[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
DESIGN PATENTS AND
AUTO REPLACEMENT PARTS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MARCH 22, 2010
__________
Serial No. 111-112
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr., TRENT FRANKS, Arizona
Georgia LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois TED POE, Texas
JUDY CHU, California JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois TOM ROONEY, Florida
TAMMY BALDWIN, Wisconsin GREGG HARPER, Mississippi
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
[Vacant]
Perry Apelbaum, Majority Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
C O N T E N T S
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MARCH 22, 2010
Page
OPENING STATEMENTS
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Chairman, Committee on the
Judiciary...................................................... 1
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Ranking Member, Committee on the Judiciary. 3
The Honorable Maxine Waters, a Representative in Congress from
the State of California, and Member, Committee on the Judiciary 4
The Honorable Darrell E. Issa, a Representative in Congress from
the State of California, and Member, Committee on the Judiciary 4
WITNESSES
Mr. Jack Gillis, Director of Public Affairs, Consumer Federation
of America
Oral Testimony................................................. 6
Prepared Statement............................................. 8
Mr. Robert C. Passmore, Senior Director of Personal Lines,
Property Casualty Insurers Association of America
Oral Testimony................................................. 17
Prepared Statement............................................. 19
Mr. Damian Porcari, Licensing and Enforcement, Ford Global
Technologies, LLC
Oral Testimony................................................. 27
Prepared Statement............................................. 28
Mr. Perry Saidman, Saidman Design Law Group
Oral Testimony................................................. 112
Prepared Statement............................................. 114
APPENDIX
Material Submitted for the Hearing Record........................ 135
DESIGN PATENTS AND
AUTO REPLACEMENT PARTS
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MONDAY, MARCH 22, 2010
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 3:38 p.m., in
room 2141, Rayburn House Office Building, the Honorable Zoe
Lofgren, Chairwoman of the Subcommittee presiding.
Present: Representatives Scott, Watt, Lofgren, Jackson Lee,
Waters, Delahunt, Gonzalez, Smith, Coble, Issa, and Chaffetz.
Staff Present: (Majority) Eric Garduno, Counsel; Diana Oo,
Counsel; Christal Sheppard, Counsel; Reuben Goetzl, Staff
Assistant; (Minority) Richard Hertling, Counsel; Blaine
Merritt, Counsel; and Allison Halataei, Counsel.
Ms. Lofgren. The Committee will come to order.
Welcome, everyone, to today's hearing on ``Design Patents
and Auto Replacement Parts.''
Chairman Conyers is over with the Speaker and asked for me
to begin in his absence and expects to be back soon. I
understand from Mr. Coble that Mr. Smith is also on his way.
Mr. Issa. He is here.
Ms. Lofgren. Oh, is he? Oh, good. Well, then I will not say
that. He will offer his statement in due course.
I would like to thank Chairman Conyers in absentia for
scheduling this hearing. Intellectual property exists to create
incentives for innovation. That is why it is in our
Constitution. The Constitution grants monopolies for a limited
time over the reproduction of creations in order to reward
innovators for their risk-taking, creativity, and investment,
and because we want to encourage others to do the same. These
government-created exclusive rights are crucial to the legal
framework that promotes innovation in our country.
However, they come with a cost, and we should not be blind
to those costs. Any time government creates a monopoly over a
particular product, consumers will pay more for that product,
and further innovation based upon that product may be
restrained.
Such costs are justified when the exclusive right promotes,
in the words of the Constitution, ``the progress of science and
the useful arts.'' In other words, government should grant
intellectual property rights when necessary to spur innovations
that would not exist without them.
Today, we are here to discuss one specific type of
intellectual property: design patents, as applied to
replacement exterior car parts. I think this, personally, is a
textbook case of how the cost of government-created monopolies
can, in some instances, perhaps outweigh the benefits to
society. Automakers, understandably, make large investments to
develop new exterior designs. They do so because the design and
style of their cars will have a big effect on sales. But
automakers don't sell exterior parts through new car sales;
they also sell replacement parts to repair a vehicle after an
accident. These are crash parts.
And in the market for crash parts the automakers face
competition from other suppliers. This results in significantly
lower prices for consumers, both in the direct cost of repairs
and the indirect costs that affect car insurance premiums.
Unfortunately, the creative enforcement of design patents
may threaten this competition. Federal court decisions have
cast doubt on the application of design patents in this market,
but the International Trade Commission has gone the other way
in a recent decision, enforcing these patents against some
specific crash parts. And, as a result, automakers in this case
was able to demand licensing agreements and royalties, and of
course the costs go up.
One study found that independently supplied auto parts are
already 34 percent to 83 percent less expensive than those sold
by automakers. If competition is eliminated, these prices could
rise even further. Without third-party suppliers, effective
competition in the crash parts market is not possible, and no
consumer will ever look at the price of replacement exterior
parts in deciding whether to buy a new car. So the situation
invites price gouging of consumers after they have no other
option.
Now, I don't think these price increases are justifiable
because automakers, who we value and want to prosper, do not
need a monopoly over crash parts as an incentive for design
innovations. Carmakers have a powerful profit motive to develop
new designs that attract new car buyers. And this incentive, I
believe, is far more important than the after market for crash
parts, which will exist and has always existed even without a
monopoly over crash parts.
It is for these reasons that I introduce the ``Access to
Repair Parts Act'' to protect competition and consumers by
clarifying that design patents may not be enforced against
crash parts.
Now, I know that some who oppose this--and, certainly, the
right to oppose is fundamental--have used words like ``theft''
and ``piracy'' to describe this actually rather modest
legislation. But I think it is important to recall that not
every conceivable application of intellectual property is a
natural right. I have great respect for genuine innovation, but
I think this disingenuous invocation of morality to justify
what I think are far-fetched monopoly rights really does a
disservice to legitimate intellectual property rights.
Now, I look forward to hearing the testimony of the
witnesses gathered here today. The purpose of a hearing, of
course, is to shed light on the bills and the issues before us.
And if there are witnesses who think I have misunderstood this,
I look forward to hearing from them. I am someone who is always
willing to learn.
At this point, I would turn to the Ranking Member, Mr.
Smith, for his opening statement.
Mr. Smith. Thank you, Madam Chair.
Today, we revisit design protection to determine whether
the Committee should amend existing law to help the after-parts
automotive industry. In a 2008 Subcommittee hearing on design
law, proponents of greater protection argued that current law
provides insufficient help for innovators who want to prevent
the misuse of their designs.
Chapter 16 of the Patent Act allows an inventor to earn a
design patent for any new, original, and ornamental design for
an article or manufacturer. However, the chief limitation on
the patentability of designs is that they must be primarily
ornamental in character. If a design is dictated by the
performance of the article, then it is judged primarily
functional and ineligible for protection.
Combined with the high cost of patenting, this reality
explains why many inventors, including automobile companies,
file for relatively few design patents. But auto manufacturers
assert that automotive supplier lose upwards of $12 billion
annually to counterfeit products. And at least one prominent
car company invests $100 million or more in the design of each
new car line. So it is understandable why car manufacturers
want a higher return on their investments.
Not surprisingly, they have argued in the past that
Congress should amend the Patent Act or the copyright design
statute to provide them with greater protection. But the
legislative process is like Newton's third law of motion: For
every action, there is an equal and opposite reaction. Amending
either the Copyright or Patent Act invites opposition from
others who work in the automobile after-parts industry. Their
plea has less to do with the nuances of intellectual property
law and more to do with competition and consumer choice.
Independent garage owners fear that they will go out of
business if copyright design laws extended to cover auto
replacement parts or if the Patent Act is amended to provide
more expansive protection to designs. In fact, the after-parts
industry now argues that we can't afford to maintain the
legislative status quo on patent designs. The auto
manufacturers are filing for more and more design patents under
current law, meaning the independent garages could lose a war
of attrition. It is just a matter of time and lawsuits.
That is why Representative Lofgren has introduced H.R.
3059, the ``Access to Parts Act.'' The bill doesn't prevent
automakers from patenting designs on replacement parts, but it
does prevent them from suing competitors who repair cars with
cheaper parts. The Committee must therefore weigh these
competing interests and the consequences of establishing the
precedent of creating an exemption to design law that benefits
the after-parts industry.
All of us understand the constitutional mandate to protect
intellectual property rights so that those who fairly deserve
to reap the benefits of their creative contributions may do so.
At the same time, we must also ensure that our legislative
efforts do not have an adverse impact on economic growth and
consumer choice and savings. When we allow goods to be taken
out of the marketplace and assign ownership rights to one
individual or company, we should examine the fairness of doing
so and the impact it will have on the market.
Thank you, Madam Chair. And I will yield back.
Ms. Lofgren. Thank you, Mr. Smith.
And other Members, without objection, will have their
opening statements included in the record.
Oh, I am sorry. Ms. Waters actually did request to make a
statement, and Mr. Issa has asked for the same.
So, Ms. Waters, you are recognized.
Ms. Waters. Thank you very much, Madam Chairlady. I thank
Chairman Conyers for organizing this hearing, and I thank you
for sitting in for him in his absence.
This hearing today is being held to discuss design patents
and auto replacement parts. Indeed, this issue is of great
importance to many of our constituents, as it concerns the
maintenance and repair of automobiles.
I am very anxious to hear from our panel of witnesses
regarding the impact this legislation would have on consumers
in the auto industry. In the weeks leading up to this hearing,
I have received many letters from leading consumer advocacy
groups who believe H.R. 3059, the ``Access to Repair Parts
Act,'' would promote competition and consumer choice.
In these economic times when so many people are struggling
to find employment, the last thing they should have to contend
with is costly auto repair bills. The car companies contend
that these parts are their original design and that this
legislation would violate their patent rights. Consequently,
over the years, many of them have lobbied Congress in an effort
to amend Federal copyright law to enable auto manufacturers to
obtain protection for their designs for individual crash parts
through a design registration scheme.
Moreover, the car companies are also concerned about the
quality of replacement crash parts. They argue that permitting
this intellectual property infringement also exposes consumers
to significant safety performance or durability risk.
However, the Consumer Federation of America advocates for
auto and highway safety will testify today that consumers pay
the same price for automobile parts that some pay for high-
speed computers and flat-screen televisions. So when many
across the country rely on their cars for employment, I am
concerned that some of our car companies may be taking
advantage of consumers in its strict control over the
distribution of its repair parts.
Therefore, Madam Chairwoman, I look forward to our
witnesses' testimony and hope that we can take a closer look at
this issue that greatly impacts the American public.
And I yield back the balance of my time.
Ms. Lofgren. Thank you, Congresswoman Waters.
Congressman Issa?
Mr. Issa. Thank you, Madam Chair.
It is always difficult in Congress to be lobbied by two
sides and tell both sides that you see merit in their position
and then chastise them for excess. Today, I believe that is an
example.
The auto companies have repeatedly asked for more than what
they could be entitled to and come to this Committee asking for
protection that we are not permitted to grant. Often, the
argument is that replacement parts are inferior, dangerous and,
thus, will in some way be unreasonably produced in a way that
would endanger the public. And, yet, the request is of this
Committee, a Committee that has no such jurisdiction. We have
jurisdiction over monopolies, and we certainly have
jurisdiction over patent, copyright, and the like.
Having said that, the parts industry, from which I came,
would certainly pride itself on its design patents and its
right to have an ornamental look added to the automobile be
protected. Whether it is an aftermarket sunroof company,
spoilers, air dams and the like, or even custom wheels, no
company in the after market would give up its right to its
trademark, its copyright, or its patents willingly.
So that brings me to a conundrum as the owner of 37
patents, some of which are design patents. How do we protect
the inherent right of the manufacturer to have no confusion as
to the original maker, the quality, and the predictability,
while at the same time recognizing that there is a huge
difference between parts, for example, that would make a Ford
Mustang into a Shelby Cobra when, in fact, it is not, and
simply a repair part for an inner wheel well, maybe even a
fender that has become rusted or damaged?
I believe that this Committee lacks the jurisdiction to do
it all by itself. I certainly believe that the Chairwoman,
rightfully so, is trying to find the right answer, but I
believe that we must carefully make sure that this Committee
limits itself to the proper meaning of this intellectual
property over which we have jurisdiction and then moves on to
the competitive questions with the Committee of jurisdiction.
For that reason, I have not signed on in the past, nor
presently, on this bill. But I do look forward to trying to get
it right now and in future legislation. I look forward to the
testimony of all of the witnesses because I believe there is a
valid middle ground.
Since we are fortunate enough to have the right people
here, I will again use the example that a Ford Mustang versus
something that looks like a GT500 Shelby Cobra is not a small
set of replacement parts but, in fact, a huge difference. I
often go to the auctions and watch them also on TV in which the
difference in the value of a 25-, 30-, 40-year-old automobile
based on nuanced differences of whether it was a GTO or just
another off-the-line car that had a few stickers put on it is
significant. And those significant differences should be
respected when they belong to the manufacturer.
So, with that, Madam Chair, I look forward to working
together on finding the right balance, and yield back the
balance of my time.
Ms. Lofgren. Thank you, Congressman Issa.
And, without objection, other Members, unless they wish to
give their opening statement, will be invited to submit them
for the record. And we will turn now to the witnesses.
I am pleased to introduce, first, Mr. Jack Gillis. Mr.
Gillis is the director of public affairs with the Consumer
Federation of America. He is also the author of several books,
including ``The Car Book.'' He received his MBA from the George
Washington University.
Second will be Mr. Damian Porcari, who is director of
licensing and enforcement for Ford Global Technologies. He
oversees enforcement of Ford patents through licensing and
litigation. He received his law degree from the University of
Detroit Law School.
Third will be Mr. Robert Passmore, the senior director for
the Property Casualty Insurers Association of America. He
specializes in automobile claims but has worked on a wide
variety of other claims issues. He is a member of the Society
of Chartered Property Casualty Underwriters, having received
this designation in 2002.
And, finally, we will welcome Mr. Perry Saidman, an expert
in design patent law and principal of a boutique law firm
specializing in design patents. He has authored many articles
on design law, and he received his law degree from the George
Washington University Law School.
Without objection, your written statements will be placed
into the record, and we would ask that you limit your oral
remarks to 5 minutes.
You will note we have a lighting system. The light will be
green. When it turns yellow, it means that you have used up 4
minutes, and when it turns red, it means your 5 minutes have
expired. We won't cut you off mid-sentence, but we do ask that
you try and live within the 5 minutes so that we will have time
for Members to ask questions.
And we will begin with you, Mr. Gillis. Will you please
proceed?
TESTIMONY OF JACK GILLIS, DIRECTOR OF PUBLIC AFFAIRS, CONSUMER
FEDERATION OF AMERICA
Mr. Gillis. Congresswoman Lofgren, Ranking Member Smith,
Members of the Committee, I am here not only on behalf of the
Consumer Federation of America but the Advocates for Highway
and Auto Safety, the Center for Auto Safety, and Public
Citizen. And we appreciate your invitation to appear today.
Consider any of the following experiences which happen
every year to thousands of Americans: You back into a pole,
someone in front of you stops suddenly, or you sideswipe your
car in a cramped parking lot. Fortunately, few of these fender-
benders result in injuries, but they often result in shocking
repair bills.
Why are these repair bills so high? As Congresswoman Waters
said, one reason is the parts that are needed to repair our
cars. For example, Ford charges the same price for a fender as
Dell charges for a computer and a flat-screen monitor. An
unpainted door from Ford will cost the same as a Sears
refrigerator. And yet, these are just part prices; costs can
double with installation.
In fact, computers, refrigerators, and many other products
are better today than ever before for one reason and one reason
only: competition. In the early 1990's, the car companies came
to you, they came to Congress, and asked for special design
copyright protection on these replacement parts, and you
emphatically said no. But, as you can see from this chart, that
hasn't happened. There has been an enormous spike in the number
of design patents which companies like Toyota and Ford have
received on their crash parts.
Now, unless there is something special about a Ford fender
for a 2009 Ford which wasn't true in 2002, then I think you
will agree with me that this effort is not about some newfound
design patents but, instead, a newfound business strategy. The
question you need to ask is, why all of a sudden are these
fenders patentable? This is a business strategy and not a
legitimate use of our very important patent laws.
What is particularly disturbing about these figures is that
they are only selectively putting design patents on those parts
where competition is available. The competition and parts that
the car companies are trying to kill lowers prices, provides
choice, and improves quality. In fact, many independent parts
have lifetime warranties and are 34 to 83 percent less
expensive than the car company parts.
If the automobile makers succeed in using design patents to
eliminate competition for crash parts, it will not only result
in higher crash repair costs for you and me and everyone else,
but it will increase our insurance premiums. On the safety
side, as Congresswoman Waters indicated, delaying or ignoring
the replacement of a headlight, a side mirror, or a brake light
simply because they are too expensive will cause serious safety
problems for the consumers.
One of the most tragic ironies in the lack of competition
is what I call the automakers' double whammy. Not only can the
car companies charge whatever they want for the parts we need
to fix our cars, but when they charge so much that the car is
totaled, our only recourse is to go back to them and buy
another one of their products.
I applaud you, Representative Lofgren, for introducing H.R.
3059. It is not often that Congress is presented with such an
elegant solution to a problem. By providing a repair clause in
the design patent law, Congress will be providing consumer
choice and protecting an open and competitive market. Such a
very narrow, practical exemption to the design patent law would
not, and rightly should not, interfere with an automaker's
right to prevent competing car companies from using their
patented vehicle and part designs.
Nine European countries and Australia have enacted laws
that specify that making the use of a matching exterior
patented part is not an act of infringement. American consumers
deserve no less.
So, the Consumer Federation of America, the Advocates for
Highway and Auto Safety, the Center for Auto Safety, and Public
Citizen believe the consumers need competitive crash parts. On
behalf of these groups, I strongly urge Congress to adopt
Congresswoman Lofgren's bill in order to ensure a competitive
market with fairly priced alternatives to expensive car company
brand parts.
I would like to thank you for the time before you, and be
happy to answer questions later on.
[The prepared statement of Mr. Gillis follows:]
Prepared Statement of Jack Gillis
__________
Ms. Lofgren. Thank you very much, Mr. Gillis.
We will turn to you, Mr. Passmore, for your testimony.
TESTIMONY OF ROBERT C. PASSMORE, SENIOR DIRECTOR OF PERSONAL
LINES, PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA
Mr. Passmore. Congresswoman Lofgren, 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,
otherwise known as PCI. PCI is comprised of more than 1,000
member companies, who, together, write 44 percent of the
personal automobile insurance in the United States.
I would like to commend you for holding this important
hearing and thank you for the opportunity to present our views
on the impact of design patent enforcement on automotive
collision repair parts and express our support of H.R. 3059,
the ``Access to Repair Parts Act.''
At its core, this is a consumer issue. The cost of auto
body repair are borne by consumers, either reflected in their
insurance costs or directly when they pay for repairs
themselves. Auto manufacturers justifiably use design patents
to protect the overall design of their cars from the other car
companies they compete with in the primary market. But some are
also using them in unjustifiable ways: to keep competitors out
of the market for replacement crash parts or parts commonly
replaced following automobiles accidents, such as fenders and
doors.
For decades, the availability of aftermarket crash parts
has had a moderating effect on the price of such parts sold by
the car companies. H.R. 3059 will help ensure that design
patents will not be used in anticompetitive ways and high-
quality aftermarket parts will remain available, helping keep
auto repair and insurance costs down.
Since 2003, car companies have increasingly filed for
design patents protecting not only the overall design of the
vehicle but also individual component parts of the vehicles
they manufacture. One company, Ford, has filed two cases at the
International Trade Commission against companies in the
aftermarket parts industry for allegedly infringing on design
patents held by Ford for various exterior parts. Almost 5 years
later, those cases were settled, but the desired result was
achieved for Ford: There was no competition for those parts
during that time. And, even though cases were settled, there is
nothing that would prevent Ford or any other car company from
doing the same thing today.
We recognize that the overall design of the vehicle
represents a substantial investment in its development by the
manufacturer that can and should be protected. While we claim
no special expertise in patent law, 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 only use
is to restore the vehicles' 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 to
car company parts. The aftermarket manufacturers must meet the
requirements of those State laws, yet, by doing so, risk being
found to have infringed on design patents.
Design patents, when applied to these parts in the after
market, serve only to restrict or eliminate the competition and
facilitate a monopoly on replacement parts. Indeed, nine
European companies and Australia have addressed the situation
by enacting laws similar to what is proposed here in H.R. 3059.
Studies have shown that the mere existence of a competitive
part in the marketplace reduces the price of a car company part
by an average of 8 percent per part, and that is even before a
single part is purchased.
To put the benefits of availability of these parts in
perspective, consider that even now car company parts dominate
the market for auto body repair parts, used more than 70
percent of the time--clearly a dominant position.
Alternatively, supplied collision parts are used about 12
percent of the time and can cost as much as 60 percent less
than a car company part.
PCI estimates that eliminating the competitive influence of
even that small market share for alternatively supplied parts
would result in more than $3 billion in increased insurance
costs on an annual basis. The effect of a monopoly on
replacement crash parts would not be limited to consumers' auto
insurance costs. Consumers that pay for their own repairs out
of pocket would bear those costs directly or might choose to
forgo repairs, leading to more rapid deterioration and
depreciation of their vehicle.
High 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 deplete
savings. In tough economic times like we are currently
experiencing, the impact of all these factors would be much
greater on low-income or fixed-income consumers, who can least
afford it.
We are not here today to advocate for the use of one type
of part over another, but we are here in support of a measure
that we believe would clearly benefit consumers. That is why we
are part of the Quality Parts Coalition with companies like LKQ
Corporation, based in Chicago; AutoZone, based in Nashville;
Safelite, based in North Carolina; and ABRA, based in
Minnesota. Those companies believe, as we do, at its core this
is a consumer issue. Costs of auto body repair are borne by
consumers, either reflected in their insurance costs or
directly when they pay for repairs themselves.
We believe that the ``Access to Repair Parts Act'' will
preserve competition in the market for replacement crash parts
and benefit consumers. On behalf of our members, we applaud
Representative Lofgren and all the bill's cosponsors for
introducing this legislation, and we thank the Committee for
the opportunity to share our views on this issue.
[The prepared statement of Mr. Passmore follows:]
Prepared Statement of Robert C. Passmore
__________
Ms. Lofgren. Thank you very much, Mr. Passmore.
Now we will turn to you, Mr. Porcari, for your testimony.
TESTIMONY OF DAMIAN PORCARI, LICENSING AND ENFORCEMENT, FORD
GLOBAL TECHNOLOGIES, LLC
Mr. Porcari. Thank you.
Chairwoman Lofgren, Ranking Member Smith, and Members of
the Committee, my name is Damian Porcari. I am an attorney with
the Ford Global Technologies. I am responsible for obtaining
Ford's design patents.
This legislation, if signed into law, would undo wins by
Ford in the International Trade Commission against foreign
manufacturers making copycat parts of our popular F-150 trucks.
In these instances, the infringers purchased a single genuine
Ford part and then they used low-cost laser scanners to make
photocopy-like clones of our parts. And as a result of these
infringements, Ford, our suppliers, our dealers are losing $400
million a year because of the loss in genuine part sales.
Certainly, a company can save money by copying a design as
opposed to creating, testing, marketing, and selling an
original design. This is not a revelation. It has been and will
always be cheaper to steal something than to pay for it. Our
opponents' argument is no more than a justification to deny all
intellectual property rights across the board.
Copycat parts hurt Ford, our employees, our suppliers, our
dealers, and our customers. Ford customers rarely know that
they are getting copycat parts because their installation is
frequently concealed. Customers purchase a Ford vehicle for
many reasons, including its features, its quality, its styling,
and its value, but these factors are also important in a repair
decision. But often, when customers take their cars to a body
shop, they frequently receive non-Ford, non-U.S., non-UAW
parts.
You know, they may be given an untested part, an
experiment, that may or may not function as intended. Ford
doesn't test how copycat parts work or what interaction various
copycat parts have with each other. We test Ford vehicles with
genuine Ford parts.
Copycat part makers talk of monopoly pricing by automakers
if parts can't be freely copied. Yet, for over 100 years, Ford
has prided itself on selling vehicles with readily accessible
and affordable replacement parts. If pricing of genuine Ford
parts made insurance unaffordable, we wouldn't sell any cars or
trucks.
So, as a November 18, 2009, letter from a broad coalition
of IP right supporters makes clear, we strongly oppose the
fundamentally dishonest practice of purchasing a single Ford
part and making cheap copycat parts in low-wage, foreign
factories that are sold to the American public.
Technology transformed copying books in the 1970's, music
in the 1990's, and movies this century. It is now transforming
the car part market. Virtual 3D photocopiers are making it
faster and cheaper to copy parts. That is why you are seeing a
significant increase in the number of design patents filed in
the U.S. It is in response to this increased copying of parts.
If this bill becomes law, copying will continue to increase,
and more and more American manufacturing jobs will be lost.
Auto companies, suppliers, and dealers will have no choice but
to compete with cheap Taiwanese copycat parts by outsourcing
manufacturing to other even lower-cost countries.
The timing for this bill couldn't be worse. An
International Trade Administration report, entitled ``U.S.
Automotive Parts Industry Annual Assessment 2009,'' outlines
the problems facing the domestic auto parts industry and shows
increasing imports of aftermarket parts from foreign countries.
The Bureau of Labor Statistics reported that the automotive
part industry lost more than 300,000 U.S. jobs since 2000.
Foreign part copiers say that car companies are unwilling
to license copies. This is not true. Car companies vigorously
compete with each other. We also compete with the salvage and
specialty equipment makers on component parts. Beyond that, we
have existing restoration part licensing programs, where we
license our designs, know-how, and brands to responsible
companies that make high-quality parts. Ford has no objection
to generic or specialty repair parts.
Finally, Ford broke new ground and licensed LKQ to make and
sell copy parts. We also required that LKQ clearly label copy
parts as non-original equipment after market. We collect a fee
for the use of our patents that we reinvest in new vehicle
designs.
This settlement gives Ford customers up to five options
when repairing their vehicle. They can: one, buy a new genuine
Ford part; two, a salvaged genuine Ford part; three, an
approved restoration part made to Ford specifications; or,
four, a generic or specialty equipment part that is not a copy,
such as parts made by SEMA; and, five, an LKQ copycat part that
is not made to Ford's specifications.
This bill won't give consumers more choices; they already
have five. This bill would merely eliminate compensation to the
original American designer and spur more foreign copying.
In conclusion, we believe retroactively targeting one group
of intellectual property rights for unequal treatment would be
a dangerous precedent. And it would be particularly so should
it come from this Committee, with the role to ensure that these
rights are protected.
We thank Congress for taking on the difficult issue of
design protection. Thank you, and I would be happy to answer
any questions the Committee may have.
[The prepared statement of Mr. Porcari follows:]
Prepared Statement of Damian Porcari
Chairman Conyers, Ranking Member Smith, and members of the
Committee, my name is Damian Porcari. I am an attorney with Ford Global
Technologies, LLC., a wholly owned subsidiary of Ford Motor Company. I
am responsible for obtaining and enforcing Ford's design patents,
especially those directed to exterior components such as fenders,
hoods, grilles, lights, and mirrors.
This legislation, if signed into law, would undo wins by Ford with
the International Trade Commission against foreign manufacturers making
copycat F-150 parts. The infringers purchased a single genuine Ford
part and used low-cost laser scanners to make `photocopy-like' copycat
parts. Ford hosted representatives of the U.S. Patent and Trademark
Office in our design studios and demonstrated how infringers are able
to make tooling for a copycat fender in a matter of hours using this
equipment. Ford, our suppliers and our dealers are losing $400 million
per year in genuine part sales because of this flood of imported
copycat parts.
I freely admit that a company can save money by copying a design as
opposed to creating, testing, marketing, and selling an original
design. This is not a revelation. It has been and will always be
cheaper to steal something than to pay for it. This applies to all
markets and all products. Our opponent's argument is no more than a
justification to deny all intellectual property rights across the
board.
Copycat parts hurt Ford, our employees, our suppliers, our dealers,
and our customers. Ford customers rarely know that they are getting
copycat parts because their use is frequently concealed. Customers
purchase a Ford vehicle for many reasons, including its features,
quality, styling, and value. They also buy a Ford because of its high
domestic content (Monroney sticker) or because it was made by UAW
workers. These factors are also important in repair decisions. But when
this same customer takes his or her car to a body shop, they frequently
receive non-Ford, non-U.S., non-UAW parts, all without any disclosure
or warning. They take a Ford in for repair and given in return an
untested experiment that may or may not function as intended. Ford
doesn't test how copycat parts work or what interaction various copycat
parts have with each other. We test Ford vehicles with genuine Ford
parts.
Copycat parts makers talk of monopoly pricing by automakers if
parts can't be freely copied. Yet there is no evidence for this
argument. For over one hundred years, Ford has prided itself for
selling vehicles with readily accessible and affordable replacement
parts. If the pricing of genuine Ford parts made insurance
unaffordable, we wouldn't sell any cars or trucks. Everyone purchases
insurance before they drive their new car home. This argument is a
smokescreen to divert attention away from the fundamentally dishonest
practice of purchasing a single Ford part and making cheap copycat
parts in low-wage foreign factories that are sold to an unknowing
American public. Technology transformed the copying of books in the
70's, music in the 90's, and movies this century. It is now
transforming the car parts market. Virtual 3-d photocopiers are making
it faster and cheaper to clone parts. Ford's only recourse is to rely
on an imperfect form of intellectual property protection- design
patents- to stop the wholesale cloning of our vehicles. That's why you
are seeing a significant increase in the number of design patents filed
in the U.S. Patent and Trademark Office. It is a response to the
increased copying of parts. If this bill becomes law, part copying will
continue to increase and negatively further erode U.S. manufacturing
jobs. Auto companies, suppliers, and dealers will compete with cheap
Taiwanese copycat parts by outsourcing manufacturing to other even
lower-cost countries.
This bill encompasses more then car parts. Any replaceable
component would be free game for foreign copying including battery
packs, printer cartridges, razor blades, tires, and golf clubs. All
forms of intellectual property are aimed at preventing copies. There is
no fundamental reason to treat a fender differently than a drug, a
purse, or a movie. To do so otherwise is to devalue design. I explain
this comparison by describing an accident. The vehicle's fender,
brakes, and tires are damaged. The driver also breaks her sunglasses, a
CD that was playing is scratched, some prescription drugs fall on the
ground, and a $100 bill blows away. Which of these articles should be
freely available to foreign copyists and why? What fundamental
principle supports treating a fender differently? The bill's proponents
present no basis for treating visible repair parts differently than
other repair parts or other items protected by intellectual property.
The copyists want to eliminate design patent protection on copycat
parts because that's what they make. As soon as their business model
includes engines, brakes, and air bags, we will likely hear the call
for the elimination of patent protection on all types of replacement
parts. And it won't stop with cars. The denial of intellectual property
rights will always reduce copiers' costs.
Proponents argue that this bill is needed to restore ``balance''
between car companies and customers. The phrase: ``It's my car, I
should be able to fix it'' is used to suggest there should be a ``fair
use'' right-to-repair. While the car indeed belongs to the owner, the
patents protecting it do not. Patents have never needed a ``fair use''
concept because they involve commercial production of products. The
patent teaches others how to make something. If a patent is
unenforceable against foreign manufacturers, the American inventor is
left with nothing. This entire repair argument is a smoke-screen. Car
companies don't sue customers for pulling a dent from their fender.
Razor companies don't sue customers for sharpening a dull blade.
Customers have the right to repair their car or sharpen their razor,
but they don't have the right to make copy fenders or copy razor
blades. Far more importantly, foreign companies don't have the right to
sell millions of copycat fenders or razor blades into this country.
That's not ``fair use'', that's a large-scale foreign commercial
enterprise stealing business from the American inventor through
unethical copying. And that's exactly what's happening in the car
business today. Dozens of foreign factories, employing thousands of
workers are selling billions of dollars of copied car parts. Ford is
working to stop this practice by enforcing its design patents. Rather
than restore balance, this bill would upset long standing US
intellectual property law and would tell the world it's OK to copy
American products - both here and abroad. This issue is not one of
allowing customers to repair their cars, they already have that right.
The issue is, can foreign manufacturers freely copy America's
creations?
The timing for this bill couldn't be worse. An International Trade
Administration report entitled ``U.S. Automotive Parts Industry Annual
Assessment 2009'' outlines the problems facing the domestic auto parts
industry and shows increasing imports of aftermarket parts from foreign
countries (Attachment 1). The Bureau of Labor Statistics (BLS), U.S.
Department of Labor, reported that the automotive parts industry lost
more than 300,000 US jobs since 2000 (id at p35).
Some background about the insurance industry will illuminate what's
really spurring foreign parts copiers and unscrupulous insurance
companies. Ford provides insurance companies with its genuine Ford
replacement part pricing for every new Ford vehicle. Insurance
companies use genuine Ford part prices to set their insurance rates.
After state regulators approve these rates, insurance companies then
refuse to pay for genuine Ford parts and steer body shops to use cheap
copycat parts. Most insurance companies don't tell drivers that they
aren't getting genuine Ford parts unless they are required to do so by
state law. Consumers rarely know they're getting copycat parts. What
consumer prefers a copycat part over a genuine Ford part? This entire
discussion about consumer choice and right-to-repair is merely a
distraction from the basic unethical business practice of pricing
insurance premiums using genuine Ford parts and then giving consumers
cheap foreign copies.
Foreign parts copiers also argue the basic ``unfairness'' of giving
car companies 14-year protection on replacement parts. Let's look at
some basic fairness issues: Proponents want to retroactively reduce the
period of design protection for car parts from 14 years to zero.
However, Congress recently retroactively extended copyright protection
for Hollywood movies to 120 years. If this bill becomes law, a real car
would have no protection against copies, but a cartoon car would be
protected for 120 years. Somehow all of these ``fair use'' and
``consumer choice'' arguments don't apply to saving American families
money when it comes to movies.
Foreign parts copiers also suggest that Ford should be able to
protect the entire vehicle, but not individual components. Ford
protects what's copied. No one is making copy cars. Even Chinese car
companies that were accused of copying didn't copy everything. They
copied the front of one car and the rear of another. The current law
allows car companies to protect individual parts and prevents this
behavior. This bill doesn't address patentable subject matter under 35
USC 171, but instead focuses on what is an infringement. It will add
confusion to an already unclear area of law. If Ford sells a vehicle
having Goodyear tires, are Goodyear's patents now unenforceable? Can
foreign companies freely make specialty equipment parts such as those
on a Saleen Mustang###(tm)###? If a customer resells an automobile with
specialty wheels, are those specialty wheel patents now unenforceable?
If Ford sells a vehicle with specialty parts such as a Ford Expedition
Funk Master Flex(tm), are those patents also unenforceable?
Proponents for this bill will tell you ``a hood is a hood is a
hood'' and that the aftermarket is required to copy Ford parts by state
insurance law. First, a hood is not a hood. If they were, why would
foreign manufacturers be making exact copies rather than generic parts
that fit Ford cars? Different hoods create a different visual
impression and result in different sales for that vehicle. We sell
different models of the same cars with different hoods, grilles, and
lights to create a different visual impression and to garner more
sales. Second, state insurance laws don't trump federal intellectual
property laws. We don't allow states to create unique forms of
intellectual property. And we don't allow states to invalidate federal
intellectual property protection or mandate patent infringement.
Foreign parts copiers say that car companies are unwilling to
compete. Not only do car companies vigorously compete with each other
for each and every sale, we also compete with salvage and specialty
equipment makers on component parts. Beyond that, each of the Detroit 3
have existing restoration part licensing programs where we license our
designs, know-how, and brands to responsible companies that make high-
quality parts. Ford has no objection to generic or specialty repair
parts. Consumers are familiar with this concept and know what they're
getting when they buy generic razors or cereal. Generic items don't
look like the genuine article.
Ford broke new ground and licensed LKQ to make and sell copycat
parts. We did this primarily to end a series of very expensive lawsuits
and to gain recognition that automobile parts were patentable. We also
required LKQ to clearly label copycat parts as ``Non-Original Equipment
Aftermarket''. Attachment 2 is a sample label that is affixed to every
copycat part to clearly distinguish them from genuine Ford parts. We
also collect a fee for the use of our patents that we reinvest in new
vehicle designs. This settlement gives Ford customers up to five
options when repairing their vehicle. They can buy:
1. a new genuine Ford part
2. a salvaged genuine Ford part
3. an approved restoration part made to Ford specifications
(for older vehicles)
4. a generic or specialty equipment part that is not a copy
(e.g., SEMA(tm))
5. an LKQ copycat part not made to Ford specifications
This bill won't give consumers more choices. They have five
already. This bill would merely eliminate compensation to the original
American designer and spur more foreign copying.
In conclusion, we believe retroactively targeting one group of
intellectual property rights for unequal protection would be a
dangerous precedent. And it would be particularly so, should it come
from the Committee with the role to ensure that these rights are
protected. We thank the Congress for taking on the difficult issue of
design protection. We encourage it to tackle this issue in-depth and
see how intellectual property laws can be used to level the playing
field with foreign companies making copycat parts.
Thank you and I would be happy to answer any questions that the
Committee might have.
Attachment 1
ITA Annual Assessment 2009
__________
Ms. Lofgren. Thank you, Mr. Porcari.
And we will turn to our final witness, Mr. Saidman, for 5
minutes.
TESTIMONY OF PERRY SAIDMAN,
SAIDMAN DESIGN LAW GROUP
Mr. Saidman. Thank you very much.
Chairwoman Lofgren, Ranking Member Smith, other Members of
the Committee, thank you for inviting me to testify today. My
name is Perry Saidman. I am an attorney in private practice,
and I specialize in design patent law. My clients rely on me to
get strong design protection for their original designs and
enforce them against knockoffs.
Now, as a professor at GW Law School, I teach a course in
design law. I would like to emphasize that a design patent is a
very unique animal because it protects the appearance of a
product, how a product looks, not how it works. If you want to
protect how it works, you have to go get yourself a utility
patent, which is not the subject of this hearing.
Now, cutting to the chase, I think it is a bad precedent to
carve out an exception in the design patent law for a
particular class of goods--in this case, auto repair parts. The
companies who get design patents invest substantial sums in
research and development of new designs. They file design
patent applications in the U.S. Patent Office, which are
carefully examined by specialist design patent examiners who
search all previous patents and publications to make sure that
the applicant's design is novel, nonobvious, and nonfunctional.
These are the statutory criteria for getting a design patent.
And because of this rigorous examination, the issued design
patent has a statutory presumption of validity which can only
be overcome in litigation by clear and convincing evidence.
Now, the proponents of this carveout for auto repair parts
do not say that design patents for these parts are invalid.
They do not say that these design patents are not infringed.
Well, they can't very well say that, because their knockoffs
look exactly like the patented designs. What they are saying is
that these valid and infringed design patents should be
rendered unenforceable.
Now, why do they say this? Well, they lost a big design
patent infringement suit and have been enjoined from selling
certain auto repair parts. The problem is, if this bill passes,
every industry that loses a design patent lawsuit will petition
the Congress to exempt them from having valid and infringed
design patents enforced against them. That is why it is a bad
precedent.
Now, the proponents also say, if a valid and infringed
design patent cannot be enforced against them, we will have
open and free competition in auto repair parts, which should
bring down the cost to consumers. But the U.S. Supreme Court
has said in the Bonito Boats case, and I will quote this, ``The
requirements of patentability embody a congressional
understanding implicit in the patent clause itself that free
exploitation of ideas will be the rule to which the protection
of a Federal patent is the exception,'' unquote.
So, once the Patent Office decides that a design meets all
of the statutory criteria, they issue a patent that gives the
owner a time-limited monopoly in that design. This trumps open
and free competition and is grounded in the strong public
policy stated in the U.S. Constitution, article 1, section 8,
clause 8, that the purpose of patents is to promote the
progress of science and the useful arts, to encourage
innovation, and reward inventors and designers for a limited
time.
Now, companies that are in the knockoff business flout this
strong public policy. Their activities do not promote the
progress of science and the useful arts. They lie back and wait
for others to do this, to make a successful unique design. Then
they copy the patented design, they are found guilty in a court
of law, and they come here asking that they not be held
accountable for their actions. The end game of this logic--that
free and open competition is the Holy Grail--would result in
doing away with patents altogether.
Now, Mr. Gillis today said that an automaker would still
have the right to stop competing car companies from using their
patented part design. Well, this is a red herring. Companies
get design patents to stop knockoffs. They are rarely asserted
against legitimate competitors, who are busy designing their
own original and distinctive designs. The last thing they want
to put out is a copy of a competitor's design.
In conclusion, carving out a particular class of products
that undisputedly infringe design patents just because this is
advocated by the powerful insurance lobby undermines the rule
of law, is tantamount to selective enforcement, and opens the
door to yet new exemptions advocated by yet new lobbies in yet
new product fields. Pretty soon, the law fades away, and all
that is left are the exceptions, just like the Cheshire Cat in
Alice's Wonderland, which fades away, leaving only its devious
smile.
Thank you, and I am happy to answer any questions.
[The prepared statement of Mr. Saidman follows:]
Prepared Statement of Perry Saidman
__________
Ms. Lofgren. Thank you very much.
And thanks to all the witnesses for their testimony.
Now is the time when Members can ask questions of the
witnesses. And we will try and confine our questions to about 5
minutes. And I will begin.
Mr. Gillis, Mr. Porcari gave a list of five choices that
consumers have for crash parts, including salvage parts,
approved restoration parts, generic or specialty equipment
parts.
Why would these choices not be sufficient to provide
competition in the market to keep prices down for consumers?
Mr. Gillis. It is a good question.
First of all, there really aren't five choices of parts.
Two of the part choices that he listed are specious. They do
not represent replications of the part, which is what most
consumers want. We are not attempting to change the look, the
feel, or the fenders or the hoods or the grills.
So the only real choice that a consumer has today is an
expensive car company brand part; a salvage part, which is of
dubious quality; and, in some cases that Mr. Porcari talked
about, a part in which he has licensed the manufacturer of.
And what is very interesting about that alternative is that
Ford has entered into a special agreement allowing a company to
make its part, is getting paid by that company, yet Mr. Porcari
just told you that these parts are not made to Ford's
specifications. In other words, they are licensing someone to
make their parts, and even they don't care if they meet their
specifications. This is the absolute height of hypocrisy.
Ms. Lofgren. I wonder, Mr. Porcari, going to that licensing
situation, you have licensed, according to your testimony, with
this LKQ to make and sell crash parts. And you also testified
that Ford got a royalty fee out of this arrangement.
How much was this fee? And how is this structured?
Mr. Porcari. The exact amount of the fee is confidential.
But I am able to tell you that we make much less licensing car
parts than we do these little toy cars. That is why I brought
that here to show you.
Ms. Lofgren. Was this an exclusive agreement with LKQ?
Mr. Porcari. Yes, it was. Yes, it was.
And, you know, it was not like there was no infringement
going on. There were 28 companies making thousands and
thousands of Ford parts. So we didn't license into a vacuum. We
licensed dozens of people, making thousands of parts.
The reason it was exclusive was LKQ brought with them these
dozens of Taiwanese companies and stopped all of the non-
infringers themselves. They had control because they had the
pursestrings; they were buying from the Taiwanese.
Ms. Lofgren. I see.
You know, one of the things that I think is--I was talking
to Mr. Smith before he left. It is a hard audience you have up
here because I think all of us have cars that have been in
crashes. And I will just speak--my daughter totaled my car, but
the crash was such that it didn't even set off the airbags. I
mean, it was--and because the parts were so expensive, the
insurance company had to total the whole thing.
And I was thinking about your comment, Mr. Porcari, about,
you know, low-cost foreign manufacturers. But this was a Prius.
And so, I think--and I guess this is to Mr. Gillis, since
you have taken a look at the whole market, not just Ford--
aren't foreign auto companies also engaging in these design
patents? And wouldn't that potentially have the impact of
disadvantaging American parts manufacturers?
Mr. Gillis. Well, absolutely, Congresswoman.
In fact, I would like to submit for the record this picture
from Auto News, in which 52 percent of the suppliers to the
2008 Ford Taurus are foreign companies.
[The information referred to follows:]
__________
Mr. Gillis. In addition, this year, Ford's latest models,
the 22 models that they are offering the American public,
nearly half of them are built in foreign countries.
So, for Mr. Porcari to come here and keep using the word
``foreign'' as if it is a dirty word is, again, I think, an
example of the extent that the car companies are trying to go
to protect these monopolies.
And he mentioned earlier that it cost him $400 million
because of parts that were competitive in the marketplace.
Well, guess who saved that $400 million? We did. And guess who
will pay that $400 million if he gets to patent all of these
parts? And that is what we are talking about today.
Ms. Lofgren. Thank you very much.
And I am not going to go on at too much length; I just
thought it was important to note that, as far as--you know, I
don't want to hold myself out as an expert on design patents,
but I think the most significant case in our courts was the
Chrysler case, that the circuit court really helped out about
the design patents, and it is only the international decision
that has brought this into play. It wasn't the U.S. court
system that brought this into play.
Isn't that correct, Mr. Gillis?
Mr. Gillis. That is true. And, you know, that is what is
particularly ironic about this particular situation. Consumers
in Europe have a right to these parts. They are able to buy and
make choices in the marketplace and are able to get the
competition they need to keep the crash repair down.
And what is particularly good about it is, when there is
competition, not only do prices go down, but quality goes up.
And Mr. Porcari was talking about quality. I mean, with all due
respect to the Members of this Committee, to talk about car
company quality in this environment, when last year 50 percent
more cars were recalled than were even sold and this year we
have already recalled almost twice as many cars as have been
sold. So, the car companies aren't----
Ms. Lofgren. I am going to cut you off, because I don't
want to set a bad example of going over 5 minutes.
And I am going to turn now to Mr. Coble for his questions.
Mr. Coble. Thank you, Madam Chairman.
Good to have you all with us.
Mr. Passmore--and I am going to give Mr. Porcari a chance
to respond after you respond--as I read Mr. Porcari's comments,
he indicates that the auto insurance industry sets the
insurance premium prices using Ford parts and then gives the
consumers less expensive alternative parts and, furthermore,
suggests that the insurance companies perhaps don't inform the
consumer when they are getting these alternative parts.
Now, what say you to that?
And then we will hear from Mr. Porcari.
Mr. Passmore. Well, I would say neither one of those
statements are true.
First of all, regarding the question of rates, rates are
set based on historical loss data. And that is based on
whatever has been paid for repairs in the past. And I think you
heard me say in my testimony, the market for replacement parts
is currently 70 percent car company parts and 13 percent
aftermarket parts and 12 percent salvage parts. So that is the
kind of marketplace that is being reflected in the loss costs
that had been paid by insurers up to this ponit.
And, going forward, if you change that market, you know, if
that 70 percent becomes 90 percent, then it is reasonable to
assume the loss costs are going to increase. And that could
impact rates in the long run.
Mr. Coble. Mr. Porcari, did I interpret you correctly?
Mr. Porcari. Yes, you did.
When a new vehicle is released by Ford, before the vehicle
is sold we are required to provide to various insurance
companies across the country the price of the components that
go into making that vehicle as well as the time it takes to
repair the vehicle for certain repairs.
That is the rate; those are the prices that insurance
companies use to set the policy.
Mr. Passmore. Well, I don't know if that is--I don't
believe that is true. It is true that there wouldn't be as much
loss as for a brand-new model of a vehicle, and I guess you
would have to have a reference point at some point, but it is
also true that vehicles that have just been--you know, the
first year of manufacture, probably don't have aftermarket
options available.
Perhaps some others could respond to that.
Mr. Coble. Well, let me move along before the red light
illuminates again.
Is it not true, gentlemen, that all States permit the use
of alternative collision repair parts and that most States have
laws ensuring disclosure to the consumer when they are used,
along with a good number of States that require those parts to
be of like kind and quality in form, fit, and finish? Is that
correct?
Mr. Passmore. That is correct. That is correct. Thirty-nine
States require that you have to identify the parts being used
on the estimate. Another 37 States require specific disclosure
that aftermarket parts have been used; that is after you have
already listed them. And 31 States require that your disclosure
includes that the warranty on the non-car-company parts is not
provided by the car company, it is provided by the company that
manufactured them.
Mr. Coble. Now, Mr. Saidman, I have ignored, not
intentionally, you and Mr. Gillis. Do either of you want to get
your oars into these waters?
Mr. Saidman. No, that is not my----
Mr. Coble. Mr. Gillis?
Mr. Gillis. Yes, I think there are more than adequate
consumer protections in every State. And those protections not
only are important for consumers but they foster competition.
Mr. Coble. I have no further questions. Thank you, Madam
Chair.
Ms. Lofgren. The gentleman yields back. We will turn to Mr.
Gonzalez, who has been sitting here from the beginning, before
Ms. Jackson Lee.
Mr. Gonzalez. Thank you very much, Madam Chair.
Just real quick, Mr. Saidman, in your written testimony,
you read it, ``A design patent protects only the outward
appearance of a product as shown in the figures of design and
so on. Unlike a utility patent, a design patent does not
protect the function or structure of the product, only how it
looks.''
Mr. Saidman. Correct.
Mr. Gonzalez. Okay. And the courts seem to be agreeing with
you. And, yet, we know that Mr. Gillis in, not his testimony,
but in his response said, the objective of having the
alternatives is replication, is appearance. Right?
Mr. Saidman. Exactly.
Mr. Gonzalez. Okay. So now that is where Congress comes in.
Because the courts are basically saying, if you want to do
something about it, go to Congress. And we are here today. So,
as Members of Congress, we can actually take a lot of things
into consideration if we are going to modify a law that the
courts now would be operating under.
You said there is a public policy consideration as to this
design patent. In this particular instance, identify the public
policy consideration. I mean, why would we have the law? I
mean, there has to be a public policy consideration in
everything that we do.
Mr. Saidman. Well, the public policy is expressed in the
Constitution, to promote progress of the science, to promote
the useful arts, to reward innovators, to encourage research
and development, and to produce new and original designs. And
the deal that is made with the designers is that we will give
you a monopoly for a limited period of time in exchange for
your efforts and your investment and your original designs. And
the public policy is simply to adhere to that.
Mr. Gonzalez. Congress would have to believe that we are
not frustrating that public policy by making some sort of a
carveout or exception in this case. Is that correct?
Mr. Saidman. Yes.
Mr. Gonzalez. Okay. But I think everyone really looks
through that argument and doesn't really see that it is quite
valid. All they know is that it is probably cornering the
market. It is about having a monopoly on replacement parts.
I mean, is that what really is going on? Because I think
many Members just look at it--I think Mr. Issa kind of alluded
to it--and I am not speaking for him, because he could have
meant something totally different. But, you know, you guys are
competitors. And right now someone has a corner on the market.
And what is the impact? What is the public policy impact? The
impact is, the consumer pays a lot more money. I don't think
that is really in dispute.
Now, Mr. Porcari, you may dispute that. I still remember we
used to say, if you sell me a car for 40,000 bucks, you are
selling me the whole package and you are putting it together
for me. But if I ask that you sell it to me piece by piece, I
would probably have a quarter-of-a-million-dollar car.
I don't know if you agree with that, but what I am trying
to point out is just what is practical out there, what is
really going on in American society. And the utility of law
really should reflect what is going on out there in American
society and how the best interests of that society are served.
I happen to think that if something costs a consumer an
inordinate amount of money, unnecessary. And I don't think
that--I know what you said, Mr. Porcari. I think you said, if
it was so unreasonably priced, it would not be affordable.
Maybe something doesn't have to be unaffordable before it is
unnecessarily expensive. And that is not good for our economy.
So if you would like to respond to what I think. The public
is having this conversation as we speak, if, in fact, they are
watching or if they are interested in the subject matter.
Mr. Porcari. Well, one, we are very proud of our cars and
our affordable replacement costs.
I will give you the example that Mr. Gillis used, and that
is a Dell laptop or a Dell computer. I have a Dell laptop, a
Dell Latitude D630, and I looked up the replacement part cost
of that screen. If I were to break my LCD screen, it would cost
$245 to get a replacement screen.
I also have a 2010 Ford SHO Taurus--a great car, made in
Chicago, the newer version of the one Mr. Gillis showed you. If
I were to dent my fender, that fender has a replacement part
cost, manufacturer's retail price, of $303. But I found it on
sale on the Internet--two clicks on Google, anyone could find
it--for $216.47, less than the replacement cost of that Dell
laptop screen.
I don't think our parts are overpriced. I think they are
affordable, and that is why people buy Ford cars.
Mr. Gonzalez. Mr. Gillis, I probably have 30 seconds left.
Mr. Gillis. Okay. Yeah, first of all, it is ridiculous that
Mr. Porcari would have to pay $230 for a flat screen for his
Dell, but the reason why he has to is because he can only get
that from Dell. And that is our point.
Mr. Saidman admitted that these designs were not to protect
the car companies from each other, but, in his words, to stop
competition. And that is what we are talking about. I am not a
patent attorney, but I just heard him say, ``We are not worried
about car companies copying each other; we are worried about
stopping the competition.''
And, from the consumer perspective, we are worried about
keeping competition opening. Seventy-three percent of the car
parts out there have no competition right now.
Mr. Gonzalez. Thank you very much.
Ms. Lofgren. Thank you.
We will turn now to Congressman Issa.
Mr. Issa. Thank you, Madam Chair.
Mr. Gillis, you made a statement that I just want to make
sure we correct for the record. You cited the amount of
recalls. If you are not aware--hopefully after the Toyota
hearings, you would be aware--that if you copy perfectly cars
subject to recall, you will get recallable parts.
So, unless you are implying that these companies have vast
engineering that somehow would make them better than the
original parts and less likely for a recall, maybe that wasn't
the best citing.
Mr. Gillis. Well, actually, Congressman, it is not a bad
idea, because these parts also can be recalled by the U.S.
Department of Transportation, the same way car company----
Mr. Issa. Well, I appreciate that. But if they copied the
foot pedal that was a little too long on a Toyota, they would
end up hitting the carpet just the same.
You know, I spent 20 years designing and producing for the
auto aftermarket. Nobody could be more interested in not
allowing a monopoly of the car companies. I was a participant
and a contributor to the unsuccessful Chrysler case in which we
tried to define and thought we were accurate that, inside a car
dealership, the car company is a monopoly. And so, when you
want to sell an aftermarket radio or an aftermarket car alarm,
in the case of my company, that the prohibition by the
manufacturer and the insistence on only their parts was, in
fact, an antitrust violation. No question at all, I would be
there for you relative to the aftermarket.
In this case, I have a different concern. And maybe I can
use Mr. Porcari as my stalking horse for this. If your interest
is related to your creation of an art form or a design--as, by
definition, when you go to the Patent Office, you say it is--
then isn't it fair to say that the question of the quality of a
replacement part, the durability, all of that, is actually not
within the purview of this Committee? So would you mind if we
only address the portion that is related to the rights in a
design patent?
Mr. Porcari. Congressman Smith, you are correct that----
Mr. Issa. Thank you, but I am a little less than
Congressman Smith. I am Issa. But that is all right.
Mr. Porcari. Oh, I am sorry. Congressman Issa, I am sorry.
I apologize.
You are correct when it comes to enforceability of design
patent. But by losing our ability to enforce the patent, we are
also losing our ability to control who is making copy of our--
--
Mr. Issa. And I want to go to that immediately, because I
want to try to address both, if I can, quickly.
Currently, you get design patents for 14 years, 10 years
minimum under TRIPS, in the U.S., right? Ten years is a very
long time in the cycle of an automobile, isn't it? Basically,
at the end of 10 years, you are not interested in making the
parts anymore. Wouldn't that be true?
Mr. Porcari. We are required by law to make the parts for
10 years, but yes.
Mr. Issa. Yeah, it gets a little tough. You end up in the
salvage yard. I have a lot of historical automobiles, and,
trust me, I know I can get certain parts for the Model T, but
they are pretty limited.
So, let's go through this. If we were to protect your
original design, not based on the historic design patent, but
to create a category much more similar to the way the French
protect dress designs based on fashion, and we were to give you
a lesser time, but, in fact, that lesser time was shorter than
the cycle of the automobile but long enough for the original
first use of what some people might call trade dress, even that
goes on in perpetuity, but to that part. So we give you a
patent on the whole car for, let's say, 3 years from the
origination.
If you absolutely had that, would you be more satisfied
that you had that? And, if not, why not?
Mr. Porcari. Enforcing a design patent is very expensive--
millions of dollars. And we have a very good track record--we
have sued three times, not two--but even we are at about a 50
percent track record. But----
Mr. Issa. Okay. But then let me make a follow-up if the
``if not, why not'' appears to be you are not interested. If,
on the other hand, we said to Ford, GM, Chrysler, Toyota, and
the rest, look, in this country we are perfectly willing to
allow you to get your royalties, but those royalties cannot be
unreasonably withheld, let's say, by everyone who has ISO
9,000, meets the basic criteria for, quote, ``quality,'' a
compulsory license that you could not have a monopoly, but you
could, like the copyright holders in most cases, you could be
guaranteed income but not guaranteed a monopoly, would you be
interested in that?
Mr. Porcari. We would study it, specifically if it included
the elimination of these enforcement issues.
Mr. Issa. Thank you, Madam Chair. I just regret that there
is but so little time to ask.
Ms. Lofgren. Thank you, Mr. Issa.
Ms. Jackson Lee is not present at the moment, so we will go
to Mr. Chaffetz and then to Ms. Jackson Lee.
Mr. Chaffetz. Thank you, Madam Chair.
I would like to, just so he can finish this, yield my time
to Mr. Issa.
Ms. Lofgren. Of course.
Mr. Issa. So you were saying, though, that the idea of a
compulsory license with provisions that would give you the
reasonable control over your license, would that be of interest
to you? You said there were other factors. Briefly, can you
tell Mr. Chaffetz those?
Mr. Porcari. Yes, certainly.
Our parts frequently include contribution by suppliers. I
cannot give away what I do not own. So, for example, in a
headlight, there are dozens, if not hundreds, of patents owned
by the supplier on that headlight. I merely create the original
appearance, the ornamental appearance of the headlight. How it
is made, how it works are not mine to give.
Mr. Issa. Certainly. So we recognize that utility patents
underlying would not be included, and therefore they would have
to get those utility rights or they couldn't do the, if you
will, design.
Mr. Gillis, are you intrigued by that at all?
And I want to yield back to the gentleman.
Mr. Gillis. Yes, I am intrigued by that. And the question
becomes, will the car companies offer these in the open market
at fair and reasonable prices?
Mr. Issa. Certainly, a licensee would offer them in the
open market.
Mr. Gillis. If I understand, what you are saying is that
the car companies would be given the patent rights; however,
they would have to share licenses to manufacture those----
Mr. Issa. Right. Everyone up here on the dais recognizes
that, let's say in the music business, that there is a
compulsory license. If I want to perform ``I've Got You,
Babe,'' for which I would be paid very little and booed, I
have----
Mr. Gillis. I would pay to see you sing.
Mr. Issa. Thank you. Many might. But I have to pay. And
yet, I have a right--there is a compulsory license in which I
have a right to get that. That situation exists in other law.
It also exists in some transition in the patent rights in
health care. So it is not without precedent in U.S. law. It
would not be totally new.
But I think, for all of us on the dais who have seen both
requests by the manufacturers to have totally exclusive rights,
which you obviously object to, and then the idea that they have
no rights or that immediately the product be available, and
without control over quality, although we have a limited role
in that control over quality and so on, the fact is that
confusion as to source and quality and the harm to the Ford
emblem as to quality is, in fact, within the purview of this
Committee.
And that is why I asked if we could begin, notwithstanding
the gentlelady's starting point, talking in terms of a
solution, rather than simply two problems that come back to
this Committee perennially.
Mr. Gillis. Well, first of all, again, I have to disclose
that I am not a patent attorney. However, there is some
question as to whether or not design patents should even have
been issued to these particular parts, because they are, in
many cases, functional parts of the car. A fender performs a
number of functions. So that is one issue that would have to be
addressed.
If, in fact, there was consensus that these are
legitimately earned and important design patents, then your
solution, as long as it opened the market to consumers so that
we would have many choices at fair prices, sounds reasonable.
But I think first you would have to address the issue of
whether or not the patents are, in effect, appropriate in the
beginning.
Mr. Issa. Certainly.
Other comments, particularly--I mean, I think from the
dais, we are not prepared to strike down design patents without
recognizing that it goes far beyond the auto company right now,
with similar--that the Dell notebook has a design patent on it,
too.
Please, anyone else that would comment on this direction?
Mr. Porcari. Sure. A couple of comments. Perry can tell you
all about the history of design patent law, but, for example,
on functionality versus ornamentality, we make, I believe, 12
different grills that fit an F-150, each looking completely
different than the other to distinguish our series. It, by
definition, says that these are not functional grills. There
are many, many ways to make a grill. And that is not enough.
The public can probably buy 40 to 50 aftermarket grills for
that F-150.
So I think, from a functionality argument, we clearly
proved in court that these patents are not functional, that
they are ornamental.
Mr. Saidman. That is, in fact, the test for ornamentality.
If the design can be embodied in any of a number of different
ways and perform the same function, then it is not dictated by
function and is, therefore, ornamental and meets the statutory
requirement.
Mr. Chaffetz. Thank you, Madam Chair. I see our time is
within seconds, so we will come in under, and yield back.
Ms. Lofgren. All right. The gentleman yields back.
We turn now to the gentlelady from Texas, Congresswoman
Jackson Lee.
Ms. Jackson Lee. Thank you very much, Madam Chair.
And I thank the witnesses for their presence here today.
I am just going to start with Mr. Porcari.
What is the body of law that you are basing your argument
on, as you represent the auto manufacturers? Expanding beyond
patent, but do you have case law that discerns between the
automobile design, which means if you come out with a flying
Thunderbird that really flies and you want no one to know about
that--and I would get that real quick.
Mr. Porcari. You haven't seen our new Ford SHO Taurus. It
flies.
Ms. Jackson Lee. Does it really?
Mr. Porcari. But----
Ms. Jackson Lee. Excuse us for a little engagement. I want
you to know that your Ford Taurus station wagon took my
children around. We had a good time in it.
Mr. Porcari. Good.
Ms. Jackson Lee. But let me--what is the body of law beyond
patent law for the grills and extra?
Mr. Porcari. There is, in trademark law--I am not a
trademark expert, trade dress--but, within patents, there are
three types of patents. There are utility patents that cover
the functional aspects of an article. There are design patents
that address its ornamental appearance. And then there are
plant patents, which are quite similar to design patents; they
are directed to the appearance of an asexually reproducing
plant.
So we, Ford, did not utilize trade dress or trademark
arguments. We focused exclusively on design patents. We
actually didn't even bring in utility patents, because we
really wanted to clarify the issue and bring it into sharp
focus that car parts are protectable by design patents.
Ms. Jackson Lee. Give me the last one. You had utility,
ornamental, and what is the third one?
Mr. Porcari. Plants.
Ms. Jackson Lee. So you focus mostly on the actual design
and consider the grill and other parts part of that design.
Mr. Porcari. Right.
Ms. Jackson Lee. Is there a case law that has recently gone
through the courts that has reinforced your position?
Mr. Porcari. There are--and Perry is much better at giving
you case law citations.
Ms. Jackson Lee. Well, I am going to yield to him in a
moment before I go to Mr. Gillis there.
Mr. Porcari. Our cases--we had three cases in the ITC; one
went to decision. In that case, the ITC judge found that the
designs were valid and infringed.
I have heard reference to the Chrysler Auto Body case, a
Sixth Circuit case I believe, years back, on a summary
judgment, found that the Chrysler Dakota fender was functional.
That never went to trial; it was done on a summary judgment.
And we think the court got it wrong.
Ms. Jackson Lee. Could I ask your team to provide this
Committee with an update on case law, whether it is
administrative decisions and/or case law, that you have relied
upon?
Mr. Porcari. Yes.
Ms. Jackson Lee. I would appreciate that.
Mr. Saidman, would you answer the same question but, in
addition to that, act as a--as this is a tutorial, very
briefly, and tell me whether or not competitive issues are
taken into consideration on the design cases under patent law.
Are they basically strictly on the idea that someone proves
that it is unique to them and then a decision is then made?
Mr. Saidman. Well, design patents are part of the 35 United
States Code. It is a distinctly different kind of patent than a
utility patent. Design patent protects only the look of a
product, how it looks, not how it works. And the statutory
criteria are that it must be novel, it must be non-obvious to a
designer of ordinary skill in that field, and it must be
nonfunctional or ornamental, same thing. It is nonfunctional
when there are other designs that can embody the same function.
So when those statutory criteria are met, the design patent
is issued. And the owner has a 14-year period of exclusivity in
that particular design.
Ms. Jackson Lee. So how would you solve a problem that
consumers raise, that the cost is higher, that when they go to
their local car fix-it shop or their distributor shop--I guess
there is a lot of do-it-yourself going on right now--and the
distributors can't get it and the consumer can't get it? How do
you respond to that?
Mr. Saidman. Well, I think----
Ms. Jackson Lee. Couldn't a distributor buy it from the
manufacturer?
Mr. Saidman. The distributor gets it from the manufacturer
and resells it, I understand, to the end seller.
Ms. Jackson Lee. Right.
Mr. Saidman. But I am not sure exactly how the chain of
distribution works.
Ms. Jackson Lee. Then let's--and I know that. But I am
trying to get to how the distributor can, in fact, be made
whole by getting this in a manner that allows them to lower the
cost for the consumer.
Mr. Saidman. Well, you know, part of--the fact of the
matter is that the patent system creates the ability of the
patent owner to control the price within a certain range. They
can't flout what the market says, they can't price their goods
outrageously, but the way the patent system works is that the
patent owners have the ability to exclude others from making,
using, or selling the patented item.
That is the way it works across all industries. That is the
way it works in pharmaceuticals. You don't have the generic-
drug makers coming to Congress and saying, ``We want to make
generic drugs before the patents on these drugs expire.'' They
sit, they wait, the patents expire, and then they jump into the
market, and you have the increased competition.
Mr. Issa. If the gentlelady could yield?
Ms. Jackson Lee. I will yield if the Chairwoman would
indulge us in additional time.
Mr. Issa. I have to ask unanimous consent for an additional
minute.
Ms. Lofgren. Without objection.
Ms. Jackson Lee. And I have a question for Mr. Gillis, so I
will yield to you for a moment.
Mr. Issa. I would only point out that, yes, the generics
are in here asking for early rights all the time.
Ms. Jackson Lee. I was going to say that, as well.
Ms. Lofgren. And the gentleman yields back.
Ms. Jackson Lee. That is not his fault for not being keen
on what generics are doing in pharmaceuticals.
But let me just quickly ask--Mr. Gillis, I went to the
gentleman first so that you could have an opportunity to
respond, if you will.
One of the questions, as you respond--because you know my
line of reasoning was the impact on consumers--respond to the
concern about safety. Maybe it is someone putting on a grill
incorrectly, impacting on Ford or someone else negatively when
that grill falls off. So why don't you respond to safety and
the competition issue?
Mr. Gillis. Thank you very much, Congresswoman.
There are two safety issues. First and foremost is the fact
that many consumers who can't afford these overpriced parts may
not replace a mirror, they may not replace certain parts of the
car that are important for the safe operation of that vehicle
simply because they can't afford to. So that is the number-one
problem.
The number-two problem, and it sort of alludes to the
Congresswoman's question, these parts, if there are safety
issues associated with them, can be recalled by the U.S.
Department of Transportation National Highway Traffic Safety
Administration. NHTSA does have the ability to take
responsibility for these parts. So that really shouldn't be an
issue.
It really goes back to your first question of competition.
And I have to go back to this drawing right here. When you
think about the fact that 73 percent of the parts are only
available from one source, that number has been pretty
consistent for all of these years, and it is only recently that
we have seen this exponential increase in these patents. So
that is why we suggest that this is a business strategy and not
a strategy to protect those fenders, which they have been
making since the beginning of this chart.
Ms. Lofgren. The gentlelady yields back.
And we have no additional Members----
Ms. Jackson Lee. I yield back.
Ms. Lofgren [continuing]. Seeking time, so I would like to
thank all of the witnesses for the testimony today.
Without objection, Members will have 5 legislative days to
submit additional written questions, which we will forward to
the witnesses. And, if that should occur, we would ask that you
answer as promptly as you can so that your answers could be
made part of the record. And the record will remain open for 5
legislative days with the submission of other material.
I would just like to note, in closing, that the bill which
I have introduced--we have had a wide-ranging discussion, but
the bill only applies to the enforcement of design patents
against repair parts. And, in that case, the repair parts must
have the sole purpose of restoring something to their original
purpose. So this is really, actually a very narrow bill
oriented to a very large problem for consumers. And I just
thought it was worth reiterating that point, since we have had
a wide-ranging discussion.
And, clearly, Congress has a role to play in the patent
law. I was interested to hear the three kinds of patents, but
there is still another until Bilski is decided: business
methods. So sometimes the courts answer the question before the
Congress gets around to it, but that doesn't preclude Congress
from weighing in when necessary.
So we appreciate your testimony.
And, with that, this hearing is adjourned.
[Whereupon, at 4:53 p.m., the Committee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record