfeits. She says that some parts of the counterfeit economy are fairly primitive. She gives the example of people who salvage premium whiskey bottles and then fill them with concoctions brewed in their bathtubs. At the other end, Abraham recalls one recent case in Malaysia of people counterfeiting entire Honda motorcycles.
Craig Douglas is an Australian investigator who specializes in the problem of counterfeit goods. He gives similar examples. At one end are people who refill empty Corona bottles — convenient because the label is screen printed. At the other end, he recalls a monumental scam uncovered in 2006 in which an entire company was counterfeited. Criminals across Asia worked together to erect a bogus version of NEC, a Japanese consumer goods company. The fake NEC produced 50 different products and even paid for R&D.
Counterfeiters can be very, very good at what they do. They “have built entire organizations. They work very hard at producing products — sometimes good products — and good schemes to get products into the marketplace,” says Dr. Jay Kennedy. He is part of the Center for Anti-Counterfeiting and Product Protection (A-CAPP) at Michigan State.
“They may not have the same cost structure you do, but they think about overhead, they think about personnel. They are spending money to produce good counterfeits so they can make a profit.”
Kennedy says one trend in counterfeiting is that prices and quality are going up. This allows counterfeiters to avoid some initial suspicion that the deal is too good to be true. In addition, better quality counterfeits are more likely to avoid detection.
Douglas agrees. “The smart counterfeiter is not the one who sells his parts at an 80% reduction in price, it’s the one who sells them at a 20% reduction in price and sells them as last year’s stock or closeout stock.”
Abraham cites two examples that show consumers may actually not receive any discount when they buy fake brake pads. In June, police raided 30 locations in Malaysia, finding fake Hyundai and Kia parts, including pads. These fake pads were sold to consumers at around the same cost as genuine products. A month later, authorities confiscated fake pads that merchants bought for an extremely low price and sold at a standard price, giving the merchants a 10-fold profit while the consumer received no discount at all.
Another example of the sophistication of counterfeiters is that they will produce parts in a country with cheap labor, then put the parts together in a country where more sophisticated labor is readily available.
Douglas once worked with Australian customs after the agency uncovered a shipment of about 20,000 counterfeit parts, including brake pads. The pads themselves were in one box. The packaging was in another. Barcode stickers were in a third box. They were shipped this way to Australia, where someone would have combined the elements into a convincing product.
Dan Plane is an attorney in Hong Kong with deep experience in IP protection and anti-counterfeiting.
According to Plane, some manufacturers are upstanding. Some counterfeiters are “absolute and utter criminals.” But in many cases, the difference is situational.
“They are in the business of manufacturing the product that they manufacture,” he says. “If somebody comes to them and says, ‘I’m willing to pay top price for a quality brake pad, here’s my trademark registration certificate, please make it,’ they’ll make it for them. If someone comes to them and says, ‘I want you to make a low-quality brake pad and I don’t own the trademark,’ and they pay them money, the odds are good they’ll make it.”
“If your job is to make brake pads, you’ve got the option of either making your own brand, doing OEM or aftermarket for somebody else, or making fakes for somebody else.”
“In any given circumstance,” Plane says, “the choice they make depends on a number of factors.”
What Is a Counterfeit, and What Is Genuine?
Even defining what makes a part a counterfeit can be tricky.
Technically, a counterfeit product violates a trademark. But the world of shady brake parts extends beyond this limited definition.
The term “knock-off” is often used interchangeably with “counterfeit.” It can also be used more technically to mean parts that may look like the real deal but have subtle changes to avoid trademark infringement. Exactly what constitutes a big enough change to avoid trademark infringement is its own complex issue.
Gray market parts are another issue. They are fully genuine but are obtained outside the normal distribution channels. In one recent case, AMG, an importer in Florida, bought about $200,000 worth of genuine Nissan parts from a seller in Oman instead of through the official Nissan channel in the United States. Nissan and AMG went through a prolonged court battle after U.S. customs stopped the container, with AMG ultimately winning the right to sell the parts.
In Australia, the concept of parallel parts further muddies the waters. These are genuine parts manufactured for other Asian countries and imported legally into Australia. They are normally less expensive and of lower quality than parts intended for the more affluent Australian market. Douglas explains that because these parts are available, people have gotten used to going to third-party sellers. This creates a space for counterfeiters to slip into the market.
For Douglas, part of the problem is that even the term “genuine” is poorly defined. “The definition of genuine has been hijacked over the years, mostly by insurance companies who say, ‘If you have a car accident, we’ll repair your car using locally sourced genuine parts.'”
“Genuine can be genuine from an Australian dealer, genuine from a Thailand dealer, where the quality of the part is lesser. It can be genuine as in 10 years old, it can be genuine from a car that used to drive the streets of Detroit. It can be genuine stolen. It can be genuine out the backdoor of the factory that made the genuine ones out the front door for the manufacturer.”
This is Part 1 of an ongoing series. Part 2 is also posted. Part 3 is coming soon.
Has your company been impacted by counterfeits? Are you involved in fighting counterfeit brake parts? Do you have general comments? Please contact the author at [email protected]