Subscribe | LinkedIn Group

Jan 13, 2014

Protecting your Companies Reputation in China: Counterfeit Goods

You know that I like to write about the various copied products that are made here in the Jungle.  I usually find things like copy salt and eggs to be humorous, but, in this case it is not funny as the lives of civilians and military personnel are on the line when counterfeit parts are sold to the U.S. and other armed forces.

After a year long investigation, where we advised the Senate Armed Services Committee on the real problem with counterfeit parts and the harsh reality of counterfeiting in China, the SASC released its report which you can find a synopsis here with the full report being available on the SASC website soon.

While one of the objectives is to place the blame squarely on the counterfeiters in China, there is little legal recourse available and given that most companies that purchase electronic components from China know that many of the parts are counterfeit, they look the other way and pass the parts up the Defense Department supply chain.  Up until now, that hasn’t been much of an issue and the reward far outweighed the risk.

Of course cost is an issue when there are four or five companies involved in the supply chain and each one has to make some margin on the product.  However, an easy solution, to this problem, would be to ensure that the parts are inspected by a reputable third party electronic component inspector, such as the non-Chinese owned Whitehorse Laboratories who has been warning everyone of this problem for years and was also involved in advising the SASC on this matter.

As the Justice Department and various enforcement divisions of the Defense Department and Department of Homeland Security begin investigating defense contractors and component suppliers and this has already begun and will be ramped up considerably in the near future, the simple solution is to test the components and have agreements in English and Chinese with the Chinese suppliers that provides for recourse.

The penalties for supplying counterfeit parts are set forth in the recent National Defense Authorization Act which you can find a summary here and investigation and enforcement has begun.
While the SASC and the State Department will continue to pressure China to wipe out counterfeiters, it will not happen.  Counterfeiting and copying is woven into their DNA, especially in certain parts of Guangdong Province where even the late Chairman Mao had a difficult time trying to control the leaders who ruled this region.

So, what can you do so that your company will not be investigated and fined.
1.  Have a sample of the parts tested by an independent and professional laboratory.
2.  Purchase from reputable vendors in China and have written agreements with them which could be as simple as purchase order terms or terms of purchase on your website in English and Chinese.
3.  Keep records of the efforts you make to ensure that you are not passing on counterfeit parts.
4.  Don’t trust your Chinese employees to handle any of the above and if you do, supervise, supervise, supervise.
More on this as it develops.  Be vigilant.
_________
SeanHayes@ipglegal.com
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.
www.ipglegal.com