When Counterfeiting meets Product Liability, Consumer Rights and the Education of our Younger Generations

By Paolo Beconcini

Disclaimer: the Case scenario uses fictitious names. However, the story is based on true facts I adjusted and embellished for narrative purpose.

The Smith's Case Scenario

Mrs. Smith returned home from grocery and she started preparing dinner. She had a lot of things in her head. Their son had called to tell her he was down with a cold and was not coming for dinner. She had spoken to him just a little ago. She had also met an old friend from work and lots of memories were occupying her thoughts. Nonetheless, on the back of her head she had not forgotten that strange and sudden blackout of the car when she was in the middle of the crossing on her way home. It was the second time it had happened since the small frontal accident with another car about a month before. That thing about the car had indeed made an impression on her. When her husband came back from work she was surprised to find herself asking him immediately: "Hon, it happened again!". "What happened again?" replied the husband while hanging his jacket in the foyer. "That thing with the car, the short blackout. I was scared because I was driving in the middle of the crossing and I lost power. Fortunately, it returned almost immediately... but it was scary. I think we need to have the car checked again" Mr. Smith reassured her that it was probably a thing with the engine software. The car had been fully repaired by their friend Jack at the workshop down the avenue. He was a good mechanic. "Nonetheless, I will check with him next week. For your peace of mind." He said. They then change topic.

They did not make it in time to check the car. That same night the car, which was parked in the garage, went on fire and burned the house down in the process. Fortunately, Mrs. and Mr. S were only slightly injured, but they had no home anymore. The following months resulted in even more frustration piling on top of the loss. Dealing with the insurance and with the mechanic to try to get the money to rebuild the house was a grueling process. They consulted a couple of attorneys and one suggested to go after the car and the part manufacturer. The accident was so bad, it had scared the otherwise uneventful life of their neighborhood. Some of the neighbors had actually been slightly damaged by the fire as well, as the sooth and embers had also dirtied small portion of their properties. The whole story ended up in the local news.

Consumer safety and Implied Biases towards the Car Manufacturers

If I asked you reader what you felt reading this story, I am sure many of you would say that they felt sorry for the Smith family. You will automatically sympathize with their case because you feel this could happen to you as well, or maybe something similar has happened to you already or to someone you know. The plausibility of the situation nears you to their case.

Now, let me add some more information about this story:

• The car burning was cause by a short circuit in the right side headlamp.
• That headlamp had been replaced with a new one after the mentioned frontal accident of Mrs. Smith a few weeks before.
• After a vehicle inspection by the car brand manufacturer (who had meanwhile received a complaint from the attorney of the Smiths), it turned out that the whole headlamp set, including wiring, was a counterfeit part bearing the manufacturer trademark.

How will your feelings change after you know these facts? You might actually sympathize even more with the Smiths, because you may have likely purchased after market or utterly counterfeit car parts online even without wanting to. Just to save money. You feel that the Smith had been cheated by the mechanic (as you felt you were cheated by the online seller of your new gadget). Some of you may even feel that the manufacturer should have acted with more diligence by preventing fake parts with their brands on it, to enter the market. Few might think about the mechanic's liability. All of us we would have tended to believe the first reports from the media about the accident and we would have easily blamed the car manufacturer.

While consumer safety is paramount, you can already see from the above that the risk for trademark right holders to become an innocent victim of counterfeits are also non negligeable. Especially, when brands are accused of being liable for a product defect and will need time and efforts to prove to us that the accident was not caused by them, but by a counterfeit product.

This happens when product liability and consumer safety meet counterfeiting.

Risks for Trademark Holders

A fake analgesic, a counterfeit game console with bad heating fuses, a counterfeit toy made with dangerous parts and bad chemicals, counterfeit cosmetics with bad chemicals, fake home appliances, household products like shampoos, detergents or toothpastes, counterfeit electric and electronic products that move trains and airplanes, computer or phone components and accessories, all these counterfeits are a threat to the life and health of their users. However, they can also cause irreparable damages to businesses and economies.

In such cases the manufacturer and seller may face product liability claims for damage compensations, as well as warranty claims. The cost of defending such claims, or paying undue warranties, affects the right holder budget and reputation. News that their product may be allegedly defective on press reports or in internet blogs will tear down at their reputation. The press coverage may eventually attract inquiries and even investigations by administrative authorities in charge of product safety with further cost and image and reputation fallout. As we said above, most consumers reading these news will automatically sympathize with the victims, not with the right holders. They will tend to believe the initial news. As to consumer reactions to counterfeit see here: https://www.brandprotection.ai/post/the-danger-of-counterfeit-goods-do-consumers-care.

At some point the right holder may be able to confirm that the defective product was not theirs, but a counterfeit. The right holder will also avoid legal liability by winning or favorably settle the product liability lawsuit. He will surely be able to convince the administrative authorities to close their investigation. Nonetheless, all this will come at a price. Lot of money and time were spent clearing their name and reputation. Some reputation losses might take long to be recovered.

This situation will affect the consumers in their turn. Rising cost on the products manufacturer to prevent such situations, increased anti-counterfeiting work, may ultimately result in increasing cost, production sustainability and so on.

We can see therefore, that it is not only about consumer safety. Counterfeit are an existential threat to our free market system.

So? What to do?

• The right holders

Right holders must increase awareness of such risks and adjust the amount of resources dedicated in fighting counterfeiters to the real risk they pose to their existence. Fighting counterfeit is not just about reducing actual loss of sales. It is about name and reputation, it is about preventing risks for consumers. In particular, right holders must make use of all the available legal tools to stop counterfeiters, especially in China. China has good IP enforcement tools if we know how to use them well (see: https://www.dhirubhai.net/pulse/golden-factors-effective-anti-counterfeiting-strategy-paolo-beconcini-q7b3c/?trackingId=%2BskmNujHQg%2BsQo54SvphfQ%3D%3D). However, there are many other ways that we can add up to IP enforcement to make sure counterfeiters will find no peace. Among them, I am thinking about the administrative and criminal instruments that are made available to right holders by the Product Quality Law of the PRC.

• The Consumers

Consumers need to be more educated about counterfeiting, especially when they purchase products online. Mr. Smith should have made sure his friend Jack was selling him a genuine product. However, he should not have trusted Jack's word alone. There are nowadays many tools that manufacturers employ that allow consumers to verify whether products they purchased are genuine or not. Consumer must pay more attention to this. Understanding the bigger picture, and making efforts to buy only genuine products, can help reduce this plague. In the end consumers will be the major victim of counterfeiters. There is no reason to side with these bad actors (even indirectly)!

• Government

I want to conclude this post by recounting a personal experience. My son, a junior in high school in California, had proposed to the school to create a club to teach and learn the risks of counterfeiting and organizing school events to raise awareness. We are talking here of GenZers, often described as a rather counterfeit-friendly generation! The school refused because they had no staff to support another club. They would support existing clubs like the dinosaur or the Hello Kitty club, but not one about counterfeiting.

I think this examples shows how little awareness we have among consumers and in particular among adults that can help positively influence young adult about important things such as counterfeit and its impacts on consumers and businesses. If we cannot educate the future generations in time, when they are young, things will not change. But Things must change.