A year after it was highlighted as an enforcement priority in the Biden Executive Order on Competition, the US has taken some further steps this summer focused on repair restrictions that potentially impact manufacturers across sectors.

On the enforcement side, the Federal Trade Commission kicked off the summer by announcing consent orders settling charges against two manufacturers under the anti-tying provisions of the Magnuson-Moss Warranty Act. The cases represent the first significant enforcement efforts since the FTC announced its policy focus in its Nix the Fix Report in May 2021. While the Commissioners highlighted the potential competitive benefits of the settlement, the first major enforcement - since this Report was released - is rooted in traditional consumer protection theories and does not yet tackle the more ambitious antitrust theories set out in the Report.

In parallel, state level legislative initiatives have included the recent passage of proposed legislation in New York. This would require manufacturers of digital electronic equipment to provide independent repair shops with documents, parts, and tools needed for maintenance or repair. As the first major state-level legislation to advance this far, the legislation would come into effect within one year of it being signed by the governor.

Focus on Recent Anti-Tying Enforcement

The FTC’s recent enforcement has initially targeted the warranty terms of two manufacturers: motorcycle manufacturer Harley-Davidson and Westinghouse’s outdoor generator brand manufacturer MWE. Both agreed to change terms of their warranties alleged to restrict their customers’ rights to repair their products or use third party service providers. The anti-tying provision of the MMWA provides that companies cannot condition warranty coverage on “the consumer’s use of an article or service identified by brand, trade, or corporate name, unless the warrantor provides that article or service without charge or the warrantor has received a waiver from the Commission.” The FTC has also engaged in rulemaking under the MMWA, including the Disclosure Rule that requires written warranties for products that cost more than $15 dollars in simple language and in a single document.

The FTC Consumer Protection Bureau’s settlements with Harley Davidson and Westinghouse were announced together on 23 June 2022, subject to a 30-day comment period that ran through to 22 July 2022. The FTC alleged both companies violated the MMWA by including restrictive terms that voided the warranty if customers used independent dealers for parts or repairs. Without the authority to seek monetary penalties, the FTC sought commitments from both companies to refrain from the challenged conduct and take certain corrective measures. In particular, each company agreed to comply by:

• removing any warranty terms that explicitly or implicitly tell customers their warranties will be void if they use third-party parts or services;
• adding affirmative language to their warranties providing explicit guarantees that they will not be void if third-party parts or services are used; and
• sending notices to customers letting them know that their existing warranties will remain in effect if they choose to use third-party services or independent repairers.

The FTC also required Harley-Davidson to correct alleged breaches of the FTC Disclosure Rule by failing to provide its full warranty disclosures in a single document. Both companies must also monitor their authorized dealers to ensure that they remove any deceptive display materials and ensure they do not promote branded parts and dealers over third parties.

Using Consumer Protection Tools to Fix the Engine of Competition?

The conduct at issue here focuses narrowly on application of the anti-tying provisions of the MMWA and the Disclosure Rule. While it is not clear what additional enforcement is on the horizon, the FTC has previously highlighted the prevalence of tying provisions in warranties and previewed potential enforcement. Last year’s Report analysed fifty different companies’ warranties and found that forty-five of them appeared to violate the MMWA tying provisions. With the current enforcement, the FTC warned that “other companies that squelch consumers’ right to repair should take notice.”

Led by the FTC Bureau for Consumer Protection, the enforcement is firmly rooted in consumer protection principles. Yet a joint statement by the Democratic FTC Commissioners emphasized the potential impact on competition. The statement argued that “illegal repair restrictions can significantly raise costs for consumers, stifle innovation, close off business opportunity for independent repair shops, create unnecessary electronic waste, delay timely repairs, and undermine resiliency.”

While this enforcement follows through on the Report’s commitment to enforcing the MMWA anti-tying provisions, the FTC notably stops short of embracing more novel antitrust theories set out in the Report. The FTC had highlighted practices such as physical design features and restrictions on access to data that limit the ability for non-licensed dealers to conduct repairs. For example, the FTC has cited limitations on the ability to remove or replace parts such as by using glues or specialized fasteners requiring special tools. Additionally, the FTC has quoted restrictions on software or access to data that may be needed to make repairs or diagnose issues. The FTC is likely to consider expanding its enforcement into these novel areas as well, but may face challenges in formulating a viable antitrust claim in these aftermarkets.

Further Legislative Initiatives

Beyond the MMWA anti-tying rules, further legislative efforts to expand the so called “right to repair” remain pending in the US. The “Fair Repair Act” was introduced in Congress last year and requires an original equipment manufacturer to make diagnostic, maintenance, and repair equipment available to independent repair providers, but its passage has not progressed.

Additionally, in June both houses of the New York State legislature passed the “Digital Fair Repair Act” which focuses on repair restrictions in sales of digital electronic equipment. The legislation would require manufacturers to provide independent repair shops with documents, parts, and tools needed for maintenance or repair of digital electronic equipment. The bill covers any product with a value over ten dollars that depends on digital electronics embedded in the product to function, except for automobiles, medical devices, home appliances, and off-road equipment. The bill also provides that manufacturers will not face liability for damage or injury that occurs during a repair made by an independent repair shop. The bill is pending affirmative review and signature by the Governor. If and when signed into law, any final legislation will then take effect after one year.

While the US has not yet passed federal legislation, manufacturers should keep watch, as the FTC’s recent enforcement and the passage of legislation at a state level may signal further developments in the road ahead.