Auto parts retailers and repair shops would be subject to increased criminal and civil penalties for unwittingly selling counterfeit auto parts if the intellectual property bill (H.R. 4279), passed overwhelmingly by the House in May, clears the Senate. Counterfeits haven't landed many retailers or shops in court yet, but they are a ticking time bomb. A study in 2007 conducted by the U.S. Chamber of Commerce revealed that Ford alone is losing about $1 billion annually from counterfeit auto parts circulating through the U.S. distribution system.The bill was sought by the Motor and Equipment Manufacturers Association (MEMA), as well as groups such as the Automotive Aftermarket Suppliers Association (AASA). It created the Brand Protection Council and includes provisions to ensure counterfeit parts made abroad never get into the U.S. distribution chain.
Aaron Lowe, vice president of the Automotive Aftermarket Industry Association (AAIA), says his group "strongly favors" better protection against counterfeit auto parts flowing into the U.S. The most commonly produced counterfeit parts are those sold by aftermarket retailers: maintenance and high-volume items such as oil and air filters, shock absorbers, fan belts, disc brake pads and shoes, air conditioning compressors, starters, spark plugs and oxygen sensors.
Aftermarket suppliers are concerned about the damage to their reputations when an auto shop installs a counterfeit part or when a consumer buys a counterfeit part at an aftermarket retailer. In one instance, the legitimate supplier loses a sale to a counterfeit product. In another, if the brake pad happens to be made of sawdust and there is an accident, all the links in the distribution chain could be in line for a very stiff fine.
No legitimate retailer would knowingly sell counterfeit auto parts. But courts have considerable leeway to determine whether a seller had "knowledge," says Anthony Lupo, an attorney for Arent Fox, a law firm that represents MEMA.
"Knowledge can be demonstrated by several factors — including, but not limited to quality, price and manner of distribution of the products," Lupo says. "Knowledge may be established through 'willful blindness,' where the retailer fails to inquire about the authenticity of the products for fear of what such inquiry may yield."
The House bill, sponsored by Judiciary Committee Chairman Rep. John Conyers, D-Mich., increases civil penalties from $150,000 and $1 million (for a "willful" violation) , to $200,000 and $2 million, and directs courts to award treble damages and attorney's fees against "knowing" participants, which under current law cannot happen.
For criminal violations, the bill increases from 10 years to 20 years the potential sentence where the defendant "knowingly or recklessly causes or attempts to cause serious bodily injury." The bill also creates a new intellectual property enforcement division at the Department of Justice.
The bill (H.R. 4279) passed the House by a vote of 410 to 11. Catherine Boland, director, government relations for MEMA, says her group and its affiliates are working very hard to convince the Senate to pass two bills that together add up to H.R. 4279. Those are Sen. Patrick Leahy's, D-Vt., Intellectual Property Enforcement Act of 2007 (S. 2317) and Sen. Evan Bayh's, D-Ind., Intellectual Property Rights Enforcement Act (S. 522).
Stephen Barlas has been a full-time freelance Washington editor since 1981, reporting for trade, professional magazines and newspapers on regulatory agency, congressional and White House actions and issues. He also writes a column for Automotive Engineering, the monthly publication for the Society of Automotive Engineers.