Search results for: right to repair

The right to repair movement continues to gain traction internationally as local, state, federal, and supernational bodies further move to support broader consumer access to repairs with both carrot and stick. In Europe, the Data Act proposed by the European Commission on February 23 specifically characterizes the access to user-generated data required for repair or maintenance as reinforcing the “right to use and dispose of lawfully acquired possessions.”[1] Meanwhile in the wake of a local program in which the city of Vienna directly subsidized the costs of repairing rather than replacing household items and furniture,[2] a national repair subsidy specifically targeting electronic waste is expected to take effect in Austria this month.[3] Stateside, a local repair subsidy following the Vienna model has recently been introduced in Portland, OR,[4] while, as previously reported,[5] more than half of states had pending legislation addressing the right to repair in 2021.

The focus of the proposed legislation varies from state to state, reflecting local interest and need. Nebraska’s bill, for example, targets agricultural equipment,[6] while California, in the midst of the COVID-19 pandemic, introduced a bill addressing the repair of medical devices.[7] An increasing number of states, including Hawaii[8] to Washington[9] and Connecticut,[10] are now focusing on personal electronic devices, and have proposed legislation requiring manufacturers to make the documentation, tools, and parts necessary to repair their devices available to consumers.

Large manufacturers are taking note and responding to this growing public and regulatory interest. In the last two weeks, both Samsung and Google have announced that they are voluntarily implementing programs that provide their customers with greater access to the materials necessary to repair their mobile phones. On March 31, Samsung announced that:

Galaxy device owners will be able to take product repair into their own hands for Samsung’s most popular models, the Galaxy S20 and S21 family of products, and the Galaxy Tab S7+ beginning this summer. Samsung consumers will get access to genuine device parts, repair tools, and intuitive, visual, step-by-step repair guides.[11]

On April 8, Google, in turn, announced that:

Starting later this year, genuine Pixel spare parts will be available for purchase at ifixit.com for Pixel 2 through Pixel 6 Pro, as well as future Pixel models, in the U.S., UK, Canada, Australia and EU countries where Pixel is available.[12]

Google elaborated that “[t]he full range of spare parts for common Pixel phone repairs,” including “batteries, replacement displays, cameras and more,” and “tools like screwdriver bits and spudgers” would be available. However, unlike Samsung, Google does not specifically address the provision of guides or directions to consumers, noting that their intended audience is “independent repair professionals and skilled consumers with the relevant technical experience” necessary to make the repairs.

As the various pending bills are discussed, amended, and voted upon, we expect to continue to see more manufacturers announcing that they will voluntarily comply with the proposed legislation and provide consumers with some degree of access to the parts, information, and tools necessary to repair their equipment. Given the ubiquity of personal electronics and the increasing number of states targeting this technology in particular, we particularly expect to see manufacturers of phones, computers, and other personal devices at the forefront in implementing such programs.

 

 

[1] See https://www.medianama.com/wp-content/uploads/2022/04/Data_Act_zyPHqpq5gpO6IVnfiuToCIYKlOM_83521.pdf.

[2] See https://mein.wien.gv.at/wienerreparaturbon/#/; https://wien.orf.at/stories/3143824/.

[3] See https://elektrobranche.at/artikel/reparaturbonus-startet-mitte-april/.

[4] See https://www.repairpdx.org/.

[5] See https://news.bloomberglaw.com/banking-law/states-attorneys-general-to-expand-national-roles-in-2022.

[6] See https://nebraskalegislature.gov/FloorDocs/107/PDF/Intro/LB543.pdf.

[7] See https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB605.

[8] See https://legiscan.com/HI/text/HB415/id/2456286.

[9] See https://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/House%20Bills/1212.pdf?q=20220412074631.

[10] See https://www.cga.ct.gov/2021/TOB/H/PDF/2021HB-05826-R00-HB.PDF.

[11] See https://news.samsung.com/us/samsung-self-repair-program-ifixit-customer-first-care-experience/.

[12] See https://www.blog.google/outreach-initiatives/sustainability/pixel-phone-repairs/.

On March 24, a bipartisan group of 27 state attorneys general sent a letter to Congress, encouraging the passage of “right-to-repair” legislation to establish and secure a competitive marketplace for repairing vehicles, agricultural equipment, and electronics.

According to letter, original equipment manufacturers (OEMs) have made it increasingly more burdensome for consumers to repair electronics, vehicles, and other equipment. Companies accomplish this by using proprietary materials, refusing to publish repair documentation, and limiting the availability of these parts and tools. The state AGs allege that these practices allow OEMs to “monopolize certain repair markets and/or raise prices with impunity.”

Currently, three bills before Congress seek to address these issues: the Fair Repair Act (HR 4006), the Saving Money on Auto Repair Transportation Act (SMART Act/HR 3664), and the Right to Equitable and Professional Auto Industry Repair Act (REPAIR Act/HR 6570). The Fair Repair Act would require OEMs to publish certain documents and make available tools necessary to repair products, while the SMART Act would allow repair shops to use alternative or off-brand parts to repair vehicles. Finally, the REPAIR Act would prevent OEMs from mandating the use of specific brands for parts, tools, and equipment on vehicles.

Why It Matters

This bipartisan letter demonstrates state AGs’ continued focus on the right-to-repair issue, which we closely follow.

This article was originally published in Westlaw Today and is republished here with permission.

As detailed in our articles[1] earlier this year, the “right to repair” movement has gained significant steam in the last year. The right to repair movement is an effort focused on ensuring that consumers and aftermarket businesses have the ability to repair, maintain, and/or modify the devices and equipment consumers purchase.

In July 2021, President Biden issued an executive order asking the Federal Trade Commission to draft “right-to-repair” rules to increase consumers’ ability to repair equipment on their own or at after-market repair shops. Less than a month later, the FTC unanimously announced that it would ramp up its enforcement against illegal repair restrictions.

Then in January, the president again announced his support for the right-to-repair movement in remarks at a meeting with White House Competition Council. Days later, members of Congress began to announce proposed federal legislation that would regulate the right to repair in specific industries like agricultural equipment and automotive vehicles, signaling, as we suggested, “major changes in the way software access and warranty restrictions are regulated.”

Now, one year after President Biden announced his support for the right to repair movement, we are beginning to see a true shift in the regulatory landscape. This summer the FTC announced several major settlements based on right to repair issues, making good on its word to ramp up enforcement.

For example, in June the FTC announced it was taking action against Westinghouse outdoor generator maker MWE Investments, LLC for allegedly illegally restricting customers’ right to repair their purchased products by offering limited warranties voided by a customer’s use of other companies or unauthorized dealers for repairs.[2]

The complaint[3] alleged violations of the Magnuson Moss Warranty Act, a law that prohibits tying a consumer’s warranty to the use of a specific service provider or product without an FTC-issued waiver,[4] as well as the Federal Trade Commission Act, which prohibits, among other things, certain types of unfair competition and deceptive conduct.[5]

Specifically, the FTC claimed that MWE offered warranties for one year from the date of purchase and replacement parts for three years from the date of purchase, but, through its written warranty conditions, MWE listed certain “exclusions” including “portable generators that utilize non-MWE Investments, LLC replacement parts” as well as “products that are altered or modified in a manner not authorized in writing by MWE Investments, LLC.”[6]

According to the FTC, MWE did not seek the required waiver that would permit them to condition warrant coverage “on the use of genuine MWE Investments parts and accessories” in direct violation of the Magnusson Moss Warranty Act.[7]

Meanwhile, the FTC alleged that MWE falsely represented to consumers that its warranty conditions were valid, which the FTC believed to be a violation of the FTC Act’s prohibition of unfair or deceptive acts or practices in or affecting commerce.[8]

Through a consent order, MWE neither admitted nor denied any of the Commission’s allegations but agreed to certain injunctive terms, including removing the terms the FTC alleged violated the law, providing notice of the consent order to customers, and undertaking efforts to ensure that MWE-authorized dealers compete fairly with independent third parties.[9]

The consent order also provided for compliance monitoring, requiring the company to respond to requests from the Commission with sworn statements and reports.

On July 7, 2022, the FTC announced its “third right-to-repair lawsuit in as many weeks,” issuing a press release regarding a settlement with grill maker Weber-Stephen Products, LLC.[10] The allegations against Weber were almost identical to those against MWE — the user manual for certain Weber grills stated that “[t]he use and/or installation of parts on your WEBER products that are not genuine WEBER parts will void this warranty, and any damages that result hereby are not covered by this warranty.”[11]

Like MWE, Weber neither admitted nor denied the FTC’s allegations, but agreed to certain injunctive terms. For example, Weber will be required to add specific language to its warranty saying, “Using third-party parts will not void this warranty.”[12]

Takeaways

As the Director of the Commission’s Bureau of Consumer Protection Samuel Levine has made clear: “Companies that use their warranties to illegally restrict consumers’ right to repair should fix them now.”[13] While this may seem like a straightforward directive, for some companies it will involve a careful revaluation of their current business models.

Take for example the automotive industry. As we highlighted in our most recent article on this topic, car makers are increasingly embracing a subscription-based model for certain car features such as active driving assistance, voice recognition, or heated seats.[14]

The idea behind a subscription-based model is that automotive makers can streamline manufacturing by building all cars to more uniform specifications and can then create a steady stream of recurring revenue for years after initial purchase by requiring consumers to pay to unlock certain features.

However, we have already seen a small market of “coders” who offer to activate features on cars that may not have been activated at the time they were sold, allowing consumers to avoid the extra fees. Car companies may seek to prevent consumers from coding their automobiles to activate subscription-based features, without paying for a subscription, by limiting their cars’ warranties, such that any use of coding to avoid paying for certain features voids the warranty.[15]

If the FTC says that such warranty restrictions are illegal, automotive makers will need to consider a new strategy to combat coding, or perhaps even rethink their adoption of the subscription-based model in a right-to-repair world.

 

 

[1] Stephen Piepgrass and Abbey Thornhill, President Biden Doubles Down His Support for “Right-to-Repair” Movement, Regulatory Oversight (Feb. 8, 2022), https://www.regulatoryoversight.com/2022/02/president-biden-doubles-down-his-support-for-right-to-repair-movement/; Stephen Piepgrass and Abbey Thornhill, The clash of two movements, Thomas Reuters: Westlaw Today (April 22, 2022), https://www.troutman.com/images/content/3/1/v2/310874/WLT_Piepgrass.pdf.

[2] Press Release, FTC, FTC Takes Action Against Harley-Davidson and Westinghouse for Illegally Restricting Customers’ Right to Repair (June 23, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/07/ftc-takes-action-against-weber-illegally-restricting-customers-right-repair.

[3] See Complaint, In re MWE Investments, LLC (F.T.C. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/2223012WestinghouseComplaint.pdf.

[4] 15 U.S.C. § 2301 et seq.

[5] 15 U.S.C. § 41 et seq.

[6] Complaint at ¶¶ 4–7, In re MWE.

[7] Id. at ¶ 8.

[8] Id. at ¶¶ 17–21.

[9] Consent Order, In re MWE (F.T.C. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/2223012WestinghouseACCO.pdf.

[10] Press Release, FTC, FTC Takes Action Against Weber for Illegally Restricting Customers’ Right to Repair (July 7, 2022) (quoting Samuel Levine), https://www.ftc.gov/news-events/news/press-releases/2022/07/ftc-takes-action-against-weber-illegally-restricting-customers-right-repair.

[11] Complaint at ¶ 6, In re Weber-Stephen Products LLC (F.T.C. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/6.27.22%20Weber%20admin%20complaint.pdf.

[12] Consent Order, In re Weber (F.T.C. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Agreement%20Containing%20Consent%20Order%20(6.17.22).pdf.

[13] Press Release, supra n.10 (quoting Samuel Levine).

[14] Piepgrass and Thornhill, The clash of two movements, supra n.1.

[15] Adrian Padeanu, BMW Heated Seats Subscription Is Real And It Costs $18 Per Month, Motor1.com (July 11, 2022), https://www.motor1.com/news/597376/bmw-heated-seats-subscription/amp/.

The “right-to-repair” movement continues to gain momentum, and as predicted, litigation has started even in the absence of enacted right-to-repair laws. In a recently filed class-action complaint in the U.S. District Court for the Northern District of Illinois, the plaintiff alleges that the equipment manufacturer deliberately prevents farmers from repairing their own equipment or using independent repair shops, which the plaintiff argues are antitrust violations under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. See Eagle Lake Farms Partnership v. Deere & Co., No. 3:22-cv-50078 (N.D. Ill.).

By way of brief background, the “right to repair” generally refers to laws or regulations that ensure that consumers (or after-market businesses) can repair, maintain, or modify the devices and equipment they purchase even when the manufacturer of those devices and equipment attempts to require the consumer to use only “original equipment manufacturer” replacement parts and services.

We recently reported that more than half of all states had pending legislation in 2021 to address right-to-repair laws (discussed in our previous article here) and that President Biden recently reiterated his commitment to right-to-repair rules, with legislators taking those comments to propose new laws on the issue (discussed in our previous article here). Even in the absence of such laws though, we anticipated that litigants and regulators would use existing antitrust laws and consumer protection laws to increase scrutiny of practices that restrict consumers’ right to repair.

The recently filed Eagle Lake Farms lawsuit is one such example. In that case, the complaint alleges that farmers traditionally had the ability to repair and maintain their own tractors, or at least had the option to bring their tractors to an independent mechanic for repairs. However, the complaint alleges that John Deere deliberately monopolizes the repair and maintenance market by making crucial software and repair tools inaccessible to farmers and independent repair shops. The complaint further alleges that John Deere also prevents its network of highly consolidated dealerships (Dealerships) from providing farmers and repair shops with access to the same software and tools used by the Dealerships, which provides John Deere and the Dealerships with “supracompetitive profits from the sale of repair and maintenance services.” The complaint brings eight counts under the Sherman Act for antitrust violations, as well as counts for promissory estoppel and unjust enrichment. The complaint’s proposed nationwide class includes “[a]ll persons and entities residing in the United States who, during the Class Period of January 10, 2018 to the present, purchased Deere Repair Services for Deere Tractors from Defendant or Deere’s authorized Dealers and/or technicians.”

While we continue to expect that states and the federal government will enact right-to-repair laws this year, we anticipate an increase in investigations, enforcement proceedings, and lawsuits from private litigants and regulators using existing antitrust laws in the absence of right-to-repair legislation. The Eagle Lake Farms lawsuit provides but one example of such a strategy. As courts interpret the scope of antitrust enforcement in the context of the right-to-repair movement, we anticipate that regulators will proceed with their own enforcement actions to shape the right-to-repair jurisprudence.

At Troutman Pepper, we understand the complexities of the intersection of law and technology in a changing legal and regulatory landscape. Our team is dedicated to breaking down complex legal issues and providing guidance that manufacturers and businesses can understand.

Last month President Joe Biden made headlines when he reiterated his support for “right-to-repair” rules, which he first announced in a July 2021 executive order (discussed in our previous article here). The executive order asked the Federal Trade Commission (FTC or Commission) to draft “right-to-repair” rules to increase consumers’ ability to repair equipment on their own or at aftermarket repair shops. The order also requested that the U.S. Department of Agriculture consider new rules intended to increase industry competition by examining intellectual property rights and potentially giving farmers the right to repair farming equipment.

The “right to repair” generally refers to proposed legislation or regulations that ensure consumers, or aftermarket businesses, have the ability to repair, maintain, and/or modify the devices and equipment consumers purchase even where the manufacturer has attempted to require the consumers to use only “original equipment manufacturer” (OEM) replacement parts and services. As President Biden explained in remarks on January 24, 2021, “[d]enying the right to repair raises prices for consumers, means independent repair shops can’t compete for business.”[1]

In his comments, the president addressed what he considered as positive developments in right-to-repair space. As he noted, since his July 2021 executive order issued, the FTC has unanimously announced that it will ramp up enforcement against illegal repair restrictions.[2] In doing so, the Commission stated that “it would target repair restrictions that violate antitrust laws enforced by the FTC and the FTC Act’s prohibitions on unfair and deceptive acts or practices.”[3] The Commission also urged the public to submit complaints of Magnuson-Moss Warranty Act violations, which prohibits, among other things, tying a consumer’s product warranty to the use of a specific service provider or product, unless the FTC has issued a waiver.[4]

President Biden also alluded to self-implemented reform actions of Apple and Microsoft. In November 2021, Apple announced “Self Service Repair, which will allow customers who are comfortable with completing their own repairs access to Apple genius parts and tools.”[5] Apple’s announcement came just one month after Grist reported that Microsoft had “agreed to take concrete steps to facilitate the independent repair of its devices following pressure from its shareholders.”[6]

Less than two weeks after the president issued new comments on the right to repair, Montana Senator Jon Tester introduced his Agriculture Right to Repair Act — a bill aimed at “guarantee[ing] farmers the right to repair their own equipment and end[ing] current restrictions on the repair market.”[7]

Two days later, Illinois Congressman Bobby L. Rush introduced the Right to Equitable and Professional Auto Industry Repair Act, which seeks to “preserve consumer access to high quality, affordable vehicle repair by ensuring that vehicle owners and independent repair shops have equal access to repair and maintenance tools and data as car companies and licensed dealerships.”[8] Manufacturers in all industries should prepare for similar potential legislative developments and continued FTC scrutiny, as the president doubles down on his support for the “right-to-repair” movement.

[1] Remarks by President Biden Before Meeting with White House Competition Council (Jan. 24, 2022), https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/01/24/remarks-by-president-biden-before-meeting-with-the-white-house-competition-council/.

[2] Press Release, Fed. Trade Comm’n, “FTC to Ramp Up Enforcement Against Illegal Repair Restrictions” (July 21, 2021), https://www.ftc.gov/news-events/press-releases/2021/07/ftc-ramp-law-enforcement-against-illegal-repair-restrictions.

[3] Id.

[4] Id.

[5] See Press Release, Apple, “Apple announces Self Service Repair” (Nov. 17, 2021), https://www.apple.com/newsroom/2021/11/apple-announces-self-service-repair/.

[6] Maddie Stone, “Bowing to investors, Microsoft will make its devices easier to fix,” Grist (Oct. 7, 2021).

[7] Press Release, U.S. Senator for Montana, “‘Right to Repair’ Farm Equipment and Empowering Family Farmers is Aim of Testers’ New Groundbreaking Legislation” (Feb. 1, 2022), https://www.tester.senate.gov/?p=press_release&id=8866#:~:text=As%20a%20part%20of%20his,restrictions%20on%20the%20repair%20market.

[8] Press Release, U.S. Congressman Bobby L. Rush, “Rush Introduces REPAIR Act to Ensure Equal Access to Auto Repair Data for Independent Repair Shops and Preserve Consumer Choice” (Feb. 3, 2022), https://aasp-pa.org/federal-repair-act-introduced/.

Stephen Piepgrass and Abbey Thornhill of Troutman Pepper Hamilton Sanders LLP examine the growing movement to give consumers the “right to repair” vehicles themselves alongside the automotive industry’s emerging market for subscription-based features.

In January, President Joe Biden doubled down on his support for the “right to repair” movement, a push to increase consumers’ ability to repair equipment on their own or at aftermarket repair shops. The movement has garnered widespread and even bipartisan support.

Read full article.

PDF of full article.

Last month, the Federal Trade Commission (FTC or Commission) published its Statement of Regulatory Priorities (Statement), announcing its regulatory agenda for 2022. The Statement suggests that the agency will focus largely on rulemaking. New rules will seek to advance President Biden’s agenda of promoting competition in the American economy.

Rulemaking Focus

The FTC “is an independent agency charged with rooting out unfair methods of competition and unfair or deceptive acts or practices.”[1] In 2022, the FTC will continue seeking to effectuate that purpose with a focus on rulemaking. This rulemaking focus for 2022 is seemingly motivated by notable developments in 2021, including the U.S. Supreme Court’s April 2021 decision in AMG Capital Management LLC v. FTC[2] and internal changes to the FTC’s rulemaking procedures.

As discussed in our blog post here, in April 2021, the Supreme Court held in AMG that the FTC does not have authority under the Federal Trade Commission Act (FTC Act) Section 13(b) to seek equitable monetary relief, such as restitution or disgorgement.[3] In doing so, the Court resolved a circuit split, siding with the Third and Seventh Circuit Courts of Appeals. As Justice Breyer explained, writing for a unanimous court, Section 13(b) of the FTC Act “authorizes the Commission to obtain, ‘in proper cases,’ a ‘permanent injunction’ in federal court against ‘any person, partnership, or corporation’ that it believes ‘is violating or is about to violate, any provision of law’ that the Commission enforces.”[4] The question for the Court was whether that statutory language authorized the FTC to seek, and a court to award, equitable monetary relief, such as restitution or disgorgement.[5] The Court’s answer was no: The Commission cannot seek equitable monetary relief through Section 13(b). However, AMG did not limit the FTC’s ability to seek consumer redress, such as restitution or disgorgement through enforcement of its own rules. By focusing on rulemaking in 2022, the FTC can limit the impact of the AMG ruling and resume pursuit of financial penalties in federal district court.

Notably, it is also now easier for the FTC to make new rules. In 2021, the Commission streamlined its Rules of Practice by eliminating certain “bureaucratic steps and unnecessary formalities” self-imposed on the FTC in 1980.[6] Essentially, the FTC realigned its rulemaking procedures with the statutory text of Section 18 of the FTC Act by revoking certain requirements that limited the agency’s authority to set the rulemaking agenda and designate disputed issues of material fact earlier in the rulemaking process, as well as requirements related to staff reports for final rules. The changes will “make new consumer-protection rulemakings more feasible and efficient while still preserving robust public participation.”[7]

New Rules

The FTC’s Statement of Priorities details sets of new rules that will fall into three major categories. First, the Commission will “explore whether rules defining certain ‘unfair methods of competition,’ prohibited by Section 5 of the FCT Act would promote competition and provide greater clarity to the market.”[8] Second, the FTC will consider whether rulemaking in the area of surveillance-based business models “would be effective in curbing lax security practices, limiting intrusive surveillance, and ensuring that algorithmic decision-making does not result in unlawful discrimination.”[9] Such rules would address both consumer protection, as well as competition issues. Third, the FTC also will seek “to define with specificity unfair or deceptive acts or practices.”[10]

These new rules will further President Joe Biden’s announced goal of promoting competition in the American economy. On July 9, 2021, the president affirmed in Executive Order No. 14036 that it is his administration’s policy to “enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony.”[11] In that executive order, the president explicitly encouraged the FTC to consider competition rulemaking relating to noncompete clauses, surveillance, the right to repair, pay-for-delay pharmaceutical agreements, unfair competition in online marketplaces, occupational licensing, real-estate listing and brokerage, and industry-specific practices that substantially inhibit competition.[12] The FTC agenda for 2022 confirms that the Commission is on board with the president’s agenda.

 

 

[1] Federal Trade Commission, Statement of Regulatory Priorities at 1 (Dec. 10, 2021), https://www.reginfo.gov/public/jsp/eAgenda/StaticContent/202110/Statement_3084_FTC.pdf.

[2]141 S. Ct. 1341 (2021).

[3] Keith J. Barnett, Timothy Butler, Barbara Sicalides, Carlin McCroy, Troy Jenkins & Matthew White, Unanimous Court Cuts FTC’s Power to Seek Monetary Redress, Consumer Financial Services Law Monitor (Apr. 23, 2021), https://www.consumerfinancialserviceslawmonitor.com/2021/04/unanimous-court-cuts-ftcs-power-to-seek-monetary-redress/.

[4] AMG, 141 S. Ct. at 1344 (citing 15 U.S.C. § 53(b)).

[5] Id.

[6] FTC, Statement at 1.

[7] Id.

[8] Id. at 2.

[9] Id.

[10] Id. at 1.

[11] Exec. Order No. 14036, 86 C.F.R. 36987 (2021).

[12] Id.

FTC’s ‘Nixing the Fix’ Offers Insight Into Ramifications of Presidential Directive

Introduction

Regulators are increasingly interested in transactions related to consumer technology. For example, hybrid transactions involving the purchase and sale of Internet of Things (IoT) devices is one area ripe for regulatory oversight and enforcement as detailed in our prior article, “Regulators Likely to Focus on Hybrid Transactions and IoT Devices.”

In the regulatory world, the “right to repair” is also quickly gaining momentum. On July 9, President Biden issued an executive order compelling, among many other things, the Federal Trade Commission (FTC or Commission) to draft “right to repair” rules to increase consumers’ ability to repair equipment on their own or at after-market repair shops. The Biden administration also asked the U.S. Department of Agriculture to consider new rules aimed at increasing competition in the industry by examining intellectual property rights, potentially giving farmers the “right to repair” farming equipment. These new rules could reshape the landscape for manufacturers that must be prepared to make significant changes to comply with the evolving regulatory requirements.

The “right to repair” generally refers to proposed legislation or regulation that ensures consumers (or after-market businesses) have the ability to repair, maintain, and/or modify the devices and equipment they purchase even where the manufacturer of those devices and equipment attempts to require the consumer to use only “original equipment manufacturer” (OEM) replacement parts and services. In this article, we examine what the proposed regulatory focus on the “right to repair” means for manufacturers, and how manufacturers can begin positioning themselves in this evolving legal environment to satisfy regulators, while maintaining control over their intellectual property, preserving their brand, and protecting consumers from dangers associated with after-market repairs of complex technology.

The FTC recently provided Congress a critique of technology manufacturers on repair restrictions titled, Nixing the Fix, which offers a roadmap of specific actions the FTC will likely take in response to President Biden’s directive. The report seeks to curb repair restriction, which occur when a manufacturer directly or indirectly limits repairs by the consumer or a third-party repair shop. The problem, as described by the FTC, is primarily focused on the automotive and cell phone markets, but has deep roots in everything from farming equipment to video game consoles. One could argue that manufacturers hinder independent repairs by, for example, physical constraining (e.g., gluing batteries in place or requiring proprietary screwdrivers to open a device), limiting availability of parts and part information, designing products to make independent repairs unsafe, and pursuing aggressive patent and trademark claims, software or firmware locks, and end-user license agreements. Another FTC concern is the practice by some manufacturers of seeking to void warranties for third-party repairs even though the 1975-passed Magnuson-Moss Warranty Act (MMWA) may prohibit such conduct. Although the relevant legal issues are far from settled, the Commission warns that manufacturers that limit consumers’ repair rights could run afoul of existing anticompetitive regulations. This report signals a crackdown on manufacturers under existing federal law.

In Nixing the Fix: An FTC Report to Congress on Repair Restrictions, the FTC analyzes the relevant legal provisions and the arguments for and against repair restrictions, concluding with recommendations to improve consumer repair choices. Manufacturers must be prepared for additional regulatory oversight as the FTC clearly signaled that manufacturers that restrict a consumer’s ability to repair sophisticated technology may come under scrutiny.

FTC Report Overview

The FTC’s congressional report represents the consolidation of issues explored at Nixing the Fix: A Workshop on Repair Restrictions, empirical data, and public comment. The FTC analyzed existing laws and their applicability, specific regulatory issues, and the arguments for and against repair restrictions presented by manufacturers and consumers.

1. Existing Laws That Will Be Enforced

Section 102(c) of the Magnuson Moss Warranty Act. The FTC warns that many repair restrictions may violate the MMWA’s Section 102(c), also known as the anti-tying provision. The anti-tying provision prohibits manufacturers from conditioning a product warranty on the “consumer’s using any article or service identified by brand name unless the article or service is provided for free or if the warrantor provides a waiver from the Commission.” For example, a mobile phone manufacturer cannot void a warranty if a consumer has his phone’s battery replaced at an independent repair store, nor can an automobile manufacturer void a warranty if the consumer has her car serviced by someone other than an authorized dealership. Though the FTC actively enforces Section 102(c) violations, warranty tying continues to be a pervasive practice. An October 2018 study conducted by the Education Fund of Public Interest Research Groups (PIRGS) found that 45 of the 50 companies surveyed had warranty provisions that potentially run afoul of Section 102(c). The FTC also acknowledged receipt of numerous public comments and complaints regarding specific companies voiding warranties upon finding that a consumer had used non-OEM parts or non-OEM services.

The Sherman Act. Manufacturers that constrain repair options may be subject to claims under Section 1 of the Sherman Act, which prohibits agreements that constrain competition, and/or Section 2, which makes it illegal for any person to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations … .”

The FTC Act. Section 5 of the FTC Act prohibits “unfair methods of competition.” While some overlap between the FTC Act and the Sherman Act exists, the FTC Act encompasses conduct that does not meet the technical requirements of the latter and focuses on protecting the consumer from unfair deceptive acts and practices.

State Laws. Currently, only three states have passed consumer repair choice legislation. Rhode Island requires manufacturers to “have adequate service information and replacement parts available to warranty stations and independent service facilities” for at least four years after the last sale of the product. Indiana has a similar but less expansive law, applying only to express manufacturer warranties of audio or visual equipment costing more than $50 for a period of seven years. Similarly, California’s Beverly-Song Act requires manufacturers that make an express warranty on electronics or appliances to provide service information and repair parts for a period of three years or seven years, depending on the price of the product.

2. Arguments For and Against Repair Restrictions

Manufacturers’ primary argument for repair restriction is the protection of intellectual property. Providing parts, tools, and equipment to third-party repair shops or to consumers would “force them to reveal sensitive technical information about their products, including source code, tools, and trade secrets.” Furthermore, manufacturers cited physical safety, cybersecurity, liability, design choice/consumer demand, and quality of service concerns to justify repair restrictions.

Many of these concerns may be valid — especially as the complexity of consumer technology increases. While repairs and maintenance for the physical elements of an internal combustion engine may be safely made by any auto-mechanic with sufficient knowledge and training, the same does not hold true for sophisticated electronics, especially when those sophisticated electronics are integrated with complex physical systems that work together though proprietary computer programming. For example, John Deere has famously pushed back against the “right to repair” movement for a number of reasons that warrant serious consideration from regulators. Farmers — a traditionally self-reliant industry — argue that they should receive access to the complex software that drives modern farm equipment, like tractors and combines, to make repairs and customize the machines to meet their needs. John Deere, on the other hand, argues that the large machines are simply too complex to be safely manipulated by inexperienced or untrained individuals. According to John Deere, their heavy equipment has been carefully programmed, calibrated, and tested to ensure maximum performance, efficiency, and safety. One mistake by an untrained after-market repair shop or inexperienced consumer could inadvertently send a 20-ton vehicle on a trip down a highway or into a subdivision. Regulators will need to find a balance between the consumers’ desire to repair their own equipment and the safety of consumers and the public.

Proponents of the “right to repair” offer their own competing justifications. For example, OEM repair times may be very long as consumers await OEM service. Returning to the John Deere example, a farmer waiting days for an OEM-approved service technician to repair a broken combine may be at risk of missing a harvest window, potentially devastating the farmer’s livelihood. Consumers also complain that OEM parts are frequently more expensive and harder to find than after-market parts. In Europe, one factor driving the “right to repair” movement has been a desire to reduce the number of electronic devices that end up in landfills every year because they cannot be repaired or maintained. Finally, the FTC noted that the after-market repair industry is robust and “right to repair” regulation will likely have a positive impact on small businesses providing after-market repair and maintenance services.

3. The FTC’s Recommendations

Congress directed the FTC to recommend specific action to address and expand consumers’ repair options. The Commission recommended enforcing existing legislation, pursuing new rulemaking, encouraging industry self-regulation, and promoting consumer education through increased transparency about the repairability of their devices.

Existing and New Rulemaking. The FTC will continue to enforce existing applicable regulations under the MMWA, the Sherman Act, and the FTC Act. The Commission also suggested it could engage in rulemaking to declare “certain types of repair restrictions illegal.” Specifically, the FTC noted that it could amend Section 102(c) of the MMWA (the anti-tying provision) to clarify that repair restrictions are indeed a violation. Parties would be on notice that limiting consumer choice of repairs is illegal. In addition, the FTC suggested it could amend the FTC Act to expressly prohibit repair restrictions.

Industry Self-Regulation. The Commission suggested that the various industries engaging in repair restrictions may want to pursue voluntary self-regulation, citing the automotive industry’s Memorandum of Understanding (MOU) as a model example. The MOU was created to prevent the passage of different requirements in different states. The FTC says, while self-regulation may be difficult since the practice of repair restriction extends across multiple industries, it is not impossible.

Promoting Consumer Education. Finally, the FTC recommends increasing consumer education about the repairability of the products they purchase. Suggestions included a repairability score or scale for products to ensure that consumers understand the restrictions of a product before purchasing.

Industry Takeaways

There are several ways industries with repair restrictions can prepare themselves against increased regulation or state lawmaking, as well as ensure they follow existing rules.

Support Arguments with Evidence. In Nixing the Fix, the FTC pans numerous arguments supporting repair restriction due to lack of corroborating evidence. If manufacturers claim repair restrictions improve user safety or reduce company liability, then they should form industry associations and trade groups to commission studies to provide factual support and data to bolster such arguments.

Consider Self-Regulation. Manufacturers in various industries should consider forming industry-specific trade groups and association for purposes of engaging in voluntary self-regulation. These associations should work to ensure standards for what is appropriately repairable by third-party vendors and what is not. Associations should also consider metrics by which the “repairability” of products may be communicated to consumers in a clear way that is fair to those in the industry (think along the lines of the mandatory calorie and nutrition information that appears on all commercially-produced food items). Finally, associations should work with the after-market industry to reach an agreement on the scope of after-market repairs and services, establish safety and security standards, and reach an agreement on the protection and handling of trade secret information that must be shared to allow for the safe maintenance and repair of complex technology.

The risk to industries is that, in the absence of voluntary self-regulation, manufacturers will be forced to accept a one-size-fits-all solution from regulators that will be less sensitive to the needs of each specific industry and more focused on consumer interests at the expense of the interests of the industry. Voluntary self-regulation would allow manufacturers to cooperate with regulators but on terms more favorable to the manufacturer than if regulations and laws were unilaterally imposed by legislation or state or federal regulation.

Stay Within Existing Law. The FTC points out that not all repair restrictions run afoul of the law. Justifications are scrutinized on a case-by-case basis and rejected only if they are mere pretext for anticompetitive conduct. Manufacturers should familiarize themselves with existing laws and ensure that any repair restrictions are fully justifiable, necessary, and that the reasoning is well-documented.

* Jessica Ring is a 2021 summer associate at Troutman Pepper and not licensed to practice law in any jurisdiction.

Creation of CyTech. On May 9, the National Association of Attorneys General (NAAG) announced the creation of the NAAG Center on Cyber and Technology (CyTech), joining a number of other centers focused upon key issues for state attorneys general and the public, including tobacco and public health, ethics and public integrity, and consumer protection.

Purpose: Programming and Resources. The center’s purpose focuses on developing programming and resources to support state attorneys general in “understanding technical aspects of emerging and evolving technologies, conducting cybercrime investigations and prosecutions, and ensuring secure and resilient public and private sector networks and infrastructure.” Specifically, the center will:

  • Serve as an information clearinghouse for state attorneys general on trending issues;
  • Create a practice-based community to share information;
  • Foster strategic partnership with other government agencies, academics, nonprofits, and the private sector;
  • Develop a “tech boot camp” and “introductory/101” trainings on technology topics; and
  • Create funding pathways for attorney general staff to attend key industry conferences and seek appropriate accreditations.

Contacts and Community. The center will also develop and update contact lists for state attorneys general offices that need connections or subject matter assistance, provide tools and support for technology-related investigations, and create attorney general staff working groups on key issues. To support these functions, NAAG has launched a Cyber and Technology Hub for attorney general staff that provides information, updates, and materials related to cybercrime, cybersecurity, and emerging technologies.

Conferences and Panels. The center follows a number of recent NAAG conferences and panels related to cybersecurity, cybercrime, facial recognition technology, the use of algorithms in business decision-making, and other emerging technologies, including a December 2021 conference on “The Surveillance Economy: How Attorneys General Protect Privacy, Safety, and Equality in the Information Age.”

AG’s Increased Focus on Privacy, Security, and Emerging Technologies. As we previously discussed, state attorneys general have scrutinized emerging technologies as the lead enforcers of data privacy, the right-to-repair movement, hybrid transactions, and machine learning. NAAG concludes that technological advances are dangerously outpacing regulators’ ability to understand and appropriately contend with their societal impact, and the center reflects the need for a holistic and sustained approach to address these complex issues through a technically competent attorney general community.

Background on CyTech Director. NAAG Center on Cyber and Technology Director Faisal Sheikh joined NAAG in 2019 as program counsel for the National Attorneys General Training and Research Institute (NAGTRI) — the programming and training arm for NAAG. Prior to joining NAAG, Sheikh worked as the director of network advancement at the American Constitutional Society and as associate director of the National State Attorneys General Program at Columbia Law School. He previously served as an assistant attorney general in the New York attorney general’s office.

Company Takeaways. While CyTech is designed as educational, resource, and community tools for attorneys general, companies should take the following steps given the advent of CyTech:

  1. AG-Focused Topics. Companies can pay attention to the CyTech list of topics to gain insight into what attorneys general and their staff are learning and discussing to better anticipate potential areas of scrutiny.
  2. Enhance Policies, Procedures, and Training in Focus Areas. Companies can leverage the publicly available training and resources designed for attorneys general under CyTech to create new policies, procedures, and training or enhance existing ones on the key topics of interest in CyTech, otherwise being pursued by state attorneys generals, including:

a. Cyber key vulnerabilities and best practices;

b. Trends in malware, ransomware, and other cyberattacks;

c. AdTech and information sharing;

d. Online behavioral advertising;

e. Machine learning, artificial intelligence, and bias and discrimination in databases and applications; and

f. Data uses and transfers (including under potentially Privacy Shield 2.0).

On March 31, the Consumer Financial Protection Bureau (CFPB or Bureau) announced it is rescinding its April 1, 2020 policy statement regarding the Fair Credit Reporting Act (FCRA) and Regulation V following the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This recission is effective April 1.

Background

On March 27, 2020, President Trump signed the CARES Act into law. Among other provisions, the CARES Act amended the FCRA to require businesses furnishing consumer credit information to consumer reporting agencies (CRAs) to report as “current” any account for which a consumer is performing pursuant to a COVID-19-related deferral, partial payment, or forbearance agreement — including missing one or more payments as agreed. The special reporting period started January 31, 2020 and will end 120 days from the later of the enactment of the CARES Act or the end of the national state of emergency — meaning at present there is no end date.

Recognizing the logistical difficulties presented by these obligations during the pandemic, the CFPB issued a “non-binding general” policy statement on April 1, 2020, stating it would not enforce the FCRA’s statutory investigation timeframe against furnishers or consumer reporting agencies acting in good faith. The April 1, 2020 policy statement emphasized that a CRA’s or furnisher’s investigative dispute period would be extended from 30 to 45 days if a consumer provided additional information relevant to an investigation. Additionally, the CFPB encouraged furnishers and CRAs to alleviate operation stress by not investigating “disputes submitted by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant.”

The CFPB maintained its April 1, 2020 guidance despite initial push back from state attorneys general and calls from consumer advocacy groups later in the year.

Recission of April 1, 2020 Guidance

In the press release announcing recission of the April 1, 2020 guidance, CFPB Acting Director Dave Uejio stated, “Providing regulatory flexibility to companies should not come at the expense of consumers. Because many financial institutions have developed more robust remote capabilities and demonstrated improved operations, it is no longer prudent to maintain these flexibilities. The CFPB’s first priority, today and always, is protecting consumers from harm.”

The recission, available here, states the CFPB’s April 2020 guidance “expressed the Bureau’s recognition of the impact of the COVID-19 pandemic on the operations of many consumer reporting agencies and furnishers.” But the Bureau believes recission is now appropriate as “consumer reporting agencies and furnishers have had sufficient time to adapt to the pandemic and should be able to regularly meet their obligations under the FCRA and Regulation V.”

Addressing concerns that one day’s notice was not a significant heads-up to companies regarding the policy shift, the recission states, “because the [April 1, 2020 guidance] did not create binding legal obligations on the Bureau or create or confer any substantive rights on external parties, it did not create any reasonable reliance interests for industry participants.”

Notably, the recission does not apply to the section of the April 2020 guidance titled, “Furnishing Consumer Information Impacted by COVID-19.” That unaffected section encourages furnishers “to continue furnishing information despite the current crisis,” while also supporting “furnishers’ voluntary efforts to provide payment relief.” The section also states the CFPB “does not intend to cite in examinations or take enforcement actions those who furnish information to consumer reporting agencies that accurately reflects the payment relief measures they are employing.”

Takeaways

Companies providing consumer financial services have been anticipating a more aggressive CFPB under President Biden. On January 18, then President-elect Joe Biden announced he would nominate current Federal Trade Commission (FTC) Commissioner Rohit Chopra as the next director of the CFPB. Last week, the CFPB signaled its enforcement priorities in its Consumer Response 2020 Annual Report to Congress.

Furnishers and CRAs can continue to expect a more robust presence from the CFPB and should immediately re-evaluate their compliance management systems to minimize risk.