German USA Counterfeit Case Research Paper

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Counterfeit Case

Contractual Relations between Satel & Elcom

The contractual agreement into which Elcom and Satel entered is well documented via the emails exchanged. It is also the body of these emails which will serve as the legally binding contract. It should be stated at the outset that Elcom, the seller, rejected German law as well as Satel's specific purchase conditions. Therefore for the purposes of determining appropriate legal action taken upon the unsatisfactory conclusion and voiding of the contract the guiding body of rules and remedies will be the United Nations Conventions regarding the Sale of International Goods, a legally binding set of regulations ratified by both the United States and Germany (the two states in question.)

On 15th January 2009, Mr. Leiber (Satel) initially contacted Mr. Lewis of Elcom requesting 50 pieces of specialized electronic equipment. Mr. Lewis responded 17th January 2009 indicating that the pieces would be produced via a 3rd party contract to a company called H.S. Semiconductor Corporation based in Miami. Further the price would be $5,000.00 per piece. The goods would be delivered (FOB) from Miami Airport, delivery expected one week following the conclusion of the contract.

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Following this exchange it was agreed that the two men would meet in person in Palm Beach in order to further negotiate terms. At this time both parties met for super and over their meal further discussed lowering the price. Price being a primary impediment to finalization of the offer, Mr. Leiber indicated that this decrease was positive but not yet a price he was comfortable with. On 1st February Mr. Leiber extended a revised yet firm offer indicating his intent to conduct a business transaction with Mr. Lewis. Mr. Leiber indicated that he was interested in purchasing 60 parts with the product number (HS 9567) for $3,500.00 per part. Mr. Leiber further indicated that he wanted German law as well as Satel's purchasing conditions to be applied the first carrier named was DHL.

Research Paper on German USA Counterfeit Case Assignment

On 5th February Mr. Lewis replied that the minimum possible price was $4,000.00 and that as a result of the financial crisis, a bank guarantee of $100,000.00 was necessary prior to receipt of the products. Total purchase price would be required within five days of delivery of the goods. Further neither German law nor Satel's policies would be honored within the contract. The final aspect of Mr. Lewis's counter offer was that despite Mr. Leiber's indication that defect or delay would result in high damages, that Elcom would only limit total liability to 20% of the purchase price ($48,000.00). On 21st February, Elcom received the bank guarantee which had been issued by Bank of America, the whole amount was withdrawn that day.

The products received by Satel on 1st March 2009 half of the received goods were defective upon incoming inspection. The other half which had to be sent for testing were found not only to be defective but also to have been counterfeited. Upon inquiry it was discovered that some of the damage was due to an accident involving the truck transporting the product to the Satel factory. The originally contracted third party producer of the component has indicated that they will be unable to produce replacement parts in time for the Satel deadline which resulted in the incursion of late charges in the amount of $240,000.00. Further, the additional testing cost Satel an additional $20,000.00 in expenses.

Upon discovery of the defective components Satel informed Elcom of the problem and of the further problem of the also defective counterfeit components. This information was provided within two months of receipt of the components prompting Satel to void the contract as a result primarily of breach of contract as well as a loss of confidence. This was further mediated by the admitted inability of the third party supplier to produce replacement components within a reasonable timeframe so as not to inconvenience the buyer.

Rights & Obligations of the Parties including the right to claim damages

Though it is not specifically state, Satel has taken actions to void the contract. They have sought reimbursement in the amount of $260,000.00. This amount is the total amount of losses as well as expenses resulting from the delivery of defective and counterfeit components. They also ask that the $100,000.00 initial bank guarantee be refunded as well. Below will be a list of the obligations and rights of Elcom as well as Satel in terms of the legal remedy for this situation.

Satel has the right to void the contract according to Article 25 which states that any failure on the part of one member of a contract to supply the other with what he is entitled without the mitigating factor of an unforeseeable event constitutes a breach of contract. Elcom delivered 30 defective and counterfeit components to Satel who provided a 100,000.00 good faith bank guarantee that the 60 components ordered would be authentic and delivered in working order on time. The decision to void the contract according to Article 81 section 1 frees both parties from all obligations associated with the contract subject to damages. Should Satel void the contract then, they would not be responsible for paying the still necessary price of the thirty authentic components despite their status as defective.

Satel also has grounds for voiding the contract in that 50% of the goods delivered were not the goods which were ordered in terms of the actual contract according to Article 35 section 1. Section two of that same article further clarifies that goods do not conform to contract unless they are fit for purposes which goods of the same description would be used which they were not (defective). Further according to section three of the same article indicates that the only exemption of liability for this issue is if the seller has made the buyer aware of the nonconformity and the buyer has decided to continue with the order. This was clearly not the case. Elcom is further liable for the unknown risk to the buyer. According to section 1 of article 36, the seller is liable for any lack of conformity present when risk is transferred to the buyer even though the lack of conformity may become present only after time.

Accodring to article 41, Elcom was contractually obligated to provide components produced by H.S. Semiconductor Corporation. The delivery of goods produced elsewhere in an effort to deceive the buyer (counterfeiting) does not indicate a successful completion of the obligation implicit in the contract between Satel and Elcom. There is the potential for the third party supplier H.S. Semiconductor Corporation to bring legal action against Satel should they attempt to use or sell the counterfeit parts, this potential conflict of rights and claims to the intellectual property of the branding and production of the component is a further liability of Elcom. Though the third party was contacted in order to see if replacement components could be produced, According to Article 46 following the conclusion of the agreed upon timeframe Elcom is not eligible for a grace period in which to replace or repair the components, this is compounded by the fact that in asking for remuneration Satel has utilized one of the provisional remedies within the UNCSIG.

According to the legal regulations governing this contract, Satel has the right to damages according to Article 45. This article indicates that should the seller not perform their obligations that then the buyer is not only able to void the contract but further they are still able to collect damages, they also have the right to request replacement and/or repair. Thos option however has been shown to be impossible in that the originally contracted third party producer is unable to fulfill the order in the necessary time to prevent the buyer from incurring penalties as a result of defaulting on obligation to their customers. Because Satel made their desire for remuneration and ultimately a voiding of the contract known within two months of delivery, they are protected by Article 49 subsection 2 part b subsection i. This is an exemption in which the seller simply for having delivered goods is not necessarily considered having completed their obligations if they are aware that they were in breach of contract at the time when the goods were sent. Elcom was aware that 30 of the parts were counterfeit by that fact alone they were in breach of contract. According to article 71 section 1 subsections a and b, Satel is entirely within their rights to suspend their final payment as a result of Elcom's breach in contract. This article speaks specifically to the degree of confidence which is present upon the conclusion of the contract and in the context of a party not completing their designated obligations. In the case of this contract it is apparent that credibility and trustworthiness have completely diminished, it is also evident that the ordered components will not be replaced in a timely fashion.

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German USA Counterfeit Case.  (2010, May 10).  Retrieved July 13, 2020, from

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"German USA Counterfeit Case."  May 10, 2010.  Accessed July 13, 2020.