Focus on the automotive industry: Community Design protection of alloy wheel rims and the Repair Clause

On 20 December 2017 the Court of Justice of the European Union (CJEU) handed down its judgement in a long-standing case regarding the protection of alloy wheel rims and the scope of the repair clause. The Corte d’appello di Milano (Court of Appeal, Milan, Italy) and the Bundesgerichtshof (Federal Court of Justice, Germany) had made requests for a preliminary ruling concerning the interpretation of Article 110(1) of the Community Design Right Regulation (CDRR); the so called “repair clause”.

The underlying legal question – whether the repair clause applies to wheel rims – has kept the national courts busy over the last couple of years.

In a nutshell: The protection of spare parts by Community Designs

Community Design Law recognises, in principle, two kinds of spare parts – “must fit” and “must match” spare parts.

“Must fit” spare parts only comprise features of the appearance of a product which must necessarily be reproduced in their exact form and dimensions in order to permit the product in which the design is incorporated or to which it is applied to be mechanically connected to or placed in, around or against (i.e. must fit with) another product so that either product may perform its function. In order to prevent technological innovation being hampered by granting design protection to features dictated solely by technical functionality and to guarantee the interoperability of products of different origin, “must fit” spare parts do not enjoy protection under Community Design Law (see Article 8(2) of the CDRR).

“Must match” spare parts, on the other hand, are eligible for protection under Community Design Law. “Must match” spare parts are spare parts whose shape and configuration are dependent on the shape and configuration of a complex product (which consists of various parts and is demountable, e.g. a car); although there does exist an alternative in design. However, Article 110 CDRR (the “repair clause”) excludes all protection for a Community design protecting a “must match” spare part if the conditions laid down by that provision are met, i.e. (i) the existence of a Community design, (ii) the presence of a component part of a complex product and (iii) the need for use for the purpose of the repair of that complex product so as to restore its original appearance.

Background of the CJEU’s judgement

The basis of the requests for a preliminary ruling is two proceedings against the Italian based company Acacia initiated by Audi respectively Porsche.

Audi is the holder of a number of Community Designs of alloy car wheel rims. Italian based company Acacia manufactures alloy car wheel rims that are sold on its own website which is available in several languages. According to the referring court (Court of Appeal, Milan, Italy), some of those wheel rims were identical to Audi’s alloy wheel rims. The rims manufactured and sold by Acacia were stamped with the indication “NOT OEM” in order to make potential customers aware that they are not originating from the “Original Equipment Manufacturer”. According to the findings of the Court in Milan, the commercial and technical documents accompanying Acacia’s alloy car wheel rims, the sales invoices and Acacia’s internet site indicated that the wheel rims at issue were sold exclusively as replacement parts for the purpose of making repairs.

Audi won in the first instance before the Tribunale di Milano (District Court, Milan, Italy), however Acacia filed an appeal against that court’s judgment before the Milanese Court of Appeal, which after noting inter alia the existence of conflicting rulings from Italian courts and courts of other Member States concerning the application of the repair clause, referred the case to the CJEU.

Similarly to Audi, Porsche is the holder of a number of Community Designs of alloy car wheel rims and brought an action against Acacia for infringing Porsche’s corresponding Community Designs. Again the referring court (Federal Court of Justice, Germany) found that some of Acacia’s wheel rims were identical to Porsche’s alloy wheel rims. While Acacia argued that its rims were manufactured and intended for Porsche vehicles only, Porsche submitted to that court that the rims in question were also offered in colours and sizes which did not correspond to the original products. Porsche succeeded in the first instance before the Landgericht Stuttgart (Regional Court, Stuttgart, Germany). Acacia’s appeal was dismissed by the Oberlandesgericht Stuttgart (Higher Regional Court, Stuttgart, Germany) and after Acacia appealed on a point of law against that judgment, the Federal Court of Justice, Germany, referred the case to the CJEU, asking whether Acacia may rely on the ‘repair clause’.

The questions referred to the CJEU for a preliminary ruling

In the proceedings concerning requests for a preliminary ruling from the Corte d’appello di Milano (Court of Appeal, Milan, Italy) and from the Bundesgerichtshof (Federal Court of Justice, Germany) the CJEU’s considerations regarding the interpretation of the “repair clause” concerned the three following questions:

  1. Is Article 110 (1) of the CDRR subject to the condition that the protected design (i.e. spare part) is dependent upon the appearance of the complex product (i.e. car)?

The background to this question is that wheel rims and the respective protected designs are not dependent on the appearance of a car (i.e. the complex product), since wheel rims are freely interchangeable.

  1. Is the application of Article 110 (1) of the CDRR subject to the condition that the replacement part must have an identical visual appearance to that of the part which was originally incorporated into the complex product when it was placed on the market?

This question arose because car manufacturers regularly offer a wide variety of wheel rims for their car models. When ordering a new car, customers can choose between wheel rims of different origin, design and dimensions.

  1. Is a manufacturer or seller of a component part of a complex product (i.e. spare part) obliged to take any precautionary measures in order to guarantee that downstream users of the component part only use it for the purpose of repair?

The reason for this final question was mainly that often wheel rims are ordered in greater numbers, e.g. in sets of four wheel rims. In such cases it appears somehow doubtful that the wheel rims are only ordered for the purpose of repair, since it is rather unlikely that all four wheel rims are damaged at the same time and need to be replaced.

The CJEU’s response

  1. Firstly, the CJEU ruled that Article 110 (1) of the CDRR was not subject to the condition that the protected design (i.e. spare part) is dependent upon the appearance of the complex product (i.e. car).

Thus, the Court disagreed with the view taken by Audi and Porsche, arguing that recital 13 of the Preamble of the CDRR states that Community Design protection cannot be provided for a design which is applied to or incorporated into a product which constitutes a component part of a complex product “upon whose appearance the design is dependent” and which is used for the purpose of the repair of a complex product so as to restore its original appearance.

However, the repair clause itself merely provides that it must be a “component part of a complex product” that must be “used … for the purpose of the repair of that complex product so as to restore its original appearance”. Therefore, according to the CJEU’s literal interpretation of the repair clause, the condition of interdependence between the protected design (i.e. spare part) and the appearance of the complex product (i.e. car) does not exist. Thus, the CJEU considered the argument brought forward by Audi and Porsche that alloy wheel rims are freely interchangeable and independent from the appearance of a car, to be irrelevant.

Moreover, the CJEU further backed up its view with the legislative process. Whereas the first draft proposals of the CDRR contained a provision providing that a design applied to or incorporated in a product which constitutes a component part of a complex product “upon whose appearance the design is dependent” could not enjoy protection as a Community design, this limitation deliberately has not been incorporated by the legislator in the final draft of the CDRR. The different wording of recital 13 is not decisive in the CJEU’s view since, subject to settled case law, recitals can only explain the content of the actual provision of the measure in question, but they do not allow for any deviation from it. Since the repair clause aims to liberalise the market in replacement parts to a certain extent, it is inadmissible to limit the repair clause in the way argued by Audi and Porsche.

  1. Secondly, in the CJEU’s view the application of Article 110 (1) of the CDRR was subject to the condition that the replacement part must have an identical visual appearance to that of the part which was originally incorporated into the complex product when it was placed on the market.

The CJEU noted that the concept of ‘use’ is construed broadly and encompasses any use of a component part for the purposes of repair, e.g. making, offering, putting on the market, importing, exporting or using of a product in which the design is incorporated or to which it is applied, or stocking such a product for those purposes. Moreover, the requirement that the spare part permits the repair of the complex product implies that the component part must be necessary for the normal use of the complex product, which has become defective inter alia due to the lack of the original part or damage caused to it.

As a result, any use of a component part for reasons of preference or purely of convenience (e.g. aesthetic and tuning purposes, customization) is excluded from the scope of the repair clause.

The CJEU then continued to emphasize that the repair clause requires that the repair be done so as to restore the complex product to its original appearance, when it was placed on the market. This, for example, is not the case if the replacement part does not correspond to the original part (e.g. in colour or dimensions) or if the appearance of a complex product was changed since it was placed on the market. Thus, a replica car wheel rim must be identical in appearance to the original wheel rim which had been mounted to car. Contrary to Acacia’s opinion the repair clause does not apply to any other standard variants of original wheel rims a customer potentially might choose from.

  1. Finally, the CJEU confirmed that a manufacturer or seller of a component part of a complex product (i.e. spare part) is obliged to take any precautionary measures in order to guarantee that downstream users of the component part only use it for the purpose of repair.

The CJEU does not share Audi’s view that the application of the repair clause is irreconcilable with the direct sale of replica parts to end consumers, so that manufacturers of replica parts must limit the distribution of their products to repair shops. It states that manufacturers or sellers of a component part of a complex product are under a duty of diligence as regards compliance by downstream users with those conditions.

On the one hand, this duty of diligence encompasses that they must inform downstream users through clear and visible indication on the product, on its packaging, in catalogues or in sales documents. On the other hand, they have to clarify that the component part concerned incorporates a design of which they are not the holder and that the part is intended exclusively to be used for the purpose of the repair of the complex product so as to restore its original appearance.

In addition, manufacturers or sellers of a component part of a complex product must ensure in an appropriate way, particularly by contractual means, that downstream users do not intend to use the component parts at issue in a way that does not comply with the conditions of the repair clause. The CJEU does not give any examples for measures which might be considered to be appropriate. Manufacturers or sellers may potentially need to include contractual penalty clauses in their contracts with downstream users in order to prevent them from inadequate usages.

Finally, the scope of the manufacturers’ or sellers’ duty of diligence is even more extensive. The CJEU states that they must refrain from selling such a component part where they know, or in light of all the relevant circumstances, ought reasonably to know, that the part in question will not be used for repair purposes. Again the CJEU does not indicate in which circumstances this might be the case. One might think of customers ordering a set of four alloy wheel rims as it seems rather unlikely that four alloy wheel rims become defective at the same time.

Outlook

In its judgment the CJEU answers several important questions relating to the repair clause which arose in the battle between the car manufacturers and spare part suppliers in the last couple of years. However, there is no definite winner.

Contrary to the view of the German Federal Court of Justice, the CJEU (to the disapproval of original equipment manufacturers) states that the repair clause is not subject to the condition that the protected design (i.e. spare part) is dependent upon the appearance of the complex product (i.e. car). Therefore, alloy wheel rims – likewise any other “must match” spare part – fall into the ambit of the repair clause, irrespective of whether these are freely interchangeable and independent of the appearance of a car.

However, manufacturers or sellers of replica wheels are not free to copy alloy wheel rims or other “must match” spare part for any purpose whatsoever. It is clear from the judgment that they are only allowed to benefit from the repair clause in limited circumstances, namely only if the “must match” spare part permits the repair of the complex product. In the event of alloy wheel rims, the replica alloy wheel rims must be identical in appearance to the original wheel rim which had been mounted to a car and manufacturers or sellers are especially not allowed to manufacture or distribute copies of any other variant of original wheel rims. Moreover, the duty of diligence that manufacturers and sellers of replica alloy wheel rims have to comply with should not be underestimated. The burden of proof lies with them and it will not be sufficient to simply inform customers about the legal situation; they will have to implement appropriate precautionary measures and revise their customer contracts. Finally, they are under the obligation to reasonably review any order they receive from a customer as to whether the respective customer might use the alloy wheel rims for other purposes than repair and in any case they might not have blind faith in their customers. Otherwise they risk being unable to rely on the repair clause and therefore being liable for design infringement.

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