The age of disposable goods: To repair is to rebel? - Implications of a legal right to repair for manufacturers and insurers
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Market Insight 05 August 2021 05 August 2021
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Asia Pacific
There has been relentless growth in the availability, scale and choice of disposable goods in the global consumer society. As recently as a generation ago a make do and mend mantra held sway. People used to fix things up, or arrange for things to be fixed. The sound of tinkering emanating from yards, garages, garden sheds and kitchen table tops was ubiquitous at weekends. Notably, Apple Inc was born in a suburban US garage.
This is no longer the case. Due in part to design complexity, it is now almost always quicker, easier and cheaper to replace old or damaged goods with new ones. When things break we buy a replacement. And so on.
Driven principally by environmental concerns, a global movement calling for action to address barriers to repairing goods is steadily gaining traction. The so-called right to repair movement has been instrumental in the passage of legislation to facilitate and safeguard the reasonable right to effect repairs to goods in various jurisdictions. These include amendments to consumer protection laws, sale of goods legislation, technology and intellectual property and copyright laws.
Australia is currently considering whether to implement right to repair legislation.
We consider the potential implications for manufacturers and insurers.
Right to Repair in Australia
The Productivity Commission (the Commission) released a draft report assessing the case for a right to repair in Australia, with a focus on whether consumers face any unnecessary barriers to repair that require a government policy response (Draft Report).
There is no universal definition to the right to repair, however, the Draft Report describes the right to repair as the ability of consumers to have their products repaired at a competitive price using a repairer of their choice.1
The Commission is expecting to hand the final report to the Australian Government in October 2021. The Draft Report
The Draft Report outlines a number of potential barriers to repair which include (but are not limited to):
- limited access to repair supplies (such as spare parts, repair information and tools) which can impede competition from independent repair.2
- Third-party repairers being unable to access repair information under copyright law. 3
- Manufacturer ‘warranty void’ clauses which can deter consumers from using third-party repairers, and thereby impeding competition.4
- Existing product stewardship schemes which do not enable e-waste to be reused.5
The Commission has sought feedback to better understand the potential barriers and to assist the Commission with finalising its views on reform recommendations.
Implications for Manufacturers and Insurers
Given the apparent far-reaching scope of the potential legislative changes considered in the Draft Report, the implementation of right to repair laws in Australia may have significant implications across numerous industries, particularly manufacturing and insurance.
Manufacturers
It is not uncommon for manufacturers across multiple sectors including motor vehicles, white goods, agricultural equipment, and electronics to refuse to provide repair information or parts to anyone outside of their authorised network. That is driven in part by legitimate concerns to protect the integrity and operation of products and in relation to potential liability exposure arising from poor or defective repairs and unsuitable, defective replacement parts.
To improve access to independent repair for consumers, a possible reform indicated in the Draft Report is prohibiting manufacturer warranties from containing ‘warranty void’ terms that require consumers to use authorised repair services or parts from a particular company to keep their warranty coverage.6
For example, if a third-party repairer were to use counterfeit or faulty parts resulting in, or contributing to product failure or a consumer injury, manufacturers may face consequences, particularly in relation to liability arising from product failure or injury caused, as well as reputational damage. Further, and to address the concerns with the proliferation of e-waste raised in the Draft Report, manufacturers may consider re-designing their products to lengthen product life span and durability to mitigate repair issues down the road as well as to reduce its environmental waste footprint.
Another significant concern for manufacturers is safeguarding their intellectual property (IP). The Draft Report indicated the most significant IP-related barrier for consumers repairing their goods was the inability of independent repairers to access repair information.7 Generally, the two primary forms of repair information are manuals and embedded (digital) repair information such as diagnostics.
The Draft Report intimates two potential reforms to copy right laws to assist independent repairers access copyright repair information. The Draft Report indicated that the Copyright Act 1968 (Cth) could be amended:8
- to allow repairers to legally circumvent technological protection measures (such as digital locks) to access repair information; or
- to allow repairers to reproduce and share copyright repair information (such as repair manuals and schematics) without approval of the copyright holder in certain circumstances.
This effectively means that the manufacturers of goods will be required to disclose either generally or on a limited basis, the know how information to enable third party repairers to repair their goods systems.
Insurance
Given the possible implications of the right to repair movement across a broad range of industries, insurers providing property and liability cover to those sectors may be impacted as a consequence. The Draft Report intimates several potential issues that may affect the determination of policy coverage and liability in relation to goods repaired by third parties. This gives rise to further factors to be considered in insurer’s evaluation of risk and the overall underwriting analysis process.
In the underwriting process, on one hand insurers may consider that the more readily available components of products should make any faulty product cheaper to repair. However, changes in regulation and easier access to the inner workings of consumer products may result in an increase in the severity and frequency of warranty claims. The same holds true for a general product recall insurance, where a product designed to be more ’repairer friendly’, for example making battery packs more easily accessible, could raise customer safety concerns as repairs carried out incorrectly could result in damage or injury to the product, repairer or owner. This may result in a more frequent recall of products.
The proposed provision of repair information also raises concern and uncertainty for insurers. If products are required to, for example, come with repair manuals, it is unclear where the liability will lie in circumstances that a third-party repair is carried out poorly, leading to a more serious fault. Further, it is conceivable that a product that was initially poorly repaired, may be repaired again to rectify the initial repairer’s fault. In these circumstances, uncertainty arises as to whether the customer, author of the manual, initial repairer, product retailer, final product manufacturer or component manufacturer is at fault. The introduction of the right to repair certainly creates several new considerations for insurers to determine liability.
The fundamental premise that insurance is written on is risk. However, insurers always seek to have clarity with respect to the risk they are writing. Increasing uncertainty around factors that may increase the severity and frequency of claim, naturally need to be reflected in the policy conditions or the premium rates. This may reduce the competitiveness of an insurers policy cover (or may reduce the availability of the cover for manufacturers).
Limited submissions were made on behalf of the insurance industry in relation to the Draft Report. With the possible implantation of a right to repair regime in Australia on the not too distant horizon, manufacturers and insurers should be evaluating how such a regime would affect their business and the business of their insureds to assess their exposure and implement appropriate protections.
Clyde & Co remains committed to mapping and understanding risks to manufacturers and insurers alongside a growing network of cross-sector experts and collaborators, to help our clients navigate the rapidly evolving risk landscape they face. We will closely follow these developments and provide further updates when the Report is issued. Please contact us if you would like to discuss the issues raised and how this may impact your business.
1 Productivity Commission, Right to Repair (Draft Report, June 2021) 3.
2 Productivity Commission, Right to Repair (Draft Report, June 2021) 25.
3 Productivity Commission, Right to Repair (Draft Report, June 2021) 25.
4 Productivity Commission, Right to Repair (Draft Report, June 2021) 25.
5 Productivity Commission, Right to Repair (Draft Report, June 2021) 25.
6 Productivity Commission, Right to Repair (Draft Report, June 2021) 14.
7 Productivity Commission, Right to Repair (Draft Report, June 2021) 15.
8 Productivity Commission, Right to Repair (Draft Report, June 2021) 17.
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