One of the negative symptoms of downturns and recessions is that all sorts of companies come out of the woodwork, claiming they can help you save money. One such burgeoning industry is in motor spare parts. For many years, counterfeit name-brand watches, computer software, DVD’s and luxury goods have created considerable headaches for global manufacturers. Now, these counterfeiters have begun to point their expertise in a new direction: Counterfeit vehicle parts.
Scope and Scale
The trade in counterfeit components involves the production of a wide array of items, including: Oil and air filters, Wheels, Bonnets, Spark Plugs, Anti-Rolls bars, Bumpers, Brake Discs/Pads, Windscreens, Fan Belts, Distributor Caps, Shock Absorbers, Bearings, Coolants and oil to name but a few. The trade in such items is now organised on a global scale, with known producers in many countries across the globe. Recent data suggests that this trade in counterfeit automotive components constitutes a large and rapidly expanding market. The Institute of Trading Standards (ITS) claims that in the UK, the counterfeit part market grew from £300 million in 1994 to £3 billion in 1999 and onto £6 billion in 2008.
Social Costs and Health Risks
One of the most compelling arguments mobilised by legitimate rights-holders against the counterfeit parts trade focuses on the health risks that they potentially pose for drivers, passengers and other fellow road users. Examinations of parts obtained through seizures portray a worrying picture. Counterfeit parts are often manufactured from sub-standard materials, which in no way conform to the tolerances required for safe use on vehicles and are not subject to industry safety testing by either manufactures or independent authorities. Consequently, such components are liable to catastrophic failure, especially when subjected to high speeds and/or heat. Documented instances of such sub-standard materials include: brake pads made from compressed grass, woodchips and cardboard, thus hugely increasing braking distances and potentially catching fire during extensive heavy use; bonnets that fail to crumple upon impact, and penetrating the driver/passenger compartment; fake oil filters that can cause abrupt and complete engine failure and bumpers that have only a tenth of the required resistance to pressure and are likely to shatter upon impact.
Such poor quality components have been linked to a number of fatal accidents. According to the World Health Organisation, an estimated 36,000 fatalities and 1.5 million injuries are result of defective counterfeit parts annually. These fatalities, and other instances of fatal and seriously injured accidents give strength to automotive industry claims that counterfeit components present a serious threat to public health and safety in the UK and worldwide.
Factors Contributing to the Growth of the Counterfeit Parts Trade
The presence and growth of the trade in counterfeit components can be viewed as a consequence of multiple social, economic and political developments; which are explored below.
Firstly, it is important to consider the rapid global expansion of automobile use. As of 2013, there are an estimated 1.1 billion cars on the world’s roads, which is a 57% increase from the 700 million that were on the worlds roads just 9 years earlier in 2004. In the UK, there were 34.6 million vehicles licensed for use on the roads on 30th June 2012. Of these, 28.7 million were cars. A bulk of the worldwide growth came from the developing economies of the BRICS (Brazil, Russia, India, China and South Africa). This growth inevitably entails an expanding market for replacement spare parts. Consequently, even if the proportion of all parts which are counterfeit were to remain constant, the gross number of such parts in use would still expand rapidly as the number of cars on the roads increases.
Secondly, this expansion in developing countries can be seen to take place in economic conditions favourable to the marketing of counterfeit rather than legitimate parts. Those in low and middle income countries (i.e. BRICS) have less access to financial resources than those in the advanced industrial world, and thus, may be unable/ unwilling to purchase components from legitimate manufactures whose prices are often considerably more expensive. Counterfeit parts can be purchased at 50% of the OEM/legitimate components thus further stimulating demand and creating a ready market for counterfeit manufacturers, suppliers and retailers.
A third and final factor to be considered is the increasing economic value derived from brands and branding. A brand entails the creation of a unique identity for goods, readily recognisable by consumers. Companies invest substantial resources in building brand identity and consumer preference, stressing in particular issues of quality and trust. A reputable brand is thus held to denote that a product is reliable, performs well and poses no risk to health and safety. Consumers are willing to pay a premium for branded goods, often preferring them to cheaper, generic, non-branded equivalents because of their perceived quality. This emphasis upon brands and its impact on consumer choices unintentionally offers lucrative opportunities for counterfeiters. By hi-jacking the brand of another manufacturer, and passing off their own products as instances of a valued and trusted brand, they exploit the equity of the brand. This then enables the counterfeiter to sell their own products at premium prices that the consumer normally reserves for brands in which they place trust.
Curtailing the Trade/Links to NetNames
The first level at which action might be taken is that of legal modernisation in the area of IP and trademark law, at both a domestic and international level. Recent times have seen an on-going process of consolidation in IP rights and violations, driven largely by concerned rights holders. For example, the UK Trade Marks Act (1994) makes provision for a maximum penalty of 10 years imprisonment and/or an unlimited fine for those found guilty of making unauthorised use of trademarks in relation to goods.
At another level, counterfeiting needs to be further tackled through intensified enforcement activities. Law enforcement in the area of intellectual property has traditionally enjoyed a low priority and has typically been fragmented and hugely under resourced. This may be attributed to a range of factors, including a perceived emphasis on more visibly harmful offences such as street crime and violent crimes, and not the relatively invisible nature of IP crime and the indirect nature of the harm they cause. As we can see from the aforementioned fatalities and injuries however, this is clearly not an invisible, less harmful crime.
At a third level, we see increasing resilience on technological solutions to inhibit and/or detect counterfeiting. As the quality of counterfeit packaging has improved, the detection of unauthorised copies has become increasingly challenging for law enforcement agencies to keep pace with. This has led to the development of a wide array of product identification and brand protection technologies which enable legitimate products to become more readily distinguished, and which are harder for counterfeiters to reproduce.
One such technology is ImageFlare provided by NetNames. This technology allows the user to scan for the unapproved use and modified versions of a company’s logos and images online. NetNames can use this technology and couple it with the strong relationship they maintain with many online marketplaces to hugely limit supply of counterfeit goods. Once these potential counterfeit items have been located, NetNames can issue a takedown notice to the offending websites followed by a thorough online audit.
The overall result of the reduction in the supply of counterfeit car parts would not only help to increase the revenues of the automobile companies affected by counterfeits, but it would also dramatically reduce the risk to public health that these counterfeit parts pose.
NetNames is very well placed at the top of the market to offer a huge range of services. NetNames provides end-to-end enforcement through a tailored mix of comprehensive proactive and responsive measures, which consistently deliver the highest levels of successful enforcement in the market, boasting over a 90% compliance rate in both domain suspensions and online market place delisting.
With this market leading position, NetNames is very well placed to continue its dominance in the Brand Protection market, and will continue to do so throughout 2014.