IAAF calls guilty verdict against Kia a 'major victory' for IAM | Professional Motor Mechanic

Professional Motor Mechanic reports an appeal decision in Sweden which IAAF has hailed as a major victory for the independent sector (though using criminal law terms like "guilty" can't be right). In December 2012, the Market Court in Sweden had ruled (MD 2012:13) that exclusivity clauses in Kia's 7-year warranty contracts breached competition rules. If the customer breached the terms, the warranty was not void - it was reduced to three years (although whether the terms remained the same is not clear). The company was ordered to allow its customers to choose independent repairers as well as authorised ones, and was fined SEK 5 million. Three years later the Supreme Court in Stockholm dismissed Kia's application for leave to appeal and for a retrial.

Manufacturers are generally prohibited from refusing to honour a vehicle's warranty on grounds only that it has been serviced by a non-authorised repairer or non-original parts have been fitted. Kia's warranty required servicing to be carried out by an authorised workshop. The Association of Swedish Car Parts Wholesalers (SBF), the Swedish member of FIGIEFA, reported the matter to the Competition Authority, which declined to take action. The SBF then took legal action against the manufacturer in the Market Court, which granted an injunction against Kia under Chapter 3, section 2 of the Competition Act - a provision which enables a party to obtain an injunction to bring an infringement to an end, when the Competition Authority has decided not to proceed. (Of course, that's a different matter from the Competition Authority deciding that no infringement has been committed: it might well decide not to proceed for other reasons, perhaps - I'm guessing here - because there is insufficient public interest, although this shouldn't have been a case where that was a good reason for not devoting resources to it.) In essence, it allows a private interest to take action where the public body hasn't.

Section 2 does not enable the party bringing the action to claim damages, but it does deal directly with the problem - and there remains the possibility of a follow-on action for damages anyway. The Market Court has decided a number of cases - 14, according to the CELEC report, which is now three years old: and the petitioner has been successful in "several" of them.

The Market Court took the view - unsurprisingly, I think - that the relevant market for servicing and repairs was a brand-specific one. It decided that the condition in the warranty had serious foreclosing effects because independents were excluded from competing: one of the objects of the condition was to restrict competition. It would be prohibited under Article 101 TFEU and the equivalent provision in the Swedish competition law.

Prof Henriksson of the Center [sic] for European Law and Economics (CELEC) questions whether it is correct to view the agreement between Kia and its authorised repairers as restricting competition because of the condition imposed on customers. It's an interesting point, although it might be answered by scrutinising the authorised repairer agreement. If Kia have been clever, though, I guess the agreement will be silent on the matter and the restriction will be imposed through the back door, by deterring consumers from going elsewhere. Perhaps the AR agreement says that dealers will not honour warranties in the prescribed circumstances - or in practice they will be prevented from doing so, within the framework of the AR agreement, by the fact that they won't get paid for their work.

Prof Henriksson also asks whether this is indicative of a difference of opinion between the competition authority and the court about what amounts to a breach of the prohibition. That seems unlikely: Christer Liljenberg, Chairman of SBF, is quoted by FIGIEFA as saying that the competition authority had indicated that it did seem to be a breach.

France: Autorité de la Concurrence publishes sector inquiry report on car maintenance and repair

The Autorité aimed to conduct a full appraisal of the sector, and to issue recommendations to boost competition and bring down prices. The report is available from 12a21_en.pdf. I have provided a link to the English version, and look forward to the day when our Competition Commission provides its reports in French! However, the following summary is based on what the Autorité says in its annual report.

Its main proposal is a gradual and controlled opening up of the market in visible spare parts, which it says are protected by industrial design rights in France. This gives vehicle manufacturers a monopoly over more than70 per cent of sales of visible spare parts, and a duopoly with the original equipment manufacturer over the remaining 30 per cent. This means, of course, that repairers must have recourse to the manufacturer's network more often than they might like.

The Autorité observes that there is a difference between protecting visible original equipment parts and such parts destined for repairs - aftermarket parts - and it proposes removing the restriction in the aftermarket, in the gradual and controlled manner referred to earlier. It says that eleven EU Member States have already adopted this approach, "which also prevails in the United States and Germany where much lower prices can be observed". I think that means that Germany already had such a law, not that it is not to be included among the EU Member States where this approach is taken.

Its suggestion is that the principle be enacted by law and the timescale set by decree, with a transition period so that the market can be opened up gradually, one type of part at a time. This would enable players in the market to adapt their business models and for French parts makers to prepare for the new open market. And what about parts makers from other EU countries? Is this the French doing exactly as we expect them to?

Whether removing protection from visible parts is a good or a bad thing (and the UK's experience appears to be that it has forced prices down, which cannot be an altogether bad thing, and has not brought about the end of civilisation as we know it, which the car makers suggested would be the case back in 1988 when the Copyright, Designs and Patents Act made the big changes), retaining it for original equipment parts seems like no sort of sop to the manufacturers. The aftermarket is highly competitive: I can buy spares from many different sources. The original equipment market, by definition, cannot be competitive, because the intellectual property rights in the visible parts invariably belong to the vehicle manufacturer (it is often different with internal parts) and the vehicle manufacturer is not only able to control supply using its intellectual property, but as a monopsonist, it controls the market completely. Even if the IP rights were removed, it would still be the only customer.

Among other proposals, the Autorité says it wants to see original equipment manufacturers, the companies best-placed to serve the aftermarket, able to put their parts on the market freely. It also addresses the matter of repair and maintenance information, threatening where necessary 'to sanction, in a dissuasive manner, any restrictions' on access to such information on the part of independent repairers.

It also proposes to draw up clauses for warranty (including extended warranty) contracts, making them as clear and explicit as possible regarding the consumer's right to use the services of an independent repairer without losing the benefit of the warranty. This follows the furrow ploughed years ago by the OFT.

Finally, it wants to ensure that the retail prices for parts recommended by vehicle and parts manufacturers do not lead to a restriction of competition between operators - presumably it means factors, wholesalers and retailers, as well perhaps as independent repairers. Well, retail price maintenance is pretty well covered in French law, as in ours, I imagine.

Warranty restrictions on servicing

I was horrified to see a lawyer giving out advice on a website about restrictions on servicing that was misleading, if not plain wrong. (I was pretty horrified to see a lawyer hiding behind an alias giving online advice for £21, actually, but had the advice been correct I would have been a little less excited about it.)

The questioner who is now £21 worse off asked whether the block exemption meant that you could have a vehicle serviced at a local independent garage rather than a main dealer, and whether the position was the same where the vehicle was leased or hired on a long contract. The lawyer told him in general terms what the Regulations (sic) do in the aftermarket, but advised that it was not possible to go to any independent garage for servicing and remain with the warranty conditions.

Had he said that the block exemption did not allow you to get your car serviced by an independent without jeopardising the warranty, at least he would have been correct up to that point. I suppose anyone who goes looking for legal advice on the Internet has to be content with getting a technically correct answer that is of no assistance to him. The Commission now has warranties in its sights, but as far as the UK is concerned (and this was clearly a UK question) the matter was dealt with, voluntarily, at the instance of the Office of Fair Trading a few years ago.

The OFT published its report of its Market Study into New Car Warranties in December 2003. It found that manufacturers' and dealers' (extended) warranties had the effect of keeping new cars captive in the authorised repair netowork, and indicated that unless the vehicle manufacturers took steps to stop this there would be action under teh Competition Act. In the June 2006 Evaluation report on the market study, it recorded that the vehicle manufacturers had complied (although they were not exactly giving a great deal of prominence to the revised warranty terms). So you can get your car serviced at an independent without invalidating the warranty, whether that is the manufacturer's warranty or a dealer's: it's nothing to do with the block exemption, and indeed not the result of formal legal action of any description, just a voluntary move by the industry to avoid a confrontation that had been building for some time. The poser of the question should have looked at the warranty terms rather than going online for legal advice. As it is, he isn't only going to be £21 out of pocket - he'll also be paying more than he wanted, or needed, to for a service.