News: US - Legal issues of remanufacturing in the automotive sector
Remanufacturers must first check the patenting rights of the original manufacturer before reuse or reselling a motor vehicle part.
Monday, 16th April 2012
Like all enterprise owners a remanufacturer must constantly be concerned about every aspect of his businesses - the quality of his products, the productivity and welfare of his employees and his own relationship with his customers. He also must be aware of the legal issues, such as obtaining the proper licenses, paying taxes, complying with fair trade and warranty statutes and otherwise complying with federal, state and local laws. But, a remanufacturer rarely considers whether there are any legal issues that may affect the basic fabric of his business - his right to disassemble, recondition and resell a motor vehicle part. It is often assumed that because a part has been used and the remanufacturer has paid a fair value for it that he can what he wants with it. But because most, if not all, of the motor vehicle parts which are remanufactured have been patented by the original manufacturer, anyone wanting to reuse or resell that part must ensure that he is not violating any rights which the original patent holder still has in that part. The rights given to the holder of a patent are fairly extensive and designed to reward the patent holder for the creativity and work which he invested in the product as well as to prevent other persons from unfairly benefitting from his efforts. But, US patent law has also recognized that the purchaser of a product has rights in it too, such as right to use it and the right to repair it or have it repaired if it malfunctions. It is this right to repair which allows all industries which recondition or remanufacture products to exist. The right to repair may seem to be an appropriate right for the original purchaser of that product and a reasonable limitation on the rights of the patent holder. But it was not always clear that the right to repair would include subsequent owners of the product or future remanufacturers. Questions also arose about the extent of the repairs allowed by the right to repair and whether a remanufacturer was covered from patent infringement. US courts quickly found that subsequent owners had the same right to repair as the original purchaser and that an owner could repair and resell the product. But the extent of the repairs allowed remained an issue. Repair was allowable but reconstruction or a new creation of the product was not - this was a crucial issue for remanufacturers. If only small repairs were allowed by the right to repair, then the remanufacturing of almost all items would be impossible. Fortunately, in 1961 the Supreme Court decided that repair should be liberally defined. The case involved the remanufacturing of convertible roofs for cars. The roof assembly was patented but the individual components of the assembly were not. The patent holder sued a company which was making fabric replacement tops to be used when the original fabric in the convertible roof assembly wore out. The Court decided that replacement of individual unpatented parts in a patented product is the right of the then owner to repair it, and that it did not matter whether repairs were made one at a time, to the same part repeatedly or to different parts successively. It found that illegal reconstruction did not occur unless the reconditioning of the product involved a second creation of the article. A later appeals court decision confirmed that even the replacement of the key or dominant component of a patented product was permissible repair and not reconstruction. Despite the Supreme Courts decision, however, it was still unclear whether substantial substitution of components in a patented part was permissible repair and whether production line remanufacturing was repair. Those issues were resolved for motor vehicle parts in1985 in a case filed by Dana Corporation against American Precision Company and others. Dana alleged that the production line remanufacturing of its patented Spicer Clutches by the replacement of up to four unpatented parts was illegal reconstruction and not legitimate repair. Relying on the earlier Supreme Court case and other subsequent cases, both the trial and appellate court rejected the argument that replacing four components rather than just one made the activity reconstruction rather than repair. The Dana courts also found that the method of making the repairs - on a production line rather than one unit at a time on a work bench - does not affect whether the work is repair or reconstruction. These cases have established a sound legal basis for the continued remanufacturing of motor vehicle parts to continue. Nevertheless, there is no bright line which separates legal repair from illegal reconstruction. Arguments can be made on a case by case basis that the actual repairs and replacements made by an individual remanufacturer go beyond what the right to repair allows and should be considered reconstruction. And even the industry may still be open to arguments that its parts processing has gone beyond the limits allowed by established law. Therefore, remanufacturers must be careful. While the broken, worn or missing components of a part should and must be replaced, properly functioning components should not. And complete or near complete replacement of components of a part would appear to cross the line. Marketing and advertising claims about remanufactured parts must also be carefully worded. While the quality and attributes of remanufactured parts can be favourably compared to similar new products, these parts should never be advertised as being newly created or manufactured anew. Such claims undermine the legal basis which allows remanufacturing. They could lay the foundation for new legal challenges to the remanufacturers right to repair and do irreparable harm not only to the remanufacturer that makes such a claim but to the industry itself.