5 Steps Cos. Can Take Amid Surge In 'Right To Repair' Actions

Article

16 February 2023

15 min read

Product warranties and product design features that restrict how consumers repair and service products have reemerged as a key enforcement priority for the Federal Trade Commission. And class action plaintiffs have similarly refocused on allegedly unlawful repair restrictions following the FTC's reinvigorated interest in this area.

This growing focus on repair markets is likely to continue, with signs that the FTC and private plaintiffs will aggressively challenge repair restrictions under consumer protection and antitrust laws. This article discusses the key so-called right to repair issues that companies need to know and five compliance steps to reduce legal risk in 2023.

Recent FTC Enforcement and Policy Changes

In 2022, the FTC filed three separate administrative actions against grill manufacturer Weber-Stephen Products LLC, motorcycle manufacturer Harley-Davidson Inc. and the outdoor power equipment manufacturer Westinghouse Electric Corp., "alleging they violated the Magnuson-Moss Warranty Act and the Federal Trade Commission Act by including warranty provisions that unlawfully conveyed that their warranties would be voided if a customer used third-party parts or, in the case of Harley-Davidson and Westinghouse, independent repairers."[1]

Section 2302(c) of the Magnuson-Moss Warranty Act — the statute's anti-tying provision — generally prohibits voiding a customer's warranty or denying warranty coverage "if the customer uses a part made by someone else or has someone other than the dealer repair the product."[2]

Section 5(a) of the FTC Act prohibits "unfair methods of competition in or affecting commerce" as well as "unfair or deceptive acts or practices in or affecting commerce." The FTC's administrative complaints focused on the "unfair or deceptive acts or practices" prohibition.[3]

As detailed below, each of the respondent companies entered into a consent order with the FTC, requiring them to revise their warranties, notify customers of their repair rights and take various compliance steps.

After the consent orders were publicly announced, Lesley Fair, a senior attorney with the FTC's Bureau of Consumer Protection, emphasized that "the FTC means business when it comes to vindicating consumers' right to repair" and that "practices that illegally restrict consumers' right to repair is a key FTC enforcement priority," signaling a new era of enforcement.[4]

Although there was some warning that the FTC was focused on repair restrictions, these enforcement actions caught many companies by surprise. After all, the FTC had not filed a complaint related to an alleged Warranty Act violation since October 2015.[5]

The FTC had sent warning letters to six companies in 2018, but no enforcement action was ever filed.[6] These warning letters requested that the recipient companies review their promotional and warranty materials and warned that the FTC would review for any Warranty Act violations after 30 days.[7] The FTC's reinvigorated focus on repair restrictions largely stems from an FTC workshop on repair restrictions in July 2019 and a 54-page report to Congress in May 2021, detailing the FTC's concerns about repair restrictions.[8]

In the May 2021 report, the FTC determined that it "will devote more enforcement resources" to combat unlawful repair restrictions, aiming to "lower costs, reduce e-waste by extending the useful lifespan of products, enable more timely repairs, and provide economic opportunities for entrepreneurs and local businesses."[9]

About a month later, on July 9, 2021, President Joe Biden issued an executive order on promoting competition in the American economy, emphasizing "that it is the policy of my Administration to enforce the antitrust laws," including in repair markets.[10]

The executive order "encouraged" the chair of the FTC to scrutinize "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."[11]

It also instructed the secretary of defense to "submit a report to the Chair of the White House Competition Council, on a plan for avoiding contract terms in procurement agreements that make it challenging or impossible for the Department of Defense or service members to repair their own equipment, particularly in the field."[12]

On July 21, 2021, the FTC voted 5-0 to approve a two-page policy statement, stating that it would "prioritize investigations into unlawful repair restrictions."[13] The FTC's July 2021 policy statement outlines four enforcement goals, involving the Bureau of Consumer Protection and the Bureau of Competition.

First, the FTC committed to seeking injunctive relief under the Warranty Act. The FTC also said it would use the FTC Act to "investigate a pattern of unfair or deceptive acts or practices," file amicus briefs in private plaintiff litigation, and explore rulemaking.
Second, the FTC said it "will scrutinize repair restrictions for violations of the antitrust laws," including repair restrictions that "may constitute tying arrangements or monopolistic practices — such as refusals to deal, exclusive dealing, or exclusionary design." The FTC noted that, "[v]iolations of the Sherman Act also violate the prohibition on unfair methods of competition codified in Section 5 of the Federal Trade Commission Act."
Third, the FTC emphasized that it would assess repair restrictions under both the "unfair methods of competition" and "unfair acts or practices" provisions of Section 5 of the FTC Act.
Fourth, the FTC explained that it would work closely with state agencies and policymakers to combat allegedly unlawful repair restrictions.[14]

Additionally, in November 2022, the FTC issued its policy statement regarding the scope of unfair methods of competition under Section 5 of the FTC Act, announcing that it intended to use Section 5 to challenge "unfair methods of competition in or affecting commerce," vaguely outlining "advisory guidance on the scope and meaning" of Section 5.[15]

While that policy statement did not refer to repair restrictions, the statement is broad and very well may be used by the FTC to engage in more robust right to repair enforcement.

Compliance Steps to Manage Risk

Given these developments, there are several compliance steps that companies should take now to help reduce legal risk in 2023.

1. Conduct a compliance check of your warranty terms and policies.

Subject to the limited exceptions discussed below, the FTC has made clear its view that written and oral statements to consumers saying "that their warranties will be void if they use third-party services or parts, or that they should only use branded parts or authorized service providers" are unlawful under the Warranty and FTC Acts.[16]

In the recent Harley-Davidson and Westinghouse consent orders, the FTC required respondents to add specific language to their warranties to remedy the alleged violations, such as:

"Taking your product to be serviced by a repair shop that is not affiliated with or an authorized dealer of [Company] will not void this warranty"; and
"Using third-party parts will not void this warranty."[17]

The consent orders also required:

Each of the respondents to "send and post notices informing customers that their warranties will remain in effect even if they buy aftermarket parts and/or patronize independent repairers";
Each of the respondents to submit compliance reports to the FTC, as well as create and retain records of all coverage claims and any related consumer complaints; and
Two of the respondents' authorized dealers "to remove deceptive display materials, train and monitor employees, and not promote branded parts and dealers over third parties."[18]

The consent orders further prohibit each respondent from engaging in additional Warranty Act violations and from "telling consumers that their warranties will be void if they use third-party services or parts, or that they should only use branded parts or authorized service providers."[19] Violations of the consent orders could result in civil penalties.[20]

It is a good time for businesses to conduct an internal compliance check and to modify their warranties where needed. Not only does proactive compliance help avoid a burdensome FTC investigation and any consent order requirements, but also a publicly announced FTC action is likely to draw scrutiny from class action plaintiffs.

For example, in August 2022, within days of the FTC's publicly announced action against Harley-Davidson, class action plaintiffs filed their own suit, Assise v. Harley-Davidson Inc., in the U.S. District Court for the Eastern District of Wisconsin, alleging violations of the Warranty Act, Sherman Antitrust Act and various state laws.

The class action complaint asserts that the FTC "lacks the authority to recover consumers' damages" and alleges that because Harley-Davidson illegally tied its motorcycles and the factory warranties for parts, "Harley-Davidson's parts have been overpriced, forcing the company's loyal following to pay this cost."[21]

And throughout 2022, class action plaintiffs also filed suits against furniture, vacuum, electronic and farm equipment manufacturers, as well as technology companies and wholesalers for alleged violations of the Warranty Act and antitrust laws. Thus, there is ample reason to be proactive with compliance to minimize the risk of government enforcement and class action litigation.

2. Carefully navigate exceptions to the Warranty Act.

The Warranty Act contains two key exceptions: (1) if the company receives a waiver from the FTC, which requires a showing "that the warranted product will function properly only if the article or service so identified is used in connection with the warranted product" and "such a waiver is in the public interest"; or (2) if the part or service "is provided without charge to the consumer."[22]

Although the recent FTC actions do not appear to implicate these exceptions, a July 2022 business guidance post by the FTC states that "a manufacturer can't avoid liability by providing free parts or services to repair or replace defective parts if its warranty conveys that customers must use a specific brand of parts or specific service providers in other situations."[23] As a result, warranties that may implicate this exception need careful review. The same is true when seeking a waiver from the FTC. As noted, to get a waiver "you must prove to the FTC's satisfaction that your product won't work properly without a specified item or service" and that "such a waiver is in the public interest," according to the FTC's Guide to Federal Warranty Law, updated in 2018.[24] The FTC must also "identify in the Federal Register, and permit public comment on, all
applications for waiver of the prohibition of this subsection, and shall publish in the Federal Register its disposition of any such application, including the reasons therefor," as required by Section 2302(c)(2) of the Warranty Act.[25]

As a result, the process to seek a waiver is made public and can be complex with an uncertain outcome, requiring careful strategy.

3. Keep your warranties simple.

Part 701 of the Warranty Act — the disclosure of written consumer product warranty terms and conditions — requires that written warranties must be "disclose[d] in a single document" and the terms must be in "readily understood language" that includes a "clear description and identification of products, or parts, or characteristics, or components or properties covered by and where necessary for clarification, excluded from the warranty."[26]

In the Harley-Davidson matter, the FTC found that a warranty instructing consumers to consult a dealer for details about the warranty violated the rule's single document requirement.[27]

Such statements — often innocent and intended to assist the consumer — may create a compliance issue with the single document rule and lead to inconsistencies in how details of the warranties are conveyed to consumers by dealers or employees.

4. Ensure that restrictions on repairs do not violate antitrust laws.

Separate from the Warranty Act, the FTC's 2021 report to Congress also emphasizes that other types of repair restrictions may violate antitrust laws, such as "refusals to deal, exclusive dealing, exclusionary design, and aggressive assertion of patent rights."[28]

However, there may be pro-competitive reasons for warranty restrictions, such as privacy, data security, efficient design, manufacture, distribution and safety justifications. For example, the FTC's 2021 report to Congress summarizes several key concerns from tech companies and trade associations, including:

"[I]ndividuals and independent repair shops that conduct repairs could compromise the embedded hardware security technology that manufacturers use to protect user data and ensure that device integrity is maintained during boot up";
"'With more than 20 billion connected products by 2020, including appliances, thermostats, fire alarms, automobiles, etc.,' the insecure repair of a device can place numerous other connected devices and the data they hold at risk because '[w]ith access to technical information, criminals could more easily circumvent security protections, harming not only the product owner but also everyone who shares their network'"; or
"[I]f manufacturers are required to provide all the software and the ability to repair" to independent repairers, the ability to maintain security and encourage accountability is difficult to ensure.[29]

Making these types of assessments is often fact-specific, and the FTC has yet to bring any repair-related enforcement actions based solely on antitrust law.

But, as discussed above, class action plaintiffs have not hesitated to file suit seeking overcharges under product-tying, refusal-to-deal and similar theories. So the risk remains very real.

5. Monitor for changes in the law, including from states.

Legislative proposals are on the rise too.

The Fair Repair Act was introduced in the U.S. Senate in March 2022[30] and parallels a U.S. House of Representatives bill introduced in June 2021.[31] While neither proposed law made it past committee review, the legislation would have required manufacturers of digital-electronic equipment to make diagnostic, maintenance and repair equipment available to owners and independent repair providers.[32]

Many states also appear poised to expand right to repair laws. So far this year, 20 states have introduced legislation aimed at right to repair issues.[33]

For example, New York recently enacted the Digital Fair Repair Act, which, similar to the federal bill, will require manufacturers to provide diagnostic and repair information for digital electronic parts and equipment to consumers and independent repair providers if that information is also available to the manufacturer's authorized repair providers.[34]

Colorado also enacted the Right to Repair Powered Wheelchairs Act in 2022, which requires powered wheelchair manufacturers to provide parts for diagnostic and repair services to independent repair providers and owners.[35]

In addition, Nebraska introduced the Agricultural Right-to-Repair Act, requiring manufacturers of agricultural equipment sold in the state to make documentation, parts and tools, including updates to embedded software, available to independent repair providers and equipment owners for diagnosis, maintenance or repair, though the bill was indefinitely postponed.[36]

Finally, in a closely watched federal lawsuit, Alliance for Automotive Innovation v. Healey, filed in the U.S. District Court for the District of Massachusetts in November 2020, automakers are challenging Massachusetts' right to repair law on constitutional grounds.

Massachusetts' right to repair law, which originally passed in 2012 and was broadened through a ballot initiative in 2020, requires automakers who sell vehicles in Massachusetts to provide consumers and independent repair shops with wireless access to their cars' "telematics" — the digital data governing how a vehicle works.[37]

The group of automakers challenging the law assert that federal consumer safety and intellectual property laws preempt the Massachusetts law and that it constitutes a taking in violation of due process.[38]

Conclusion

The reemergence of recent FTC, class action and legislative scrutiny in this area should send a clear warning to companies. And proactively assessing risks and making adjustments to warranty practices can significantly help curtail the likelihood of costly and burdensome government investigations and class actions.

_{[1] Lesley Fair, FTC Announces Three Right-to-Repair Cases: Do Your Warranties Comply with the Law?, Fed. Trade Comm'n: Business Blog (July 7, 2022) ("Right-to-Repair Cases"), https://www.ftc.gov/business-guidance/blog/2022/07/ftc-announces-three-right-repair-cases-do-your-warranties-comply-law; FTC Approves Final Orders in Right-to-Repair Cases Against Harley-Davidson, MWE Investments, and Weber, Fed. Trade Comm'n: Press Releases (Oct. 27, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/10/ftc-approves-final-orders-right-repair-cases-against-harley-davidson-mwe-investments-weber.

[2] Right-to-Repair Cases, supra note 1.

[3] Id.

[4] Id.

[5] Fed. Trade Comm'n, Policy Statement of the Federal Trade Commission on Repair Restrictions Imposed by Manufacturers and Sellers at 2 n.4 (July 21, 2021) ("Policy Statement on Repair Restrictions"), https://www.ftc.gov/system/files/documents/public_statements/1592330/p194400repairrestrictionspolicystatement.pdf.

[6] FTC Staff Warns Companies that It Is Illegal to Condition Warranty Coverage on the Use of Specified Parts of Services, Fed. Trade Comm'n: Press Releases (April 10, 2018), https://www.ftc.gov/news-events/news/press-releases/2018/04/ftc-staff-warns-companies-it-illegal-condition-warranty-coverage-use-specified-parts-or-services.

[7] Id.

[8] Fed. Trade Comm'n, Nixing the Fix: An FTC Report to Congress on Repair Restrictions (May 2021) ("FTC Report"), https://www.ftc.gov/system/files/documents/reports/nixing-fix-ftc-report-congress-repair-restrictions/nixing_the_fix_report_final_5521_630pm-508_002.pdf.

[9] Policy Statement on Repair Restrictions at 1, supra note 5.

[10] Executive Order on Promoting Competition in the American Economy, The White House (July 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.

[11] Id.

[12] Id.

[13] Policy Statement on Repair Restrictions at 2, supra note 5.

[14] Id.

[15] FED. TRADE COMM'N, POLICY STATEMENT REGARDING THE SCOPE OF UNFAIR METHODS OF COMPETITION UNDER SECTION 5 OF THE FEDERAL TRADE COMMISSION ACT (Nov. 10, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf.

[16] FTC Approves Final Orders in Right-to-Repair Cases Against Harley-Davidson, MWE Investments, and Weber, Fed. Trade Comm'n: Press Releases (Oct. 27, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/10/ftc-approves-final-orders-right-repair-cases-against-harley-davidson-mwe-investments-weber.

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Complaint ¶ 5, Assise v. Harley-Davidson Inc., No. 1:22-cv-913 (E.D. Wis. Aug. 9, 2022), ECF 1.

[22] 15 U.S.C § 2302(c)(2); 16 C.F.R. § 700.10(a).

[23] Right-to-Repair Cases, supra note 1.

[24] Businessperson's Guide to Federal Warranty Law, Fed. Trade Comm'n: Business Guidance Resources (Mar. 2018), https://www.ftc.gov/business-guidance/resources/businesspersons-guide-federal-warranty-law; 15 U.S.C §2302(c).

[25] 15 U.S.C § 2302(c)(2).

[26] 16 C.F.R. § 701.3(a).

[27] Right-to-Repair Cases, supra note 1.

[28] FTC Report at 15, supra note 8.

[29] Id. at 30-31.

[30] S. 3830, 117th Cong. (2022).

[31] H.R. 4006, 117th Cong. (2021).

[32] S. 3830, 117th Cong. § 2(a) (2022).

[33] Nathan Proctor, 20 states file Right to Repair bills as momentum grows, Pub. Int. Rsch. Grp.: Right to Repair (Feb. 7, 2023), https://pirg.org/articles/20-states-file-right-to-repair-bills-as-momentum-grows/.

[34] S. 4104A, 2022 Leg., Reg. Sess. (N.Y. 2022).

[35] Colo. Rev. Stat. § 6-1-1503.

[36] L.B. 543, 117th Leg., 1st Sess. (Neb. 2021).

[37] 2020 Mass. Legis. Serv. 93 K § 2.

[38] Complaint at 8, Alliance for Automotive Innovation v. Healey, No. 1:20-cv-12090 (D. Mass. Nov. 20, 2020).}