Brazen Cheating Alleged in Silicon Valley

SAN FRANCISCO (CN) - Ubiquiti, a Silicon Valley tech company, claims in court that a former distributor stole designs, trademarks and source codes to make millions of dollars worth of counterfeit products - so many that Ubiquiti stock is suffering from it.

Ubiquiti sued Kozumi USA Corp. and its owner Shao Wei Hsu in Federal Court.

It claims Hsu stole designs, plans and software to make "copycat" products in Hong Kong.

Ubiquiti makes wireless and networking tech products. It claims Hsu approached it about becoming a distributor in 2008 and made good money from the company's "established goodwill and relatively low pricing structure." But Hsu had bigger plans, and began making copycat products, Ubiquiti claims.

"Kozumi's sales of Ubiquiti products were so profitable to Kozumi's business that, in or around June 2009, Hsu proposed to Ubiquiti's sales manager that the companies enter into a joint partnership, making Kozumi's Syntronic and Redemax affiliates 'master distributors' of Ubiquiti products in South America," the complaint states.

Three months later, in September 2009, Ubiquiti "learned that Kozumi was offering copycat products under the Kozumi brand, and using graphics on its website similar to those used by Ubiquiti," according to the complaint. "Ubiquiti was concerned that Kozumi was leveraging Ubiquiti's trademarks and goodwill to obtain a customer base for its own copycat Kozumi-branded products. Accordingly, Ubiquiti terminated the ADA [Authorized Distribution Agreement] with Kozumi and stopped filling orders received from Kozumi."

Ubiquiti says its agreement with Kozumi made it clear "that the Ubiquiti Networks name and trademark was owned by Ubiquiti Networks," and that Ubiquiti "never authorized any defendant to seek registrations for any Ubiquiti trademark."

Cutting off Hsu hurt his business so badly, particularly in Latin America, that he decided to steal Ubiquiti's product designs, and "fraudulently" obtain its trademark rights in the Americas, Ubiquiti claims.

It claims Hsu soon was making four Ubiquiti products in Hong Kong, and shipping them in packaging with Ubiquiti's name, corporate address, website, logo and trademarks. It claims he includes Ubiquiti's unique identification code, IP address, user name and password for using specific operating systems, its FCC identification number and the "CE" European Union trademark.

"In addition, the counterfeit products have POE cords and adaptors, which also bear the Ubiquiti Network's name, the Ubiquiti logo, the UL certificate and the European Union 'CE' mark," Ubiquiti claims. It adds that it believes the "counterfeit products have not been inspected by the Underwriters Laboratories for quality and safety."

Ubiquiti said it was tipped to the scheme by a distributor in China.

"Ubiquiti acquired and investigated the products, confirmed that they were counterfeit and used information found on the PCB boards [Chinese message boards] in the counterfeit products sold in Argentina to track them to Hoky's plant in Shenzhen, China," the complaint states.

The complaint includes color photos marked "Ubiquiti Product" and "Kozumi Counterfeit Product," which appear indistinguishable.

Ubiquiti claims the Hoky plant can make copycats because a former Ubiquiti employee stole the materials needed to do so. It claims "that a product process engineer who was previously employed by two different Ubiquiti contract manufacturers in China, Zhang Ping, stole Ubiquiti's proprietary designs, plans and software."

In October 2011 alone, the complaint states, the Hoky plant shipped 31,000 products valued at about $1 million. Ubiquiti says the plant was raided by Chinese police but soon reopened and continues to produce copycat products. In fact, the operation has expanded to include two of Ubiquiti's more expensive products, the company says.

It claims Hsu has ignored its demands to stop selling the counterfeit products and even "demanded large sums of money from Ubiquiti for the 'return' of the fraudulently obtained Ubiquiti Networks & Design registration in Argentina."

"On April 1, 2012, to justify his demand for over $2.5 million for the return of the Ubiquiti trademark, defendant Hsu explained that the amount included a 'large volume of components, housings, materials and PCBA boards confiscated' in China, and 'a very substantial amount on legal fees,' incurred in defending the Hoky factory in China. Hsu has also made thinly veiled threats against Ubiquiti and has increased the amounts demanded from Ubiquiti in return for Hsu's commitment not to follow through on his threats," the complaint states.

To top it off, Ubiquiti says, Hsu's wife has filed an application in the United States for the "Ubiquiti" trademark.

It claims that Kozumi has "knowingly, willfully, intentionally and maliciously engaged" in a scheme to "counterfeit Ubiquiti's products, to deceive the consuming public and to unfairly drive Ubiquiti out of the market using its own reputation and goodwill."

Ubiquiti seeks destruction of counterfeit items, an injunction, and compensatory and punitive damages for counterfeiting, trademark infringement, false designation of origin, violations of the Federal Computer Fraud and Abuse Act, of California's Comprehensive Computer Data Access and Fraud Act, copyright infringement, unfair competition, business law violations, false advertising, trade libel and tariff violations.

It is represented by Jennifer Lee Taylor with Morrison and Foerster.

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