Federal legislation that would have exempted non-OEM crash parts from patent infringement law failed to make it out of committee in 2008, but parts distributors and insurers will continue their efforts to keep aftermarket crash parts available.

In November, the Property Casualty Insurers Association of America (PCI) met with the Certified Automotive Parts Association (CAPA) and other insurance industry participants to discuss preserving the availability of competitive crash parts. PCI also met with the Quality Parts Coalition (QPC) for additional discussions.

The insurance industry encourages the use of non-OEM parts to help reduce claim costs, but has met with opposition from some repairers and, increasingly, automakers.

“There is a relatively small market for alternative replacement parts, but the OEMs are looking to eliminate that,” says Robert Passmore, PCI’s director of personal lines, who says that aftermarket crash parts are used in just 15 percent of repairs. “We support the current proposal that would provide an exception to the design patent rules for these kinds of parts, because it’s in the consumer’s best interest to have a competitive source of parts.”

Passmore is referring to H.R. 5368, introduced in 2008 in the U.S. House of Representatives by Zoe Lofgren (D-Calif.), which would have created an exemption for crash parts in existing patent law.

The Lofgren proposal was introduced in response to a 2007 International Trade Commission decision that supported Ford Motor Co.’s complaint that Keystone Automotive Industries, U.S. Auto Parts Network Inc., and several Taiwanese manufacturers violated Section 337 of the Tariff Act of 1930. Ford asked for a cease and desist order on importation of F-150 parts (including grilles, headlamps, hoods, fenders, and tail lamps).

Ford filed an earlier complaint with the ITC against Keystone in 2005 over the grille for its Expedition, but it was later withdrawn. Since then, Ford has also filed complaints related to patents on parts for the Ford Mustang.

The Lofgren bill has support from the Quality Parts Coalition, American Insurance Association, PCI and consumer groups, and is similar to protections enacted in Europe and Australia that exempt the manufacture of exterior auto parts for repair purposes from infringement claims.

Supporters hope to see the Lofgren bill reintroduced in 2009. Keystone, meanwhile, is appealing the F-150 rulings, but OEMs have continued to step up the pressure on aftermarket parts manufactures. Request for new design patents by automakers have substantially increased over the past several years, with the majority of those requests related to crash parts. According to Jack Gillis, CAPA’s executive director and director of public affairs for the Consumer Federation of America, these patents could significantly limit competition in the crash parts market, increasing the cost of parts across the board, along with insurance premiums.

“If car companies don’t have to compete with anyone on the sale of fenders and hoods and lights and alternators, not only do they have no incentive to price fairly, but they have no incentive to build quality products,” Gillis says. “Does buying a product make you indentured to the company that sold you the product for the rest of the life of that product? Most consumers don’t want to be in that position. They want choices.”

Many repairers, however, have opposed the use of non-OEM crash parts because of quality issues. “We like having a competitive marketplace, but we want to hear more discussion about improving quality and less about new legislation,” says Bob Redding, Washington, D.C., representative for the Automotive Service Association (ASA).

Lower costs

An analysis by PCI found that competitive crash parts save approximately $2.8 billion in insurance costs per year that consumers would pay if those parts were not available. The report also showed that OEM parts typically cost about 60 percent more than competitive parts. As a result, a 6 percent increase in loss costs for vehicle repairs could be expected per insured vehicle, for an overall auto insurance premium increase of about 3.5 percent more per insured vehicle. The report only included insured losses, and did not quantify the impact on consumers without comprehensive or collision coverage. If self-pay customers were included, the impact would be higher.

“Just the existence of aftermarket parts has an 8 percent impact on the cost of OE parts,” Passmore says, adding that such parts can also reduce the number of total loss vehicles (by reducing overall repair costs), thus generating more business for repair shops. The quality of aftermarket parts also has improved tremendously over the past decade, Passmore said.

“If you don’t have a quality alternative to those parts, people may not get their cars repaired, and that’s not good for auto repair shops,” Passmore says. “I know that the autobody shops would like to have the increased revenue from that higher priced part, but that brings you closer to the tow-off value of the car.”

In his testimony before the Subcommittee on Courts, the Internet and Intellectual Property, Gillis pointed out that sheet metal parts are as expensive as a lot of high-tech consumer devices like GPS systems and large refrigerators. “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,” he says.

Full disclosure

In the past few years, a number of state legislatures have attempted to regulate the use of aftermarket crash parts, often calling for additional disclosures when such parts are used.

A tabled bill in South Dakota, which was opposed by auto repair groups, would have declared aftermarket parts certified by CAPA to be the legal equivalent of original equipment parts. That bill would have also prevented insurers from requiring the use of non-OEM parts on new vehicles within 12 months of the date of purchase. Other states have proposed significant limits on the use of non-OEM parts.

A bill in California proposed in 2008 would have penalized insurers that required repair shops to install aftermarket parts on vehicles still under a factory warranty. That bill is currently inactive.

The ASA has long supported the idea of having consumers consent in writing to the use of aftermarket parts on their vehicles. “That’s the direction the industry should have gone in a long time ago,” Redding says. “Had we done that, we wouldn’t be in the position we are in today where you have the OEs trying to block the offshore parts manufacturers, and the parts distributors going for the whole ball of wax through the Lofgren bill. We’re at a stand-off.”

Redding says that the repair industry remains primarily concerned with having quality parts. “Our members want to do quality repairs with quality parts,” he says. “We would like to hear more discussion about educating the consumer, and how we can make these parts better since they are being pushed to use them by the insurance companies.”