THE Pacific : Caught in Cross-Fire: Japanese Firm Asks U.S. to Bar Taiwan’s Look-Alike Tools
Is a Japanese company with U.S. subsidiaries entitled to U.S. government protection from cheap, look-alike imports from Taiwan that it claims are hurting its sales in America?
The question will be answered in a case under investigation by the U.S. International Trade Commission. Makita USA of La Mirada and Makita Corp. of America of Buford, Ga., claim that Taiwan rip-offs of their power tools are hurting Makita’s U.S. sales. The two companies, both owned by Makita Electric Works Ltd. of Anjo, Japan, want a U.S. order to prevent these products from entering the United States.
The case is unusual in that a Japanese company is aggressively taking legal action to seek protection under a U.S. trade law originally designed to protect American industries and manufacturers. U.S. firms have used the law--section 337 of the Tariff Act of 1930--against patent-infringing imports from Japan and other countries.
The case also is unique in that Makita is using a novel patent infringement argument: It alleges that 31 Taiwanese manufacturers and exporters, together with American importers, are infringing on the company’s common law trademark rights of its distinctive product designs and blue color, which it calls “Makita blue.”
In today’s global economy, the case raises interesting questions about the nature and ownership of an industry in the United States. When section 337 was enacted more than 50 years ago, the diversity of today’s international markets and competitiveness was unimagined. Was the law meant to give protection to foreign companies who have enhanced, but not necessarily developed, a U.S. industry?
‘Attempt to Monopolize’
“This is nothing but a thinly veiled attempt to foreclose entry of competitors in the U.S., an attempt to monopolize the market and to be able to restrain trade in tools,” said Louis S. Mastriani of Adduci, Mastriani, Meeks & Schill in Washington. His law firm is representing three Taiwanese firms and two U.S. companies, Alltrade Inc. of City of Commerce and Harbor Freight Salvage of Camarillo.
Not long ago, most U.S. manufacturing industries were dominated by companies largely owned by American interests. But today, foreign companies, including Japanese-owned firms, have opened U.S. plants to produce cars, appliances, computers and other high-tech items.
Under section 337, the ITC evaluates what harm has been suffered by a U.S. industry. Ownership is not a factor.
“The statute is silent on ownership, but it requires that there is an industry in the United States,” explained Jim Craig, a spokesman for the ITC in Washington. “The definition of the industry is open to some interpretation. As long as there is some legitimate operation here, then it applies.”
“The ITC, by instituting the case, must have been satisfied that we must have met basic criteria of what’s needed,” explained William A. Zeitler, an attorney at the Washington law firm of Bell, Boyd & Lloyd, which is representing Makita.
Over the years, the ITC’s standards for what constitutes a domestic U.S. industry have been relaxed. It once involved purely manufacturing activities, but today it includes warranty, packaging and distribution work done in the United States.
In 1980, the ITC granted relief to Jotul USA, a distributor of Norwegian-made cast-iron stoves, which claimed its sales were hurt by Taiwanese and South Korean imitators. In 1982, the agency granted Ideal Co. relief from Canadian, Japanese and Taiwanese imitators of its famous Rubik’s Cube puzzle, even though the New York company imported all of its product.
Black & Decker No. 1
Makita, with annual U.S. sales of $295 million, describes itself as the second-largest supplier in the United States of electric power tools. Black & Decker of Towson, Md., is No. 1, with estimated annual U.S. sales of $500 million. Industrywide, electric-tool sales are estimated at $1.2 billion to $2 billion annually.
Makita USA was incorporated in New York state in 1970. It started doing business in the United States the following year out of Cerritos. Until 1986, when it established a manufacturing facility in Buford, Ga., Makita imported all products from Japan.
By 1991, Makita’s Georgia plant will supply half of all units sold in the United States. U.S. sales now account for about 40% of Makita’s worldwide sales.
Makita’s U.S. operations employ a total of 600, 120 to 130 in La Mirada and 100 in Buford. The remaining are employed at offices and warehouses in New Jersey; Chicago; Fremont, Calif.; Houston, Denver and Atlanta.
“From Makita’s perspective, we have become a U.S. company and we are doing everything that the U.S. government wants us to do. We hire U.S. employees on U.S. land, purchase components from local sources and pay taxes,” explained Gerald L. Margolis, general counsel for Makita USA in La Mirada.
Losing Major Sales
“We have information that we have lost sales, and our sales increase has slowed.” That trend could adversely affect plans for the Buford plant, which is set up for high-production runs, according to Margolis. The ITC, Makita attorneys say, will investigate both present and future injury to an industry.
The company will not disclose data on how much the company has suffered, saying it has filed that information on a confidential basis with the ITC, although Margolis said the company is losing sales in the “tens of millions of dollars.” Since 1982, Makita sales have grown as average 30% a year.
Meanwhile, Trade Associates of Kent, Wash., one of the American importers named in the complaint, has filed a $22.8-million suit in federal court in Seattle against Makita, alleging that the company mislabeled products so that consumers believed that the products were American made in Buford when 90% of the parts were imported.
Margolis said: “We do deny their allegations. Right now, we’re trying to decide to file a counterclaim.”
