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The House IP subcommittee held a hearing Aug. 1 on a bill that would exempt automotive replacement parts manufacturers from design patent infringement liability starting 30 months after the part was first offered for sale.
Subcommittee members Reps. Darrell Issa (R-Calif.) and Zoe Lofgren (D-Calif.) co-sponsored H.R. 3889, the “Promoting Automotive Repair, Trade, and Sales Act” or “PARTS” Act, and loudly proclaimed its beneficial impact on competition during the hearing.
Their colleagues, however, were uncommitted at best, with even usual consumer rights' advocate Rep. Maxine M. Waters (D-Calif.) questioning whether Congress should reduce the current 14-year patent protection available to design innovators.
The issue addressed by the bill concerns the cost of cosmetic automobile repair, after a traffic accident, “to restore such vehicle to its appearance as originally manufactured.” When a needed part is covered by a design patent, the car owner and car insurer often have no option but to pay for a part from the patent owner--the original manufacturer.
Car companies currently supply about two-thirds of collision repair parts and alternative suppliers about 14 percent, according to testimony at the hearing. However, there has been a recent uptick in design patents awarded to the auto companies, particularly Ford, Toyota, and Honda. For example, Honda received fewer than 100 design patents in 2005 but has already received 600 in 2012.
Insurance companies and consumer advocates have been pressing Congress to address the likelihood that more and more replacement parts will be available only from a single supplier.
Issa and Lofgren, members of the Subcommittee on Intellectual Property, Competition and the Internet of the House Judiciary Committee, introduced H.R. 3889 Feb. 2 (25 PTD, 2/8/12).
The bill would add a new subsection (j) to the “Infringement of Patent” provision at 35 U.S.C. §271 allowing aftermarket parts makers to make, offer to sell, and import otherwise infringing parts. Those alternative manufacturers could not sell or use the parts until 30 months after the first offer for sale of a patented part by any manufacturer anywhere in the world.
H.R. 3889 thus would effectively reduce from 14 to 2.5 years the term of an automotive design patent on a part of a car typically involved in an accident.
Hearing witness Kelly K. Burris of Brinks Hofer Gilson & Lione, Ann Arbor, Mich., went further, noting that most car companies offer parts for sale “the day after the patent application is filed,” and thus well before it is issued. She predicted that most such patents, then, would be limited to about one year of protection.
At the hearing, Issa stressed, though, that an automobile design patent should be primarily directed to protection against copying by rival car companies, rather than reaching into the auto aftermarket. And the 14-year term would remain a barrier to rival car companies. He further emphasized that other functional parts of a car would be covered by utility patents and so not the subject of the bill.
Lofgren has sponsored similar bills in the past. However, those measures lacked the 30-month waiting period for the aftermarket manufacturers' access to the new infringement liability exemption.
Issa later proposed a different approach--a compulsory licensing system--in 2010. In taking the lead on H.R. 3889, however, he abandoned the compulsory licensing approach.
In their opening speeches at the hearing, Issa and Lofgren each said that H.R. 3889 represented a compromise. However, Issa elicited concern among other subcommittee members by failing to provide a rationale for choosing 30 months. “There is no magic number,” he said, calling 30 months “a best guess.”
During witness questioning, some of Issa's colleagues probed for a justification for the number. Rep. Mark Amodei (R-Nev.) said, for example, “When I hear 'best guess,' I would like to hear why.”
Rep. Melvin L. Watt (D-N.C.) expressed a more fundamental problem, questioning why the IP subcommittee--he is ranking member--should be taking patent rights away from patent owners.
Both Issa and Lofgren quoted Article I, Section I, Clause 8 of the Constitution, focusing on the requirement that Congress define “limited times” for protection. Lofgren, commenting specifically on Watt's concern, said, “It's entirely up to us” to set the limited times, and setting such limits is “not in any way adverse to [the subcommittee's] task.”
Burris was the only witness asking the subcommittee to scrap the bill. W. Neal Menefee, president and CEO of Rockingham Group, Harrisonburg, Va., and Jack Gillis, director of public affairs for the Consumer Federation of America, Washington, D.C., urged the legislators to approve H.R. 3889.
Menefee represented the interests of insurance companies. “The impact of eliminating competition in the collision repair parts market would fall directly on consumers” if the bill is not enacted, he said. “If competition is eliminated, the insurance industry estimates that $2.4 billion would be added to insured automobile repair costs every year. Ultimately, the higher costs of those repairs would be passed on to consumers in the form of higher insurance premiums.”
Three members of the subcommittee asked Menefee whether the bill would mean reduced insurance rates, and three times he said no. He reiterated that the proponents of the bill are trying to stop the projected rise in insurance premiums if patent grants continue their recent increase, not that rates could go down.
Gillis, however, said that the bill would lead to more choice for consumers by eliminating the parts monopolies maintained by current patent holders. That could lead to lower insurance costs, he insisted.
But Amodei was not sold. He again wanted more quantification of the problem the bill was addressing, and neither Menefee nor Gillis could satisfy his request for figures on parts costs as a percentage of the total costs of post-accident replacement.
Watt and Amodei were clearly skeptical of the bill. Subcommittee Chairman Rep. Robert W. Goodlatte (R-Va.) said he was keeping an open mind but that he would reserve judgment in any case until he heard the views of the government, presumably the PTO.
Waters was greeted by Gillis as a friend of the consumer when she walked into the hearing just before it ended, but her prepared speech was sprinkled with concerns that the bill would revoke the benefits of IP protection for patent owners.
Lofgren and the witnesses noted that such “repair clause” legislation is in effect in several European countries and in Australia. Again, though, Gillis and Menefee could not answer Goodlatte's request for details that would should a positive effect of the law overseas.
Rep. Sheila Jackson-Lee (D-Texas) acknowledged that the bill seemed to be a compromise between Lofgren and Issa, but she questioned whether any compromise would matter. She asked, “Would the auto industry support this bill in any form?”
Burris said no. Gillis said, “There is way too much money at stake for car companies to ever support it.”
A day before the hearing, the Intellectual Property Owners Association delivered a letter to the subcommittee expressing its opposition to the bill. “First, it would virtually eliminate design patent protection for the automobile industry (cars, trucks, and other motor vehicles), weakening incentives for innovation and eliminating U.S. manufacturing jobs,” the letter said. “Second, the bill would set a harmful precedent for all U.S. intellectual property rights.”
Issa seemed to have predicted that the concerns of the IPO and others would lead to his colleagues' skepticism, explaining his insistence that the bill would have very narrow effect. He followed up with similar thoughts in a press release issued immediately after the hering ended.
“The PARTS Act is intended only to deal with auto collision repair parts like fenders, side mirrors, door panels and bumpers,” he said in the release. “The PARTS Act does not deal with interior parts, the engine, transmission or undercarriage--parts covered by utility patents.”
In making this distinction, though, he expressed a judgment as to the comparative value of the two types of patents.
“This difference is important because utility patents are generally what we associate with the invention or discovery of a new and useful process or machine,” Issa said. “Design patents, on the other hand, are generally granted to those who invent a new, original and ornamental design for an item--the underlying invention is not new, only its appearance.”
By Tony Dutra
H.R. 3889 at http://pub.bna.com/ptcj/HR3889Feb2.pdf
Impact on Sections 271 and 289 at http://pub.bna.com/ptcj/PARTS_Act_ImpactFeb2.pdf
IPO letter at http://pub.bna.com/ptcj/HR3889IPOletter12Jul31.pdf
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