Statement of Jack Gillis, Director of Public Affairs,
Consumer Federation of America

on behalf of

Consumer Federation of America
Advocates for Auto and Highway Safety
Center for Auto Safety
Consumers Union and
Public Citizen

Before the House Judiciary Committee
Subcommittee on Courts, the Internet and Intellectual Property

Hearing on Design Law –
Are Special Provisions Needed to Protect Unique Industries?

February 14, 2008


Chairman Berman, Ranking Member Coble, and members of the Subcommittee, my
name is Jack Gillis, and I am Director of Public Affairs for the Consumer Federation of America.
In addition to the Consumer Federation of America, I also am testifying today on behalf of
Advocates for Highway and Auto Safety, the Center for Auto Safety, Consumers Union, and
Public Citizen. We are grateful for your invitation to appear today on an issue of tremendous
importance to the safety and budgets of millions of American families – the maintenance and
repair of automobiles.

Consider any of the following experiences which happen thousands of times nearly every
hour of every day: You accidentally back into a pole at a shopping mall; someone in front of
you stops suddenly and your bumpers collide, or you inadvertently sideswipe your car in a
cramped parking lot. These types of crashes happen every day to hundreds of thousands of
Americans. Fortunately, few of these “fender-benders” result in injuries, but they often result in
costly damages to your car. Most of us, after experiencing these common crashes are totally
shocked at the resulting repair bill.

For example, Ford charges the same price for a fender as Dell charges for a high speed
computer, flat screen monitor and color printer. A simple grill for your Toyota costs the same as
a combination flat screen TV and DVD player. A Sears two-door, refrigerator/freezer with an
icemaker is the same price as an unpainted door skin from Chrysler. And, by the way, the Sears
refrigerator comes with two doors, already painted and installed. General Motors charges the
same price for a flimsy rubber bumper cover as Garmin charges for a full color, audio, GPS
system, programmed with directions and maps to anywhere in the United States. The fact is,
computers, TVs, refrigerators, and GPS systems are cheaper and more advanced today than five
years ago and the reason is simple – “competition”.

In the early 1990s, the car companies came to Congress and asked for special design
copyright protection on these parts and Congress said no. Our concern today is that the car
companies are now using design patents, not for the important and legitimate protection of the
overall design of their vehicles, but to prevent competition when it comes to getting the parts we
need to repair our vehicles. This lack of competition will seriously harm consumers who will
end up paying excessive and exorbitant prices. This is money better spent on health care, food,
clothing, and education instead of minor repairs at major costs.

The lack of competition for repair parts will result in several problems for consumers.
For example, high repair costs will lead to more vehicles being “totaled” because the price of
repairing the damage exceeds the value of the vehicle. High repair costs will lead to higher
insurance premiums. Furthermore, when faced with expensive repairs and a limited budget,
consumers may forego important car repairs such as replacing a head light or a broken side
mirror, items essential for safe driving. Unless Congress addresses the automakers’ use of
design patents on their crash parts, the American public will be faced with mounting repair bills,
more ‘totaled’ vehicles, increasing insurance costs, and deferring necessary repairs affecting
safety.

It is time for congressional leadership to keep the market open to competitively priced,
high-quality alternatives to the expensive car company brand parts that consumers need to get
cars repaired at affordable prices. By providing a “repair clause” in the design Patent Law,
Congress will be providing consumer choice and protecting an open and competitive market,
while enabling the car companies to retain the design patent protection on the overall vehicle.

Automakers are Obtaining Design Patents on Crash Parts: A Disturbing New
Trend Which Eliminates Competition, Drives Up the Cost of Auto Repairs and
Harms Consumers.

Over the past several years, there has been an enormous spike in the number of design
patents on crash parts which companies like Honda, Toyota, and Ford have received on their
external crash parts. (See attached chart.) Historically, while car companies have understandably
received design patents on the overall design of a car, only recently have they begun to get
patents on the individual replacement crash parts.

In December 2005, Ford filed a “Section 337” case at the International Trade
Commission (ITC) against suppliers of competitive crash parts for allegedly infringing design
patents held by Ford on various crash parts for the Ford F-150 pick-up truck. While a number of
the patents were held invalid, seven were held valid and on August 6, 2007, the ITC banned the
importation of those parts. As a result, the consumer’s right to competitive choices for these
seven needed repair parts has been eliminated. In fact, there are hundreds of thousands of
Americans who own F-150 pickups for which there is no alternative, other than Ford, when it
comes to replacing a headlight or any of the six other parts. Ford can now charge consumers
whatever they want in the absence of competition.

This type of design patent enforcement action seems to be a new business strategy for
automakers. Given how the automakers have significantly ramped-up their design patents on
crash parts in the past 5 years, the possibility of many additional design patent enforcement
actions being brought at the ITC (or federal courts) is very real. The cost of defending such
cases is enormous. Even defending just a small number of such cases could easily drive
competitors out of business altogether, regardless of whether they ultimately were to win or lose
on the merits.
What is particularly disturbing about the action taken by the car companies is that they
are only selectively putting design patents on those parts where competition, albeit limited, is
available.

Consumer Groups Strongly Support Competition in the Crash Parts Market to
Bring Prices Down and Reduce Costly Repairs.

For over 25 years, consumers have benefited from the limited competition between car
company brand replacement parts and independently branded parts. Moreover, many such
competitive parts have lifetime warranties, something the car company parts lack.

Competition between car company brand crash parts and independent brand parts has
produced high quality, fairly price alternatives, and given consumers a choice. Today, car
companies still have an 80% market share, competitive suppliers have 15%, and the remaining
5% comes from salvage. Without congressional intervention this barely competitive
marketplace for collision repair parts will result in automakers capturing nearly the entire market
and consumers will pay the price.

It’s no surprise the car companies don’t want competition. The mere presence of
competition in the market reduces the price of car company brand replacement crash parts.
Competitive replacement crash parts are, on average, 34% - 83%1 less expensive than the car
company brand parts, and often the price difference is much greater. Right now, the elimination
of competition from independent brand crash repair parts would cost automobile owners more
than $1billion a year.

Eliminating Competition Will Increase Insurance Premiums for Consumers.

If the automakers succeed in using design patents to eliminate competition for crash
parts, it will not only result in higher repair costs, but also higher auto insurance premiums. This
will have a disproportionate impact on low and fixed income consumers.

While the average price difference between car company brand parts and quality
independent parts is significant, these cost savings do not tell the full story. When collision
repair crash parts cost more, insurers will have no choice but to pass those cost increases on to
their policy holders in the form of higher rates. In addition, in the face of already rising
insurance premiums, many consumers are opting for higher deductibles. That means that more
of these exorbitant crash repair costs will be coming directly out of our pockets.

Eliminating Competition Will Result in More “Totals” and Put Consumers at
Greater Risk of Becoming “Upside Down” on Auto Loans.

Higher repair costs due to less competition among the parts needed to repair our cars will
likely force insurers to “total” more vehicles because the cost of repairing otherwise repairable
vehicles no longer makes economic sense. Consumers typically lose when a vehicle is totaled.
First of all, those consumers who may owe more on the car than it is worth will be left with debt
payments for a loan on a non-existent car. In addition, not only do total losses hurt the body
shop industry by providing fewer vehicles to repair, but a needlessly ‘totaled’ vehicle can harm
the environment. And the most tragic irony is what I call the automakers “double whammy.”
Not only does the lack of competition allow car companies to 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 out and buy another one of their products. If automakers succeed in eliminating
competition, the cost to the consumer would be profound.

Eliminating Competition in Crash Parts Could Affect Safety.

On the safety side, tragically, as the cost of needed repair parts rises, many consumers
will be forced to forgo or delay needed repairs, leaving them with a vehicle which may not offer
needed safety. Delaying or ignoring the need to replace a head light, a side mirror, or a brake
light could have serious safety implications. Consumers with low incomes, seniors on fixed
incomes and those consumers who pay for crash repairs out of their own pockets may not be able
to afford needed repairs.

Congress Can Preserve Consumer Access to Affordable, Competitive and Quality
Crash Parts by Adopting a “Repair Clause” in the Design Patent Law.

The solution to this increasingly unfair, unacceptable, and unnecessary mess is for
Congress to adopt a “repair clause” in the design patent law that would preserve the consumer’s
access to a competitive marketplace for quality alternative crash parts. Such a repair clause
would establish a very narrow, practical exception to the design patent law so that if a car
company does receive a design patent on a replacement part, independent companies could still
make and distribute competing parts for the sole purpose of repairing the vehicle. Such a very
narrow practical exception 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.

Design plays an important role in consumers’ original choice of a car. After the
purchase, however, consumers need the flexibility to repair and maintain their vehicles with the
maximum number of choices possible that will “fit” and “match” the other parts. It is simply not
fair for consumers to be forced to pay monopolistic prices for needed crash repair parts.

Other markets have successfully addressed and solved this problem. Nine European
countries and Australia have enacted laws which specify that the making and use of a matching
exterior auto part to repair an automobile is not an act of infringement, even though the original
part is patented. In addition, this past December, the European Parliament approved a similar
law which would apply to the entire European Union, and ratification by the Council of
Ministers is expected in the first half of this year. American consumers deserve no less.

Consumer Federation of America, the Advocates for Highway and Auto Safety, the
Center for Auto Safety, Consumers Union and Public Citizen believe that the competitive crash
parts marketplace which has evolved over the past couple of decades has served consumers. On
behalf of these groups, I strongly urge Congress to adopt a repair clause to the design patent law.

American consumers will thank you for ensuring a competitive market resulting in high quality,
fairly priced alternatives to expensive car company brand parts. Again, thank you for providing
me the opportunity to discuss this important issue with you today.