Warranty Law - Restricting Customers’ Right to Repair

Warranty Law

Restricting Customers’ Right to Repair

Third-Party Parts

Unfair Competition

Manufacturer

Consumer Law

FTC

Contract Drafting

 

 

FTC Takes Action Against Weber for Illegally Restricting Customers’ Right to Repair

Agency Order Requires Grill Maker to Fix Warranty and Come Clean with Customers

 

FTC, July 7, 2022

Republication

 

https://www.ftc.gov/news-events/news/press-releases/2022/07/ftc-takes-action-against-weber-illegally-restricting-customers-right-repair?utm_source=govdelivery

 

 

 

The Federal Trade Commission is taking action against grill maker Weber-Stephen Products, LLC, for illegally restricting customers’ right to repair their purchased products. The FTC’s complaint charges that Weber’s warranty included terms that conveyed that the warranty is void if customers use or install third-party parts on their grill products. Weber is being ordered to fix its warranty by removing illegal terms and recognizing the right to repair and come clean with customers about their ability to use third-party parts.

 

“This is the FTC’s third right-to-repair lawsuit in as many weeks,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Companies that use their warranties to illegally restrict consumers’ right to repair should fix them now.”

 

Illinois-based Weber manufactures and sells grills and related products worldwide and offers limited warranties to consumers who buy its products that provide for no-cost repair or replacement, should the products have defects or other issues.

 

The FTC has made it a priority to protect consumers’ right to repair their products. The Magnuson Moss Warranty Act is one of the FTC’s tools to address repair restrictions. It prohibits a company from conditioning a consumer product warranty on the consumer’s using any article or service which is identified by brand name unless it is provided for free. Following the FTC’s right to repair report Nixing the Fix, the Commission issued a Policy Statement on Repair Restrictions Imposed by Manufacturers pledging to ramp up investigations into illegal repair restrictions. The FTC recently announced complaints and orders against Harley-Davidson and the maker of Westinghouse outdoor generators for similar issues.

 

According to the FTC’s complaint, Weber imposed illegal warranty terms that voided customers’ warranties if they used or installed any third-party parts on their grill products. The FTC alleges that these terms harm consumers and competition in multiple ways, including:

 

• Restricting consumers’ choices: Consumers who buy a product covered by a warranty do so to protect their own interests, not the manufacturer’s. Weber’s warranty improperly implied that as a condition of maintaining warranty coverage, consumers had to use the company’s parts.

 

• Costing consumers more money: By telling consumers their warranty will be voided if they choose third-party parts, Weber forced consumers to use potentially more expensive options provided by Weber itself. This violates the Warranty Act, which prohibits these clauses unless a manufacturer provides the required parts for free under the warranty or is granted an exception from the FTC.

 

• Undercutting independent businesses: The Warranty Act’s tying prohibition protects not just consumers, but also independent repairers and the manufacturers of aftermarket parts. By conditioning its warranty on the use of Weber-branded parts, Weber infringed the right of independent repairers and manufacturers to compete on a level playing field.

 

• Reducing resiliency: Robust competition from aftermarket part manufacturers is critical to ensuring that consumers get the replacement parts they need when they need them and are not at the mercy of branded part supply chains. More resilient and repairable products also lead to less waste in the form of products that could otherwise be fixed.

 

 

Enforcement Actions

Under the FTC Act and the Warranty Act, the FTC has the authority to take action against companies violating consumer protection laws, including those engaging in unfair or deceptive acts or practices. The FTC’s order in this case:

 

• Prohibits further violations: Weber will be prohibited from further violations of the Warranty Act. They will also be prohibited from telling consumers that their warranties will be void if they use third-party parts, or that they should only use Weber-brand parts. If the company violates these terms, the FTC will be able to seek civil penalties of up to $46,517 per violation in federal court.

 

• Recognizes consumers’ right to repair: Weber will be required to add specific language to its warranty saying, “Using third-party parts will not void this warranty.”

 

• Comes clean with consumers: Weber must send and post notices informing customers that their warranties will remain in effect even if they use or install third-party parts on their Weber grill products.

 

 

The Commission vote to issue the administrative complaint and to accept the consent agreement was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Once processed, comments will be posted on Regulations.gov.

 

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.

 

Made in USA Labeling Rule

Labeling

 

Made in USA Labeling Rule

 

U.S. Origin Claims

 

Section 5 of the FTC Act

 

Consumer Law

 

Import

 

 

 

FTC Enforces New Made in USA Rule against Lithionics and Owner Steven Tartaglia for Falsely Labeling Foreign-Made Batteries as American

 

April 13, 2022

Republication

 

 

Order Requires Lithionics Battery LLC And Tartaglia To Pay Civil Penalty, Notify Consumers, and Stop Making Bogus Made in USA Claims.

The Federal Trade Commission (FTC) (…) used its authority under the Made in USA Labeling Rule, which took effect on Aug. 13, 2021, to bring a complaint against Lithionics Battery LLC and its owner, Steven Tartaglia for illegally misrepresenting that its lithium ion cells are made in the United States. The FTC’s complaint alleges that, since at least 2018, Lithionics has falsely labeled its battery products with an American flag image surrounded by the words “Made in U.S.A.,” often accompanied by the statement “Proudly Designed and Built in USA,” when these products are primarily made overseas. The Commission is asking the court to order Lithionics and Tartaglia to stop making deceptive Made in USA claims and pay a penalty for Lithionics’ past claims.

"As our country works to onshore production of lithium ion batteries, it’s critical that honest businesses have a chance to compete, and that consumers can buy American,” said Sam Levine, Director of the FTC’s Bureau of Consumer Protection. “Falsely labeling batteries as made in the United States is against the law, and the FTC is using its new Made in USA rule to make sure this misconduct comes with a price."

Florida-based Lithionics designs and sells battery products for recreational vehicles, amusement park rides, marine applications, and low-speed electric vehicles. Although the defendants have repeatedly represented that their battery, battery module, and battery management system products are all or virtually all made in the United States, in fact all Lithionics battery and battery module products incorporate imported lithium ion cells, and all Lithionics battery management systems incorporate significant imported components.

Photographs of products bearing this label and other Made in USA claims appeared on the company website, on its social media accounts, and in mail order catalogs, according to the complaint. YouTube videos featured Tartaglia and other employees printing Made in USA labels and putting them on Lithionics products. Lithionics published a chart in its marketing materials juxtaposing its own products with “imports,” and highlighting “advantages of Lithionics battery systems” over imported competing products. Lithionics also misrepresented in mail order catalogues that its products were made in the United States.

Under the Made in USA Labeling Rule, marketers are prohibited from labeling products as “Made in USA” unless the final assembly or processing, and all significant processing that goes into the products occur in the United States; and unless all or virtually all ingredients or components of the products are made and sourced in the United States. The rule also requires all “Made in USA” labels appearing in mail order catalogues to be truthful and non misleading.

The complaint also alleges that Tartaglia and Lithionics also violated Section 5 of the FTC Act since 2018 by misrepresenting that their goods are all or virtually all made in the United States.

Enforcement Action

The proposed order settling the FTC’s complaints against Lithionics and Tartaglia prohibit the conduct alleged in the complaint. Lithionics and Tartaglia must:

• Shut down bogus Made in USA claims.  Stop claiming that products are made in the United States unless they can show that the product’s final assembly or processing—and all significant processing—takes place in the United States, and that all or virtually all ingredients or components of the product are made and sourced in the United States.
• Pay civil penalties: Tartaglia and Lithionics must pay civil penalties of over $100,000, equal to three times Lithionics’ profits attributable to the illegal activity.

The FTC’s Enforcement Policy Statement on U.S. Origin Claims provides further guidance on making non-deceptive “Made in USA” claims. 

The Commission vote to authorize the staff to refer the complaint to the DOJ and to approve the proposed consent decree was 4-0. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Middle District of Florida.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Consent decrees have the force of law when approved and signed by the District Court judge.

 

Related Cases

Lithionics Battery, LLC, In the Matter of

 

 

 

 

 

U.S. Court of Appeals for the Ninth Circuit, Bluetooth SIG Inc. v. FCA US LLC, Docket No. 21-35561

Trademark

 

First Sale Doctrine

 

 

The first sale doctrine applies when a trademarked product has been incorporated in a new product

 

Certification Marks

 

 

 

Appeal from the United States District Court for the Western District of Washington

 

Interlocutory Appeal

 

Per Curiam Opinion

 

 

 

This interlocutory appeal concerns the scope of the first sale doctrine in trademark law. Defendant-appellant FCA US LLC invoked the first sale doctrine as a defense to trademark claims asserted against it by plaintiff-appellee Bluetooth SIG Inc.  (“the SIG”). After granting summary judgment for the SIG on the first sale issue, the district court certified the following question to us:  does the first sale doctrine apply “when a trademarked product has been incorporated in a new product?”  We answer “yes,” and we accordingly vacate the district court’s summary judgment and remand for further proceedings.

 

 

The SIG is a nonprofit that administers standards for short-range wireless technology. The SIG owns the word mark, “Bluetooth,” the design mark, and the composite.

 

 

To use any of these marks, a product manufacturer must join the SIG, execute a licensing agreement, submit declarations of compliance, and pay fees. Manufacturers of technological components are subject to     testing requirements, but end product manufacturers may not need further testing if they incorporate a previously qualified product. FCA makes cars under the brands Fiat, Chrysler, Dodge, Jeep, and Ram.

 

 

FCA vehicles contain Bluetooth-equipped head units. Those head units are manufactured by third-party suppliers and have been qualified by the SIG, but FCA has not taken the further steps required by the SIG to qualify the Bluetooth capabilities of its cars. FCA uses the SIG’s marks on its head units and in product publications. The SIG brought trademark claims against FCA, and FCA asserted numerous defenses, including under the first sale doctrine. Ruling on cross-motions for summary judgment, the district court found triable issues on whether (1) the Bluetooth word mark is generic, (2) there was a likelihood of confusion under the nominative fair use doctrine, (3) the SIG had abandoned its marks in the automotive industry through naked licensing, and (4) laches applied.

 

 

1 The word and composite are certification marks, which are “owned by one person and used by others in connection with their goods and services to certify quality, regional or other origin.”  McCarthy on Trademarks and Unfair Competition § 19:91 (5th ed. 2022).

 

 

After vacating a trial date set in September 2020 due to the COVID-19 pandemic, the district court certified for interlocutory appeal whether the first sale doctrine applies “when a trademarked product has been incorporated into a new product.” A motions panel of this court granted FCA’s petition for interlocutory appeal. The district court then stayed proceedings pending resolution of this appeal. We have jurisdiction under 28 U.S.C. § 1292(b).

 

 

Under the first sale doctrine, “with certain well-defined exceptions, the right of a producer to control the distribution of its trademarked product does not extend beyond the first sale of the product.” Sebastian Int’l, Inc.  v. Longs Drug Stores Corp., 53 F.3d 1073, 1074 (9th Cir. 1995) (per curiam). “Trademark rights are ‘exhausted’ as to a given item upon the first authorized sale of that item.” McCarthy on Trademarks and Unfair Competition § 25:41. The district court’s narrow view of the first sale doctrine was based on our statement in Sebastian that “it is the essence of the ‘first sale’ doctrine that a purchaser who does no more than stock, display, and resell a producer’s product under the producer’s trademark violates no right conferred upon the producer by the Lanham Act.” 53 F.3d at 1076.

 

 

Sebastian never purported to articulate the outer bounds of the first sale doctrine. It simply captured that the unauthorized resale of genuine goods presents an easy case for protecting a downstream seller. See id. (explaining that “when a purchaser resells a trademarked article under the producer’s trademark, and nothing more, there is no actionable misrepresentation under the statute.”).

 

 

Binding precedent extends the first sale doctrine beyond what Sebastian described as the doctrine’s “essence.” The first sale doctrine in trademark law derives from Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924). See Au-Tomotive Gold Inc. v. Volkswagen of Am., Inc., 603 F.3d 1133, 1136 (9th Cir. 2010). Prestonettes itself applied the first sale doctrine to conduct exceeding the resale of genuine goods. In Prestonettes, the defendant was a cosmetics manufacturer that purchased genuine powder manufactured by the plaintiff, and then “subjected it to pressure, added a binder to give it coherence and sold the compact in a metal case.” 264 U.S. at 366. The Supreme Court held that trademark law did not prohibit the defendant from using the plaintiff’s mark “collaterally, not to indicate the goods, but to say that the trade-marked product is a constituent in the article now offered as new and changed.”  Id. at 369. So long as the public was “adequately informed” who modified the powder, the Court reasoned, the public was “likely to find it out” if the defendant’s process degraded the quality of the plaintiff’s powder. Id. Following Prestonettes, we applied the first sale doctrine to a retailer’s repackaging of a manufacturer’s trademarked goods. In Enesco Corp. v. Price/Costco Inc., we held that the first sale doctrine protected a retailer that resold porcelain dolls in allegedly inadequate packaging to the extent the repackaging was disclosed. 146 F.3d 1083, 1086–87 (9th Cir. 1998). We explained that “if the public were adequately informed that Price/Costco repackaged the figurines and the figurines were subsequently chipped, the public would not likely be confused as to the cause of the chipping.” Id. at 1087 (citing Prestonettes, 264 U.S. at 369).

 

 

Under Prestonettes and Enesco, the first sale doctrine applies when a mark is used to refer to a component incorporated into a new end product.

 

 

Both Prestonettes and Enesco focused on a seller’s disclosure of how a trademarked product was incorporated and explained that the first sale doctrine places limits on a seller’s liability to the extent that adequate disclosures are made. See Prestonettes, 264 U.S. at 368 (explaining that a trademark “does not confer a right to prohibit the use of the word or words” and cannot be used “to prevent its being used to tell the truth”); Enesco, 146 F.3d at 1086–87 (holding that the first sale doctrine did not apply to the extent the product manufacturer sought to compel disclosure of how the product was repackaged but did apply to the extent further relief was sought); see also Champion Spark Plug Co. v. Sanders, 331 U.S. 125, 130 (1947) (citing Prestonettes and explaining that “full disclosure” of alterations to a manufacturer’s product “gives the manufacturer all the protection to which he is entitled”). In addressing the role of disclosure at oral argument, the parties disagreed about whether FCA had adequately disclosed its relationship with, and qualification to use, Bluetooth technology. Because the district court never reached this fact-intensive issue, we remand for the district court to address it in the first instance.

 

 

In addition to precedent, that conclusion is supported by influential treatises. See McCarthy on Trademarks and Unfair Competition § 25:35.50 (“Use of an ingredient trademark is proper so long as consumers are not confused or deceived into thinking that the maker of the ingredient is responsible for the nature or quality of the finished product.”); Callmann on Unfair Competition, Trademarks and Monopolies § 22:51 (4th ed. 2021) (“The seller of the finished product is allowed to use the supplier’s mark to identify the source of such parts or materials. . . .  But the manufacturer of the new product or combination may not mislead the public regarding the extent of the new product composed of that ingredient. . . .”).

 

 

Relying on our statement in Au-Tomotive Goldthat the first sale doctrine is “generally focused on the likelihood of confusion among consumers,” 603 F.3d at 1136, the SIG also argues that summary judgment can be affirmed because the district court determined that a triable issue exists as to likelihood of confusion. The first sale doctrine “accommodates between the strong and potentially conflicting forces” of, on the one hand, protecting good will and preventing confusion, and on the other, “preserving an area for competition by limiting the producer’s power to control the resale of its product.”  Sebastian, 53 F.3d at 1075. In the context of pure resales, that balance is easily struck because “confusion ordinarily does not exist when a genuine article bearing a true mark is sold.” NEC Elecs. v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir. 1987). But under Prestonettes and Enesco, in the context of incorporated products, how those conflicting purposes are reconciled will depend in some way on how a seller uses the mark of the incorporated product in connection with a new product. While our jurisdiction is not strictly limited to the certified question, see Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 205 (1996), the district court is better positioned to address these questions in the first instance with the benefit of briefing and specific analysis of how FCA uses the SIG’s marks.

 

 

Accordingly, we VACATE the district court’s grant of summary judgment to the SIG on the first sale issue and we REMAND for further proceedings.

 

 

For the same reason, we decline to reach the other alternate ground on which the SIG asks us to affirm – the exceptions to the first sale doctrine.  Because the district court concluded that the first sale doctrine was categorically inapplicable in the incorporation context, it never addressed the SIG’s arguments on the exceptions. The district court may consider these arguments on remand.

 

 

 

 

Secondary authorities: McCarthy on Trademarks and Unfair Competition § 25:35.50; Callmann on Unfair Competition, Trademarks and Monopolies § 22:51 (4th ed. 2021).

 

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, April 6, 2022, Bluetooth SIG Inc. v. FCA US LLC, Docket No. 21-35561, for Publication)