An original equipment manufacturer (OEM) is a company that manufactures products or parts that are then used in the final product of another company. This also includes companies which design and produce electronic items based on a buyer’s specifications to sell a completed, final product – with their company name or logo placed on the product by the OEM.
In this way, companies often look to overseas OEMs to save costs on product development, labor, or other production expenses, while still benefiting from the product expertise and warranty offered by the OEM. This is a common and legal practice across various industries.
That said, counterfeiters and other bad actors often manipulate this business model and falsely label counterfeit or substandard items as genuine OEM products. When they sell these items online, this poses significant risks not only to consumers but to the marketplaces and payment providers enabling the sale of these products.
As reflected by the U.S. Trade Representative’s most recent report, automotive parts and electronics are highly prone to counterfeiting. Such counterfeits pose serious risks to consumer safety and harm the reputation of legitimate manufacturers.
Counterfeit electronics are at risk of overheating, self-igniting, or shorting-out, and could cause burns or electrical shocks. In 2022, for example, the FBI in partnership with the IPR Center issued a warning about the safety and health risks counterfeit batteries pose to consumers.
Non-OEM car parts are typically produced with dangerous or inferior materials that are prone to wear or failure, and again, they often do not have to meet safety standards or undergo testing. This can result in severe malfunctions, such as brakes failing, or airbags over-inflating or even exploding metal shrapnel during deployment in a crash.
“Consumers in need of auto repairs should be wary of unscrupulous repair shops and greedy internet vendors that prioritize profits over the safety of their consumers,” Joseph Martella, a U.S. Customs and Border Patrol official, said after a major seizure of counterfeit parts from China last year in Philadelphia.
According to the CBP, The People’s Republic of China remained the primary source economy for counterfeit and pirated goods seized in the U.S. in 2023, accounting for a total estimated MSRP value of over $1.48 billion (USD) or approximately 61% of the total MSRP value of all IPR seizures.
OEM fraud isn’t limited to the production, sale, and distribution of counterfeit or substandard products. Here are other activities that fall under the umbrella of OEM fraud.
When consumers lose faith in the authenticity of the products they purchase, the financial institutions and online marketplaces facilitating those sales may incur substantial damage to both reputation and revenue. When something goes awry with a product, in the consumer’s mind, the platform is to blame, even if the product was sold to them by a third-party seller.
When financial institutions and online marketplaces facilitate transactions online, they may also face action by regulators for not doing their due diligence to vet the merchants committing OEM fraud.
In the U.S., many different government agencies work to prevent counterfeiting. These include the Food and Drug Administration (FDA), Office of Intellectual Property Rights, International Trade Commission, Federal Bureau of Investigation (FBI), Customs and Border Protection (CBP), and the National Intellectual Property Rights Coordination Center. Some of these same agencies focus on OEM fraud.
Here are several recent examples of enforcement action taken in the U.S. and elsewhere to stem OEM fraud:
To reduce regulatory and reputational risk, and to reduce harm to consumers, online marketplaces and payment providers need solutions for quick detection and assessment when onboarding merchants. They also need ongoing monitoring to detect suspicious activity throughout the relationship with the merchant.
EverC can help to identify merchants that are potentially involved in suspicious or criminal activity, even when their activity is purposely hidden. Our technology leverages AI for increased speed and precision in detection rates, enhancements to features and tools, and unmatched customization capability, for solutions that allow you to meet your business goals while aligning with your RBA and industry priorities.