Schaeffler Attorney Answers Regarding Franconian Dealer

Subject: Franconian Bearing Dealer
From: Pryssok Jan
Date: Friday, July 10, 2009, 6:35am

Dear Mr McGuire,
We are acting as legal representatives of Schaeffler KG, Industriestr. 1-3, 91074 Herzogenaurach, Germany, in the matter you inquired.  Our opinion on product counterfeiting in Franconia in the matter you inquired was delayed on the grounds of the examination of the matters of legal concerns of the defendants and for reasons of coordination with our client and third parties.  Henceforth, however, we are now in a position to inform you on the fact that the criminal proceedings pending at the Local Court of Nuremberg (file number: 53 Ls 506 Js 489/6) were concluded in accordance with which the defendants were convicted of a crime.

Unfortunately, we are not capable of communicating any further information on this case for reasons of respecting the right to privacy of the defendants and in the interest of data protection.  Your understanding in this respect is appreciated.  Insofar as you might seek any further information in this matter, you are requested to contact the Local Court of Nuremberg.

We assume to have satisfied your interest in the information sought.

Kind regards
Jan Pryssok

Attorney at Law

Kanzlei.FSRFinanzen.Steuern.Recht
LawyersTax Consultants
Business Auditors

SKF Accuses Motion Industries of Selling Counterfeits

The major bearing manufacturers have put a great deal of effort into promoting the idea that bearing counterfeiting is widespread. Many of the stories are far-fetched, to say the least. The point of these stories has been consistent: buy only from authorized distributors or risk getting counterfeit.

Despite the fact that SKF has repeatedly claimed that the only way to be sure of getting genuine SKF bearings is to buy only from SKF directly or from its authorized distributors, it has now demonstrated that this will not ensure that the products you receive will be genuine.

"On or about October 16, 2008, Motion Industries, Inc. located in Saginaw, Michigan (“Motion”) notified SKF’s territory manager covering Michigan, Donald N. Woodside (“Woodside”), that Motion’s customer, BP Processing (“BP”) was unable to install two bearings identified as SKF Bearings bearing SKF part number “29460-EJ” (“29460 Bearings”). Motion had sold a total of six 29460 Bearings to BP for use in twin screw extruder/mixers for the metal processing industry."

SKF subsequently examined these bearings and has claimed they they are counterfeit.

SKF USA has accused Motion Industries of selling counterfeit SKF 29460 bearings to BP Processing. This, however is (apparently) not a news story. You probably won't be reading about it on eBearing News or Bearingnet News. Nor is SKF initiating a lawsuit against Motion. It seems that the majority of industry publications are nothing more than hacks for the major manufacturers marketing campaigns. It is "news" when SKF and Schaeffler destroy 40 tons of their own bearings that they purchased from their accused "counterfeiter", but it is not news when SKF alleges one of its own authorized distributors sold counterfeit bearings. It seems obvious to me that the so-called jounalists in this industry are in the pockets of the large corporations.

While I don't believe that bearing counterfeiting is as common as the major manufacturers would like you to believe, if it were, I would suggest that the best way to avoid getting counterfeit bearings is, obviously, to avoid buying the brands that are most likely to be counterfeited, such as SKF and FAG.

Schweinfurt Hoax-The Real Story

Since the joint news conference at Schaeffler’s FAG facility in Schweinfurt, Germany and the resulting brochure Product Piracy-Made in Germany, much has come to light. The story, which told of 40 tons of counterfeit bearings being found in the warehouse of one rolling bearing dealer located somewhere in Franconia, spread throughout industry publications like wildfire. Every story carried with it the warning that the only way to be certain that one does not get counterfeit bearings is to buy only from “authorized” sources.

It is now apparent that the story is not as its proponents have portrayed it. The bearings involved in this story were not counterfeit at all. The dealer in this story was never charged criminally and never even sued civilly. In fact, the dealer was paid for the 40 tons of his bearings, which amounted to less than 20% of his inventory in return for his silence.

Although the original story failed to name the dealer, several sources have told this writer that the company, which was raided, was Batucom in Erlangen. Schaeffler attorney Ingrid Bichelmeir-Boehn has refused to either confirm or deny this.

In 2003 Batucom bought the entire Inventory of Hans Lentz Kugellager in Cologne. Hans Lentz was a surplus and gray market dealer with a good reputation and the expertise to modify bearings to meet the demands of his customers. Evidence of this is the fact that he remained in business for 50 years. At 73 years of age he decided it was time to retire. He sold his inventory to Batucom. Batucom was able to operate profitably and had many satisfied customers until one morning approximately 50 police officers showed up at its business. Finding no evidence of counterfeit bearings, Schaeffler, because the Press was also present, came up with a way to continue their charade. They bought the silence of the owner of Batucom, together with an agreement that he would go out of business. (400,000 euros will buy a lot of silence). Batucom had no counterfeit bearings at all. Batucom was repackaging bearings. At most, and this has never been proven in court, there may have been some counterfeit boxes together with used genuine boxes and other packaging materials.

SKF has claimed in, news releases in US industrial publications and in its own magazines, that this was a "joint investigation". Their exact role in this "news story" is difficult to determine, but at some point SKF decided it would be advisable to join Schaeffler in this deception and the idea of calling a news conference was born. With media present, employees of Schaeffler proceeded to destroy 40 tons of bearings that had been manufactured by themselves and SKF and purchased from the very person they were accusing of being a counterfeiter.

When questioned, the purveyors of this story have been extremely tight-lipped, unwilling to release any information that would allow their story to be verified.

The above story is my understanding of what actually occurred from the witnesses that I have interviewed. I hope to hear from anyone who could shed more light on this.

Original story here.

Schaeffler Attorney Continues to Stall

I sent the following email to Schaeffler attorney Ingrid Bichelmeir-Boehn:



Subject: Schaeffler/SKF story
From: stevemcguire@
Date: Tue, Mar 31, 2009 3:33 pm
To: "Ingrid Bichelmeir-Boehn"

Dear Ingrid

I would appreciate it if you answer some questions regarding the Schaeffler/SKF story and Batucom:

1) Prior to 2003 when Batucom purchased the complete inventory of Hans Lentz Kugellager in Cologne, did the Schaeffler Group or any of its companies sell bearings to them (Hans Lentz)?

2) Is it true that Schaeffler paid Batucom for the 40 tons of allegedly counterfeit bearings?

3) I have been unable to find any record of a civil or criminal trial involving Batucom or Schaeffler in the court records in Nurnberg during the period your brochure would indicate these should have taken place. Can you explain this?

You asked for my patience when I asked you questions to which you should already know the answers, being Schaeffler's counterfeit expert. Why must you be so evasive? Don't you know that the way you are answering makes you appear guilty? I would simply like the truth.

Sincerely

Steve McGuire


I received her reply promptly. Unfortunately it answered nothing:


Subject: AW: Schaeffler/SKF story

From: "Bichelmeir-Boehn, Ingrid ST/HZA-GK" bicheigr@
Date: Tue, Mar 31, 2009 11:54 pm
To: stevemcguire@

Dear Steve,

Thank you for your email. There is nothing we would like to hide. Nevertheless I would like to ask you for some more patience because I need some further information.
Best regards

Ingrid Bichelmeir-Böhn
Rechtsanwältin
ST/HZA-GK

Schaeffler KG
Industriestraße 1-3
91074 Herzogenaurach



There is nothing they would like to hide? Then why not just answer the questions? I know why. I think everyone, including Ingrid, knows why.

Schaeffler Attorney Promises Answers in Mid-April

I sent the following email to Schaeffler attorney Igrid Bichelmeir-Boehn:

Subject: Franconia bearing dealer
From: stevemcguire@
Date: Mon, Feb 16, 2009 3:38 pm
To: Ingrid.Bichelmeir@

Dear Ingrid

When I wrote to you a couple of years ago regarding the counterfeit bearings confiscated from an independent rolling bearing dealer in Franconia. You told me "The criminal case isn't finished yet".

Has the criminal case been finished? Was the bearing dealer convicted of a crime?

I would like to know where I can read about it.

Steve McGuire

I received no response. About a month later I sent the following email:

Subject: Batucom
From: stevemcguire@
Date: Fri, Mar 13, 2009 11:04 am
To: "Ingrid Bichelmeir-Boehn"

Ingrid

I am attempting to authenticate the story relayed in your Product Piracy-Made in Germany brochure. Would you please confirm or deny that the company, which was raided in the brochure, was BATUCOM at Erlangen?

In a previous email you told me that if I had further questions, I should feel free to contact you. I actually thought that meant you would provide answers to those questions.

So far, you have not responded to my subsequent emails. Please do so.

Sincerely
Steve McGuire

Surprise! Surprise! I received a response (well sort of) from Ingrid:


Subject: AW: Batucom
From: Bichelmeir-Boehn, Ingrid ST/HZA-GK" bicheigr@
Date: Thu, Mar 26, 2009 8:07 am
To: stevemcguire@

Dear Steve,

Thank you very much for your inquiry. Please accept my apologies for the late response. Unfortunately we need some further information from our attorney who is in charge of this case. May I ask you for some more patience. We will come back to you in the mid of April.

Mit freundlichen Grüßen / Best regards
Ingrid Bichelmeir-Böhn

I only asked three questions: 1) Has the criminal case been finished? 2) Was the dealer found guilty? 3) Was the name of the company Batucom?

Is it really going to take until the middle of April for Ingrid (an attorney herself) to get answers to those three questions? I think not. In fact, I think the suggestion is preposterous.

Just one more evasive response in the SKF/Schaeffler Schweinfurt fake story incident.

How are counterfeit SKF bearings manufactured?

“Counterfeiters usually re-label cheap bearings of any kind with SKF markings. They simply rub off the original markings and replace them with SKF’s marking. Boxes are made to resemble SKF packaging.” (Quote taken from most recent SKF Focus magazine)


It is so nice of SKF to supply us with instructions on how to manufacture counterfeit SKF bearings. So this is how counterfeiters usually do it. That would mean that most of the time counterfeit SKF bearings are not being produced in factories. Counterfeiters buy a bearing that has already been produced and branded at a factory, then remove the markings and replace them. This does not sound like the same story we have been fed, until now, about where the supposed massive amounts of counterfeit bearings in the marketplace come from.


Perhaps they are aware that the way they have been framing their counterfeit stories is becoming implausible. But this is not much better. If this is how one counterfeits an SKF bearing, I hate to think how long it took that poor Franconian bearing dealer to rub off and re-mark that 40 tons of bearings. His printing cost must have been enormous, because the set-up cost on small runs is quite high.


Neither this story from the recent Focus nor the counterfeit story in the December addition of Evolution Magazine mentions any specific incidents. I think the SKF/Schaeffler Schweinfurt hoax may have cured them.


This story like every other counterfeit story ends with the real reason for the story:


“By ensuring you source your components via SKF authorized channels you can protect yourself and your customers from counterfeit products”


How this will protect you when both SKF and their distributors buy from unauthorized sources remains unexplained.

Read how to fake a story:
http://stopfakestories.blogspot.com/2012/03/how-to-fake-story.html

Fake Stories as a Marketing Strategy

Schaeffler Group (who manufactures INA and FAG) and SKF made a joint press release in 2007 concerning allegedly “fake” bearings. It appears that the press release, itself, is a fake. They called a press conference at the FAG premises in Schweinfurt to “draw attention to the fact that brand and product piracy is far from being restricted to China or southeast Europe. It takes place right on our doorstep”. This is according to Hans-Jurgen Goslar, Member of the Schaeffler KG Managing Board.

At this press conference they used blowtorches and angle grinders to “render useless” 40 tons of allegedly counterfeit bearings. These bearings were supposedly manufactured in Germany. Apparently the entire 40 tons of supposedly counterfeit bearings came from one “independent rolling bearing dealer in Franconia” (whom they fail to name).  A brochure from Schaeffler regarding this event is titled Product Piracy - Made in Germany.

There are a number of things missing from the brochure that one would expect to be included in any legitimate news story: the identities of both the bearing dealer and the “criminal investigators”, the charges and even the town were the raid took place (Franconia is a region in Germany not a town).  I can think of only one reason why these companies would be unwilling to release the name of the bearing dealer or even the town in which the raid took place: this type of information would make it possible to either authenticate the story or to prove it false.

From the pictures it appears that there is a very wide variety of sizes with just small quantities of each size. This is not what one would expect to find from a counterfeiter.  Counterfeiters deal in items they can move easily.  There are not a lot of counterfeit thousand dollar bills.

Some of the bearings in the pictures were rusty, an indication that they were quite old.  It is common for manufacturers to scrap inventory that has exceeded the recommended shelf life. It is much more likely that the bearings in the pictures are legitimately trademarked product that were scheduled to be scrapped. This is because a conglomeration of odd sizes that didn't sell in the allotted time is exactly what you would expect to find in that case.

The story gives no evidence that any of the bearings were manufactured in Germany.

I sent an email with six questions to Matthias Schweizer at Schaeffler who is said to be responsible for the brochure.  I received the following answers from Schaeffler lawyer Ingrid Bichelmeir-Boehn:

What was the name of the “independent rolling bearing dealer in Franconia”?
Because of legal reasons we are not allowed to tell you the name of the dealer.
Were all 40 tons from this one dealer?
Yes, it was the whole FAG, INA, Elges and SKF stock of this dealer.
Were any charges brought against this dealer?
The criminal case isn't finished yet. The civil proceedings are finished. All of the dealer's bearings have been destroyed.
Is there any evidence that the bearings were manufactured in Germany?
The stock was mixed. We identified bearings, which were remanufactured in Germany and packed in faked boxes.
Do INA, FAG and SKF know where the bearings were manufactured? If so, have they taken action against the manufacturer?
We know some production sites of faked bearings. We take legal actions against every manufacturer we get to know. These procedures last long and therefore it isn't possible to give you more information yet.
Is there a list of the quantities and sizes of these 40 tons of bearings? If there is, is it available for review?
Yes, we have a list for our internal purposes. It isn't available for review.

If you need further information please do not hesitate to contact me.
Mit freundlichen Grüßen / Best regards
Ingrid Bichelmeir-Boehn

The answers that Schaeffler gave me confirmed that my suspicions. Schaeffler is totally unwilling to release any information that would authenticate this very questionable story. Why?  “Because of legal reasons we are not allowed to tell you the name of the dealer”.  If there is a law that would not allow them to tell me, can’t I at least be told what the law is? I don’t believe that such a law exists, but I would check it out given the opportunity.  “If you need further information please do not hesitate to contact me.”  She should have said, “If you need further information, forget it”, because she refused to answer my subsequent emails.

In those emails I asked why they would destroy the evidence before the criminal trial took place. I asked whether a secret tribunal carried out the civil proceeding. About two years later I asked whether the criminal case had finished yet. No answer.

I did find out that Ingrid Bichelmeir –Boehn admits in an email sent October 2,2007 to Ian MacPherson of Bearing Industry Code of Conduct:
“As you assume we destroyed some very old bearings from this dealer, too. We found out that these bearings would be poorly refurbished parts also counterfeit because the dimensions and the quality as well as the lubricant won’t meet our standard and customers will be misled.”

Yes, customers are being misled! I believe I am one of them.  No mention is made in the press release that some (or possibly all) of the bearings were made by SKF and Schaeffler and were actually trademarked at the factory. She is calling “very old” bearings counterfeit because they “would be poorly refurbished”.
She does not claim they had been refurbished. She claims, “We found out that these bearings WOULD be poorly refurbished.”

I would point out that refurbishing a bearing that has a trademark legally applied is not the same thing as manufacturing a bearing and illegally applying a trademark to it. The latter is counterfeiting. The former would only be illegal (at least in the USA), if an attempt was made to represent it as new.

This press conference/brochure is very misleading at best and more likely a willful attempt to deceive the public.  The motivation these major manufacturers have for concocting stories about counterfeit product being widespread really has nothing to do with counterfeit product at all.  The real concern of these manufacturers is "gray market" and surplus product. Gray market product is by definition legitimately trademarked product.

In an article published in Purchasing Magazine (7-17-2008), Bob Summerlin, executive vice president of sales and marketing for Motion Industries in Birmingham, Ala., the largest authorized distributor for SKF and other manufacturers, says, “While we have heard the reports, we are not aware of any customers receiving counterfeit product.”

The point of these stories is to create concern in the mind of the customer by wildly exaggerating the amount of counterfeiting that goes on.

It came out in SKF's USITC action that their largest authorized distributors were also the largest customers of both the surplus and gray market sellers. It also came out that even SKF USA purchased gray market product.  It is clear that if there were these massive amounts of counterfeit bearings in the marketplace, buying only from authorized distributors would not eliminate the possibility of receiving them.

With Schaeffler’s admission that some (I’m guessing all) of the bearings were, in fact, over-aged bearings rather than counterfeit, the story is not as they first tried to present it.

So now the story is that they confiscated (at least some, maybe most or all) legitimately trademarked bearings from an unknown bearing dealer with the help of unknown “criminal investigators” based on what they (SKF, Schaeffler and the investigators) knew he was going to do (but hadn’t done yet) with the bearings and then secret proceedings were carried out in some unknown location in which this unnamed bearing dealer was found guilty (maybe?), but none of this made the papers anywhere, except for what was released at their press conference.

Maybe it’s just me, but something sounds mighty fishy. This story cannot pass the smell test. Something is rotten in Denmark. Or should I say Sweden and Germany?

The real story here.

Concerning the Conduct of SKF USA in the matter “Certain Bearings and the Packaging Thereof”

The United States International Trade Commission instituted an investigation on April 16, 2002, based on a complaint filed by SKF USA, Inc. (SKF USA) of Norristown, PA against fourteen respondents.

The complaint alleged a violation of section 337 of the Tariff Act of 1930.

The types of products at issue in this case are often referred to as “parallel imports” or “gray market”. Gray market products are by definition legitimately trademarked products (not to be confused with counterfeit) imported without the consent of the US trademark holder. Gray market products are not illegal, except where it can be shown that the products are “materially different” from those authorized by the trademark holder. The main issue is one of “consumer confusion” as to the source of the products. The USITC and the courts have held that where gray market products are materially different from the authorized products, there is a likelihood of consumer confusion. For a difference to be material, it must be of the sort that consumers would consider important in their purchasing decision.

In a 400 plus page complaint that could be described as (in the words of the Administrative Law Judge) “akin to throwing spaghetti on a wall to see which strands will stick”, SKF USA alleged several categories of material differences between the bearings they authorize for sale in the United States and the so-called gray market bearings. The categories were: physical properties, quality control, customer service and engineering support, warranty, product recalls, advertising and marketing, and country-of-origin certifications. Here, I will deal with their attempt to establish physical properties as a material difference.

SKF USA alleged a number of physical differences between the bearings it authorizes for sale in the United States and the SKF bearings sold by the respondents named in the complaint. Many of the statements made regarding these alleged physical differences were found to be untrue. The Administrative Law Judge, Delbert R. Terrill Jr., rightly found no physical differences either in the bearings or the packaging. However, respondents were forced to expend a considerable amount of time, effort and money to refute these allegations. What’s worse is that SKF USA either knew or should have known that they were false before they were ever made.

SKF USA alleged physical differences in cage materials, internal clearances, pre-lubricated bearings, bearings manufactured in certain facilities abroad, packaging and labeling, aged and damaged bearings, and inadequate knowledge and training.

SKF USA started by claiming: “SKF USA has determined that non-metallic caged bearings generally are not appropriate for importation into the United States or for sale in the United States after importation." They went on to state: “SKF USA ordinarily does not permit the importation or sale of bearings containing cages made of nylon, plastic, or any material other than metal.” Because of this they claimed: “U.S. consumers have come to expect that, in most instances, SKF’s caged bearings will contain metallic cages.”

As a matter of fact, SKF USA both imports and sells a great number of bearings with non-metallic cages. They list in their most current price sheet many pages of sizes and types of bearings with non-metallic cages and these are listed as “stock” items. The fact that throughout the complaint they qualify many of their statements with words like “ordinarily” or “in most cases” doesn’t detract from the obvious intent of such allegations because they go on to state: “when U.S. consumers order SKF caged bearings from Proposed Respondents, they expect, but do not receive, metallic caged bearings.” By arguing that consumers “expect” to receive a metallic caged bearing every time they order an SKF bearing they are arguing that they have been conditioned to expect this by never getting anything else from SKF USA.

SKF USA next cited internal clearances and prelubricated bearings as a physical difference between authorized and gray market bearings.

They state:
“SKF has developed a specialized polyurea-greased ball bearing for use in the U.S. electric motor industry. These bearings are known as “JEM” bearings (“EM” stands for electric motor), and they perform at the fast speeds and high temperatures commonly found in the U.S. electric motor industry.”

“SKF USA has determined that ball bearings containing a standard internal clearance are not suitable for the U.S. electric motor industry. SKF’s JEM bearings contain a non-standard internal clearance specifically designed for that industry.”

“SKF USA does not authorize the importation and/or sale of other types of SKF ball bearings for use in the U.S. electric motor industry (i.e., lithium-greased ball bearings or polyoil-lubricated ball bearings). This SKF policy is referred to as SKF’s “JEM policy.””

They claimed that they do not authorize sales of any thing other than bearings with a C3 (looser than normal) internal clearance (fit) and polyurea grease for sale to the electric motor industry in the United States. They claimed that one respondent had sold a standard fit bearing to a customer requesting a bearing for electric motor use and another customer had received a C3 fit bearing in place of a standard fit. This was (SKF USA claimed) because respondents employees have “inadequate knowledge and training” regarding SKF bearings. They even went so far as to point out that some respondents had listed SKF bearings using the suffix “ZZ” for a double-shielded SKF bearing rather than the proper SKF suffix, which is “2Z”. This too was supposedly because of “inadequate knowledge and training”. Of course this is preposterous to most of us in the industry. SKF, FAG and Steyr (when they were around) use 2Z to indicate two shields. Most other manufacturers use ZZ to indicate two shields. Most people in our industry use the two suffixes interchangeably. Despite the fact that SKF USA, quite likely, is well aware of this, they made this an issue in their complaint. This is just another illustration of the lengths they were willing to go to attempt to gin up a case.

SKF USA went to great lengths to emphasize that their employees and those of their distributors receive such extensive training that they would never sell a lithium greased bearing or a standard fit bearing for electric motor use. And, of course, since clearance is so important in bearing selection neither SKF USA nor any of their distributors would substitute a C3 fit bearing for a standard fit. The hearings proved otherwise.

It came to light during the hearings held at the USITC in Washington DC that SKF USA sold numerous bearings that were not designated JEM for electric motor use. The JEM designation signifies two things: a C3 fit and polyurea grease. The EM stands for electric motor. According to SKF USA, they do not authorize the sale of non-JEM bearings for electric motor use in the United States.

McGuire Bearing Company, when the investigation began, was a Chicago Rawhide distributor. Chicago Rawhide is a division of SKF USA and distributes SKF Bearings. McGuire Bearing Company ordered SKF bearings from Chicago Rawhide via fax and clearly indicated on the orders that the bearings were being ordered “for electric motor use”. We ordered bearings that from the SKF part number would indicate that they were standard fit bearings with lithium-based grease. Chicago Rawhide shipped the bearings. When the bearings arrived, we discovered that some of the bearings were actually C3 bearings with polyurea grease, but some of the bearings were standard fit bearings with lithium grease. So while SKF USA had maintained that the fit and the grease were crucial in supplying the correct bearing for the application, in practice, at Chicago Rawhide, they paid no attention to what they put in the box. For instance, if the part number has no suffix for grease, that is supposed to indicate that it contains SKF’s standard medium temperature lithium grease. If the part number has no suffix for internal clearance (i.e. C3), that is supposed to indicate that it is a standard or normal internal clearance. None of the part numbers we ordered had a suffix for either grease or internal clearance. However, we received some bearings that had a C3 fit with polyurea grease and some with standard fit and lithium grease. While the ones with a C3 fit and polyurea grease would (according to SKF USA) be suitable for electric motor use they did not match the part number on the box. While the bearings with a standard fit and lithium grease matched the part number, they were not (according to SKF USA) suitable for electric motor use. There was no way to determine what bearing you would get without opening the box and examining the bearing inside.

It was found that SKF USA listed several sizes of polyoil-lubricated bearings (which, according to the complaint, were not authorized for electric motor use) in their price list with the JEM designation. Upon attempting to order some of these from an authorized distributor, it turned out that they had changed that designation presumably after instituting the complaint.

It also came out in the hearings that SKF USA’s bearing unit had sold bearings containing lithium grease directly to the electric motor industry in the United States.

The following are findings of fact by the administrative law judge from the hearing:

FF 8. From 1997 through March 2002, SKF USA’s sales of bearings with lithium based grease totaled $[ ]. See Jt. Stip. No. 3,16; Rx-8042C, p. 2; Bloch, Tr. 2597:25-2598:4.
FF 9. Of this amount, approximately $[ ] represents sales of lithium greased bearings directly to the electric motor industry, contrary to SKF USA’s contention that it does not authorize such sales. & Jt. Stip. No. 3,y 6; RX-8042C, Tables 5 & 6, pp. 2 1-24.

We also tested two major SKF distributors. We placed orders with Kaman Industrial Technologies and Motion Industries. On both orders, we stated “I’ve got an electric motor shop that’s looking for a 6218 double sealed and he wants SKF only”. Interestingly, neither one had the bearing in stock. From Kaman we received a 6218 2RS1 (a lithium greased bearing with a standard fit). From Motion we received a 6218 2RS1 C3 (a lithium greased bearing with a loose fit). So much for the extensive training that SKF USA distributors receive.

SKF USA claimed that purchasers of “gray market” SKF imported bearings are more likely to receive damaged or aged bearings than purchasers of SKF USA “authorized” imported bearings. They did not, however, produce any examples of any bearings that were proven to be gray market bearings that were either damaged or aged. In fact, importers purchase for their inventories mainly popular sizes. This is precisely because they don’t wish to stock a bearing that is going to sit on their shelf for years. In the rare instance where they might be asked to locate an oddball size that a customer is having difficulty finding, it would generally be for an order they already had.

The primary place where one is most likely to find a bearing that has exceeded SKF’s recommended shelf life (which they claimed was confidential) is the surplus market, not the gray market. The surplus market deals primarily in authorized bearings and is quite distinct from the gray market. It came to light during the hearings that SKF USA’s largest authorized distributors (Kaman, Motion, and AIT) all purchase substantial quantities of SKF bearings on the surplus market as well as the gray market. It even came to light that SKF USA itself had purchased gray market bearings.

In SKF USA’s next claimed physical difference “bearings manufactured in certain facilities abroad” they stated:
“SKF manufactures spherical roller bearings and ball bearings in its Malaysian MU 86. (“Malaysian bearings”). SKF also manufactures tapered roller bearings and ball bearings in a facility in Pune, India (“Pune bearings”). SKF previously participated in a joint venture in Yugoslavia known as the Sokolac operations (“Yugoslavian joint venture”). This joint venture facility manufactured tapered roller bearings (“Yugoslavian TRBs”).
The Malaysian and Pune bearings and Yugoslavian TRBs are appropriate for certain markets. As such, they are not inferior bearings. However, SKF USA does not authorize the importation and/or sale of these bearings in the United States. Consequently, when purchasing authorized SKF bearings, U.S. consumers have come to expect that they will not receive Malaysian or Pune bearings or Yugoslavian TRBs. The only exception to this policy is that, in rare circumstances, SKF USA might import a limited number of Malaysian or Pune bearings for sale to an OEM. For example, such importation has occurred when an OEM placed a rush order for bearings, the only available SKF supplier was the Malaysian or Pune MU, and SKF USA had the ability to closely monitor the sale to ensure a high level of quality control and technical assistance.”

SKF USA maintained that SKF bearings from Malaysia were physically different from the bearings SKF USA authorized for sale in the United States because they were etched differently. While (according to SKF USA) authorized bearings had standardized etching patterns, Malaysian SKF bearing had part number, country of origin, brand name and date code that did not match this supposed standardized pattern. The difference was that while the authorized bearings had these four things etched at 90 degrees from each other, the Malaysian bearings had the same four things paired at 180 degrees from each other. This difference was supposedly confusing to consumers that had come to expect SKF’s standard etching pattern.

We found evidence that SKF USA has no such standard etching pattern. Among the many bearings that we ordered from Chicago Rawhide, we found two bearings of exactly the same part number that were etched in completely different places. One was etched on the edge of the outer ring and the other was etched on the outer diameter of the bearing.

They also stated that these Malaysian bearings were physically different from authorized bearings because they contained the E style cage, while authorized bearings did not have the E style cage.

The particular bearings that they based this part of their complaint upon were two of a 22226 EK C3 that supposedly had been purchased from McGuire Bearing Company. As it turned out this customer had never purchased that size from McGuire. Those bearings were never put into evidence at the hearing.

It also was found that SKF USA has sold Malaysian bearings to its Authorized Distributors and Chicago Rawhide in the United States.

The following are findings of fact by the administrative law judge from the hearing:

FF 13. SKF USA has sold $[ ] of bearings from Malaysia from some point in 1999 through March 2002, $[ ] of which were sold to SKF USA’s authorized distributors. See Jt. Stip. No. 3,Iy 1 and 3; RX-8039C, Tables 1 & 2, at pp. 2-3.
FF 14. During this period, SKF USA also sold or transferred to CR SKF bearings manufactured in Malaysia totaling $[ ]. & Jt. Stip. No. 3,y 11; RX-8046C, Table 1, p. 2.
FF 15. SKF USA’s sales data did not include country of manufacture prior to March 1999, so it is not possible to determine the extent to which SKF USA sold Malaysian bearings prior to that time. Bergqvist, Tr. 399:3-19.
FF 16. Chicago Rawhide does not track country of manufacture in its sales files. See Jt. Stip. No. 4 2.
FF 17. SKF USA has made sales of E-type spherical roller bearings that total $[ ] for the period from 1997 through March 2002. Of this amount, $[ ] represents sales to SKF USA’s authorized distributors. See Jt. Stip. No. 3,y 4; RX-804OC at 1.
FF 18. SKF USA’s sales of E-type spherical roller bearings include $[ ] of sales of such bearings that were manufactured by SKF in Malaysia, of which $[ ] represents sales by SKF USA to its authorized distributors. See Jt. Stip. No. 3,T 4; RX-804OC at 10-1 1.
FF 19. SKF USA’s sales or transfers of E-type spherical roller bearings to CR totaled$[ ]3. & Jt. Stip. No. 3,y 12; RX-8029C, Table 1, p. 2.

Under the banner of “Packaging and Labeling” SKF USA stated:

“SKF USA takes great care to ensure that every SKF bearing sold in the United States by SKF USA is appropriately packaged in an authorized SKF box with one or more of the SKF Trademarks prominently and attractively displayed thereon. Accordingly, U.S. consumers have come to expect that SKF bearings will be sold in attractive and appropriate packaging."

On the other hand:
"The packaging and labeling of gray market bearings are materially different from, and frequently inferior to, SKF USA’s authorized packages and labels.”
“Gray market SKF bearings are often sold in boxes that either do not carry SKF labels at all or carry non-SKF labels that partially obscure and/or mask the SKF Trademarks.
Gray market SKF bearings are often repackaged and sold in generic boxes or other non-SKF packaging.
Gray market SKF bearings have been offered for sale and/or sold in boxes and packaging with handwritten and/or stamped part numbers and codes that do not appear on authorized SKF bearings.”

SKF USA maintained, among other things, throughout the investigation that they never sold anything but SKF bearings in SKF boxes and that they never allowed SKF bearings to be sold in anything but SKF boxes. They even answered the following interrogatories:

Interrogatory: If you or your Authorized Distributors have ever sold an SKF bearing to a customer in non-SKF labeled packaging, identify each instance in which you or your Authorized Distributors did so, provide a detailed explanation of why the bearing was sold in non-SKF packaging, and identify the customer to whom the bearing was sold.

Response: Without waiving and subject to the objections asserted in SKF USA’s Response, SKF USA has not sold SKF bearings in non-SKF labeled product packaging. SKF USA will supplement this response, if appropriate.

Interrogatory: If you or your Authorized Distributors have ever used SKF labeled product packaging in connection with the sale of a bearing that was not manufactured by an SKF Group MU, identify each instance in which you or your Authorized Distributor(s) did so, provide a detailed explanation of why the bearing was sold in SKF packaging, and identify to whom the bearing was sold.

Response: Without waiving and subject to these objections, SKF USA is not aware of any such sales except certain needle roller bearings manufactured by INA under contract with AB SKF. These bearings are not branded or sold as INA bearings. Rather, they are etched with the letters SKF, and are therefore branded and sold as SKF bearings.

SKF USA fought hard to keep information on Chicago Rawhide (part of SKF USA) out of the proceeding. Eventually the judge ordered them to provide information about CR. It came to light that Chicago Rawhide routinely sold other manufacturer’s products in SKF labeled packaging. We found instances of Timken, Koyo, Bower, Aetna and others being sold in SKF labeled packaging.

SKF also licensed Roller Bearing Company of America (RBC) to sell SKF marked tapered roller bearings in boxes marked RBC/Tyson.

McGuire Bearing Company was an MRC Distributor at the time SKF purchased them. At that time we, on many occasions, received SKF marked bearings in MRC boxes. We were a Steyr distributor at the time SKF purchased them. It was not uncommon to receive SKF marked bearings in Steyr boxes. Likewise, SKF sold MRC and Steyr bearings in SKF boxes. Did no one at SKF remember any of this? I find that unlikely. In view of this, isn’t it disingenuous to claim that consumers have come to expect that they will never receive an SKF bearing in anything other than SKF labeled packaging? I think it is. Isn’t it deceitful to say that SKF USA never sells (except for the INA bearings) any bearings not manufactured by an SKF Group MU (Manufacturing Unit) in SKF labeled packaging? I think it is.

SKF USA mentions handwriting on the boxes as a physical difference in packaging. They stated in their complaint that neither SKF nor any of its MUs ever place any handwriting on boxes. They used the same two bearings (22226 EK/C3) that they had used to bring us into the case (even though we didn’t sell them) as examples of boxes with handwriting on them. The writing on these boxes was put there by the customer. It was the customer’s own internal part number. SKF USA knew or should have known this and yet they used them in their complaint anyway. This customer puts their own internal part number on all the parts they receive.

Big corporations like SKF have a big advantage in these investigations because it is very expensive to participate in these types of proceedings. Throwing around a plethora of allegations is a means of driving that cost up. Smaller companies cannot afford to defend against this sort of action. The entity with the biggest pockets can force smaller businesses to capitulate even if they don’t believe they’re wrong. Ten of the original respondents either defaulted or settled due to the tremendous costs involved. In the end, only four respondents remained in the case.

This case cost American taxpayers a considerable amount of money. It spanned over two years. It is a classic example of a large multi-national corporation attempting to use the power of government to thwart competition.

I have attempted to relay just some of the questionable conduct that SKF USA engaged in during this investigation. This is certainly not all of it.

Judge Terrill saw through most of it, which is why he found no physical difference between the authorized and unauthorized bearings or packaging. He did, however find a single non-physical difference to be material in his initial determination (ID). The respondents filed a petition for review and the Commission determined to review the ID.

On May 12, 2004 the Commission reversed the judge’s decision (the vote was 6 to 0) and found no violation.

Steve McGuire
McGuire Bearing Company