The murky world of gray-market parts
WASHINGTON — On Feb. 29, 2016, U.S.
Customs officers at the Port of Jacksonville in Florida detained a container
arriving from the Middle East on suspicion that the more than 10,000 Nissan
auto parts inside were counterfeit. The shipment belonged to AMG Trade &
Distribution, a mom-and-pop importer in Pompano Beach, Fla.
The 15-month ordeal that followed
nearly put AMG out of business and led to stress-related health problems for
co-owners Anthony Bachan and Michael Pockhai.
Now the company is taking Nissan
North America to court for telling U.S. Customs and Border Protection that the
goods were fake.
"I went through hell,"
Bachan said. With no inventory to sell, AMG lost customers and incurred big
legal bills.
The case sheds light on the murky
world of gray-market goods — items that are technically legal but considered
unfair by a manufacturer — and automakers' efforts to stop their dealerships
from straying outside official distribution channels for cheaper parts.
The transactions at issue typically
involve genuine, brand-name products from a reseller overseas instead of directly
from the manufacturer. Merchandise often can be obtained at a substantial
discount from a company's authorized distribution channel.
Sometimes, the goods are genuine but
pirated, meaning a contract manufacturer produces more than its customer
ordered and funnels the excess through back channels.
In this case, AMG bought the parts
for $193,375 from the export arm of Suhail Bahwan Automobiles, Nissan's licensed
distributor in Oman, according to invoices and court documents.
AMG's core customers are U.S.
dealerships, which Nissan has regularly warned not to use parts unless they
come through its official North American pipeline. Bachan, who runs the
business, and his attorneys say Nissan is trying to interfere with a
competitor's legitimate business so it can charge higher prices for parts.
"They tied up our money,"
he said. "We're a very small company. We depend on one container load to
get us through. We sell that and purchase another one. So there was a lot of
pain and suffering."
Pyrrhic victory
Enforcing intellectual property
rights is a priority trade issue for Congress and Customs officers. In the 2016
fiscal year, Customs seized 31,560 shipments of counterfeit goods with a
combined retail value of $1.4 billion. The agency relies on trademark holders
to help make infringement determinations at ports of entry.
A 2014 public service announcement
from the National Intellectual Property Rights Coordination Center, a law
enforcement task force, warned that counterfeiting of auto parts was growing at
an alarming rate.
At the request of Customs, Nissan
employees examined a sample of the 10,778 parts from AMG's container and
declared the entire shipment to be highly suspicious. Nissan said some items
were clearly fakes.
AMG provided documents it says prove
the door molding assemblies, fans, headlamps and other items it bought were
genuine Nissan parts made in Japan, Mexico and the U.S., according to a letter
from an AMG attorney to Nissan. The letter sought damages and demanded that the
automaker tell Customs the products were genuine.
Nonetheless, Customs formally seized
AMG's shipment in early May 2016, a move the company then challenged. To ensure
due process, such claims normally are referred to a U.S. attorney for review.
When that didn't happen, AMG sued the U.S. government in January 2017 to start
the forfeiture process and get its parts returned. Asked why AMG's claim didn't
automatically get a referral, a Customs spokesman said the agency does not
discuss individual enforcement cases.
James Muench, an assistant U.S.
attorney in Tampa, ordered Nissan to inspect every part. This time the
automaker reported that only a small number were counterfeit. In May 2017, the
U.S. attorney's office agreed to return all the goods to AMG, which was
required to ship back to Oman 217 items that Nissan representatives concluded
were counterfeit. Customs waived AMG's warehouse detention fees.
But the victory was bittersweet,
Bachan said, because the parts had lost value and the business nearly went
under in the process.
Nissan countermeasures
Nissan pressures dealers to follow its requirements and polices their
compliance. It prohibits the use of parts imported via non-Nissan sources
because they "may not meet the strict design and performance standards for
our North American vehicles," Yaeger said.
"In the interest of customer satisfaction and to ensure maximum
performance of Nissan and Infiniti vehicles," he said, "Nissan North
America regularly provides education, training and information to dealers on
the value and benefit of using genuine Nissan or Infiniti parts and accessories
that are distributed by NNA."
Bachan said a new inventory-management system dealers must use enables
Nissan's corporate office to track all parts bought and sold, which has scared
some dealerships from gray-market goods. The system will detect, for example,
if a dealer sells more brake pads than it bought from Nissan's domestic
distributor over a certain period.
In a July 2015 letter obtained by Automotive News, Nissan reminded
U.S. dealerships that their franchise agreement authorizes only genuine parts
and accessories for warranty and recall repairs.
"Parts acquired from sources other than NNA may say they are 'genuine,'
but the use of such parts is not permitted for Nissan-paid repairs, and they
carry no NNA warranty," it said, adding that stores must disclose when
nongenuine Nissan parts are used.
"Additionally, Nissan suppliers are prohibited from selling excess
inventory outside the Nissan supply chain," the letter said. "Anyone
other than NNA promoting parts as Genuine Nissan Parts may be intentionally
misleading you. It is your responsibility to ensure such parts are never used
for any
NNA-reimbursable repair."
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