Last week, President Biden issued an Executive Order on Promoting Competition in the American Economy. As my partner, Elizabeth Haas, points out, the antitrust implications are far reaching. Of the 72 different initiatives in the EO, the issue regarding the future of “right to repair” will impact manufacturers.
In the fact sheet accompanying President Biden’s EO, the White House notes its intention to “[m]ake it easier and cheaper to repair items you own by limiting manufacturers from barring self-repairs or third-party repairs of their products.” The fact sheet calls out “[p]owerful equipment manufacturers” who “use proprietary repair tools, software, and diagnostics to prevent third-parties from performing repairs.” The EO itself directs the Chair of the Federal Trade Commission to exercise the Commission’s rulemaking authority to remedy “unfair anticompetitive restrictions on third-party repair or self-repair of items, such as the restrictions imposed by powerful manufacturers that prevent farmers from repairing their own equipment.” In May 2021, albeit prior to the current Chair assuming her position, the FTC issued a report to Congress finding that “there is scant evidence to support manufacturers’ justifications for repair restrictions.” It is too soon to determine what the FTC’s regulations will look like, but given the Biden Administration’s elevation of what has historically been an issue addressed at the state level if at all, there is little reason to believe the current Chair will be inclined to reject the FTC’s May 2021 conclusions.
Manufacturers have made several arguments to support the position that they alone must make certain repairs to certain components of the equipment they manufacture. Even though the FTC rejected them in its May report to Congress, the FTC left the door open to provide additional evidence. It is critical that manufacturers avail themselves of this opportunity to present more evidence during the rulemaking process.
First, manufacturers argue that asserting and defending their intellectual property rights is critical to innovation and growth. They argue providing individuals and independent repair shops with access to proprietary information, parts, tools, and equipment without the contractual safeguards currently in place between manufacturers and affiliated service providers would place sensitive protected intellectual property and trade secrets at significant risk and force them “to reveal sensitive technical information about their products, including source code, tools, and trade secrets.” They assert that any requirement that a company must make available patented replacement parts for repair would be contrary to the statutorily protected right of a patent holder to exclude others from making, using, or selling their patented invention. The FTC dismissed these concerns in May, finding that “[a] full discussion of the interplay between intellectual property and repair is beyond the scope of this notice.” Two commissioners noted the difficulty of conducting a cost benefit analysis of repair restrictions without an analysis of the intellectual property rights of manufacturers. During the rulemaking process, manufacturers must explain why Section 117(c) of the Copyright Act does not undercut their arguments and why sharing trade secret or business confidential information with authorized repair centers does not weaken or eviscerate those trade secret claims. If manufacturers intend to rely on patent law arguments, they must make those explicit.
Second, manufacturers argue that there are inherent safety and security risks associated with certain consumer repairs, particularly those involving embedded software that is becoming more ubiquitous and more complex. “Repair” is more than just swapping parts. These safety risks are mitigated when repair persons are properly trained and have the skills to repair products to the original manufacturer’s standards. Manufacturers note that unauthorized repairs are dangerous not just to those who perform the repairs, but to the end users. The FTC has rejected these arguments as lacking specific evidence. Therefore, during the rulemaking process, manufacturers must provide evidence of consumer harm caused by unauthorized repairs in order to demonstrate that the risks are not purely theoretical. If that is not commercially feasible, manufacturers must be more explicit about the precise types of harms consumers face from unauthorized repairs. Manufacturers should also provide evidence of the self-repair and third-party repairs that they do allow in order to rebut any assumption that repair limits are inherently anticompetitive.
Third, manufacturers argue that unauthorized repairs may cause liability and reputational harm. The FTC noted that it asked for data and research to support this argument, but received none. During the rulemaking process, manufacturers must provide examples of the liability they face when independent repair workers or consumers are injured when performing unauthorized repairs and the liability they face when a user is injured by a product that has been improperly repaired by a third party.
Fortunately for manufacturers and other tech companies who, for safety and security reasons, limit certain self-repair and third-party repair, the regulatory process takes time, and there will be ample opportunity for manufacturers to present evidence to rebut the FTC’s current working assumptions. Manufacturers should continue to engage with members of Congress. FTC rules – if enacted at all – can change from administration to administration. While this EO is a victory for self-repair advocates, they will certainly continue their efforts to lobby for a legislative fix. Manufacturers should ensure they are able to make these arguments to Congress if Congress is seriously considering legislation.
If you have any questions about this executive order, please contact Mike Walsh, Steve Hilfinger, Vanessa Miller, Kate Wegrzyn, or your Foley relationship partner.