Andrew Brown Jr. subscribes to a relatively broad definition of a company's intellectual property.
From the moment a component is conceived through its entire lifecycle, the part has a life of its own. Computer files are created, prototypes are built, manufacturing capacity is installed, production workers are hired and marketing campaigns are launched.
Along the way, hundreds of hands touch the product, and some have access to the critical computer-generated design data that sets forth the product's DNA. Those interacting with the part can be less concerned with the company's good than their own.
“People think of intellectual property as drawings, but really it's the knowledge of our employees who walk in and out every day,” says Brown, executive director and chief technology officer for Delphi Corp., which is coping with bankruptcy in addition to counterfeiting.
“There really is a broader concept that needs to be recognized here. I use the term intellectual capital, and it starts with the knowledge created for a product,” he says.
“That continuum is an opportunity for someone to steal our intellectual capital and create competitive parts in the marketplace and extract wealth from Delphi or any other OEM or Tier 1 supplier.”
Delphi doesn't have to look very hard for evidence of piracy. “We are finding some of our parts on eBay,” a Delphi official says.
The Motor and Equipment Manufacturers Assn. (MEMA) estimates auto suppliers lose about $12 billion in sales annually to product counterfeiting. Outrage on the part of U.S. auto makers and suppliers led to the “Stop Counterfeiting in Manufactured Goods Act,” signed into law a year ago.
The law may help the fight against parts piracy in the U.S., but the problem is so pervasive it transcends borders.
A supplier's first step in protecting its intellectual property is to register the information in the form of patents, trademarks or copyrights, so ownership can be clearly demonstrated. But IP laws vary from country to country, and counterfeiters can be challenged only in countries where the product has been registered, says Stuart Gosswein, director-federal government affairs for the Specialty Equipment Market Assn.
That means suppliers seeking adequate safeguards must register their products in multiple countries in order to pursue foreign IP disputes. Multiple registrations around the world may not be adequate either, as savvy counterfeiters set up shops in far-flung, low-wage regions to evade the law.
Occasionally, authorities prevail. In June, one of the most highly publicized cases of product piracy in the auto industry is slated for trial in U.S. District Court in Detroit. Three former Metaldyne Corp. employees face charges they conspired to steal secrets from the company to share with a Chinese competitor, Chongqing Huafu Industry Co. Ltd.
A 64-count indictment accuses Anne Lockwood, her husband Michael Haehnel and Fuping Liu of plotting in 2004 to share a proprietary process used to fabricate powdered metal into auto parts.
Lockwood was vice president-sales for Metaldyne, while Haehnel was a senior engineer at the Plymouth, MI, supplier. Liu was a former metallurgist who worked out of Metaldyne's Shanghai office until April 2004.
The indictment says Lockwood and Liu began working with Chinese manufacturers that could displace Metaldyne as the supplier for various powdered metal parts. Lockwood allegedly set up a company to receive commissions based on sales by the Chinese companies.
China may get most of the focus for counterfeiting, but supplier executives have grumbled that product information is not always safe with U.S. auto makers, either.
In the 1990s, Inaki Lopez, the former General Motors Corp. purchasing chief, was known to shop product data to other suppliers, in hopes of getting the same goods for a lower price. Today, GM purchasing chief Bo Andersson invites suppliers to alert him directly of any misdeeds by GM purchasing staff with regard to a supplier's product data.
In 2004, GM fired a purchasing employee for violating a confidentiality agreement with a supplier over product technology.
When asked if Delphi still faces IP problems with Detroit auto makers, Brown says, “I think it remains a constant challenge.” But Delphi is doing what it can. It has a brand protection council and is active in trade associations fighting the problem. Laptop computers at Delphi also are kept to a minimum, and many computers have no USB ports, to prevent information from being transmitted to portable memory sticks.
Part of the challenge is convincing production workers of the need to destroy scrapped parts, rather than just putting them in a dumpster, where they can be retrieved later.
Brown sees China as cracking down on fake parts so it can lock in its participation in the World Trade Organization.
In the meantime, Delphi management knows its Chinese manufacturing plants are particularly susceptible to potential theft of parts and information.
“We know the issue's there,” Brown says. “We are trying to understand the extent of it.”
