By on September 21, 2010

Again, shameless China shows utter disregard for intellectual property. Nothing is sacred anymore. The American government fines Toyota? Great! Let’s copy that! The Nikkei [sub] reports that Toyota has been fined by local authorities in Zhejiang Province. Wait until you hear what for.

Toyota’s Chinese auto finance unit has been fined for alleged illegal rebates to dealerships. Hangzhou officials, while performing their duty of overseeing industry and commerce, found out that Toyota Motor Finance (China) Co. paid three dealerships some $10,000 in kickbacks for writing car loans. That’s against Chinese law. Toyota kept up that egregious practice from August 2008 through April this year. Toyota was slapped with a $20,000 fine. $62,000 in income tied to these transactions may also be confiscated. So there.

Toyota is ” currently evaluating the notice.” U.S. dealers hope that their government will honor intellectual property, and will not copy the Chinese practice. Financing is already way down, and if there are no kickbacks on writing loans, the dealers might just close.

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7 Comments on “Copycat China Fines Toyota Too...”

  • avatar
    Billy Bobb 2

    US dealers could not survive without “stairstep” money; let alone points on finance.

  • avatar

    This wouldn’t have anything to do with the recent Sino-Japanese train wreck over the Diaoyu (Senkaku) Islands, would it?

  • avatar

    My guess is that there is an interesting backstory to these fines.  In China it is very common for businesses to bend the rules (although perhaps less so with foreign companies operating in China).  Usually, this rule bending only becomes a problem if the issue is very significant or if there is some need (or desire) to exact punishment / retribution for some other issue.
    $10,000 in kickbacks to three dealerships is a small issue … particularly in a municipality of eight million plus people like Hangzhou.  The action may be tied to a some bigger conflict between China and Japan (ie, like the Japanese detention of the Chinese ship captain over the problems in the Diaoyu Islands), but the probability of this seems very low.  Probably one of Toyota’s partners, suppliers or competitors in China is trying to punish them for reasons unrelated to the kickbacks.  Someone with strong relationships with people in the Zhejiang or Hangzhou governments could quite easily make trouble for Toyota.
    Earlier this year I witnessed legal problems between a US company and one of their suppliers in Zhejiang Province.  This supplier was marking product with their US customer’s logo (ie, as instructed by the customer).  When the customer attempted to extract price concessions and shop the business to other suppliers things took a turn for the worse … for the customer, that is!  The Chinese supplier filed the necessary papers with the Chinese authorities to trademark (copyright) the US customer’s logo in China.  This meant that the Chinese supplier was the only company in China with the legal right to make and sell product marked with the US customer’s logo.  When the customer tried to move their business to another Chinese supplier the original supplier notified the local authorities.  Government officials shut down production at the second supplier and confiscated all product marked with the US company’s logo.  This was possible primarily as a consequence of the strong relationships the original supplier had cultivated with government officials.  The US company is now licking their wounds … and changing their logo and registering it in both the US AND China.

    • 0 avatar

      I advise companies on buying parts in China. My first piece of advice is to register their trademark in China before they do anything else. $1500. I refuse to do any work unless the trademark is registered. Reason: See above. They usually say: “What do I care about a Chinese trademark. I don’t want to sell my product in China.” My answer: “But you want to get it out of the country. ” China is a first to file country, and anyone can register any unfiled trademark. What’s more, the holder of the trademark can stop exportation of a product carrying “his” trademark, and yes, can have “fake” product confiscated.

      Next, any of my supplier contracts specify that the supplier may not seek any trademark protection or patents in conjunction with the product made – with a nice contractual damages clause.

      If the customer ignores these precautions, close relationships with the authorities are not necessary (although they always help.)

      I’m available for advice – but not in a lost cause as the above. You can get a “famous mark” back, but only after years of legal wrangling. Better close the door before the cow leaves the barn.

    • 0 avatar

      These kickbacks to dealers seem like normal Chinese business practices. 

      My sales team in China say I tie their hands because I won’t allow kickbacks to our customers key employees.   
      I only allow dinners, entertainment, and seasonal gifts like Mooncake.
      I would believe that my sourcing, purchasing, and engineering are all trying to make special arrangements with our suppliers.  Each employee is way too possessive of wanting to be the single point of contact or single point of authority relating to suppliers.
      I heard that no employee would ever be prosecuted if discovered that they received kickbacks.  I do not know if that is true in fact, but it is at least true in thinking.  This seems to be a cultural thing. 
      So back to Toyota, yes this is just political sabre rattling since this was probably business as usual.  

  • avatar

    Here’s a question: What kind of fine is $20,000 for almost 2 years of illegal practices?
    I wonder if it’s a case of the gov’t officials handling the case figuring out the amount of money needed to make this situation, ahem, go away…

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