Sales scams in the HVAC/R Industry and how to protect yourself and your business by Lorne Lipkus | HRAI Annual Conference 2019

Putting the Pieces of the Puzzle
Together
COUNTERFEITING in our MARKETPLACE
HRAI 2019
Annual Meeting & Conference
August 25-27, 2019
Niagara Falls, Ontario
Presented by
Lorne M. Lipkus
of
Kestenberg Siegal Lipkus LLP
Barristers & Solicitors
65 Granby Street, Toronto, Ontario, M5B 1H8
www.ksllaw.com
Tel: 416-597-0000 Fax: 416-597-6567
11Copyright Kestenberg Siegal Lipkus LLP

Counterfeiting
Counterfeiting is the illegal production and
sale of goods, including packaging, bearing
without authorization a trademark which is
identical to a validly registered trademark
or which cannot be distinguished from
such a trademark.
Kestenberg Siegal Lipkus LLP 2

What’s The Problem?
• I don’t care about foreign owners of
intellectual property rights?
• I am not hurting these big companies by
buying a “fake”.
• I can’t afford a “real one”.
• These companies are just ripping me off
anyways!”
• “Imitation is the sincerest form of flattery”.
3

Is it really a big deal?
• “Trade in Counterfeit and Pirated Goods: Mapping the
Economic Impact” puts the value of imported fake goods
worldwide at USD 461 billion in 2013 - OECD & EUIPO
www.oecd.org/governance/trade-in-counterfeit-and-pirated-
goods-9789264252653-en.htm
• Example: Charlie Hebdo attacks
• Example: Toronto gang related activity
• Example: 9/11
4

2ND LARGEST SOURCE
OF
CRIMINAL INCOMES
WORLDWIDE
(According to the United Nations Commission on Crime Prevention
and Criminal Justice … Held on the 12th of May 2014.)
(See Counterfeiting & Terrorism Report 2016 of UNIFAB)

“ The infringement of intellectual property is becoming
the favorite method of financing for terrorists”
“in any case, powerful criminal networks often hide
behind the producers of counterfeit products; do not
forget that counterfeiting is also a way for terrorists or
criminal groups to diversify their sources of income,
considering lower penalties.”
Unifab Counterfeiting & Terrorism 2016
CRIMINALS’ FAVOURITE FORM OF TRAFFICKING

• On 7 January 2015 at about 11:30 local time,
two brothers, Saïd and Chérif Kouachi, forced
their way into the offices of the French
satirical weekly newspaper Charlie Hebdo in
Paris.
• Armed with rifles and other weapons, they
killed 12 people and injured 11 others
• AQAP (Al-Qaeda in the Arabian Peninsula)
claimed responsibility
7

Charlie Hebdo
Unifab Counterfeit & Terrorism Report 2016
“ A survey conducted by L’Express also reported that
the judicial police were aware of the involved of Chérif
Kouachi in counterfeit goods trafficking: ‘[…]he was
then starting in the counterfeiting of clothing and
sports shoes. According to police, he was leaving the
terrorist world to focus on petty crime. No signs of
danger were detected. […] Just seven months later, the
Kouachi brothers burst into the Newsroom of Charlie
Hebdo’”
8

What do we think of when we
hear “counterfeit”

What is being Counterfeited?
There are only
2
Categories of Items actually proven
to be counterfeited

What is being Counterfeited?
12
1. ANYTHING
&
2. EVERYTHING

• Aircraft Parts
• Apparel
• Accessories
• Automotive parts
• Automotive accessories
• Batteries
• Blankets
• Cameras
• Cellular Phones
• Cellular phone cases
• Cellular Phone Accessories
• Cigarettes
• Computers
• Consumer Products of all kinds
• Cosmetics
• Handbags
• Electrical Products
• Movies
• Electronic Products
• Exercise Equipment
• Eyewear, most without UV
protection
• Food
• Footwear
• Gas
• Health & Beauty Products
• Hockey Sticks
• Other Sports Equipment
• Ink Cartridges and Toners
• Jewelry
• Leather Goods
• Liquor
• Motor Vehicle
• Music
• Novelty items
• Optical Disks
• Perfumes
• Petroleum
• Pharmaceuticals
• Refrigerant
• Software
• Video
• Satellite Decoders
• Tablets
• Toys
• Trading Cards
• Video Games
• Watches

How Sophisticated are the
Counterfeit Products?
14
• Elaborate/accurate Packaging
• Instructions
• Hang Tags
• Labels
• Security Tags
• Care and Content Tags
• False Paper Trail
• Redacted Documentation
• Holograms
• Mixed with Authentic Merchandise
• Certificates of Authenticity

How “good” are the
Counterfeits?

Alcohol

Apparel & Accessories

Belts & Buckles

Designer Bags

DVD’s

Hats

Household Items
Copyright Kestenberg Siegal Lipkus LLP

Ink Cartridges

Jackets

Jeans

Jewellery

Shoes & Boots

Soccer

Socks

Stickers

Underwear

Watches

Pharmaceuticals

Cell Phones & Accessories

Electrical

Electronics

Food & Beverages

… More Food

Tools

Shoes & Boots

Software

Sunglasses

Batteries

… and

Household Items

Health & Beauty

Copyright Kestenberg Siegal Lipkus LLP 50
…Automotive

Counterfeit Air Bags
https://www.youtube.com/watch?reload=9&v=N6Rg92-o7Is
51

Refrigerant
• https://www.vasirefrigeration.com/counterfeit-refrigerant-
hvac-systems/
• movement towards banning R22 refrigerant
• the prices for what’s left are growing astronomically high.
• These false refrigerants contain volatile chemicals such as
methyl chloride which could explode when used inside your
commercial HVAC or air conditioning unit.
53

Why Is It Dangerous?
• Decreased efficiency: energy bills could be going up as the
system works harder to compensate.
• Damages to the system: side effect of methyl chloride
exposure is rust damage, where your system begins to
corrode. Corrosion can lead to leaks and compressor failures.
• Fires: Chemicals tend to be unstable, especially when they
come into contact with something that they shouldn’t. Mixing
fake refrigerant with real refrigerant can cause a reaction that
can result in a fire.
54

• Fakes aren’t identical to original items.
When looking for compressor parts, a few signs that could
indicate fake products include:
– different materials or alloys from the original;
– components that are thinner or lighter than genuine parts;
– elements that aren’t perfectly symmetrical, though the original part is
symmetrical;
– items that have rough welding or a shabby finish;
– colors and designs that aren’t like the original (e.g. colors that are a bit
“off”; missing elements in patterns, etc.);
– items that lack the usual identification numbers.
55

Compressor Parts & Accessories
• https://www.compressorsunlimited.com/blog/spotting-fake-compressor-parts-
and-accessories
• Spotting Fake Compressor Parts and Accessories (January 9, 2019
• At first glance, genuine and fake compressor parts can appear
virtually identical. But they’re not. Key differences between
the manufacturing processes and material quality of
counterfeit components and those of genuine or high quality
aftermarket parts can have negative effects on safety,
performance, and overall operating costs.
56

• In fact, the counterfeiting problem has become so large and
entrenched that leading compressor manufacturers,
like Bitzer and Danfoss, are joining forces to seize fake
compressor parts, accessories, oils, and refrigerants.
• With the market for counterfeit products booming, it’s also
important for consumers to learn how to distinguish between
fake and high quality compressor components.
57

58
Fake Wine Discovered At LCBO
Prompts Police Probe
-The Toronto Star, March 18, 2011
• “It was awful. It tasted like homemade
wine,” said Campbell, who wasn’t
surprised that fraudsters targeted the
Negrar, which retails for $34.95.
• “They’ve been in business for decades,
and Schiralli has represented them for
40 years. They were hurt, puzzled,
devastated. They couldn’t believe that
someone had done this,” said Campbell.
A staff member of Campbell’s tried the
fake stuff after buying it at an LCBO
store and immediately noticed
something was wrong.
At left is a fake bottle of 2006 Negrar
Amarone Classico. The legitimate one
is on the right.

Fake Blue Jays tickets making rounds: Cops
(Toronto Sun by Jeremy Appel August 18, 2015)
59
As the demand for tickets to Jays games rises, so do the number of
reports of fake-ticket scams, Toronto Police said Tuesday.
Many of the tickets look authentic and are difficult to spot as fake, police
said.

Counterfeit Wine Worldwide
• Wine industry experts estimate that up to 20 percent of all wine bottles
sold worldwide are counterfeits. Previously, it was reported back in 2010
that 5 percent of wine bottles sold were fake.
• In court documents released in the United Kingdom, it was reported that
wine connoisseurs in Britain paid up to $11,148 (£7,000) for fake bottles of
vintage French wine.
Source: Henry Samuel, “Fifth of wine sold worldwide is ‘fake’,” Telegraph, November 1, 2013.

The Sharjah Economic Development
Department Destroys 21,000 Fake Sanitary
Napkins
© The Gulf Today, April 22, 2011

The Military Oversight
Complex
• The American Senate Armed Services
Committee revealed in 2012 that Chinese-
built counterfeits of computer chips had
found their way into numerous American
weapons and military vehicles, including
the C-130J. The chips work when first
activated. But they don’t come close to
matching the reliability of the originals.
• And when they fail, they can trigger
potentially disastrous crashes of larger
systems. In the case of the C-130J, the
chips could shut down the plane’s
electronic controls (as happened to a U.S.
plane, which luckily was able to land
safely).
© The National Post – February 2013

63
© The Fiscal Times, May 22, 2012
U.S. Military Equipment Built
with Counterfeit Parts
• Counterfeit parts have been incorporated into the Air Force’s largest
cargo plane, into helicopters and into a Navy surveillance plane
• 84,000 counterfeit electronic parts supplied for a collision avoidance
system used in the C-12 and Global Hawk aircraft.

Fake parts in Hercules aircraft
called a genuine risk
• Some of Canada’s new Hercules military transport planes have
counterfeit Chinese parts in their cockpits that could leave pilots
with blank instrument panels in mid-flight.
• Suspect counterfeit parts have been identified by the original
equipment manufacturer Lockheed Martin, as being present on
several aircraft in their worldwide fleet, including some of Canada’s
C-130J aircraft.
© CBC News January 2013

UL Warns of Counterfeit UL
Mark on Fire Sprinkler
• Fire sprinkler Model NX005 bears a counterfeit UL Mark; the sprinkler was
not manufactured by Nanjing Fire Protection Technology Co Ltd and the
thermo bulb was not manufactured by Job, GmbH. deflector.
© Canada Newswire – January 2013

Customs Seizes 5,000 Counterfeit
Tablets at Los Angeles, Long Beach
Port Complex
• More than 5,000 tablet computers with
counterfeit safety markings on their
electrical adapters were confiscated by
U.S. Customs and Border Protection
officers and import specialists at the Los
Angeles/Long Beach seaport complex.
• Electrical devices with potential safety or
security risks accounted for 17 percent of
products seized by Customs and Border
Protection in 2011.
© dailybreeze.com – January 2013

43,600
Counterfeit
Circuit Breakers
Recalled
Occupational Health & Safety Online – March 2010

© http://www.ksdk.com, May 17, 2012
• Electronic items are now the number one category of knockoffs seized by
agents at O'Hare International Airport
• Experts caution that counterfeit electronics rarely perform as advertised
and can be dangerous.
• It can look very similar to the actual, authentic product but be much
different internally and therefore, potentially, be much dangerous
Counterfeit Electronics Bust at
O'Hare International Airport

Pitfalls of Counterfeit-Part
Epidemic Exposed
• Homeland Security Today reported that the number of counterfeit parts
that are vital to the computer industry is expected to reach record high
levels as the semiconductor industry enters “a phase of accelerating
growth,” according to an analysis of trends conducted by IHS.
• “The scale of the counterfeit problem has grown dramatically in recent
years, with reports of counterfeit parts quadrupling from 2009 to 2011,”
IHS said. “Supply chain participants in 2011 reported 1,363 separate
verified counterfeit-part incidents worldwide, a fourfold increase from
324 in 2009.”
69
© Homeland Security Today – May 23, 2012

Items with Counterfeit
“Made in Italy” Labels Seized
• In 2012, government security services in Italy seized 28,000 tons of
counterfeit food labels or adulterated products that was falsely labeled
during the year. The counterfeit foods seized were worth $684 Million
(€500 Million).
• 47 percent of the counterfeit labels involved Italian wine products.
• 4.6 tons of fake foods involved canned tomatoes, which were falsely
labeled as organic or being produced in Italy.
Source: “Food pirates peddling fake olive oil, Chinese tomato sauce,” Ansa, December 5, 2013.

How do we destroy household
items like these?

What do we do with the
Counterfeits?

3D Printers…Counterfeits of
the Future
World’s first plastic gun
made with 3D printer,
successfully fired in the
United States
Blueprints were
downloaded 100,000 times
before they were taken off
a Texas-based defense
website.
© National Post May 10, 2013

Great West Casualty Company Blog
Security Alert: 3D Printing - Counterfeit High
Security Bolt Seals
• 3D Copy of Bolt Seals: ”An essentially perfect 3D copy is made of a bolt seal that
had been illicitly removed. In this particular instance the identification numbers
matched exactly.”
• a shipment of pharmaceutical goods loaded in a container was sealed with an
intact shipper seal (Figure 1) and a seal from the shipping transport company was
also applied to the container (Figure 2):
• Upon arrival of the container at the end customer dock, the seals were removed
and the container opened. It was then found that most of the load had been
stolen in transit. The original seals had been removed during transport, the goods
were removed, and the container was resealed with new, but fake seals. (Figure 3)
74
Posted by Charles Forsaith, Director, Supply Chain Security on Sep 10, 2015 11:00:00 A

JSW Steel conducts
raid on steel trader,
seizes counterfeit
products
• JSW Steel, raided a steel retailer
• raid in the city of Nagpur was conducted by the local
police from the Kalmana Police Station.
• Shree Shakti Steel Corporation India P. Ltd, a retailer in
Nagpur had been selling unauthorised, poor quality,
counterfeit products by infringing the name and logo of
“JSW”
• Counterfeit sheets of steel found Jan 4, 2017
76

More than 99% of counterfeit iPhone chargers
fail basic safety tests
77
http://library.ul.com/?document
=counterfeit-iphone-adapters

• examination of 400 counterfeit Apple iPhone chargers
bought online
• more than 99 percent of the imitation devices failed a
basic safety test
• just three offering sufficient insulation to protect against
the risks of an electric shock
• study, carried out by the Canadian division of power
safety compliance firm UL
• researchers bought 400 counterfeit iPhone chargers
from online sellers in eight countries, including the US,
Canada, Colombia, China, Thailand, and Australia.
78

• only three devices out of 400 examined passed the
safety test
• 22 of the units were immediately damaged upon
energising them (which in turn damaged some of the
testing equipment)
• 12 of the samples demonstrated very high current
leakage that could potentially electrocute a person
• Apple's own research found that almost 90 percent of
"genuine" Apple power products sold on Amazon were
counterfeit
Science Alert (Peter Dockrill) Dec 6, 2016
UL – Counterfeit iPhone Adapters Sept 16, 2016
79

Money Laundering
• The scale of money laundering is difficult to assess,
but it is considered to be significant. The United
Nations Office on Drugs and
Crime (UNODC) estimates that between 2 and 5% of
global GDP is laundered each year. That’s between EUR
715 billion and 1.87 trillion each year
• https://www.europol.europa.eu/crime-areas-and-trends/crime-
areas/economic-crime/money-laundering
80

Social Media
Social media is online content
created by people using highly
accessible and scalable publishing
technologies.

The Canadian Anti-Fraud Centre

• The CAFC is jointly managed by the RCMP, Competition Bureau, and the OPP.
• Works with payment processors cancelling merchant accounts.
• Purchasing counterfeit/pirated works through credit/debit card, PayPal etc
• CAFC is receiving approximately 20,000 complaints involving cyber-related fraud
per year
• http://www.antifraudcentre-centreantifraude.ca

The Canadian Anti-Fraud Centre
Chargeback Program
• Purchase
• Complaint – Victim in Canada
• Information Provided
• Result
– Chargeback
– What happens to the infringing property
– Fines
• Database
• Other Countries
• Effect

A Canadian not-for-profit organization that represents a
coalition of individuals, companies, firms and industry
associations united in the fight against product counterfeiting
and copyright piracy in Canada and internationally.

INTA
• The International Trademark Association (INTA) is a global association of brand
owners and professionals dedicated to supporting trademarks and related
intellectual property (IP) to foster consumer trust, economic growth, and innovation.
• The Association's member organizations represent some 31,000 trademark
professionals and include brand owners from major corporations as well as small-
and medium-sized enterprises, law firms, and nonprofits.
• There are also government agency members, as well as individual professor and
student members.
90

IACC
• The IACC is the largest multinational organization
representing exclusively the interests of companies
concerned with product counterfeiting and
copyright piracy.

Owners of Canadian trade-mark registrations or
copyrights can now seek assistance/information
from the Canada Border Services Agency to detain
suspected counterfeit and pirated goods at the
border and proceed with civil enforcement of their
rights.
Border Enforcement

HOW DOES THE NEW BORDER
ENFORCEMENT REGIME WORK?

• File a Request for Assistance (Section 44.02(1) Copyright Act)
• Customs has Ex Officio Power to Detain (Section 44.12(3) Copyright Act)
• 3 day initial “notice” (Memorandum D-19-4-3, paras. 18-19)
• 10 days (extended to maximum of 20 days) to act (Section 44.04(2) Copyright
Act)
• Must pursue a civil remedy (Section 44.04(1) Copyright Act)
• Seize/detain/destroy (Section 42(3) Copyright Act)
Border Enforcement Regime

Power of CBSA Pre-2015 Post-2015
Ex officio detention of counterfeit
goods
no yes
Ex officio seizure and destructions of
counterfeit goods
no no
Provide samples and/or information to
Intellectual Property Rights Holders
no Yes (in certain circumstances)
Recordation of Trade-marks with CBSA no yes
Administrative or Simplified Procedure no no
Seizure of in transit shipments no no
Detention of grey market goods no no

Border Enforcement
Request for
Assistance (RFA)

97
If RFA is filed, then the brand/company gets:
• access to information about suspicious importations;
• if counterfeit, ability to commence proceedings and obtain
seizure and destruction orders etc.
• must furnish a security*
• must pay for costs of storage and destruction of fake goods after
they are determined to be illegal.
* not being requested at this time
Border Enforcement

98
1. No cost to file an RFA - so Why Not?
www.cbsa-asfc.gc.ca/publications/forms-formulaires/bsf738-
eng.html
2. don’t respond/CBSA will release
3. training/materials -
4. risk/reward
Border Enforcement - Tidbits

Border Enforcement
https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn17-27-eng.html

Toronto Police seize $2.5 million in counterfeit
goods as holiday season starts
100

• Among goods seized are make-up products that have
caused rashes; combustible electronics, and children’s
toys that pose a health risk due to possible toxic
chemicals, police say.
• investigators said that, in their own tests, a counterfeit
Magic Bullet blender caught fire after being plugged in,
and a pair of earphones melted after use.
• Charges include possessing property obtained by crime,
possessing property obtained by crime with the purpose
of trafficking, fraud over $5,000 and passing of wares.
• 2 illegal immigrants who were assisting in the sale of
these products were arrested and detained by Canadian
Border Services
• thestar.com by Evelyn Kwong Staff Reporter December 9, 2016
101

Questions, Comments
& Thanks
105105
Lorne M. Lipkus
Kestenberg Siegal Lipkus LLP
Telephone: 416.984.9992 (Mobile)
Office Direct: 416-342-1112
Office: 416.597.0000 Ext. 112
E-Fax: 416-342-1102
E-Mail: llipkus@ksllaw.com
Website: www.KSLLAW.com

Sales scams in the HVAC/R Industry and how to protect yourself and your business by Lorne Lipkus | HRAI Annual Conference 2019

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Sales scams in the HVAC/R Industry and how to protect yourself and your business by Lorne Lipkus | HRAI Annual Conference 2019