The statistics are impressive: The cross-border law enforcement officials from Europol assess the share of pirated products in worldwide trade to amount to 2.5 percent valued at 461 billion U.S. dollars. Western industrial countries are particularly affected by product piracy. According to the most recent OECD study in 2019, some 24 percent of the infringements of intellectual property rights (IPR) discovered worldwide concerned the United States, followed by France (17 percent), Italy (15), Switzerland (11) and Germany (9). Shoes, clothing, leather goods, electronics and watches accounted for the largest share of merchandise. However, product piracy not only affects luxury or consumer goods. Impacted as well are particularly critical product groups such as medicinal and safety-relevant industrial products – and, therefore, the globally operating automotive and industrial supplier Schaeffler is affected too.
Fake products as a safety risk
The consequences of counterfeiting are complex. Manufacturers not only lose sales or competitive advantages but are also threatened by a tarnished brand image, claims for damages, job loss or litigation. Not only major corporations are impacted: In a survey conducted by the European Intellectual Property Office (EUIPO) among small and medium-sized enterprises (SMEs) one in four companies responded that it was affected by IPR infringements. “Illicit trade in counterfeit and pirated goods poses a major challenge to an innovation-driven global economy,” says Christian Archambeau, Executive Director of the EUIPO. “It damages economic growth; poses significant threats to individual and collective health and safety; fuels organized crime; undermines sound public governance, the rule of law and citizens’ trust in government.”
The aspect of safety is of particular concern to Martin Rügemer from Schaeffler’s Global Brand Protection Team: “Of course a counterfeit part frequently implies considerable damage to a brand’s image and lost sales for a company. But especially in the case of safety-relevant products any fake may be defective due to the utilization of inferior materials or because of design flaws – and, above all, poses a potential hazard. For instance, a bearing in a power plant may fail, but a wheel bearing in a passenger car can get stuck as well. The effects may be very serious.”
"Some manufacturers feel that their products featuring high levels of technical sophistication are impossible to fake, so that they’re not affected"
Whereas people purchasing consumer goods often just want to save money, deliberately buying fake T-shirts or watches, manufacturers of industrial components or buyers of bearings sometimes don’t even realize that their sector is a victim of product piracy as well. “Some manufacturers feel that their products featuring high levels of technical sophistication are impossible to fake, so that they’re not affected,” says Ingrid Bichelmeir-Böhn, who is also a member of Global Brand Protection at Schaeffler. “But they’re simply proceeding from false assumptions because counterfeiters don’t care whether or not their products are replicated with technical accuracy, whether or not they function or meet industrial or quality standards. At first glance, they often look like the original part but are defective and therefore dangerous. Counterfeiters are only concerned about making money.” And that involves the entire range of the product portfolio: “There’s nothing that’s not subject to being faked,” her colleague Rügemer adds. “At Schaeffler, it actually includes everything from small groove ball bearings to wheel bearings or clutches to large bearings such as those for wind turbines.”
"There’s nothing that’s not subject to being faked. At Schaeffler, it actually includes everything from small groove ball bearings to wheel bearings or clutches to large bearings"
Extensive list of actions at Schaeffler
Consequently, the company uses a whole range of actions to protect itself and, above all, its customers against hazardous fakes. “We invest a major effort in information, for instance using flyers, presentations or posts on LinkedIn or Instagram,” says Bichelmeir-Böhn. “On the one hand, we do that to heighten buyers’ awareness of product piracy and, on the other hand, to enable them to recognize pirated products or to know what to do if they have doubts about their authenticity.”
For this purpose, Schaeffler rolled out the Schaeffler OriginCheck app in 2017. With it, customers can easily use smartphones to check a special and individual Schaeffler code on labels of Schaeffler products and in some cases on the products themselves. They’ll subsequently receive a notification telling them if this is a code that exists in a database maintained by Schaeffler. Should the code not appear there or have been used several times before the user will receive a warning and instructions for the next steps to be taken.
Putting a stop to the product pirates’ game requires an investigative search for clues, which Schaeffler’s Global Brand Protection Team engages in as well. “To sustain our ability to confront product pirates going forward, we need to continue to develop ourselves along with the counterfeiters and their methods,” explains Ingrid Bichelmeir-Böhn. That includes monitoring of digital distribution channels. “Due to e-commerce, sellers are able to offer their products worldwide with considerably greater ease,” Bichelmeir-Böhn adds. “That’s why it’s very important for us to systematically monitor these platforms, to take action against sellers of faked goods and to have their listings deleted. In this area, we’ve been seeing an increasing amount of shifting from B2B and B2C platforms toward social media, which shows that we’re successful with our actions.”
The members of Schaeffler’s Brand Protection Team also rely on support by sales employees and distributors. “We’ve established a very good network that includes us online as well as in the real world and provides us with important clues that we follow up on. In addition, we work closely with customs authorities or agencies like Europol,” Martin Rügemer adds. “But that may also apply to a private citizen who has purchased something on eBay and gets in touch with us via the OriginCheck app.”
The exemplary action taken by Schaeffler’s Greek distribution partner SKAMA is a recent case in point. SKAMA offered a customer that had opted for an allegedly better offer by a competitor to authenticate the shipped bearings. The verification of the Data Matrix codes by means of the OriginCheck app corroborated the distributor’s initial suspicion. SKAMA immediately sent photographs of the goods in question to the Schaeffler team that confirmed beyond a doubt that they were counterfeits. For another suspected case, the members of the Brand Protection Team traveled to Greece and once again identified all bearings as fakes. With support by a local attorney, the shipments were immediately confiscated. Schaeffler’s Turkish distribution partner Özevren Rulman had a similar experience. They had lost a range of bids in response to invitations to tender against clearly cheaper competitors. Suspecting that something was wrong, they offered the customers concerned to verify the authenticity of the cheaper bearings using the OriginCheck app, and they turned out to be fakes. Due to their intervention, Özevren Rulman even managed to extend existing business relations with its customers. In 2020 alone, that helped the company generate additional sales of nearly half a million euros.
Unwitting infringement of brand rights
The German company Diehr und Rabenstein that was supposed to receive shipments from a company named Yakang, which appeared to be a respectable business at first glance, had a bitter experience of product piracy as well. The goods the company had ordered were confiscated by customs authorities at the Nuremberg airport and Diehr und Rabenstein’s offices searched by authorities. It had turned out that the company had purchased counterfeit bearings. “At first, my employees and I didn’t realize what was happening to us,” owner Wolfgang Diehr recalls. “You normally know such scenarios only from television. Suddenly, we appeared to be villains, criminals, caught in the crosshairs of investigators, bailiffs, attorneys and experts. This massive showing drove home the seriousness of the situation to us and we began to realize that we’d unwittingly infringed on brand rights. Our attorneys subsequently informed us that we had to expect anything, including prison sentences and insolvency! We were shocked. Everything that we’d worked hard to build during the past two and a half decades, our company, our homes, our standard of living … All that was now to be lost?” In close collaboration with Schaeffler’s Brand Protection Team, the case of was ultimately resolved. “We want to create trust with our actions against product piracy,” emphasizes Bichelmeir-Böhn. “Customers can turn to us at any time and will be supported by us. They won’t be left in the lurch with such problems.”
Since it was formed in 2004 Schaeffler’s Global Brand Protection Team has investigated more than 7,000 cases and deliberately initiated further actions for protection against product piracy and brand right infringements. Ideally, suitable actions are taken locally, in other words on the counterfeiter’s premises, to confiscate the goods and to thereby prevent these products from entering the marketplace. As a case in point, Ingrid Bichelmeir-Böhn mentions government action taken in India when 15,000 faked FAG bearings and 40,000 duplicate packaging units were seized all at once.
But such large-scale discoveries are becoming increasingly rare. In many places, product pirates have switched to just-in-time production. Components and packaging materials are marked with fake brand symbols just shortly before they’re shipped. Most of the goods are stored namelessly in basements, so-called go-downs, which protects them against confiscation.
Again and again, confiscated products are destroyed in spectacular actions around the world – not least to deter potential counterfeiters. Schaeffler uses such conspicuous methods too but has been championing actions to prevent counterfeit scrap from ending up being treated as waste. “In our case we see to it that fakes, in the best case, are melted down because the steel can be reused,” explains Martin Rügemer. For this sustainability initiative that has been catching on, a service provider of Schaeffler’s in the United Arab Emirates was recognized with the “Green Dot Award.” Of course, sustainability (and safety) would benefit even more if such counterfeits were not produced in the first place …