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The adage, “the best defense is a good offense,” is not just good advice on a level playing field. It will help a contractor from becoming a victim of counterfeit electrical goods. It is estimated that $1 billion worth of counterfeits enter North America annually ($11 billion and $20 billion globally). According to Bernd G. Heinze, president and CEO, Sequent Insurance Group, between $300 million and $400 million are likely electrical products.
Fire, property damage, physical harm or death can be the result of counterfeit electrical goods. Knockoffs can include inferior circuit breakers, relays, contacts, switches, sockets, timers, cable, lighting and fuses. Counterfeiters take manufacturing shortcuts by using lesser materials, eliminating important parts and safeguards, and often by using the wrong parts (e.g., improper wire gauges). Vigilance, education and working with authorized distributors can go a long way in ensuring a counterfeit product does not enter your shop and end up installed at the peril of you, your company and your customer.
A real liability
Formed in 2008, the Anti-Counterfeit Products Initiative (archived at www.counterfeitscankill.com) represents a group of associations and manufacturers aggressively fighting imitative electrical goods. Endorsers include the National Electrical Contractors Association (NECA), the National Association of Electrical Manufacturers (NEMA), the National Association of Electrical Distributors (NAED) and Underwriters Laboratories Inc. (UL). Sponsors of a renewed anti-counterfeiting effort include the following manufacturers: Alcan Cable, GE, Schneider Electric and Siemens.
Education has been a prime effort for the initiative. John Maisel, publisher of Electrical Contractor, said electrical contractors recognize the danger such products pose, but they have not yet recognized their liability if they install such counterfeit products.
“Safety [ECs] understand,” Maisel said. “Liability they seem to question, wondering how they can be held responsible if they unwittingly install something that is counterfeit. In a court of law, since they are the last person to handle the product, they can be liable. ‘I didn’t know’ offers little protection.”
William Ferguson, vice president of administration and general counsel for Babcock Power Inc. in Danvers, Mass., is a former electrical contractor. His blunt words shared at the initiative’s first industry event—a roundtable discussion at the 2008 NECA Convention and Trade Show in Chicago—lays out the liability contractors face.
“You will be sued for breach of contract, negligence, gross negligence, perhaps internal misrepresentation, strict liability or fraud,” he said. “Criminal liability would be leveled if you intentionally or someone in your organization conspired to bring counterfeit product into your company. In the U.S., it is not ‘a slap on the wrist’ like it is in China and other countries. You could face 10 years in prison, $5 million in fines and $10 million for the company for a first offense.”
“Today, contractors still don’t sense the urgency,” Maisel said. “In fact, while our ‘2008 Profile of the Electrical Contractor’ showed ECs were concerned about counterfeit products, 43 percent interviewed were unsure they had even encountered counterfeit goods. Thirty-three percent said they had never encountered them. We will resurvey our membership and share the results in the July 2010 issue of Electrical Contractor. It will be interesting to see if the needle has moved.”
Learning from a vigilant supply chain partner
Graybar is a distributor of components, equipment and materials for the electrical and telecommunications industries. The St. Louis-based company aggressively protects the supply chain for itself and its customers.
“Our first line of defense is choosing the right suppliers and developing strong relationships with them,” said Steven Horst, the national market manager for Graybar.
Graybar’s suppliers undergo a rigorous distribution agreement process.
“We look for several things from a supplier,” Horst said. “Liability insurance is one. While they have to have it by law, some forgo it, especially smaller businesses. Other companies are not bonded nor do they carry adequate insurance. Our stance is if we have insurance, so should our supplier.”
A second vetting criterion for Graybar is ensuring a supplier is financially sound.
“If companies can’t afford to maintain what they agreed to in their purchasing agreement, their failure comes back to us and down the chain to the electrical contractor,” Horst said.
Graybar also weighed in on how a supplier protects its brand.
“We value partners who maintain a strong brand value in the marketplace,” he said. “The quality of their research, development and manufacturing processes is all part of building and maintaining a sturdy brand. In turn, we buy their products directly from them—no secondary sources or resellers.”
Unauthorized sellers and spotting a counterfeit
Gray market channels and resellers using the Internet, auctions or other avenues fall short in regard to quality safeguards when compared to authorized distributors.
“If a reseller supplies you a counterfeit product that goes bad and causes damage, good luck suing them,” Horst said. “They will say in a court of law, ‘We thought it was real,’ and then close their doors, leaving the contractor out to dry. Authorized distributors are going to be able to trace, track and log everything they sent to a job site. If you install a counterfeit breaker in a panel, you not only just voided the panel warranty, but everything you have installed or in conjunction with what you installed. It voids everything. Avoid unauthorized distribution. Remember, if the price of an electrical product is too good to be true, trust your instincts.”
Despite best efforts by reputable manufacturers and distributors, fraudulent materials make it through. Contractors should know how to spot these materials. Packaging and labeling is sometimes the most obvious tell. Misspellings, lack of the UL label or other certifications, or packages that look tampered with or opened should raise suspicion. Sometimes, the touch and feel of an extension cord or a breaker panel should cause concern. Maybe the cord’s thickness is off; the weight or shape of a breaker seems strange. Do not dismiss such observations, as you may be correct in your assumptions.
Graybar trains its shipping and receiving clerks to spot suspicious product.
“Sometimes, we see something that is not right with a load center or breakers or switchgear,” Horst said. “If incoming product isn’t sealed or indeed opened, we all take a look, including our Square D field representatives. We may simply return it. We also only take back unused product from the field that we sold to that customer.”
“Educating and training your staff members how to spy counterfeit products and false packaging is advisable,” Maisel said. “We encourage product managers, supervisors and others to keep up on alerts to what’s happening, such as the latest reports of products being counterfeited.
Counterfeits Can Kill (www.counterfeitscankill.com) is a collective first stop for information and provides links to many sites, including the organizations that make up the initiative. Keeping up on product recalls due to safety concerns is another way contractors can be proactive. The Consumer Product Safety Commission (www.cpsc.gov) is especially helpful.
The legal counsel at Schneider Electric tenaciously goes after parties trafficking in counterfeit Square D products. Circuit breakers have been the most common problem. A suit leveled against an offending wholesaler is just the beginning. Through the discovery process, the company finds out from whom the wholesaler bought and where that party obtained the counterfeits. All parties face lawsuits, and the discovery process continues down the line.
“Thirteen civil suits have been filed against more than 25 companies and individual defendants,” said Tracy Garner, manager of anti-counterfeiting and unauthorized distribution for Schneider Electric, based in Palatine, Ill. “Moreover, over 400,000 counterfeit breakers have been kept out of the market and another 225,000 are subject to recall. Multiple government investigations are pending.”
“My perception based on activity level is that the number of counterfeit Square D circuit breakers have declined from what we were seeing in the last three years,” said Stephen Litchfield, assistant general counsel for Schneider Electric. “I would like to think a good part of that has been our success in filing lawsuits against those selling these counterfeits. Getting indictments and successful prosecutions provides a chilling effect. Nevertheless, you cannot let your guard down. I am now seeing low quantities of counterfeit contacts coming from, though not necessarily manufactured in, Central America. We’re also seeing uninteruptible power supply products from the Middle East as we work to expand our monitoring efforts beyond China and Asia.”
Litchfield added that building awareness and training both with his company’s customers and agents from the U.S. Immigration and Customs Enforcement, has been a tremendous help in Schneider Electric’s anti-counterfeiting fight.
“We have developed the reputation of standing tough to counterfeiters,” Litchfield said. “[Counterfeiters] certainly have no brand loyalty and move on when the heat is on. We know we have successfully sent them elsewhere. While counterfeiting is a safety issue, we also need to protect our intellectual property rights. Our work with the Consumer Product Safety Commission has really helped here, too.”
Siemens Industry Inc. similarly trains and works with border protection agencies including port authorities.
“We continue to pursue methods to protect our products and solutions from counterfeit activities,” said Kevin Yates, segment head for Siemens Building Technologies—Low Voltage Distribution. “In addition, we will appropriately respond to known counterfeit activities in a manner that protects our customers and our shareholders.”
Siemens commitment involves a number of strategies. Registered patents make it difficult for someone to counterfeit Siemens products. “Secret shoppers” within the distribution channel investigate suspected counterfeiters. The company also works with the British Engineering Manufacturers Association, and anti-counterfeiting initiatives across the globe to help monitor what might be entering the United States.
Staying one step ahead
UL has developed its own strong relationships with U.S. Customs and Border Protection, providing agents with the tools and education to detect counterfeits entering the country. It has also helped train individuals within the U.S Chamber of Commerce, the U.S. Patent and Trademark Office, and the Department of Commerce and is now reaching out to law enforcement agencies such as police, deputies and state troopers who may be involved in searches. UL has also set up domestic sting operations that have successfully put people behind bars.
Counterfeiters covet the UL logo and have been trying to make accurate knockoffs. That is why the standards body constantly improves its holographic and other covert logo features. The latest gold hologram is the toughest yet to duplicate.
“Customs agents verify the logo using a UL-supplied ‘credit card authenticator’,” said Robert Crane, UL’s lead enforcement manager, Anti-Counterfeiting Operations. “The gold logo has two UL symbols that the authenticator reads. When placing the authenticator’s two tinted windows over the logos, the UL symbol on the left will be visible and the UL symbol on the right will not. We also added color-shifting ink to the logo, similar to latest denominations of our U.S. paper currency. This approach is much harder to duplicate.”
Crane added that as UL gets better with it covert features, it expects an ever-growing window (more than three years) before counterfeiters catch up with the design.
“We know the counterfeiters will never stop,” Crane said. “There were 20 billion products with UL labels each year. A counterfeit gold label has already showed up in a warehouse in China. Effective labeling is a real science. I am happy to say the counterfeiting is not spinning out of control. We have a good handle on what is happening and have added our first investigator and attorney in China. The investigator checks out authorized businesses manufacturing electronic goods. Private investigator agents uncover unauthorized businesses.”
Crane shared that Chinese authorities do cooperate when UL can offer an “airtight” case of counterfeiting. Anything less is considered speculation.
“When it comes to electrical products, we estimate almost 98 percent of all counterfeits are coming from China,” he said.
UL also works with international agencies such as Interpol, the Royal Canadian Mounted Police, and agencies in South America.
The legislative front
Lobbying in Washington is now playing an important role in combating counterfeit electrical goods. NEMA successfully lobbied for and provided input into the drafting and passage in 2006 of the Stop Counterfeiting in Manufactured Goods Act and the Prioritizing Resources and Organization for Intellectual Property Act (PRO-IP) Act of 2008. The International Brotherhood of Electrical Workers was one of the proponents for PRO-IP.
“We [NEMA and others] are engaged in follow-up legislation,” said Clark Silcox, general counsel for NEMA Rosslyn, Va. “PRO-IP called for dedicated enforcement of intellectual property with added personnel and budget commitments. We are now working on funding reauthorization so U.S. Customs and other agencies can continue to stay engaged at their current level. We are also lobbying to strengthen state laws that are lax in their enforcement of counterfeit products. Finally, we are working with the National Association of Attorney Generals to help train local prosecutors and law enforcement to spot pirated electrical products. We have had some success the past couple of years through effective seizures of counterfeit consumer electrical products. We are also seeing progress in abating products serving the industrial and commercial sectors.”
UL’s Crane added, “Politicians and legislators are starting to pay attention. State officials are contacting us now. Five years ago, that was not happening. Attorney generals’ offices are now getting counterfeiting cases.”
Next steps for the initiative
To date, initiative awareness efforts have including joint magazine supplements (Electrical Contractor and tED, December 2008); industry event panel discussions; Webinars, informational tool kits and a dedicated Web site. New efforts are kicking off this month, sponsored by Alcan Cable, GE, Schneider Electric, and Siemens.
“In this issue of Electrical Contractor and tED magazines is the first in a rotating series of three special messaging ads,” Maisel said. “The first advocates purchasing only through authorized channels. The second will focus on the dangers and liabilities of counterfeit products. A third will be an all-industry call to action titled ‘Join the Fight.’ We are also offering manufacturers the opportunity to produce a single page ad highlighting their counterfeit efforts. In November, GE will sponsor a Webinar that tackles the issue of gray market products. Watch for more information in the coming months.”
GAVIN is the owner of Gavo Communications, a marketing services firm serving the construction, landscaping and related design industries. He can be reached at [email protected].