Lawmakers Take On Carmakers Over Repair Parts
Two weeks ago, automaker Chrysler Group LLC sued parts manufacturer LKQ Corp., seeking damages for what it alleges was infringement on 10 patents for the design of car repair parts.
The lawsuit was part of a recent trend by original equipment manufacturers — commonly known as OEMs — to defend their patents. Some lawmakers are concerned that the aggressive litigation against makers of aftermarket parts will reduce competition, driving up the cost of repairs and insurance for consumers.
At issue is how long OEMs should be able to legally enforce design patents on the parts used to repair vehicles damaged in a collision. Currently, OEMs can defend their design patents for 14 years.
House Oversight and Government Reform Chairman Darrell Issa — who made his fortune in the auto alarm business —introduced a bill (HR 1663) that would cut to just two and a half years the period during which OEMs can enjoy exclusive rights to manufacture, market and sell their parts.
Joining the Republican as an original co-sponsor of the bill was fellow Californian Zoe Lofgren, a Democrat. Rhode Island Democrat Sheldon Whitehouse and Utah’s Orrin G. Hatch, the ranking Republican on the Senate Judiciary Committee, joined forces to introduce a companion Senate bill (S 780).
Issa said the effort to limit exclusivity by the OEMs “crosses the ideological spectrum and it has gained strength as members and the public better understand the issue.”
A 2012 incarnation of Issa’s bill never advanced beyond a Judiciary subcommittee hearing, but aides and lobbyists working on the issue say concern is growing as the OEMs become more litigious. Companies have been making aftermarket parts for years, but only in the past decade have automakers been so aggressive about flexing their legal muscle.
A milestone in the controversy was a 2008 court decision affirming that seven design patents on parts for the F-150 pickup truck had been infringed by aftermarket parts makers.
The automakers say they have invested lots of time and money in creating parts that work together and should be compensated for their efforts.
“Removing design protection promotes unfair copying to the detriment of U.S.-based designers, manufacturers, workers, and dealers,” a coalition of groups led by the Alliance of Automobile Manufacturers wrote in opposition to an earlier version of the bill. “It is a license for ‘free riders’ to deprive innovators of any reward for the commercial risk that has been taken and potential employment of workers needed.”
Supporters of the legislation say they are cautiously optimistic about the bill’s prospects this year. A lobbyist who has been working to gather support for the pending legislation said support by committee leaders has been critical in teeing up the bills for action.
But the automaking industry remains as formidable on Capitol Hill as in the courts. Besides enjoying the backing of the delegation from Michigan — home to Big Three domestic carmakers Ford, Chrysler and General Motors — the auto industry can count on support from lawmakers representing districts in Appalachia and the Deep South where foreign manufacturers operate facilities.
“The car companies are formidable,” the parts lobbyist said. “We take nothing for granted there.”
Selling repair parts has become a big business for the automakers. Until 2003, the six largest vehicle manufacturers in the U.S. — the Big Three plus Japanese makers Honda, Nissan and Toyota — each sought and were awarded only a few design patents each year, according to data complied by the Certified Automotive Parts Association. Today, some automakers obtain more than 100 patents a year for parts, with Toyota, Honda and Ford leading the way in filing applications to protect their designs.
Automakers contend that existing patent laws make it easier to go after bad actors. In 2012, for example, the National Highway Traffic Safety Administration issued a warning against using non-OEM airbags after discovering that body shops were selling counterfeit replacements that didn’t operate properly.
Changing the law, the AAM-led coalition asserted in its letter, “exposes consumers to significant safety, performance or durability risks without their knowledge.”
Insurers estimate that OEM parts cost about 60 percent more than aftermarket alternatives. With parts accounting for about 45 percent of collision repair costs, that can add up to lots of money for consumers.
“If the use of non-OEM components had already been banned, the cost for these aftermarket parts would have increased by about 60 percent, or an additional $1.5 billion,” the Property Casualty Insurers industry group reported last year.
Insurers say those extra costs would equal a 2-percent increase in every driver’s liability and damage premiums.
Leaders of the Quality Parts Coalition — a group backing the House and Senate bills that includes aftermarket parts makers, insurers including Nationwide Mutual Insurance Co. and industry groups including the American Insurance Association — are using social media in a bid to rally ordinary consumers to pressure their representatives. For example, the coalition recently released a “whiteboard” video explaining the complexities of collision repair part patents.
“People know what the cost savings can be,” said Ed Salamy, executive director of the coalition. “Sometimes it’s the difference between a car being totalled or not.”
Salamy said dealing with accident repair costs is something that most motorists have experienced.
“When we go out to talk to people, the first thing we say is, ‘Have you been in a car accident?” he said. “Unfortunately, the answer is always yes.”