FTC report finds scant evidence to support manufacturer justification for repair restrictions

May 12, 2021
By Robert J. Kerwin

On May 6, 2021, the Federal Trade Commission, a federal agency with a mission to protect consumers and promote competition, issued its long-awaited report, Nixing the Fix: An FTC Report to Congress on Repair Restrictions. The report follows a docket the FTC opened in 2019 seeking comments on the subject, as well as a public workshop entitled “Nixing the Fix” later that year, featuring supporters and opponents of repair restrictions across multiple industries. Although the report focused on consumer protection and antitrust issues, medical device repair issues were also discussed.

Notwithstanding manufacturer explanations for repair restrictions, the FTC report observed that proponents of repair restrictions did not provide sufficient data to support their argument that safety issues could occur because of repairs by consumers or independent repair shops.

40-year history of repair restrictions and new methods of restricting repairs
The FTC report acknowledged concerns with repair restrictions dating back 40 years. Issues like voiding a consumer warranty (when a consumer uses a servicer other than the manufacturer to repair the equipment) have been prohibited. The FTC also identified new issues which may be violative of the law. Practices such as (i) inhibiting independent repair by development of product designs that prevent repair, (ii) undertaking to make parts unavailable and (iii) imposing software locks were viewed as new forms of restrictions that must be examined to determine if they are unlawful.

FTC report discusses approaches to repair restrictions
The 54-page FTC report traces right to repair issues in nine separate sections. The first and second sections review the FTC’s prior record of enforcement and analyze the competition issues related to repair markets. These sections give an overview of past priorities. Sections three and four analyze the information collected from the public FTC docket and workshop, and catalog the types of repair restrictions being implemented across industries. Section five is the most revealing of the FTC assessments as it summarizes the manufacturer justifications for imposing repair restrictions. The positions of "advocates for change" [of the repair restrictions] are highlighted in section six. In section seven, the FTC describes the approaches which could support consumer choice in light of the situation. Section eight explores in further detail the ways in which these repair restriction challenges could be addressed. [Note: if you find wading through the full report a bit daunting, begin with the 3-page Executive Summary and then move to the areas which most interest you.]

FTC found manufacturer explanations of restrictions wanting
Relying upon, among other things, IAMERS’ submission as to the medical equipment repair restrictions, the FTC noted that manufacturers did not provide adequate factual support for their position that "authorized repair persons" are more careful or that individuals or independent repair shops fail to take appropriate safety precautions. The FTC’s assessments of the current state of play in Section nine were revealing as the FTC’s assessments were not really qualified or conditioned.

The FTC pulled no punches when it said that the "advocates for change" have offered well-supported comments and the “majority [of the manufacturer’s explanations for the repair restrictions] are not supported by the record.” The FTC’s conclusion was less than a page and offered little explanation as to what may come next, saying only that it “will pursue appropriate law enforcement and regulatory options, as well as consumer education “consistent with statutory authority."

Tying arrangements reaffirmed as illegal
The terseness of the FTC’s explanations leads one to speculate as to what it all means. One possible area of further FTC scrutiny seems to be "tying arrangements" in which "the sale of one product (the tying product) is conditioned on the purchase of a second product (the tied product) from the same firm.” One example perhaps could be: you can’t get parts for an MR scanner unless you can show that you bought the MR from the manufacturer. While not using this specific example, the FTC report did reaffirm that "tying" arrangements are not lawful.

Steering of work scrutinized
Steering of repair work to the manufacturer may be another area of possible FTC activity. Steering may occur in those cases where all of the repair restrictions pretty much amount to only the manufacturer being able to repair the equipment. In these types of cases a manufacturer could be found to have impaired competition and harmed consumers.

The FTC’s discussion of the "use of embedded software" also leads one to believe that these practices will be further scrutinized in the future. Embedded software “forces consumers to have the maintenance and repair of their products performed by the manufacturers’ authorized service networks”. Another topic that will be closely examined is “software locks” that disable a computerized device if it is repaired outside of the manufacturer’s authorized service networks. While intellectual property laws are designed to stimulate innovation, the FTC reminded us that antitrust laws are designed to enhance competition. The FTC noted that misuse of intellectual property rights may create barriers to repairs and competition.

FTC recognized business injury and reputation may be reasons for restrictions
While the FTC said there may be legally recognized explanations for repair restrictions, which could include preventing injuries and reputational concerns with non-authorized replacement parts or services, it also said manufacturers may be held liable to the extent they have market power and refuse to provide consumers or aftermarket service providers with "key inputs" such as parts, manuals or diagnostic software and tools.

Robert J. Kerwin
Next steps remain undetermined
So what does all of this mean, and in particular, what does this mean in the context of some existing medical device repair restrictions? Well… my crystal ball is somewhat cloudy and the overall blunt report on manufacturer practices did not offer in its conclusion a plethora of insight as to the next steps that the FTC actually plans to undertake. We may have to wait until the FTC commissioners offer further public comment. Reportedly, the FTC commissioners will include one new commissioner with a strong background in antitrust, if approved by the U.S. Senate.

About the author: Robert J. Kerwin is the general counsel for the International Association of Medical Equipment Remarketers and Servicers (IAMERS).