Hyundai and importer Direct Technologies International (DTI) have reached an agreement to end lawsuits against each other related to a grey-market parts dispute where DTI was importing and selling Hyundai collision and service parts in the US.
Hyundai alleged that DTI represented the grey market parts in a manner likely to create confusion and either steal or harm the reputation Hyundai had created within the authorised parts supply chain.
Although DTI had originally denied Hyundai’s allegations and countersued, they have agreed to pay Hyundai $US5 million in attorney’s fees and damages and stop importing or selling “non-genuine Hyundai parts,” which are “defined as Hyundai-branded parts that are not sourced through Hyundai Motor America (HMA) and its authorised chain of distribution.” DTI also accepted a ban from representing those unauthorised parts “as genuine, original, OEM, OE, or Optional/Opt OE, or in any way mispresenting the warranties that cover non-genuine Hyundai parts.
DTI admitted to trademark infringement and dilution, two counts of false designation of origin, unfair competition, interference with contractual relations, and violating the North Carolina Unfair and Deceptive Trade Practices Act.
According to DTI’s attorney, “DTI has served the automotive community since 2013 and is extremely satisfied that the parties were able to negotiate a mutually beneficial settlement agreement, which resolves all disputes between the parties, including DTI’s counterclaims against Hyundai for antitrust and anticompetitive conduct.”
The reference to “Opt OE” is interesting considering the collision repair industry discussion around such parts. Hyundai Motor America Chief Customer Officer Barry Ratzlaff stated: “This case is a win for Hyundai owners who want peace of mind that Hyundai-branded parts used on their cars are approved by Hyundai Motor America and have gone through its quality control processes. These days, it is easy for owners and even dealers to be confused by the sales tactics of grey market parts sellers. The internet is filled with examples of listings that appear to be for Hyundai Genuine Parts, but in reality, those parts are not coming from Hyundai Motor America and are subject to unsecure supply chains without appropriate safeguards against introducing counterfeit, reject, and defective parts.”
Especially in the context of collision parts, the industry is seeing clever ways of deceiving customers and body shops by companies that describe their non-genuine parts as ‘optional OE’ or ‘OEM surplus.’
HMA only sources parts for sale to Hyundai authorised dealers through Hyundai’s authorised US distribution chain, and only those parts sourced through that authorised distribution chain are recognised by HMA and the industry as Genuine Hyundai Parts, covered by the applicable Hyundai warranties. The decision locks that definition into place for DTI and seems to add credence to a tactic an intellectual property expert suggested can be used against grey market parts.
Supreme Court rulings block a US OEM from using copyright and patent law to check the unauthorised importation and resale of their products. However, a company can still pursue legal action against such unapproved distribution on Lanham Act trademark grounds, according to Burns & Levinson LLP partner Mark Schonfeld, whose expertise includes the grey market.
“The Lanham Act prohibits describing products in a way that ‘is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person’.”
Hyundai Genuine Parts are made to precise specifications and must meet certain quality standards applicable to the Hyundai vehicles in order to be sold in the US, which is not true for certain Hyundai-branded parts meant for sale abroad. Hyundai-branded parts that are not sourced through Hyundai’s authorised US distribution chain may contain numerous physical and non-physical material differences including, but not limited to, differences in packaging, labels, production methods, weight and performance characteristics, either as a result of the difference in specifications or manufacturing processes or because parts are not ‘first run parts,’ are ‘seconds,’ or are defective or reject parts.
Furthermore, Hyundai-branded parts that are sourced outside of Hyundai’s US authorised distribution chain are materially different in warranty coverage and/or protection, quality control, and dealer and customer support. As such, the sale of those unauthorised Hyundai-branded parts in the US constitute sales of illegal grey-market goods.
DTI imported, promoted, offered for sale, advertised and sold on the internet and other media unauthorised Hyundai-branded parts, which were meant for sale abroad, to various Hyundai Authorised Dealers, independent repair facilities, and other third parties or entities in the US without notifying them that the parts were not Hyundai Genuine Parts, were not sourced through Hyundai’s authorised chain of distribution and are not covered by Hyundai warranties or, in some instances falsely indicating to dealers that the Hyundai-branded parts are covered by Hyundai warranties, when they were not. The consumer expects Hyundai-branded replacement parts sold in the US to be approved by HMA and backed by its parts warranty.
Despite superficial similarities in the appearance of DTI’s non-genuine parts, expert analysis in the case revealed that many of DTI’s parts were counterfeits or defective parts that were sourced from unscrupulous trading companies in the Middle East, Vietnam, and Russia. DTI admitted that its parts were obtained from trading companies outside the US and did not know where those companies were obtaining the parts. Virtually all of DTI’s parts came in containers with identifying labels removed to avoid detection.
This article courtesy of John Huetter of Repairer Driven Education (RDE). Check out their website at; http://www.repairerdrivennews.com/ for this and many other informative and educational articles on the collision repair industry.