By Clark Silcox

In almost every significant CITY in the world, some consumers will go out of their way for a deep-discount purchase of a brand-name, luxury good, perhaps to a room on the upper floor of a nondescript building where they may buy products that bear counterfeit trademarks of well-known manufacturers. These consumers know they are buying fake goods and that the quality is likely to be inferior to the genuine product. But still, they feel satisfaction about their bargain purchases and justify their conduct on the theory that no one is harmed. After all, they would never buy the pricey, genuine goods, so sales are not lost, and no one’s health or safety is impaired by their purchases of a fake handbag, shoes or bottle of perfume.

A recent documentary from National Geographic based on the book by Dr. Moises Naim, “Illicit: The Dark Trade,” addresses global commerce in illegal trade of all types and these justifications. The film captures the role of organized crime in the global distribution of counterfeit goods and shows why consumers looking for counterfeit handbags or athletic shoes should consider where the money goes and how their behavior is financing criminal activity throughout the world.

Damage done

Seven-year-old Connor O’Keeffe brought his Nintendo Gameboy on a family vacation to Thailand. He forgot to pack his Nintendo charger/adapter, and after arriving in Thailand, his father purchased what he believed was a replacement Nintendo charger. Later that evening, Connor’s parents found him dead on the floor of the hotel room, clutching the charger that electrocuted him. A British inquest found the following:

• Wires within the charger were dangerously close together, which meant it could easily become live and electrocute a user, said Landesgewerbeanstalt Bayern (LGA), the German electrical laboratory that conducted the tests.
• Noting the charger was far below European safety standards, LGA discovered the gap between the primary and secondary circuits was 1 millimeter wide, compared to European standards, which require a 4.6-mm gap.

Nintendo did not make this product. It was counterfeit.

There are many other examples of injuries and damage caused by counterfeit electrical products: House fires in Indonesia and Egypt have been linked to the failure of counterfeit circuit breakers to protect electrical circuitry from overcurrent or short circuits. Counterfeit cell phone batteries have been reported to explode, damaging devices and property. Kitchen workers at an Iraqi housing facility for U.S. Embassy guards suffered minor electrical shocks, and electric wires began to melt because of counterfeit electrical wires installed in the facility. These and similar reports found on the National Electrical Manufacturers Association’s (NEMA) Web site confirm that counterfeit electrical products are typically substandard and unsafe.

Modern-day pirates may still use ships to export their stolen booty, but the 21st century weapons of choice are CAD machines, high-speed printers, digital cameras, e-mail and the Internet. This equipment enables high-quality copying of the exterior look of a product and the labels and packaging that accompany it. Images of the copied product are posted on Chinese English-¬language Web sites, and NEMA has found that some of these Chinese Web sites actually copy word-for-word the text of the product’s description from the genuine manufacturer’s Web site. The photo and the text are a fraud: they do not describe how the internal properties of the copied product vary from the product they purport to be.

There are counterfeit circuit breakers that have no internal parts that would terminate the current to a wire in danger of overheating. There are counterfeit batteries without the vents that enable built-up gases to escape and permit batteries to fail safely. There are counterfeit grounding rods with only a small fraction of the copper coating required to prevent corrosion by elements in the soil, giving the ground rod a useful life of only a few years to protect property from electrical surges instead of the 30 to 40 years one would expect from a product built to safety standards. And then there are the counterfeit electrical power cords—for which safety standards specify a 12-gauge AWG wire¬—that only have a 24-gauge wire typically found in speaker wire. The cord’s jacket deceptively states it has a 12-gauge wire, but it will not safely carry the electrical current for the purpose it falsely represents.

These hidden variations are not unintentional. These inferior products are intended to be made and sold cheaply to appeal to those primarily interested in purchasing an electrical product at a price that not even a wholesaler of genuine electrical products can sell at for a profit. The purchaser is buying these products either knowing that they are not the same quality as the genuine electrical product—consciously avoiding the question whether they are as safe, as durable or providing the same level of performance as the genuine product— or buying them unwittingly, a victim of the desire to buy a product at an unheard-of price.

“Counterfeit products pose serious health and safety hazards to consumers and put unsuspecting distributors in the middle of a very dangerous situation,” said Jim Pauley, vice president of industry and government relations for Schneider Electric’s North American Operating Division, Palatine, Ill. “Anyone near one of the counterfeit breakers when it explodes is going to be subjected to extreme heat, sprays of molten metal and a powerful blast of energy. Further, even if the breaker does not have a catastrophic failure, it may not properly operate to protect the home or building’s electrical system from an electrical fault, significantly increasing the likelihood of an electrical fire.”

Most counterfeit electrical products found in the United States are copies of electrical products made in the United States, Mexico, Canada or the Caribbean. Schneider Electric North American CEO David Petratis told the U.S. Chamber of Commerce in October 2007 that Schneider Electric can still make residential circuit breakers in Lincoln, Neb., at a landed cost that is less than the same product delivered from China. It’s also important to note that genuine NEMA-style residential circuit breakers are made in this hemisphere and are not sold on Chinese English-language Web sites.

The same is true for many other electrical products. A recent visit to eBay uncovered offers from Hong Kong sellers of counterfeit lithium batteries for as little as 99 cents for an order of 10 batteries. The counterfeiters copy the labels of the genuine batteries, but the real versions of these batteries sold in the United States actually are made in the United States.

While it is difficult to quantify the amount of counterfeit electrical products that have reached the United States, data reported by the U.S. Customs and Border Protection and Immigration and Customs Enforcement Unit indicates the number of electrical products seized is on the rise. Electrical products are catalogued as “consumer electronics” by customs, and in fiscal year 2006, these products represented 5 percent of total seizures valued at about $7 million. In fiscal year 2007, these products represented 8 percent of total seizures valued at about $16 million. The consumer electronics classification does not include computer hardware or computer games. This figure also does not include product that is seized as a result of private civil litigation or counterfeit product that is never found. The increase in counterfeits seized is consistent with what NEMA is learning about increased reports of counterfeit electrical products in the marketplace.

Common counterfeits

Counterfeit products touch on a range of interests: injury or death of consumers from a product defect or malfunction, deception of buyers of electrical products, improper use of intellectual property rights, and the loss of tax revenue. In addition, reputations are at stake: Tying a fire or injury to a wrongly branded counterfeit product can give the unsuspecting manufacturer an unwarranted black eye. NEMA is aware of at least one member company that learned it had a counterfeiting problem because it was named as a defendant in a product liability lawsuit for a product it did not make or sell.

In a recent report covering product liability issues for its members, the National Association of Electrical Distributors (NAED) reported that documented cases of counterfeit electrical products reaching the market include the following:

• Conduit fittings installed in a hazardous location, marked with a brand and certification marks bearing the manufacturer’s part number of a product designed for use in hazardous locations without actually meeting the design requirements suitable for those locations
• Circuit breakers bearing a brand name not providing protection
• Defective control relays bearing a counterfeit certification mark, causing a machine to malfunction
• Extension cords bearing a brand name and certification mark for a product designed for a 12-gauge wire but actually employing a smaller 24-gauge wire, which catch on fire when the cords are used as the manufacturer intends
• Imported dry-cell batteries containing mercury, when U.S. law prohibits sale of them
• Electrical products bearing the certification marks of third-party test labs without authorization
• Counterfeit ground-fault circuit interrupters
• Cell phone batteries
• Electrical receptacles

Risk of product liability claims

Who in the distribution chain of a product—manufacturers, distributors, retailers or contractors—is open to product liability suits when a product malfunctions or otherwise fails to perform as expected and causes injury? Most of the time, according to NAED reports, the manufacturer is the first focus of a claim or lawsuit based on the malfunctioning or defect of an electrical product and will stand behind its products. Claims most often associated with product liability include the following:

• Negligence
• Strict liability, where the injured party must show only that the product was defective (unsafe if used as intended) or unreasonably dangerous (likely to cause harm)
• Breach of warranty: a warranty is a statement by a manufacturer concerning the traits or operation of a product.

When the product is determined to be counterfeit, however, the manufacturer will generally avoid liability for a product that it did not make or sell. The focus then shifts to the distributors, retailers, electrical contractors and installers. The hunt is on for those who introduced the defective counterfeit product into the supply channel in the first place. Finding that entity, particularly if it is in Asia, may be a difficult task, leaving the local distributor or electrician holding the bag for liability because, unwittingly or not, they are the only known entity in the chain of distribution who can be sued. Given the difficulty of detecting look-alike counterfeits, the risk-averse strategy to avoiding counterfeits is to source electrical products from entities that are authorized and known to trade in genuine products of the branded manufacturer (for more on liability, see page 38i).

A collaborative solution

The Prioritizing Resources and Organization for Intellectual Property Act of 2008 (HR 4279) passed the House of Representatives in May 2008, and legislation pending in the U.S. Senate explicitly recognizes the importance of a public-private partnership.

NEMA and several of its members impacted by counterfeiting are pursuing public-private partnerships with the government on intellectual property enforcement. NEMA also meets with customs officials, helping them understand from where the dangerous fake electrical products are coming, and with criminal law-enforcement officials, asking them to bring cases where it is believed someone has knowingly trafficked in counterfeit electrical products. In addition, NEMA talks with trade and safety agencies to make them aware of the correlation between counterfeit products and substandard products. NEMA has written to the U.S. Trade Representative to support its World Trade Organization case against China for inadequate enforcement of intellectual property laws.

NAED and the National Electrical Contractors Association support efforts to combat counterfeit electrical products, and the efforts of Underwriters Laboratories and Canadian Standards Association International (to combat counterfeit electrical products) have not gone unnoticed. The product liability risks and the risks to the public from the unsafe counterfeits drives a mutual recognition among all groups in the electrical channel and the government that collaboration in eliminating this insidious side of global commerce is the only possible strategy.

SILCOX is general counsel for NEMA. He can be reached at Cla_Silcox@nema.org. This article first appeared in the June 2008. issue of the NEMA publication, “electroindustry.”