Pending PARTS Act Legislation will threaten Michigan's resurging auto industry
I was privileged to serve as an expert witness in Washington, D.C. on Aug. 1, 2012 at a Subcommittee hearing of the House Judiciary Committee on Intellectual Property, Competition and the Internet regarding H.R. 3889, “the Promoting Automotive Repair, Trade, and Sales Act” (“PARTS Act”). Those readers who follow the auto industry may recall my opposition to H.R. 3889 when it was first reintroduced in February 2012.
The PARTS Act, which claims to offer consumer choice and the hope of reduced car insurance premiums, would drastically reduce the term for design patents on automotive repair parts from 14 years to less than 30 months. When asked how much insurance premiums would be reduced during testimony last week, the insurance industry clarified that insurance premiums would not actually be reduced, but that they were trying to reduce rate increases with this bill. Yeah, right.
Auto manufacturers consistently lead the world in R&D spending, to the tune of $18-20 billion a year. Design protection encourages innovation and creates jobs in the United States. In fact, fourteen different OEMs - most of them headquartered outside the U.S. - maintain design centers in the U.S. to create vehicles that will appeal specifically to American consumers. According to the Alliance of Automobile Manufacturers, there are 21 separate design facilities in three states (Michigan, Ohio and California) that account for roughly 40,000 jobs.
Non-OEM parts likely will be lower quality and present safety risks without any controls on their specifications. In fact, testing has shown that non-OEM parts do not perform as they should and do present safety risks. Even the Chief Research Officer for the Insurance Institute for Highway Safety (IIHS) acknowledged that “You can't willy nilly change those parts, because the system won't work the way it was designed.”
If the PARTS Act is passed, sub-standard non-OEM parts also could result in a tarnished image of the brand owners such as Ford, Chrysler, and GM because the replacement part is presumed to be made by the OEM once the vehicle is back on the road. Language in the PARTS bill is not limited to automobiles and instead would apply to all “motor vehicles,” which would include motorcycles, mopeds, motor scooters, tractor-trailers, and farm equipment, among others. Not only is there danger that PARTS will open the door for other service industries to demand equal rights and their exception to design patent infringement, it will also immediately pull in other motor vehicle design communities besides automotive.
As a patent practitioner, and a former design engineer, I am very familiar with the significant time and expense involved in new product development. Years of development and testing, many long nights and weekends away from families, missed vacations, and the thousands if not millions of dollars spent refining the design before production “launch.” These designers earned the right to call those parts their own for the period under which they bargained for under our patent laws: fourteen years. Patents provide an incentive to be creative; why would we expect that creativity to continue when we remove the incentive? If an exception for automotive repair parts is made, what will be next, and when will it stop?
The automotive industry is making a comeback, due in great part to the innovative and award-winning designs coming out of the OEMs. Legislation of this nature would move us in the wrong direction, especially right on the heels of patent reform and the enactment of the America Invents Act (AIA).
Kelly Burris is a patent attorney in the Ann Arbor office of Brinks Hofer Gilson & Lione, an adjunct professor of intellectual property law at Thomas M. Cooley Law School, and previously worked as a design engineer in the aerospace industry . She is a patent holder and a licensed pilot.
Comments
Arborcomment
Thu, Aug 9, 2012 : 7:14 p.m.
14 years? Seems a little long. "Cash for Clunkers" made any vehicle that old a rare bird indeed. There would seem to be room for compromise between 2.5 and 14 years.
Dcam
Thu, Aug 9, 2012 : 4:45 p.m.
"I am very familiar with the significant time and expense involved in new product development. Years of development and testing, many long nights and weekends away from families, missed vacations..." A pithy defense, but it doesn't apply to the Chairman, CEOs, BoDs or shareholders - those people aren't the ones in the garage tinkering all night, but they profit from it. And those who actually do the innovating and sweating don't have rights, title or property interests in their creations.
Plubius
Thu, Aug 9, 2012 : 4:34 p.m.
Stay focused on the bigger picture: If an exception for automotive repair parts is made, what will be next, and when will it stop? Should shorter terms be allowed for medical devices? Drugs? Computers? If so, then who will invest the necessary funds to produce these items? We will all lose. Patents are a good thing an lead to job and wealth creation. Sadly, too many people cannot see past the end of their own wallets to appreciate this.
Dog Guy
Thu, Aug 9, 2012 : 2 p.m.
We must prevent a flood of crappy parts made in The People's Republic of China by General Motors.
greg, too
Thu, Aug 9, 2012 : 1:50 p.m.
If passing a law to limit patent rights for automakers is going to implode the auto industry, maybe the recent recovery isn't as strong as we thought it was.
Ron Granger
Thu, Aug 9, 2012 : 12:52 p.m.
"Non-OEM parts likely will be lower quality and present safety risks without any controls on their specifications." This piece is just one-sided fear mongering, from an attorny who is apparently paid by the industry. Most of these parts are "afermarket" - they weren't made by Ford, GM, etc. They were made by suppliers. Some of those same suppliers producing less expensive alternatives. Apparently, lower cost sourcing - "out-sourcing" is only okay when the OEMs do it. This isn't about protecting innovation - it is about controlling the market and maintaining a monopoly. It is about preventing the availability of reasonably priced parts, and alternatives. Patents were originally intended to spur innovation. 14 years is too long.
Bcar
Thu, Aug 9, 2012 : 12:12 p.m.
Grreat comment Fat Bill! dont forget that the auto co-s make a LOT of their money on replacement parts. These cheaper parts usually work, but 99% of the time in my experience, they're not as good and wont last as long. this is about the insurance lobby vs. the auto lobby, and I wonder who is in better graces with the crooks in DC these days...
bobbymac
Thu, Aug 9, 2012 : 8:39 a.m.
The Parts Act doesn't necessarily take away (OEM) design ownership rights, it just gives consumers a choice to use aftermarket parts, which have been a source of innovation (and jobs) in Michigan for decades. It was meant to limit the (increasingly) aggressive actions we are seeing by the major auto manufacturers who are trying to maintain easy profits by eliminating small parts company competition. Frankly, when I see a $20 (OEM) fuel filter for my 25 year old truck and a $2 aftermarket filter (which works just fine), it smacks of the extended artificial monopolies drug companies try to create to extend profits on old technologies. In Michigan, of all places, we should support letting mechanics/owners affordably work on their own cars. If they want OEM, they'll buy it. If they trust the aftermarket replacement, it should be their choice. More ironic, there are hundreds of spin-off companies from Delphi alone who are creating new start-ups in Michigan in the electronics, biomedical, and yes, automotive aftermarket, sectors. Does anyone believe this lawyer has ever worked on her own car?
Fat Bill
Thu, Aug 9, 2012 : 3:31 a.m.
It's the Walmart mentality...cheapest wins despite the long lasting negative effects. The PARTS act will benefit one group...the Chinese reverse-engineering folks...
Bill Wilson
Thu, Aug 9, 2012 : 5:16 p.m.
Hmmm.... So Champion spark plugs are Chinese knockoffs, eh? Kinda shocked at the limited knowledge in what was once the auto capital of the world.
Bill Wilson
Thu, Aug 9, 2012 : 3:09 a.m.
Kelly, First: testifying before Congress is no big deal: my missus does it regularly in the International Trade field. Second: I take issue with your claim that "Non-OEM parts likely will be lower quality and present safety risks without any controls on their specifications." Replacement parts are subject to the same government standards and checks that OEM parts are. I worked on my own cars for years, and used cheaper, name-brand parts whenever possible; I saved money, and got great service from them. OEM dealers have a 30-month monopoly on parts. That's 2.5 years. Frankly, that's enough. Given the state of our economy, this change makes sense.
Bill Wilson
Thu, Aug 9, 2012 : 5:14 p.m.
Better read again Day, and you too, Bob. Not only are their standards tested (here in Gaithersburg, by the way), their content is also subject to scrutiny, as different tax scales apply depending on their content.
daytona084
Thu, Aug 9, 2012 : 1:20 p.m.
I worked in R&D for an auto supplier for 35 years. We made both OE and aftermarket parts. Never once did I see or hear of any of our parts (OEM or aftermarket) or those of any of our competitors being subject to "government standards and checks".
Basic Bob
Thu, Aug 9, 2012 : 3:38 a.m.
Replacement parts are not necessarily equivalent. They might be cheaper because they take shortcuts on materials and manufacturing methods, which the knock-off company believes are not critical or too expensive. On my old beater cars, I often make a choice to replace components with aftermarket parts from well-known manufacturers. A good example is motor oil, air and oil filters, wiper blades, and batteries, where safety is not critical and the life and function of the car will not be reduced. But there is an issue of fairness that must be addressed. Just as published books and music can't be copied freely and given away, and licenses must be purchased for software, manufacturers have a legitimate right to be compensated for their expertise, effort, and risk. The PARTS legislation forces OEMs and suppliers to increase prices to recover costs more quickly. There will be a short-term savings to insurance companies, but long-term risk to consumers and parts suppliers. It is unlikely that the auto insurance companies will be liable for defective knock-off parts which they force the consumer to accept.