Last week, the FTC brought and settled enforcement actions against two manufacturing companies for allegedly limiting customers’ right to repair purchased products under unlawful warranty terms. The FTC alleged that the two companies, Harley-Davidson Motor Company Group, LLC (a motorcycle manufacturer) and MWE Investments, LLC (a Westinghouse outdoor generator maker), acted illegally when using voidable warranties that required customers to use manufacturer-supplied parts and service instead of allowing customers to use independent dealers to either supply parts or perform repairs. In the settlements, the FTC ordered both companies to remove these warranty terms, admit to customers what they did, and ensure fair competition between dealers and independent third parties providing repair services and parts.
According to the FTC’s complaints against Harley-Davidson and MWE Investments, the companies’ unlawful warranty terms violated the Magnuson-Moss Warranty Act for conditioning warranty coverage on using the companies’ respective parts or services without either seeking the FTC’s waiver or providing the parts or services free of charge under the warranty. The FTC also alleged the manufacturers acted deceptively in failing to disclose these conditions properly. The FTC alleged that Harley-Davidson also violated the FTC’s Rule Governing Disclosure of Written Consumer Warranty Terms and Conditions (“Disclosure Rule”) when it failed to provide a single document containing the warranty terms, so customers would need to contact authorized dealers to understand the full terms of their warranties.
In its press release, the FTC specified that these enforcement actions were brought to target warranty terms that harm competition and consumers by:
- Restricting consumers’ options by improperly implying that warranty coverage is maintained by repairs with authorized parts or services only;
- Making consumers get potentially costlier repairs with the manufacturers’ approved parts or services instead of a third party’s in order to maintain the warranties;
- Disrupting a level playing field for independent dealers, repairers, and aftermarket parts manufacturers; and
- Preventing the resiliency and repairability of products, which would limit competition for aftermarket parts and leave consumers at risk of the manufacturer companies’ potential supply chain problems.
Both Harley-Davidson and MWE Investments agreed to consent orders settling the FTC’s charges. Under the orders, the companies are prohibited from further violations of the Magnuson-Moss Warranty Act and, for Harley-Davidson, the FTC’s Disclosure Rule. The consent orders enjoin the companies from conditioning a warranty on a consumer’s use of branded parts or authorized service providers, and from making any representation to consumers that using unauthorized or third-party parts or services will void a warranty. The orders also require the companies to take affirmative action by:
- Adding clear and conspicuous disclosures in their warranty statements that say the following, or something substantially similar: “Taking your product to be serviced by a repair shop that is not an authorized by or affiliated with [Company] will not void this warranty, and using third-party parts will not void this warranty.”
- Sending notices to current customers with warranties explaining that, pursuant to an agreement with the FTC, the company revised its warranty so that the warranty is not void if customers use third-party parts or services. The companies must also post these notices on their websites.
- Sending notices to the companies’ respective authorized dealers and service providers with a copy of the revised warranties. The companies must inform their authorized dealers and service providers that they cannot represent that customers must use genuine parts or services to maintain their warranties. The companies must also direct their authorized dealers and service providers to train and monitor their employees on representing the warranty terms appropriately and to remove any deceptive display materials.
Unlawful repair restrictions are an area of increased focus on the FTC’s radar. In July 2021, the FTC unanimously voted to ramp up its law enforcement efforts against repair restrictions. After the settlements with Harley-Davidson and MWE Investments, FTC Chair Khan issued a public statement announcing that the enforcement actions were the first addressing unlawful repair restrictions since the FTC adopted its July 2021 policy statement. She emphasized the FTC’s position that it is “critical that unlawful repair restrictions continue to be a key area of focus for the Commission and that [the Commission] use all of [its] tools and authorities to root out these illegal practices.” This should serve as a warning to companies that provide warranties to consumers. Businesses should evaluate their warranty terms to ensure that their customers are not subject to repair restrictions for their products.