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Thursday, 23 February 2012 16:56

U.S. House Judiciary Members Introduce Auto Parts Bill, Aims to Limit Parts Patent Protection

The Promoting Automotive Repair, Trade and Sales (PARTS) Act, a new bill introduced to the U.S. House of Representatives, proposes to reduce the patent period car companies have on their collision repair parts from 14 years to 2.5 years (30 months). H.R. 3889 was introduced on Feb. 2 by Darrell Issa (R-Calif.) and Zoe Lofgren (D-Calif.) to the House Judiciary Committee. A similar bill is currently being prepared in cooperation with the U.S. Senate Judiciary Committee.     The bill would amend title 35 of current U.S. design patent law whereby automotive manufacturers may enforce their design patents on collision repair parts against alternative suppliers.

Both members serve on the House Judiciary Committee’s Subcommittee on Intellectual Property, Competition and the Internet. Lofgren introduced auto parts patent legislation in the last Congress.

The new subsection reads as follows: “It shall not be an act of infringement of such design patent to make or offer to sell within the United States, or import into the United States, any article of manufacture that is similar or the same in appearance to the component part that is claimed in such design patent if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured; and after the expiration of a period of 30 months beginning on the first day on which any such component part is first offered to the public for sale as part of a motor vehicle in any country, it shall not be an act of infringement of such design patent to use or sell within the United States any article of manufacture that is similar or the same in appearance to the component part that is claimed in such design patent if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured.”

“Competition is the hallmark of our free market system,” Issa said. “Consumers have dozens of choices in electronics, food, service, clothing and other products – this same array of choices, across all price points, should also extend to automotive repair parts.”

Major aftermarket distributors and the Quality Parts Coalition have a vested interest in being able to manufacture and import aftermarket parts, however collision repairers in general should be leary of increasing the controversy over the quality of replacement parts specified on insurance estimates. Proponents of the bill note that car manufacturers currently control 72 percent of the repair parts market and have been steadily increasing the use of design patents. Competition is reduced and consumers end up paying more than necessary for parts they say. Because of these elevated costs, insurers will sometimes consider vehicles totals instead of paying for repairs. The result is that consumers are forced to replace a repairable vehicle with a different car, an expense the QPC argues can be avoided if the PARTS Act becomes law.

The bill has also received the support of the American Insurance Association a property-casualty insurance trade organization that represents nearly 300 insurers. Noted Melissa Shelk, AIA vice president for federal affairs, “Consumers deserve access to high-quality alternative replacement parts. Increased competition means decreased prices and greater choice for consumers.”

The AIA says that “quality” replacement parts for such collision parts including bumpers, fenders and hoods can cost consumers approximately 26 to 50 percent less. Insurance savings can be realized when consumers choose these alternative parts, but only if such parts are available. Shelk says that consumers pay an extra $1.5 billion annually because of the current patent restrictions on replacement collision parts.

Not surprisingly, OEMs oppose this limitation on their design patents. In the past, groups opposing similar legislation have said that “copycat” parts are harmful to OEMs and consumers alike.

At a March 16, 2010 hearing in front of the House Judiciary committee, Damian Porcari, attorney and director, Enforcement and Licensing, Ford Global Technologies, said, “The copyists want to eliminate design patent protection because that’s what they make. As soon as their business model includes engines, brakes and air bags, we will likely hear the call for the elimination of patent protection on all types of replacement parts. And it won’t stop with cars. The denial of intellectual property rights will always reduce copiers’ costs.”

Full text of Porciari’s 2010 testimony:

On March 16, 2010, the House Judiciary Committee heard Testimony on Replacement Parts Bill HR 3059, sponsored by California House Democrat Zoe Lofgren, and previously as SB 1368 by Rhode Island Democrat Sheldon Whitehouse.

The 111th Congress  (2009– 2010) considered HR 3059 (The Access to Repair Parts Act) to amend title 35 of the United States Code to “make it not an act of infringement of any design patent to make, use, offer to sell, sell, or import into the United States any article that is a component part of another article, if the sole purpose of the component part is for the repair of the article of which it is a part so as to restore its original appearance.”

The bill never became law in the 111th Congressional term but has essentially been reintroduced in the current term as H.R. 3889.
Witnesses at the 2010 hearing included:
• Jack Gillis, director of Public Affairs, Consumer Federation of America (CFA), Washington, D.C., testified for the bill.
• Damian Porcari, director, Enforcement and Licensing, Ford Global Technologies, LLC, Dearborn, Mich, testified against the bill.
• Robert C. Passmore, senior director, Personal Lines, Property Casualty Insurers Association of America, Des Plaines, Ill. testified for the bill.
• Perry J. Saidman, principal, Saidman Design Law Group, Silver Spring, Md. testified against the bill.

Lofgren opened the hearing by stating the purpose for her bill—to prevent price gouging combined with auto manufacturers not needing a monopoly over crash parts to spur innovation—but also recognized that “intellectual property rights exist to create incentives for innovation—that's why it's in our constitution... these government-created exclusive rights are crucial to the legal framework that promotes innovation in our country.”

Attorney Saidman Against the bill
“I underscore the pernicious effect of the pending legislation (H.R. 3059). This bill does not say that design patents for repair parts are invalid. Nor does it say that they cannot be infringed. Indeed, there can be no argument that the design patents covering auto repair parts are not infringed because the knock-offs look identical to the patented designs. Therefore, what
this bill proposes is that valid and infringed design patents be renderedunenforceable. These are design patents that have been applied for, examined by skilled and qualified USPTO design patent examiners who have determined that the claimed design is novel, non-obvious, and non-functional, and then issued.

“And why are we even discussing a bill that proposes this remarkable result? We are here because the proponents of this bill lost a hard fought design patent infringement lawsuit covering auto repair parts, and can no longer make, use, sell or import their knock-offs in the United States.

“So, having been adjudicated as an infringer of validly issued U.S. design patents, these companies are asking Congress to carve out an exception to the design patent laws for auto repair parts...

“Why is this such a bad idea? Because it will encourage every industry that loses a design patent lawsuit to petition the congress to do the very same thing: to carve out an exception to their industry so that their infringement will not be actionable, so that they can continue to make, use, sell and import their infringing products without fear of liability to the design patent owner... There is almost no industry whose products or services will not cost less with increased competition. This argument, therefore, is much broader than an argument that design patents should not be permitted for auto repair parts. It's essentially an argument that patents should be abolished, because patents allow the owner to monopolize a product and therefore reduce competition.”

PCI’s Passmore in Support of the Bill
PCI’s Passmore, testifying in “strong support” of the bill, said the parts referred to were cosmetic and  “the Insurance Institute for Highway Safety (IIHS) through crash testing and crashworthiness evaluations, consistently has found that, generally speaking, cosmetic, exterior parts “serve no safety or structural function . . . [t]hey merely cover a car like a skin.”Moreover, [IIHS] has found that whether a cosmetic collision repair part is a car company part or an alternatively supplied part ‘is irrelevant to crashworthiness.’ ”

Passmore cited the chart on the cumulative number of crash part design patents owned by the major car companies.

He also detailed that “in December 2005, Ford Global Technologies (Ford) took the unprecedented action of filing a Section 337 case at the International Trade Commission (ITC) against companies in the alternative parts industry for allegedly infringing design patents held by Ford on various exterior parts for the Ford F-150 (model years 2004–2007). On December 4, 2006, the Administrative Law Judge held that seven of the design patents were valid and infringed and issued an exclusion order on those parts. The exclusion order went into place on August 6, 2007, banning the importation of those parts and, until a legal settlement was reached in April of 2009, competitive choice was effectively eliminated in the United States for those seven Ford F-150 exterior collision repair parts. Therefore, for almost 2 years, the car company was the one and only source for the purchase of these seven collision repair parts for their trucks.”

Ford’s Porcari testified against H.R. 3059, stating: “Copycat parts hurt Ford, our employees, our suppliers, our dealers and our customers. Ford customers rarely know that they are getting copycat parts because their use is frequently concealed.”

Porcari added that the bill could lead to a slippery slope of more design patent exceptions in the future.

“The bill's proponents present no basis for treating visible repair parts differently than other items protected by intellectual property,” he said. “The copyists want to eliminate design patent protection because that's what they make. As soon as their business model includes engines, brakes and air bags, we will likely hear the call for the elimination of patent protection on all types of replacement parts. And it won't stop with cars. The denial of intellectual property rights will always reduce copiers’ costs.”

Porcari also accused insurers of basing insurance premiums on OEM parts pricing but pushing repairers to install cheaper, non-OEM parts to save money.

“Some background about the insurance industry will illuminate what's really spurring foreign parts copiers and unscrupulous insurance companies. Ford provides insurance companies with its genuine Ford replacement part pricing for every new Ford vehicle. Insurance companies use genuine Ford replacement part prices to set their insurance rates,” he said. “After state regulators approve these rates, insurance companies then refuse to pay for genuine Ford parts and steer body shops to use cheap, copycat parts... This entire discussion about consumer choice and right to repair is merely a distraction from the basic unethical business practice of pricing insurance premiums and using genuine Ford parts and then giving consumers cheap foreign parts.”

CAPA’s Gillis in Support of the Bill
Jack Gillis—director of Public Affairs, Consumer Federation of America, is also the executive director of the Certified Automotive Parts Association (CAPA)—testified in support of Lofgren's bill.

“For over 25 years, consumers have benefited from competition, albeit limited, between car company brand replacement parts and independently branded parts,” Gillis said. “Such competition, where it exists, lowers prices, provides choices and improves quality.” Gillis cited reasons for supporting H.R. 3059:
• Elimination of competition will increase the cost of repairs.
• Eliminating competition will increase insurance premiums for consumers.
• Eliminating competition in crash parts could diminish safety.
• Eliminating competition will result in more total losses.
• Eliminating competition protects the automakers’ “double whammy,” which Gillis described as meaning “not only will the lack of competition allow car companies to charge whatever they want for the parts we need to fix our cars, but when they charge so much that the car is totaled, our only recourse is to go back to them and buy another one of their products.”
• Congress can preserve consumer access to affordable, competitive and quality crash parts by adopting a “repair clause” in the design patent law.

Most of these points are contested by the OEMs, but collision repairers do not typically hear the case for patent protection directly from the OEMs. What follows is patent attorney Porcari’s full argument in front of the committee.

Damian Porcari’s Opposition for Ford
“Chairman Conyers, Ranking Member Smith, and members of the Committee, my name is Damian Porcari. I am an attorney with Ford Global Technologies, LLC., a wholly owned subsidiary of Ford Motor Company. I am responsible for obtaining and enforcing Ford’s design patents, especially those directed to exterior components such as fenders, hoods, grilles, lights, and mirrors.

“This legislation, if signed into law, would undo wins by Ford with the International Trade Commission against foreign manufacturers making copycat F-150 parts. The infringers purchased a single genuine Ford part and used low-cost laser scanners to make ‘photocopy-like’ copycat parts. Ford hosted representatives of the U.S. Patent and Trademark Office in our design studios and demonstrated how infringers are able to make tooling for a copycat fender in a matter of hours using this equipment. Ford, our suppliers and our dealers are losing $400 million per year in genuine part sales because of this flood of imported copycat parts.

“I freely admit that a company can save money by copying a design as opposed to creating, testing, marketing, and selling an original design. This is not a revelation. It has been and will always be cheaper to steal something than to pay for it. This applies to all markets and all products. Our opponent’s argument is no more than a justification to deny all intellectual property rights across the board.

“Copycat parts hurt Ford, our employees, our suppliers, our dealers, and our customers. Ford customers rarely know that they are getting copycat parts because their use is frequently concealed. Customers purchase a Ford vehicle for many reasons, including its features, quality, styling, and value. They also buy a Ford because of its high domestic content (Monroney sticker) or because it was made by UAW workers. These factors are also important in repair decisions. But when this same customer takes his or her car to a body shop, they frequently receive non-Ford, non-U.S., non-UAW parts, all without any disclosure or warning. They take a Ford in for repair and given in return an untested experiment that may or may not function as intended. Ford doesn’t test how copycat parts work or what interaction various copycat parts have with each other. We test Ford vehicles with genuine Ford parts.

“Copycat parts makers talk of monopoly pricing by automakers if parts can’t be freely copied. Yet there is no evidence for this argument. For over one hundred years, Ford has prided itself for selling vehicles with readily accessible and affordable replacement parts. If the pricing of genuine Ford parts made insurance unaffordable, we wouldn’t sell any cars or trucks. Everyone purchases insurance before they drive their new car home. This argument is a smokescreen to divert attention away from the fundamentally dishonest practice of purchasing a single Ford part and making cheap copycat parts in low-wage foreign factories that are sold to an unknowing American public. Technology transformed the copying of books in the 70’s, music in the 90’s, and movies this century. It is now transforming the car parts market. Virtual 3-D photocopiers are making it faster and cheaper to clone parts. Ford’s only recourse is to rely on an imperfect form of intellectual property protection—design patents—to stop the wholesale cloning of our vehicles. That’s why you are seeing a significant increase in the number of design patents filed in the U.S. Patent and Trademark Office. It is a response to the increased copying of parts. If this bill becomes law, part copying will continue to increase and negatively further erode U.S. manufacturing jobs. Auto companies, suppliers, and dealers will compete with cheap Taiwanese copycat parts by outsourcing manufacturing to other even lower-cost countries.

“This bill encompasses more then car parts. Any replaceable component would be free game for foreign copying including battery packs, printer cartridges, razor blades, tires, and golf clubs. All forms of intellectual property are aimed at preventing copies. There is no fundamental reason to treat a fender differently than a drug, a purse, or a movie. To do so otherwise is to devalue design. I explain this comparison by describing an accident. The vehicle’s fender, brakes, and tires are damaged. The driver also breaks her sunglasses, a CD that was playing is scratched, some prescription drugs fall on the ground, and a $100 bill blows away. Which of these articles should be freely available to foreign copyists and why? What fundamental principle supports treating a fender differently? The bill’s proponents present no basis for treating visible repair parts differently than other repair parts or other items protected by intellectual property. The copyists want to eliminate design patent protection on copycat parts because that’s what they make. As soon as their business model includes engines, brakes, and air bags, we will likely hear the call for the elimination of patent protection on all types of replacement parts. And it won’t stop with cars. The denial of intellectual property rights will always reduce copiers’ costs.

“Proponents argue that this bill is needed to restore “balance” between car companies and customers. The phrase: “It’s my car, I should be able to fix it” is used to suggest there should be a “fair use” right-to-repair. While the car indeed belongs to the owner, the patents protecting it do not. Patents have never needed a “fair use” concept because they involve commercial production of products. The patent teaches others how to make something. If a patent is unenforceable against foreign manufacturers, the American inventor is left with nothing. This entire repair argument is a smoke-screen. Car companies don’t sue customers for pulling a dent from their fender. Razor companies don’t sue customers for sharpening a dull blade. Customers have the right to repair their car or sharpen their razor, but they don’t have the right to make copy fenders or copy razor blades. Far more importantly, foreign companies don’t have the right to sell millions of copycat fenders or razor blades into this country. That’s not “fair use”, that’s a large-scale foreign commercial enterprise stealing business from the American inventor through unethical copying. And that’s exactly what’s happening in the car business today. Dozens of foreign factories, employing thousands of workers are selling billions of dollars of copied car parts. Ford is working to stop this practice by enforcing its design patents. Rather than restore balance, this bill would upset long standing US intellectual property law and would tell the world it’s OK to copy American products—both here and abroad. This issue is not one of allowing customers to repair their cars, they already have that right. The issue is, can foreign manufacturers freely copy America’s creations?

“The timing for this bill couldn’t be worse. An International Trade Administration report entitled “U.S. Automotive Parts Industry Annual Assessment 2009” outlines the problems facing the domestic auto parts industry and shows increasing imports of aftermarket parts from foreign countries (Attachment 1, not reproduced here–Ed). The Bureau of Labor Statistics (BLS), U.S. Department of Labor, reported that the automotive parts industry lost more than 300,000 US jobs since 2000 (id at p. 35).

Some background about the insurance industry will illuminate what’s really spurring foreign parts copiers and unscrupulous insurance companies. Ford provides insurance companies with its genuine Ford replacement part pricing for every new Ford vehicle. Insurance companies use genuine Ford part prices to set their insurance rates. After state regulators approve these rates, insurance companies then refuse to pay for genuine Ford parts and steer body shops to use cheap copycat parts. Most insurance companies don’t tell drivers that they aren’t getting genuine Ford parts unless they are required to do so by state law. Consumers rarely know they’re getting copycat parts. What consumer prefers a copycat part over a genuine Ford part? This entire discussion about consumer choice and right-to-repair is merely a distraction from the basic unethical business practice of pricing insurance premiums using genuine Ford parts and then giving consumers cheap foreign copies.

Foreign parts copiers also argue the basic “unfairness” of giving car companies 14-year protection on replacement parts. Let’s look at some basic fairness issues: Proponents want to retroactively reduce the period of design protection for car parts from 14 years to zero. However, Congress recently retroactively extended copyright protection for Hollywood movies to 120 years. If this bill becomes law, a real car would have no protection against copies, but a cartoon car would be protected for 120 years. Somehow all of these “fair use” and “consumer choice” arguments don’t apply to saving American families money when it comes to movies. Foreign parts copiers also suggest that Ford should be able to protect the entire vehicle, but not individual components. Ford protects what’s copied. No one is making copy cars. Even Chinese car companies that were accused of copying didn’t copy everything. They copied the front of one car and the rear of another. The current law allows car companies to protect individual parts and prevents this behavior. This bill doesn’t address patentable subject matter under 35 USC 171, but instead focuses on what is an infringement. It will add confusion to an already unclear area of law. If Ford sells a vehicle having Goodyear tires, are Goodyear’s patents now unenforceable? Can foreign companies freely make specialty equipment parts such as those on a Saleen Mustang™? If a customer resells an automobile with specialty wheels, are those specialty wheel patents now unenforceable? If Ford sells a vehicle with specialty parts such as a Ford Expedition Funk Master Flex™, are those patents also unenforceable?

Proponents for this bill will tell you “a hood is a hood is a hood” and that the aftermarket is required to copy Ford parts by state insurance law.

First, a hood is not a hood. If they were, why would foreign manufacturers be making exact copies rather than generic parts that fit Ford cars? Different hoods create a different visual impression and result in different sales for that vehicle. We sell different models of the same cars with different hoods, grilles, and lights to create a different visual impression and to garner more sales.

Second, state insurance laws don’t trump federal intellectual property laws. We don’t allow states to create unique forms of intellectual property. And we don’t allow states to invalidate federal intellectual property protection or mandate patent infringement.

Foreign parts copiers say that car companies are unwilling to compete. Not only do car companies vigorously compete with each other for each and every sale, we also compete with salvage and specialty equipment makers on component parts. Beyond that, each of the Detroit 3 have existing restoration part licensing programs where we license our designs, know-how, and brands to responsible companies that make high-quality parts. Ford has no objection to generic or specialty repair parts. Consumers are familiar with this concept and know what they’re getting when they buy generic razors or cereal. Generic items don’t look like the genuine article.

Ford broke new ground and licensed LKQ to make and sell copycat parts. We did this primarily to end a series of very expensive lawsuits and to gain recognition that automobile parts were patentable. We also required LKQ to clearly label copycat parts as “Non-Original Equipment Aftermarket”. Attachment 2 is a sample label that is affixed to every copycat part to clearly distinguish them from genuine Ford parts. We also collect a fee for the use of our patents that we reinvest in new vehicle designs. This settlement gives Ford customers up to five options when repairing their vehicle. They can buy:
1. a new genuine Ford part
2. a salvaged genuine Ford part
3. an approved restoration part made to Ford specifications (for older vehicles)
4. a generic or specialty equipment part that is not a copy (e.g., SEMA™)
5. an LKQ copycat part not made to Ford specifications

This bill won’t give consumers more choices. They have five already. This bill would merely eliminate compensation to the original American designer and spur more foreign copying.

“In conclusion, we believe retroactively targeting one group of intellectual property rights for unequal protection would be a dangerous precedent. And it would be particularly so, should it come from the Committee with the role to ensure that these rights are protected. We thank the Congress for taking on the difficult issue of design protection. We encourage it to tackle this issue in-depth and see how intellectual property laws can be used to level the playing field with foreign companies making copycat parts.

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