Aftermarket crash parts industry battles automaker patent protection
Chicago—Two key battles — one in Congress and one in the courtroom — could have a dramatic impact on the future availability of non-OEM crash parts. Not surprisingly, both the legal battle between Ford Motor Co. and the Automotive Body Parts Association (ABPA), and proposed federal legislation slashing the patent protections that automakers enjoy on crash parts, were key topics of discussion at the recent ABPA convention in Chicago.
Speaking to the non-OEM parts makers and distributors at the event, Bob Passmore, of the Property-Casualty Insurance Association of America (PCI), said his organization this year is putting more of its lobbying weight behind the PARTS Act, federal legislation that would reduce automakers’ design patents on parts from 14 years to just 30 months.
Passmore said PCI, which consists of nearly 1,000 insurers with a combined 41 percent of the U.S. auto insurance market, has been a contributing member of the Quality Parts Coalition (QPC) since that group first introduced similar federal auto-parts patent reform legislation in 2007. But he said that last year, when the PARTS Act died with even fewer backers than the three previous versions of the bill, PCI had instead been focused on reauthorization of the Terrorism Risk Insurance Act.
“But now our federal staff is very much focused on this,” Passmore said of the PARTS Act. “They’re out meeting with legislators. We’re hopeful our efforts will help push things over the top and get some real concrete progress on the PARTS Act in 2015.”
Passmore had predicted a congressional hearing on the bill would happen before Memorial Day, but that didn’t happen. But QPC lobbyist Will Nordwind, speaking later at the ABPA conference, said he thought the hearing would occur “before the August recess, probably more the June or July timeframe.”
Auto manufacturers and dealers, labor unions, and trade groups including the Automotive Service Association (ASA) have jointly written to members of Congress to voice their opposition to the PARTS Act, arguing that it will not reduce insurance premiums and won’t do anything to address safety or improve the quality of non-OEM parts. In the letter, they said the legislation singles out one product (exterior component parts) for reduced design patent protection, therefore promoting “unfair competition” by “free-riders who copy [automaker] innovations without investing in the process or making an effort to innovate.”
“Automobile companies must ensure all automotive components perform as a cohesive system during crash testing to provide the safest possible product for their customers,” the letter went on, noting that manufacturers cannot know how non-OEM versions of parts will impact vehicle quality and performance.
The letter quoted Neal Menefee, CEO of Rockingham Mutual Insurance and current board chairman of the Insurance Institute for Highway Safety, who testified at a 2012 congressional hearing on a similar bill that he “would not expect premiums to go down as a result” of passage of the PARTS Act.
Speaking at the ABPA convention, ASA’s Dan Risley said his organization is not against aftermarket parts, noting that he recently joined the Certified Automotive Parts Association (CAPA) Technical Committee.
“The reason we are against the PARTS Act is that it doesn’t address quality,” Risley said. “The quality piece has to be hand in hand with anything we’re going to support or not oppose.”
Responding to Risley’s comments, QPC lobbyist Nordwind said “our view is, yes, quality matters,” but that the legislation’s sponsors are not necessarily interested in having the federal government impose quality standards on parts. “No one is really talking about a federal quality standard. It’s not that it’s not an important discussion, but we think that takes care of itself in the marketplace.”
Nordwind recapped some of the points that QPC made in its own letter to Congress, which expressed support for the PARTS Act. The QPC letter argued that automakers’ innovation is rewarded when someone purchases their vehicles, based on their “overall design and manufacture.” It said that automakers’ design patents would still protect them from infringement by other OEMs for 14 years.
In terms of insurance costs, the QPC letter said that “consumers have had the benefit of a competitive marketplace for replacement parts for decades.” As for Menefee’s testimony at the 2012 congressional hearing, the letter pointed out that he went on to say, “We are working to pass the bill to avoid a significant increase in the cost of parts and insurance premiums.”
The proposed legislation is not the only way the non-OEM parts industry is battling automakers over the design patent issue. In 2013, the ABPA filed a lawsuit against Ford Motor Co. seeking to have Ford’s design patents covering automotive crash parts ruled invalid and unenforceable.
Earlier this year, a judge in Texas sided with Ford and allowed the suit to be transferred to the U.S. District Court in Michigan.
ABPA Chairman Dan Morrissey said his group would have preferred to keep the court proceedings in Texas.
“Obviously, we would rather go in front of a jury in Texas to make this argument than a jury in Michigan, where all the car companies are based,” he said.
Morrissey also told attendees at the ABPA convention that Ford has recently filed a lawsuit against Texas-based aftermarket parts distributor New World International and two affiliated companies, alleging they have sold non-OEM parts that infringe on design patents the automaker holds on seven crash parts for the 2004 Ford F-150 and the 2005 Ford Mustang.
“These are very serious charges,” he said. “We believe this case was filed in an effort to intimidate New World into dropping their legal challenge against the patents.”
Morrissey said that the significance of the association’s lawsuit against Ford can’t be overstated.
“If we do nothing, it’s only a matter of time before the car companies use the design patents to eliminate competition,” he said.
If the association lawsuit is successful, he said, it would eliminate all auto manufacturer design patents on crash parts.
“So the stakes are high,” he said.
The lawsuit currently is scheduled to go to trial this fall.