Critics of industrial property rights often conceal the fundamental reason for protection under the law, which is : to temporarily prevent the copying of innovative creations and to allow a fair return on investments for inventors or designers, to compensate them for their creative efforts and the risks taken by allowing them to reap the benefits of their innovation and encourage them to continue innovating with the assurance of the protection against the copying of their work by persons having invested no effort whatsoever in their creation, and to ensure a certain level of competitive fairness by not rewarding mere copiers to the detriment of innovators. This justification also applies to the design of vehicle body parts: the design of cars, trucks, motorcycles etc. comes about through the creative effort of designers and it is normal that creators, and the massive investments made by them in the creation of new models with no guarantee of success, should have the opportunity to reap the rewards of those investments and benefit from the profits of the sale of the model and the replacement parts needed for reparations to it.
- The arguments used by proponents of the withdrawal of design right protection for body parts are wrong
The main arguments opposing design right protection of body parts are the following:
- Protection is legitimate for models as a whole as it would not in this case produce anticompetitive effects insofar as each car brand is subject to a high level of competition for finished products, but becomes illegitimate for spare body parts because in this case the manufacturers are shielded as they hold a monopoly for each part and do not have to face competition from others.
- Practice shows that the prices of visible parts are higher in countries with protection and are subject to sharper increases in countries with protection than in those without, creating a terrible loss of wellbeing for consumers and society as a whole, requiring the withdrawal of design right protection for parts, as is the case in many countries, Germany in particular, where there is no longer any more de facto design right protection of body parts.
This argument is in fact a juxtaposition of unsubstantiated assertions, which can be refuted when they are examined in light of the facts and the law.
- A negation of the fundamental premise of intellectual property
According to the first strand of that argument, protection is illegitimate because the originator of the parts would not face competition and would have a monopoly which could be abused. This amounts to a negation of all intellectual property law. By definition, the holder of an intellectual property right is guaranteed a temporary monopoly to exploit the result of his/her invention. Such a monopoly can often relate to an entire product market. An example of this would be patents on medicines – frequently the monopoly conferred on the patent rightholder of the medicine in question covers the whole of the market. We can cite the Dobutrex decision of the French Competition Council (now Competition Authority) in which it was found that by reason of its specific attributes, and the lack of margin for maneuver of purchasers who are required to respect medical prescriptions and price differences with the most similar products, Dobutrex was not substitutable with any other drug. This has been the finding for numerous patented drugs such as Isoflurane, Cefuroxime or Ciclosporine. It is thus not rare that by conferring an exploitation monopoly on a product, a patent also confers an exploitation monopoly on a market in the absence of competing products for the duration of the protection. However, this situation does not under any circumstances constitute a cause for the loss of the benefit of the protection right. The right is not granted on condition of the maintaining of strong direct competition on the protected product. Claiming the opposite to be true amounts to denying the substantive law and would mean depriving many patented products of any protection.
This first strand also contains a second fundamental error; it implicitly postulates that the holder of design rights on a replacement body part would, ipso facto, have an absolute monopoly and would necessarily abuse it however it saw fit. This implies that a dominant position is reprehensible per se and automatically abusive whereas in competition law, only the abuse of a dominant position is sanctioned, not the dominant position itself. An empirical study of the market does not support this analysis but rather contains many elements against it: French car manufacturers whose design rights are under attack have not made abnormal profits – on the contrary customers are very attentive when buying vehicles with regard to spare parts and maintenance prices and will easily turn their backs on a brand if they are overpriced; auto journals specialized in car sales and the presentation of new models also publish rankings in terms of maintenance and repair costs by brand; insurance companies regularly inform their clients of the costs of parts by brand and their data is often taken up by the general and the specialized press; lastly, manufacturers run the risk of vehicle owners having their vehicles repaired outside of authorized networks if prices are too high and face competition from used spare parts. This first strand of the argument of the abolitionists is therefore totally wrong, both legally and factually.
In addition, it does not address the fundamental justification of the protection of body parts including replacement parts:
- Why should a copier having made no investment or created any new product be allowed to unduly reap the rewards of the creative effort, investment, and risk incurred by the innovator of the design? – No answer.
- Why should the originator be deprived of turnover legitimately gained due to for his/her innovation on the primary product market and the secondary market? – No answer.
- No link between price and protection of design rights
The second strand of the argument goes like this: the price of visible spare parts are higher in countries where designs are protected and are subject to bigger increases than in other countries.
Comparisons both in terms of level of prices and evolution of prices between the various EU Members States according to whether they protect vehicle body parts do not corroborate the allegations of higher price levels or bigger increases in protected countries – in fact quite the opposite is true.
Pricing policies of spare parts are not developed according to the existence of industrial property rights in any one country or another. They are based on a European reference frame adapted to the economic situation of each country, with quite wide harmonization of prices of spare parts in Europe. The comparisons between the various markets using an assortment of spare parts show that the protected countries are not the most expensive. This is certainly logical insofar as the distribution centers of spare parts in protected countries can offset their costs through greater volumes. Likewise, there is no correlation or causal link between protection and level of price increases. A statistical table claiming the contrary published in the press and taken from the Opinion issued by the Competition Authority is incorrect as the Authority, in its public consultation document, first compared Eurostat data between various European countries which was non-comparable as it did not relate to the same facts, and secondly it essentially compared do-it-yourself purchases, which are marginal, whereas a true comparison of price increases of spare parts and after-sales services shows that any increase in France is lower than in a number of non-protected countries.
- Design rights exist in all the major industrialized countries
Final strand of the argument: in many countries, especially Germany, design right protection for car body parts no longer exist in practice.
It is inaccurate to claim that the protection of car body parts is a French exception: 16 EU Member States – i.e. 60 % – afford visible spare parts industrial design right protection. Germany has a system of protection which is enforced against copiers and counterfeit resellers. The German federal government has also recently pointed out the existence of this protection and the wish of the German government to keep it. In response to a request for the withdrawal of design right protection in Germany from the ZDK (German Federation for Motor Trades and Repairs), the German Chancellery declared that the German federal government had “no reason to review its position“, that it is continuing to refuse the proposal of a more flexible European directive (including provision for a repairs clause which would remove protection from visible spare parts) and that “Germany, alongside France, the Czech Republic, Sweden and Romania are amongst the countries which would refuse this proposal for a directive”.
They are not alone – all the major countries competing with Europe: USA, Japan, Korea and the BRIC countries (Brazil, Russia, India and China) protect car body parts under design rights.
- The repeal of design right protection for car body parts is counter-productive
Currently there is no reason to repeal design right protection, which is legitimate and useful and no negative effect on prices has been shown to exist either in terms of absolute value or rate, especially given that most European countries and all the large industrialized countries at the global level protect auto body parts under industrial design rights.
Those in favor of the repeal of this protection and the introduction of a right to copy expect that through such a measure a fall in prices and greater purchasing power which can be attributed to the demand for other goods and services will arise. This expectation is without basis: consumers will not gain from the repeal of design right protection but there will be considerable counter-productive effects at a time when, on the contrary, all economists agree that innovation is the only source of wealth in Europe and that new designs should be strongly encouraged.
- It is unrealistic to expect a fall in the cost of collision repairs and ultimately, the reduction of insurance premiums from the withdrawal of design right protection
The only consequence of the removal of design-right protection, which is to the detriment of creators and to the profit of copiers, would – for a limited number of the best-selling references, as they are the only ones of interest to copiers – be to create two sources of supply, the brand’s channel and the copier’s channel.Copying 6 – 7 % of references of parts in effect allows copiers to compete with manufacturers for 80% of parts in terms of turnover. The immediate consequence of this would be to cause a fall in volumes sold by the manufacturers, putting them in the position of having to continue to produce and distribute low volume parts which are the least profitable and to compete with the copiers for the high volume parts without being able to make good their investments with the same volume as before. This would inevitably lead to a rise in the price of the least in-demand parts to compensate at the global market level for the expected fall for the parts in competition with copiers. In addition, cheaper copied body parts would not necessarily be to the ultimate benefit of consumers or lead to a reduction in their insurance premiums. In effect, in order for the primarily Asian copiers to compete with original parts manufacturers and their equipment suppliers, whose factories produce large volumes, can only be in terms of difference in costs or in quality. Very often, competitiveness is obtained through producing parts of a lower quality, and this has repeatedly been noted for adaptable parts. The price difference of the part will then be invalidated in terms of the time required and higher assembly costs due to the lower quality and level of adaptability of those parts. Lastly, we certainly cannot be sure that any residual and marginal cost difference will be passed on from wholesalers to repairers and from repairers to insurance companies (which in France pay most of the cost of collision repairs), nor that it would be passed on by insurance companies to their clients through a reduction of their insurance premiums (note that the overall cost of protected parts is marginal to the cost of car insurance – under 10% – and, given that insurance companies have over the last few years been losing revenue from investments, they are not in a situation where they are able to pass on cost savings). It is also interesting to note that it is in the UK, the country which pioneered the liberalization of designs from IP protection, where the cost of insurance premiums has increased the most. In short, it is illusory to think that purchasing power will be increased due to a hypothetical fall in collision repair costs and insurance premiums.
- On the other hand, the removal of design right protection will clearly generate a loss of activity, jobs, exports and tax revenues in France and Europe
Partisans of the demand-led economy always neglect to take into account the effects of supply. In this instance, not only can nothing be expected in terms of positive effects on the demand side, but a removal of auto body parts design protection would be catastrophic on the supply side. What will in fact be the result if that happens? First of all, because of competition on the best-selling models, the turnover for manufacturers’ body parts and their networks would fall sharply. An estimated loss of annual turnover in France of EUR 230 million for French manufacturers and EUR 400 million including their distribution networks, would ensue. You do not have to be an expert to realize what a major error of industrial policy this would be, causing loss of competitiveness and profitability for French industry at a time when the country is facing unprecedented economic challenges. The consequence of this decrease in activity will be a rise in activity in Asia, China and in Taiwan mainly and will create jobs and activity in Asia. On the other hand, it will generate a reduction of activity, loss of jobs, and lower tax revenues in France and Europe. Taking only the example of the two French manufacturers who would lose EUR 230 million of turnover a year, it should be borne in mind that 71 % of visible spare parts stocked and distributed on the French market are produced in France and 96 % in Europe. The withdrawal of design protection would reduce production and activity in France and Europe. Job losses have been quantified at 2200 for the whole of the industrial sector in France including 500 direct employees of the French manufacturers. This drop in activity will not be offset by an appreciable rise of the turnover of French or European equipment suppliers. Indeed, sheet-metal parts are currently produced almost exclusively by the manufacturers themselves and not by original equipment manufacturers. Manufacturers have a competitive advantage and benefit from an advance which it would be virtually impossible for French and European OEMs – who do not manufacture them yet – to catch up with. Manufacturers in effect dispose of production lines producing far greater quantities than those of the equipment manufacturers who would like to produce sheet-metal parts. Only Asian producers with very low costs producing lower quality parts would be able to compete with the manufacturers as regards sheet-metal parts. Therefore nothing can be expected on that score from the French and European OEMs.
Apart from sheet-metal parts, the suppression of design protection will not generate any increase in sales of other parts such as windscreens, lights, rear view mirrors or bumpers, which are already produced by equipment manufacturers. Although they would be authorized to sell their parts directly to independent resellers instead of supplying them to manufacturers. Because of the constant fall in demand principally due to the decrease in the number of accidents, there will be no increase in volume but rather it is likely that volumes will decrease due to competition from Asian suppliers.
It is clear that the withdrawal of industrial design right protection for car body parts is completely unjustified and would be counter-productive. The Competition Authority’s Opinion issued on 8 October 2012 recommending the progressive removal of protection was the object of much criticism, not only from manufacturers and the networks, but also from many academic lawyers and economists having commented on the opinion. The Automobile Club Association has recently declared its opposition to the removal of design right protection from body parts.
In light of the absence of any justification for the removal of design protection and the clearly distorted effects to which it would give rise, the French government’s recent clear responses against the withdrawal of protection in four successive ministerial replies (Ministerial Replies to questions No 6923, 20990, 479 and 14795, published in National Assembly Official Journal of 9 April 2013, page 3946 and National Assembly Official Journal of 14 May 2013, page 5110) are to be welcomed. The government rightly considers that the benefits of the suppression of design right protection are “difficult to quantify” and that they “must be weighed up against the consequences it will have on employment and industry”. The government, which pointed out the commitments made by French manufacturers in terms of jobs, investments and prices, favors cooperation between manufacturers and equipment manufacturers and recycling.
This position is reasonable and is certainly preferable to the removal of design right protection for body parts at a time when a government commission has been given the task of studying suitable ways of promoting the development of design in France.