US feed manufacturer Vitech sues overseas distributer for counterfeit product

05-Oct-2016 - Last updated on 15-Jun-2023 at 10:10 GMT

Related tags Marketing

California-based feed producer, Vitech Bio-Chem Corporation, has filed a lawsuit against its one-time distributor to China.

Vitech has sued VBC Peptide Inc or Peptide USA, that company’s reported controlling director Bilian Wang, along with multiple unnamed ‘does’ for alleged fraud; the suit also aimed at establishing that a distribution agreement between the two groups is now void.

The case was filed last week in the Superior Court for California. Vitech is asking for $2m in damages along with legal costs, according to court documents.

“Defendants’ conduct was fraudulent, despicable, malicious and oppressive, and was undertaken in conscious and willful disregard of [the] plaintiff’s rights and with the specific intent of injuring and depriving Vitech USA of its rights,” said Mike Margolis, attorney representing Vitech, in the lawsuit documents. “[The] plaintiff is therefore entitled to recover punitive and exemplary damages from defendants.”

Case history

The feeds that Vitech makes, sells and exports are produced in the US and include formulations that are a trade secret, the company said in court documents.

“The manufacturing of the various Vitech feeds, which also occurs in the US, is tightly controlled by Vitech USA,” said Margolis in the court document. “Vitech USA’s packaging for its products, which is designed and manufactured in the US, is well-known in its industry and among customers for products of this type, and Vitech USA owns the copyright to that packaging.”

Vitech had a distribution network established in China to market some of its feed products. In 2011, sales were about 1,100 tons and were valued at around $2m.

Wang, through her work on product distribution in China, requested that the product be blended upon arrival in that country to improve consistency of color, particle size before then being re-bagged and sent to customers, according to court documents. Initially, the blending was done by a third-party company and later by a company started, in part, by Wang.

By 2012, Wang was reportedly in control of the blending company, Peptide Zhuhai, Vitech Hubei – the China-based import and distribution company – and order placement, the lawyer said in court documents. Export volume of the product proceeded to fall from 2011 through 2014.

Upon inquires, Thomas Shieh, CEO and owner of Vitech USA, found that sales in China had not significantly altered during that time and was told that the slow-down in orders stemmed from excess product having built up in China, according to court documents.

In mid-2014, the company owner was told the original Vitech product was being diluted during the blending process, according to court documents. “Peptide Zhuhai was not just blending different batches of the original product to reduce inconsistences in color, odor, and particle size, but instead had been diluting the genuine product with soybean meal to make inventory go farther,” the filing stated.

In late 2014, the companies established a framework distribution agreement making Peptide USA the exclude distributer in China, at which point the company agreed to sell genuine Vitech products and buy an established minimum amount for 2015 of 500 tons followed by increased sales, according to court documents.

Additionally, the groups were to negotiate a more detailed distribution agreement, the lawyer said in court documents.

However, the sales did not take place and work on the more complete distribution agreement was not finished, said Margolis in the court documents. It was found that the company was still selling a product claiming to be Vitech’s in China.

“Sheih confirmed that neither an excess inventory explanation nor a diluting-product explanation could account for the volumes of product being sold and shipped at Vita-M Fac 200 product, given the absence of recent orders for genuine product from Vitech USA,” the lawyer said in court documents. Instead, it was discovered that a product manufactured in China was being used to fill orders with “counterfeit packaging” similar to actual packaging.

Vitech has since notified Wang, Peptide USA, Vitech Hubei and Peptide Zhuhai that it was canceling the framework distribution agreement as conditions had not been met and information had been found regarding the counterfeit products, he said in court documents.

However, in addition to seeking damages from the sales that were not completed through the framework agreement, Vitech also is seeking to establish that the framework agreement has been terminated, he said in court documents.

“An actual controversy has arisen and now exists between plaintiff and defendants regarding their respective rights and obligations in connection with the framework distribution agreement,” said Margolis in court documents. Vitech said that it has ended the agreement validly and that that tenants no longer apply.

“The plaintiff is informed and believes that defendants deny and contest those contentions, and assert rights under the framework distribution agreement as if it were still in effect,” he added in court documents.

Requests for comment from both Vitech’s counsel and VBC Peptide were not immediately returned.