Winning the war on illegal equipment imports

The construction industry has scored one for the team.

In the case of Hyundai Construction Equipment U.S.A., Inc. v. Chris Johnson Equipment, the equipment manufacturer prevailed in a federal court judgment against Michigan-based Chris Johnson Equipment for illegally importing Hyundai-branded machinery that was intended for foreign markets but then sold to its customers in North America.

Judge Harry D. Leinenweber of the U.S. District Court for the Northern District of Illinois on Jan. 9 signed the October 2008 ruling that Chris Johnson Equipment, Inc., illegally imported 29 Hyundai wheel loaders and excavators into the United States and sold them primarily to U.S. customers, which violates federal unfair competition statutes as well as other laws.

Hyundai investigated and sued Chris Johnson Equipment, Inc. in July 2005 in federal court, seeking to permanently stop the distributor from importing and selling non-authorized Hyundai equipment and to surrender all of the profits generated from those sales.

The federal judge approved the permanent injunction in late 2008 and ordered Johnson to pay Hyundai about $1 million in profits from the equipment sales in addition to court costs, but the decision wasn’t official or legally binding until the judge signed the ruling on Friday.

“We’re happy that our dealers are keeping their eyes and ears open and alerting us to these situations and other situations that threaten our business and potentially hurt our valuable customers,” John Lim, president of Hyundai Construction Equipment U.S.A. tells Better Roads.

“We’re really happy that the judge agreed that the actions of the defendant merited the penalties imposed,” Lim says. “We plan to continue to protect our dealers, our customers, and brand against these threats to our business.”

A gray market item is one that has been imported directly from another country, by-passing the manufacturer’s authorized distributors in that country. In Hyundai Construction Equipment U.S.A., Inc. v. Chris Johnson Equipment, this relates to construction equipment that was made for use in non-U.S. markets, but was shipped here and sold to end-users.

According to Hyundai, serial numbers were altered on all of the equipment, some engines were not compliant with U.S. Environmental Protection Agency emission standards, and none was backed by the company’s warranty. Several of the machines also had Korean-language markings, instruction manuals, and gauges in non-English languages and controls differing from the equipment specifically made for U.S. customers.

How serious is the gray market import problem?

Although it was a much bigger issue in the 1990, it’s still a problem. The U.S. Environmental Protection Agency (EPA) reported settling 58 cases involving 48,000 illegal motorcycles, automobiles, generators, tractors, and construction equipment between June 2006 and December 2007, according to Hyundai. Equipment manufacturers such as Caterpillar, Case, and John Deere aggressively litigate gray market importers, but this this is Hyundai’s first-ever prosecution of a gray market dealer.

According to Hyundai, the gray market was used to reduce inventory overseas until the U.S. Environmental Protection Agency and U.S. Customs Service began cracking down in 1996. Enforcement of the Clean Air Act also reduced the number of gray market machines in the United States because products not intended for distribution in the United States violated the law.

With the new emissions standards — Tier 3 which is currently in effect, Tier 4, which will go into effect in 2010, and the final standard, which goes into effect in 2014 — illegal imported equipment are often not emissions compliant. That means any contractor caught using one could face some serious federal punishment and fines.