Central Iowa company accused of acting as a front for Chinese manufacturer

By: - May 24, 2022 5:46 pm

Underground Magnetics of Johnston, Iowa, is accused of falsely claiming that its Chinese-made products for locating critical infrastructure underground are made in the U.S. (Screen shot from Underground Magnetics training video via U.S. District Court filings)

A central Iowa business is being sued in federal court for allegedly claiming that its Chinese-made products, which collect data on critical infrastructure that’s buried underground, are produced in the United States.

Digital Control Inc., or DCI, which is based in the state of Washington, is suing Underground Magnetics of Johnston, Iowa, in U.S. District Court for the Southern District of Iowa. The Johnston company is accused of trademark and patent infringement, unfair competition and false advertising. DCI claims the central Iowa company holds itself out as a manufacturer when, in reality, it is “a sales arm of a Chinese company manufacturing its products in China.”

DCI claims Underground Magnetics is a corporate affiliate of a Chinese-based company named Huangshan Golden Land Electronics that has wrongly “passed itself off” as a U.S. manufacturing company. Through these alleged misrepresentations, the lawsuit claims, the defendants are attempting “to dupe U.S. consumers” into purchasing goods falsely labeled as being “proudly manufactured in the United States.”

The products’ origin, the lawsuit claims, is significant, in part because they are used to collect “data about where critical infrastructure is buried underground, and it is important for customers to trust that this data will not be misappropriated” by others.

Underground Magnetics has yet to file a response to the lawsuit and the company’s president, Michael Young, declined to comment on the matter Tuesday. The registered directors of Underground Magnetics, Ren Chao, Yuyiy Khapochkin and Jian Jin, could not be reached for comment.

The lawsuit centers on technology that is used to assist in the installation of critical infrastructure and utilities underground and helps installers locate and avoid other infrastructure and utility lines. DCI engineers and manufactures the equipment at a plant in Kent, Washington, which the company says gives it a competitive edge in terms of product quality.

The lawsuit claims Underground Magnetics was created in late 2017 to make and sell the same patented technology that has been used in DCI’s products for close to 20 years.

According to the lawsuit, Underground Magnetics president Michael Young was employed by DCI from 1995 through 2010, and was working as DCI’s international sales manager when DCI terminated its relationship with him.

Since then, DCI claims, Underground Magnetics has repeatedly infringed on DCI patents and trademarks while in direct competition with DCI. Those actions, the lawsuit alleges, have forced DCI to “compete against its own patented technology at prices that fail to account for its considerable research and development efforts.”

Underground Magnetics, DCI claims, has not only piggybacked off DCI’s research to save costs, but also manufactured its products  in China to save costs, all while “improperly holding itself out as manufacturing in the United States.”

The lawsuit alleges that 11 days ago, on May 13, Underground Magnetics “deceptively advertised on Facebook that its ‘new Johnston, Iowa factory is nearly ready,’” despite evidence that the Johnson expansion will create only four new high-quality jobs, while retaining 12 full-time positions. “This would be an insufficient number of employees to actually manufacture the products within the United States,” the lawsuit claims, alleging that the planned “factory” will actually be a warehouse to store equipment imported from China.

The lawsuit quotes Young, in a Facebook exchange with a potential customer, as saying, “As soon as the polar vortex heads back North, we’ll start moving dirt for our new 40,000-square-foot manufacturing facility behind our current building which we built two years ago and have already outgrown. My point is, come and meet us and don’t believe everything you read on here, our products are designed and engineered right here in the heartland and, like many U.S. companies, we have offices all over the world.”

DCI alleges that for the first several years of operations in the United States, Underground Magnetics didn’t place any of the required country-of-origin markings on its products in an alleged effort to conceal their Chinese origin. Then, the lawsuit claims, the company began placing small “Made in China” labels on devices in such a way that a user would have to remove a battery and then hold the device upside down to see the label.

The lawsuit seeks as damages for lost profits as well as a court order that will enjoin Underground Magnetics from any further infringement on patents and trademarks. An affiliate of DCI Merlin Technology, is also a plaintiff in the case.

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Clark Kauffman
Clark Kauffman

Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.