State of Innovation

Patents and Innovation Economics

Design Patents and the Cold Civil War

The bill H.R. 3059, titled the “Promoting Automotive Repair, Trade, and Sales” (PARTS) Act claims to reduce the cost of automotive repairs by limiting design patents for automotive parts to 30 months.  This bill pits automobile manufacturers against insurance companies and consumer groups.  The argument for the bill is that it would reduce the cost of automotive repairs.  As I understand it if your car is in an accident and for instance your headlight is damaged it is likely that if your car is relatively new the headlamp is covered by a design patent.  As a result, when you go to replace the headlamp you either have to buy it from an OEM manufacturer or from someone who how pays royalties to make a look alike headlamp.  According to the insurance companies it would be cheaper to replace the headlamp if it was not covered by a design patent.

The law on point is:

 35 U.S.C. 171 Patents for designs

“Whoever invents any new, original, and ornamental design for an article of manufacture may obtain a patent therefor, subject to the conditions and requirements of this title.”

There does not appear to be any reason why the designer of the headlamp should not receive a design patent according to the law.  Under the case law it appears that there might be some argument that the design patent does not apply because it falls under the repair exception to patents.  However, if the patent holder got a design patent on the headlamp, then this would not appear to apply since the headlamp is not being repaired it is being replaced – manufactured.

The economics on point do not appear to be so straight forward.  If the designer of an automobile determines the price of a car based on their total return, then they probably include the residual income they expect to make from repairs.  If this is the case then the law will just increase the cost of new automobiles and reduce the cost of repairs, but the total cost of ownership will stay the same.  In addition, if the bill becomes law it is likely to reduce the value of original designs.  As a result, we will trade unique designs for me too designs.  This is likely to help low cost me-too producers at the expense of innovators.  The economics of the situation are ambiguous at best, but it is likely to hurt manufacturers at the expenses of the financial industry (insurance companies).  Given the recent performance of financial companies and the fact that they have inordinate influence on Washington, I am inclined to say the net result will be detrimental to average Americans.  Manufacturers tend to employ many average Americans at good wages.  Finance companies tend to inordinately enrich a few people at the top.

The real problem with this bill is that it is not based on a discussion of property rights.  It is an example of power politics at its worst, much like the SOPA and PIPA bills.  It pits the lobbying power of the automotive industry against the lobbying power of the insurance industry.  In other words this is just another example of how our country has deteriorated into a Civil War without guns.  Each group uses the government to steal from the other group, which is why I call it a Cold Civil War.

From a property rights perspective a manufacturer should be able to obtain a design patent for each part that is manufactured – assuming it is an original design.  Given the narrow nature of design patents, it should be relatively easy to modify the design to avoid the patent.  For instance, a slight change in the headlamp assembly should avoid the design patent.  In a free market, a consumer should have the choice to select a car that has a common design and the cost of repairs are low because few design patents apply or a highly stylish design where the cost of repairs are high because many design patents apply.  The cost of insurance would also vary based on this information.  As a result, the insurance industry should not be disadvantaged.  The fact that they insurance industry is whining about this just shows that their goal is to obtain unjustified profits (based on a property rights point of view) at the expense of manufactures.  Of course, we don’t live in anything like a free market and there is all sorts of other government interference in the market that one or the other side might make them believe they have the right to ignore the property rights of the other group – Government bailouts of insurance companies and automobile companies come to mind.

The US is no longer a nation of laws, because we no long have a meaningful Constitution and we no longer protect or understand property rights.  The PARTS Act is just another sad example of how we have become a country in a COLD CIVIL WAR.

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February 13, 2012 - Posted by | -Law, News, Patents | , , , , , , ,

3 Comments »

  1. Greedy insurance companies want to eliminate a voluntary tax and divert money that would normally go to the government to themselves.

    The money paid by consumers for those designed products and the cost of insuring those products includes a voluntary tax that they are happy to pay. If they were not happy to pay it there are inexpensive options available to them.

    These same people also want more and better government services such as schools, law enforcement, health, and so on. Where do the insurance companies propose that the Federal and State governments make up the shortfall? They want to make all the money they can from our society but not share in the cost of maintaining our society.

    Comment by Matthew Artero | February 29, 2012 | Reply

  2. Hi Matt,

    I am not sure that I would call paying insurance a voluntary tax. But I agree the finance industry clearly wants to use the government to suck even greater percentages of the wealth create in the US.

    Comment by dbhalling | February 29, 2012 | Reply

  3. Yes, neither am I calling paying insurance or buying a product with a price that includes a patent license fee a voluntary tax. I am saying tax is included in the price; wether it be a sales tax or income tax, or other. The companies have to factor those taxes into the final price they charge. Any law that reduces the price also reduces all taxes that are charged based on percentage. So not only are the insurance companies pitting the automobile manufacturers against consumers and pretending to side with consumers, the insurance companies are also pitting the governments, national and local, against their citizens. It’s like having another political party discrimitorily made up exclusively of insurance companies, except this one doesn’t have to answer to us for the mistakes they make. This bill will weaken our government by reducing our government’s income while the members of the discriminating insurance company political party get richer. They are just pretending to argue for the consumer to hide the fact that they are discriminating elitist.

    Comment by Matthew Artero | March 1, 2012 | Reply


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