Making tracks: Caterpillar on counterfeiting

What are the major threats to automotive manufacturers and their parts suppliers from counterfeiting?

Trademark enforcement is an issue that deeply affects trademark rights owners' interests. Dedicated campaigns and day-to-day enforcement are typically not effective in preventing trademark infringement because repeat offenders through their experiences, become increasingly sophisticated in escaping enforcement raids by administrative, legal and enforcement agency officials.

Besides enforcement, many trademark registration regimes are also still in need of further development. Governments are going to great lengths to construct trademark filing and protection mechanisms, strengthen measures for enforcement, and establish necessary procedures for legal relief available to resolve trademark disputes. The number of trademark filings continues to grow at an accelerated rate around the world.

In many developing countries the current pendency period for trademark applications falls far behind the increasing rate of trademark filings. It is often much lower than worldwide average speed. In spite of judicial and legislative adjustments in procedure for accepting trademark applications, it is crucial for appropriate governing bodies to significantly reduce the pendency of trademark filings.

Preemptive and fraudulent filing of trademarks is unfortunately still a prevalent practice and there are often inadequate penalties to deter these fraudulent filings.

What specific types of technology are most likely to be counterfeited?

Service parts and parts in high demand for larger field populations of machines. For example, filters and engine parts are commonly counterfeited.

What are the most effective strategies for dealing with the problem?

On the business side, we look for ways to reduce customer demand for counterfeit parts. Customer education can be very beneficial.

On the issue of counterfeit parts, offering service agreements to ensure that our authorised dealers are performing all necessary servicing provides an excellent value to the consumer and shrinks the market for counterfeit parts. On the legal side, our efforts centre around proactive investigations and the training of customs and other enforcement officials.

What is the most heinous example you have come across of counterfeiting in your industry?

We have found counterfeit fuel filters that were capturing only 2 percent of harmful particulates, allowing 98 percent of the particulates to pass into the fuel system. In the worst cases, we have seen the filter material itself break down and enter the fuel system.

What are the implications of counterfeiting for the industry?

In our view the greatest risk, albeit it hard to measure, is the negative impact to our goodwill and brand. It is often not readily apparent to the customer that a problem they experience is tied to their use of a counterfeit product. It is far more natural for customers to assume the problem lies with us.

Thus, these negative consumer experiences attached to our named brand, not the producer of the counterfeit. In the worst cases, counterfeit products can impact health and safety as well.

From a tangible point of view there is likely to be some monetary loss to Caterpillar, but we believe this may not be as great a concern as the damage to our reputation and brand. That may be different for other industries, but we believe buyers of counterfeits often know they are not buying genuine and would be unlikely to buy genuine if there was no option to buy counterfeit i.e. they would buy a best-fit instead.

Counterfeiters do not assume the responsibility and related costs of standing behind their products. They do not internalise the impacts their product can have on our customers' machines.

When a counterfeit part causes one of our customer's machines to go down, the impact is felt by Caterpillar, our dealers, the equipment owner and operator, and the customer they are servicing. When this impact results in project delays and cost overruns, the impact can even trickle down to the general public.

What is the quality of counterfeit products like, in your experience? Are there good fakes and bad fakes?

Simply put, there are no ‘good’ fakes when health and safety of consumers is at risk. Visually they range from terrible to quite convincing. Technically, they are almost always sub par.

How can you ensure your propietary technology doesn't fall into the wrong hands?

Employees play a significant role in protecting proprietary technology, reporting infringements or the existence of counterfeits to dedicated personnel within the organisation. Participation in the fight against counterfeit products gives employees some ownership in the success of the products and the company as a whole.

It is also useful to communicate relevant guidelines to distributors and any other organisations in the company’s supply chain to ensure that IP is treated in accordance with company policy. Distributors should also be aware of the company’s policy toward any act that facilitates infringement.

Is there anything that can/should be done on an international political level, to help the fight against automotive counterfeiting? What about cooperation within the industry?

Engaging the assistance of enforcement authorities in the fight against counterfeiting and infringers calls for a cooperative approach, and is likely to lead to a more fruitful outcome than a confrontational approach. This can be done on several levels. A popular approach has been to work with high level judiciary and regulatory bodies through organisations and associations consisting of companies with similar issues and goals.

There are IP protection groups in most countries that are committed to lobby the government for changes toward legislative transparency so as to foster cooperation on the development of fair laws, regulations and procedures, which in turn help to build trust and enhance cooperation and support. Membership and participation in these organisations help to keep companies aware of the legal and practical aspects of handling issues affecting their businesses.

Committees and associations are also avenues for co-hosting seminars on topics of relevance to which key government officials are invited to discuss and listen to issues affecting businesses. Government agencies and authorities also may be more apt to listen to a group with whom they have worked when opportunities for information exchange on education and training regarding specific laws, industries and practices arise.

The issue of counterfeit goods in transit through the EU has also caused brand owners concern, and improved enforcement mechanisms to deter this activity would be welcomed. Caterpillar was for example recently affected by this issue in a case in Malta, where a container of counterfeit goods in transit was stopped and had to be released, and where we ultimately had to pursue the case in Kosovo.