New Strategies to Combat Counterfeit Parts

An email from a previously unknown source traverses the Pacific Ocean to an electrical distributor in the Americas opening with the words, “We would be pleased to meet you on your next visit to our country and will present our new products and promote some bargains in good price.” The email attaches photos of products: lighting, conduit fittings, outlet boxes, circuit breakers and receptacles. 

Some photos depict products that appear identical to well-known North American and European branded products, and some pictures visibly depict the registered trademark of a well-known brand.  The email’s offer of “bargains in good price” may be enticing, but it could be a slippery slope for the electrical supply channel and those customers inattentive to risks not previously experienced.

Over the past decade, counterfeiting in the electrical sector has become a growing global problem with multiple dimensions including intellectual property theft, loss of tax revenue to governments, consumer deception, threats to the health and safety of consumers and product liability litigation over defective counterfeit parts.

Electrical products uniquely present all five dimensions of the counterfeiting problem, particularly the threat to consumer health and safety. The National Electrical Manufacturers Association (NEMA) has begun collecting public and private reports on counterfeit electrical products that threaten public safety.

A few examples of counterfeit parts and the problems they have caused include: installed conduit fittings falsely marked as designed for use in hazardous locations; circuit breakers bearing a brand name that do not provide protection; defective control relays bearing a counterfeit certification mark; extension cords bearing a brand name and certification mark for a product designed for 12-gauge wire, but actually employing a smaller 24-gauge wire that causes fires; and infringing imported dry cell batteries containing mercury in violation of U.S. law. 

Defective or substandard counterfeit subcomponents, more often than not, are invisible. For example, hair clippers containing counterfeit fuses with a fake brand name and certification marks were seized in England. Counterfeiters are skilled at making molded products virtually identical to the genuine branded product. One means of detecting fake parts without opening up the breaker is to test the weight.  

For legitimate electronics manufacturers, the problem runs even deeper as their products contain myriad components. Semiconductors and other components are often certified as new but are actually refurbished from discarded electronics products that do not meet OEM specifications. Pre-assembly supply chain management requires the same rigorous engagement with component vendors required of finished goods manufacturers with their distributors, as described below. 

Because counterfeit electrical equipment threatens safety and competitiveness, electrical manufacturers work individually and collectively through trade associations on several fronts — focusing on both supply and demand. At the core of counterfeiting is fraud and deception. Similar to other types of criminal fraud activity, fake product suppliers must be treated like con artists who have no concern about the injury they cause, hence, the urgent need to protect against these criminals.

One strategy is to focus on attacking counterfeit electrical components’ supply. Almost all counterfeit electrical products come from China, so manufacturers have contacted Chinese-based enforcement authorities and instituted programs designed to cut off identifiable sources of counterfeit products.  While difficult and expensive, this strategy has yielded results. Manufacturing operations have been raided, and product and equipment seized. This effort sends a message, but it rarely completely curtails the supply.

Electrical manufacturers have encouraged NEMA to train Customs and Border Protection officials on identifying counterfeit electrical products and shipments, to the point that they have climbed into the top five of U.S. customs seizures.  Anti-counterfeiting briefings were also provided to CBP counterparts from new Latin American Free Trade Agreement partnering nations as part of a joint initiative with the Department of Commerce. U.S. battery manufacturers collaborating with China’s customs agency have seized millions of counterfeit batteries at the port of export.

The second strategy is to curtail the demand for counterfeit products. In many cases, buyers claim ignorance to purchasing counterfeit products. The electrical industry has improved efforts to educate the public and supply chain about the risks of trading in counterfeit electrical products. In particular, because counterfeit electrical products are likely substandard products carrying enhanced risks of injury, the distribution channel needs to understand its product liability risk.

Anti-counterfeiting awareness brochures and videos were widely distributed in English and Spanish to educate distributors on buying genuine products. NEMA reached out to a growing number of counterpart organizations through presentations and trade show exhibits. Fire marshals and similar groups were urged to place counterfeiting on inspectors’ checklists when conducting cause-and-origin-of-fire investigations.

Trade association field representatives stressed the urgency with electrical inspectors nationwide. Electrical manufacturers began identifying strategies to protect their brands, and met with leaders in the authentication technologies field to embed effective technologies into products. U.S. law enforcement agencies opened criminal investigations of counterfeit electrical products, which yielded one major conviction involving counterfeit circuit breakers, thereby sending a clear message to counterfeit product buyers. These educational efforts have helped reduce domestic demand.

Even the American Bar Association is getting into the act, having convened a task force on counterfeit parts to discuss legal approaches to the problem.

Notwithstanding some tangible success in reducing both supply and demand in North America, the global challenge is huge but constant. Focused resolve and vigilance, not only by law enforcement but also by manufacturers and users alike, is absolutely imperative. Nothing less than ongoing communication, collaboration and the adoption of zero tolerance policies by manufacturers and their trading partners will bring this national security threat under control.

Clark Silcox is the general counsel to the National Electrical Manufacturers Association. The views expressed are solely his.

Topics: Business Trends, Service Contracts, Defense Contracting, Defense Contracting