Review of Design Patent Law Changes

A recent note on the PATENTLYO website mentioned the proposed house bill H.R. 3889 (formerly H.R. 3059): (PARTS) Promoting Automotive Repair, Trade, and Sales Act, that would affect design patents term of enforcement.  The proposed change would reduce the time period from 14 years to 30 months.  The group Keep Auto Parts Affordable supports the bill and provides some rationale here:  The Looming Threat

Testimony from the Property Casualty Insurers Association can be found here:  Testimony of the Property Casualty Insurers Association of America House Judiciary Committee Hearing “Design Patents and Auto Replacement Parts”

We provide the following review on the testimony with selected text from the testimony and added bulleted comments below them.  We feel this topic warrants further discussion as it has potential ramifications beyond the intended purpose.  It sets a potentially dangerous president where intellectual property rights are not equally applied for the same idea or invention.

H.R. 3889 (formerly H.R. 3059) Access to Repair Parts Act

Testimony of the Property Casualty Insurers Association of America House Judiciary Committee Hearing “Design Patents and Auto Replacement Parts”

March 22, 2010

(selected text)

Chairman Conyers, Ranking Member Smith, and other esteemed members of the Committee, my name is Robert Passmore, and I am Senior Director of Personal Lines Policy with the Property Casualty Insurers Association of America (PCI). PCI is comprised of more than 1,000 member companies, who together write 44 percent of the automobile insurance in the United States representing more than $84 billion in premium. I would like to commend you for holding this important hearing and thank you and your staff for this opportunity to present our views on the impact of design patent enforcement on automotive collision repair parts and express our support of HR 3059, the “Access to Repair Parts Act,” introduced by Congresswoman Lofgren and cosponsored by Congressman Boucher, Congressman Cohen, Congressman Delahunt, and Congresswoman Jackson-Lee, among others. (Senator Sheldon Whitehouse of Rhode Island has introduced identical legislation as well.)

PCI strongly supports Congresswoman Lofgren’s legislation, and we commend her, and the other original sponsors, for leading the effort to ensure that 14-year design patents cannot be used to eliminate competition and consumer choice with respect to automotive collision repair parts.

• Why? Just because they don't want them too?
• Competition? Then invent your own cars and car parts.

It is worth noting that the car companies already have captured about 73 percent of the market for collision repair, while alternative suppliers only have about 12 percent.

• Why is this worthy of noting? Because the companies that own the IP want to benefit from it?

That’s because alternatively-supplied collision repair parts typically are 26% to 50% less expensive than the car company parts, and the mere existence of competition for a given part results in the car companies lowering their corresponding part’s price by 8%.5 The estimated total benefit to consumers from the availability of competitive alternatives is approximately $1.5 billion a year.(6)

Despite all of the demonstrated benefits of consumer choice and competition from alternative suppliers of collision repair parts, the car companies appear to have formulated a new business strategy to eliminate competition by obtaining and enforcing design patents on their collision parts against alternative suppliers of such collision repair parts.

• Isn't that what patents do? They give a competitive edge to the inventor?
• Now you want Congress to take that away?
• The AIA already took many benefits of the patent system away from inventors.

The car companies have lobbied Congress for decades in an effort to amend federal copyright law to enable auto manufacturers to obtain protection of their designs for individual crash parts through a design registration scheme.(7) Consumer groups and others oppose such efforts because of concerns about the anti consumer effects on repair parts, and Congress has rebuffed the car companies efforts in this regard.

(7) See, e.g., Hearings before the House Judiciary Subcommittee on Courts, Intellectual Property, and the Administration of Justice on H.R. 902, the “Industrial Innovation and Technology Act of 1987, H.R. 3017, the “Industrial Design Anti-Piracy Act of 1989, and H.R. 3499, the “Design Protection Act of 1989; Testimony of Greg P. Brown, Ford Global Technologies, before the Senate Finance Committee, March 13, 2008.

• So, car companies cannot lobby for their interests but the insurance industry can?
• Congress “rebuffed” the car companies, so too should it “rebuff” the insurance companies from derailing the value of design patents.

I would point out that there is no room for innovation by alternative suppliers of these collision repair parts so as not to be accused of infringing on the car companies’ design patents. Their purpose is only to restore the vehicle’s original appearance and function. They have no other use. In fact, many state laws require that alternatively supplied collision repair parts be of “like kind and quality” in “fit, finish and performance” to car company parts.

• There is, in fact, room for innovation. A customer may choose a less costly part, that does not infringe the design patent, and have a repair that will not “restore the vehicle's original appearance.” I left off the “and function” as design patents are not functional utility patents. It appears disingenuous for PCI to even use the term function. PCI states directly that “they have no other use” than to provide appearance.
• States cannot dictate what a car owner's car looks like so the stipulations of “like kind and quality” and “fit, finish and performance” only refers to quality of the parts, fit on the given vehicle, and performance as a component to create the body or bumper coverage for the vehicle. Simply existing as a cover does not make “covering” a patentable novelty.
• Innovation could be done to make customer's cars look even better than before, let them choose the new style. It even would allow for increased functionality of the parts if innovators are so inclined.
• Hence, there could be even MORE choice for the customer's
• Likely, this burden to innovate would cause the PCI companies to seek compensation for their “hard work” and “ingenuity” and justify a premium for their new and novel parts.
• The PCI companies would no longer be at the mercy of the big car companies. They would be the “innovators.” They would then “set the market” based on their own designs. Then they would DIRECTLY compete with the car companies and achieve the sought after reduction in the prices for genuine car parts if the car companies want to sell their product. Key word here is COMPETE.
• Infringement suits are only applicable to the design of the parts, what they look like not what they are made of etc. Simple changes to the look make the patents irrelevant and hence, no cost of law suits.
• Again, the key word in all of this is COMPETE. The PCI companies are not limited in any way from developing their own part designs, supply agreements with alternative suppliers, and offering them to customer's as alternatives to big company car parts. It is done all the time with generic drugs side by side on the shelves next to name brands. Though this is off patent the idea is the same if the car parts don't infringe on the existing design patents. Heck, the PCI companies can even patent these novel designs as nothing is holding that back either. COMPETE.
• With the PCI designed parts there would no longer be any need for royalty payments and licensing fees to the car companies.
• This process really should be easy for the PCI companies as they already have access to these producers and have installed them on many vehicles in the past. There is no capability necessary for them to develop from scratch just new ideas. These companies are already supplying the parts at a discount to the big car companies so PCI companies would be able to pass on this savings to their customer's.
• The PCI companies simply need to get together and develop a source of newly designed parts that don't infringe on the existing patents of other legitimate companies.

The Effects of Eliminating Competition on Collision Repair Parts:

If competition is eliminated, PCI estimates that $3 billion would be added to insurers’ costs, which would be passed on to consumers in the form of higher insurance premiums.9 The effect of eliminating competition on collision repair parts would not be limited to consumers’ auto insurance costs. Consumers that pay for their own repairs out of pocket would bear these costs directly, or might choose to forgo repairs, leading to more rapid deterioration and depreciation of their vehicles. Higher repair costs also means that there is an increased likelihood of a vehicle being declared a total loss, compelling consumers to replace the vehicle, pay off a loan that may exceed the value of the vehicle, and seek financing for the purchase of a replacement vehicle, all of which depletes savings. In tough economic times like these, these kinds of added costs hurt consumers that much more. The impact of all of these factors would be much greater on low income or fixed income consumers who can least afford it.

• $3 billion is a lot of money and well worthy of innovation to get a piece of. Many companies are started to take advantage of much less of a market.
• COMPETE
• Heck, if the parts are cheap enough it might be better for customers to reduce insurance premiums and pay out of pocket for their parts.
• Then none of what PCI companies are indicating as “the clear and present danger posed by car companies' use of patents” would be possible or matter.
• No need for government intervention and special rules to benefit only some.
• Again, alternative suppliers are already providing parts. They now would just be differently shaped parts.
• PCI seems concerned with competition but if the alternative parts companies can freely make any design they wish does that not pose the risk to the car companies? Wouldn't the alternative parts manufacturers “become a monopoly?” Why is this monopoly good versus any other monopoly? Couldn't this monopoly one day raise prices and control the market to the detriment of consumers? Or is it only good if that occurs with the money going to the PCI companies?