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Good Morning
Ken Skala NPK Construction Equipment
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Dealer-Manufacturer LegislationWarranty
Termination and E-Signatures
Bob Wolin 713-646-1327
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U.S. Congress - 2007

• Substantive Acts
• Congressional ethics and Congressional Page
  allocations
• Several temporary extension and appropriation
  bills
• Homeland Security and foreign relations
• Appropriations
• Transfer of funds from the Senate gift shop to
  the child care facility
• Several public health and animal fighting bills
• NATO and Red Cross modernization
• Minneapolis bridge funds
• SCHIP

• 83 Laws Passed in 110th Congress thus far!
• 42 of the laws passed named or renamed Federal
  buildings and post offices

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State Legislation

• General Context
• Dealer Laws
• North Carolina H.B. 1353 - 300 fee per heavy
  truck sold in North Carolina other than through a
  dealer, warranty proof and dealership sales
  (Signed By Governor 8/30/2007)
• Oklahoma proposed - Fair Practices of Equipment
  Manufacturers, Distributors, Wholesalers and
  Dealers Act (Conferees unable to agree)
• Texas Warranty processing time limits (did not
  pass)

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State Legislation

• Tort Reform considered in 20 states this year
  in some form
• Lemon Law
• Arkansas - bill died
• Maryland Commercial truck lemon law enacted
• Pollution Control
• California
• Illinois

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State Legislation

• Sales Tax exemptions for environmentally
  friendly technology
• General sales and use tax exemptions
• Equipment
• Manufacturing, and construction, modernization,
  and expansion
• Sales tax imposition on equipment rentals
• Ad valorem tax breaks for manufacturing
  facilities and equipment, particularly
  agricultural

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State Legislation

• Safety Issues
• Windshield wipers turn on with lights
• Reflectors on the back of tractors
• Backup sensor
• Maximum length / width / weight
• Noise Limitations
• Hawaii 120dB between 7 p.m. and 7 a.m.

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State Legislation

• Mechanics Lien Act.
• Illinois Lessor of construction equipment
  granted a lien for the rental equipment
• Manufacturer chargeback limitations
• Indiana on road motor vehicles
• Lifecycle cost for public entity purchases
• Fuel requirements
• Ultra- low sulfur diesel fuel
• Bio-diesel

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Non-OEM parts - Void a warranty?
Acme Parts, Inc.
Bob Wolin 713-646-1327
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Magnuson Moss

• Generally applicable to consumer goods
• Prohibits mandatory tie-in sales provisions,
  except in clearly limited circumstances where a
  product wont work properly without a specified
  item or service.
• Manufacturers generally cannot require consumers
  to purchase OEM items or services to maintain the
  validity of their warranty on consumer products.
  15 U.S.C. 2302(c).

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Clean Air Act

• Federal Clean Air Act requires manufacturers to
  provide a production warranty and a performance
  warranty.
• Production warranty - the vehicle or non-road
  engine is designed, built and equipped to
  conform with emissions requirements at the time
  of sale.
• Performance warranty - the vehicle or non-road
  engine will comply with applicable emissions
  requirements as tested under state vehicle
  emissions inspection programs for the warranty
  periods specified in the law, conditioned on the
  vehicle being properly maintained and operated.

42 U.S.C. 7541 (C) (3) (B) and 40 C.F.R.
89.1007 (a)
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Clean Air Act

• Manufacturers may not refuse warranty repairs
  under the Clean Air Act merely because
  aftermarket parts have been installed.
• The only circumstance under which the
  manufacturer can void the emissions warranties is
  if an aftermarket part is responsible for
  (causes) the warranty claim.

42 U.S.C. 7541 (C) (3) (B) and 40 C.F.R.
89.1003 (a)(4)(iv)
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Clean Air Act

• A manufacturer of a vehicle or new non-road
  engine or vehicle is generally prohibited from
  directly or indirectly requiring in any
  communication to the ultimate purchaser or a
  subsequent purchaser that the coverage of an
  emissions related warranty is conditioned upon
  use of a part, component, or system manufactured
  by the manufacturer or a person acting for the
  manufacturer or under its control, or conditioned
  upon service performed by such persons.

42 U.S.C. 7541 (C) (3) (B) and 40 C.F.R.
89.1003 (a)(4)(iv)
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Non-Consumer Markets

• In non-consumer markets, attempts to require the
  use of OEM products and accessories to maintain a
  warranty may violate
• - Sections 1 and 2 of the Sherman Antitrust Act
  (15 U.S.C. 1 and 2)
• Section 5 of the FTC Act (15 U.S.C. 45) as an
  unfair method of competition
• Section 3 of the Clayton Act (15 U.S.C. 14)

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Non-Consumer Markets

• The essential characteristic of an invalid tying
  arrangement lies in the seller's exploitation of
  its control over the tying product here, the
  machinery to force the buyer into the purchase
  of a tied product e.g. blades and other
  accessories that the buyer either did not want
  at all, or might have preferred to purchase
  elsewhere on different terms. Illinois Tool Works
  v. Independent Ink, 126 S.Ct. 1281 (2006).
• The Supreme Courts historic strong disapproval
  of tying arrangements has substantially
  diminished. Id.

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Non-Consumer Markets

• Improper Tying Arrangement Factors
• 2 Separate and distinct markets
• Linkage or tying of the markets
• Significant market power
• Use of market power to force a customer to accept
  the tying
• Tying unreasonably foreclosed or restrained
  competition
• Patent no longer gives rise to per se assumption
  of market power Illinois Tool Works

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Non-Consumer Markets

• Kodak sold photocopiers and other equipment in a
  competitive market. After ISOs entered the
  market, Kodak limited their access to OEM parts.
  As a result, ISOs could not obtain parts. Many
  were forced out of business.
• The ISOs sued Kodak under 1 for tying the sale
  of service to the sale of replacement parts and
  under Section 2 for unlawfully monopolizing the
  market for the sale of service for the Kodak
  machines. Eastman Kodak Co. v. Image Technical
  Services. Inc., 504 U.S. 451 (1992).

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Non-Consumer Markets

• The jury awarded ten plaintiffs 23,948,300,
  which was trebled under antitrust law to
  71,844,900. The Ninth Circuit, affirmed as to
  all liability issues, affirmed services damages
  awarded to nine of the ten ISO's. The issues
  were subsequently settled.

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Void Warranty Cases

• Marts v. Xerox
• Lasertech claimed Xerox improperly tied warranty
  coverage to the purchase of Xerox supplies
• The Court held / found
• That the price of the warranty was included in
  the sale price of the purchased product.
  However, the court had trouble determining which
  product was the tying product.
• That the warranty was only one of several ways to
  obtain service
• An illegal tying arrangement will exist only if
  purchasing the two items together is the only
  viable economic option. No proof was presented
  on this issue (e.g. cost and frequency of
  required repairs).

77 F.3d 1109 (8th Cir. 1996)
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Void Warranty Cases

• Virginia Panel Corp. v. Mac Panel Co.
• VP notified its customers that warranty service
  would not be provided for VP products used with
  non-VP components
• The Court held
• Threats to cut off warranty service do not
  constitute tying because the purchaser is not
  deciding whether to buy a product as to existing
  products and as to future sales that it would be
  a matter of contract law between a buyer and a
  seller
• If the warranty termination resulted from the
  legitimate business purpose of protecting the
  integrity of a product, where it would be
  impossible to determine the cause of damage, then
  the warranty termination would pass a rule of
  reason test (A practice is impermissible only if
  its effect is to restrain competition in a
  relevant market.)

133 F.3d 860 (Fed. Cir. 1997)
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Clayton Act 3

• Clayton act is generally inapplicable to warranty
  service
• Clayton Act generally applies when tying and tied
  goods are products rather than services
• It is unlawful for any person engaged in commerce
  ... to lease or make a sale or contract for sale
  of goods, wares, merchandise, machinery,
  supplies, or other commodities, for use,
  consumption, or resale on the condition,
  agreement, or understanding that the lessee or
  purchaser thereof shall not use or deal in the
  goods, supplies, or other commodities of a
  competitor , where the effect may be to
  substantially lessen competition or tend to
  create a monopoly in any line of commerce.

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Rule of Thumb

• The general rule is that in order for a warranty
  claim to be in jeopardy, the items installed must
  actually pose a clear threat to the product or
  its systems or have done actual damage to it.

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Permissible Provisions

• A warranty need not cover use of replacement
  parts, repairs, or maintenance that are
  inappropriate for a product.
• For example While necessary maintenance or
  repairs on your Acme Excavator can be performed
  by any company, we recommend that you use only
  authorized Acme dealers. Improper or incorrectly
  performed maintenance or repair voids this
  warranty.

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Deceptive Use of Non-OEM Parts

• Typical fact pattern A dealer finds the source
  of a problem and informs the customer that he or
  she must replace a part which would have been
  covered under the products warranty, but because
  the part had been replaced with a non-OEM part it
  will not be covered under that warranty.
• Result If the use of the non-OEM product was not
  made with the purchasers knowledge, courts often
  award damages against the installer for the
  replacement of the non-OEM part.
• Consider subrogation if making a customer
  accommodation
• Some exceptions for repairs made under insurance
  coverage

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Deceptive Use of Non-OEM Parts

• In some states the repair invoice must indicate
  the OEM status of parts used

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Gray / Grey Market Parts

• Gray Market parts - a trademarked product
  originally designed and manufactured for use in a
  foreign market that is imported for resale in the
  United States without the consent of the owner of
  the trademark

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Gray / Grey Market

• Some state laws require sellers of grey market
  goods to post a conspicuous sign at the product's
  point of display and affix to the product or its
  package a conspicuous ticket, label, or tag
  disclosing certain information. The information
  required to be disclosed, if applicable,
  includes
• 1. The item is not covered by a manufacturer's
  express written warranty valid in the United
  States (however, any implied warranty provided by
  law still exists).
• 2. The item is not compatible with United States
  electrical currents.
• Exceptions, however, apply if the reseller
  provides a warranty that meets certain conditions
• See e.g. Conn. Gen. Stat. 42-210 Cal. Civil
  Code 1797.81.

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Gray / Grey market Warranty Obligation

• Rife v. Hitachi Construction Machinery Co., Ltd.,
  et. al - Court Of Appeals of South Carolina held
  no breach of warranty obligation for a Hitachi
  machine designed and manufactured solely for sale
  and use in Japan. Gray market importation was an
  intervening force that could not have been
  reasonably foreseen or anticipated. The gray
  market importation was a superseding cause of
  injuries that relieved HCM from liability.

609 S.E.2d 565 (S.C. Ct. App. 2005)
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Electronic Signatures

• Electronic Signatures in Global and National
  Commerce Act ("E-SIGN") (15 U.S.C. 7001 et.
  seq.)
• Eliminates legal barriers to the use of
  electronic technology to form and sign contracts,
  collect and store documents, and send and receive
  notices and disclosures
• However, no one can be required to use electronic
  records, signatures, or contracts

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Electronic Signatures

• An Electronic signature under E-sign and UETA is
  an electronic sound, symbol or process, attached
  to or logically associated with a contract or
  other record and executed or adopted by a person
  or entity with the intent to sign the record.
• Legal equivalent of pen and ink signature
• No contract, signature or record shall be denied
  legal effect solely because it is in electronic
  form
• Specify choice of law and place of acceptance -
  UETA Acts often have deemed location of execution
  and receipt provisions
• Place of business, if none then residence
  location
• Closest connection with the transaction

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Electronic Signatures

• Laws that require paper disclosures are largely
  superseded by E-sign
• EXCEPTIONS INCLUDE PRODUCT RECALLS / material
  failures AND REPOSSESSIONS and foreclosures
• UCC transactions except sales and leases
• Certain state Uniform Electronic Transactions Acts

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Electronic Signatures

• Consent to conduct an electronic transaction is
  generally required and can be inferred from the
  context and circumstances, including the parties
  conduct
• CONSUMER CONSENT to E-transactions is generally
  required!! In addition, disclosures must be made
  to consumers
• Consumer transactions are personal, family and
  household in nature
• Documents can be electronically notarized
• IDENTITY THEFT STATUTES!!!
• Security standards
• Breach of security notifications
• Penalties