Always Feel Like Somebody’s Watching You? Hacking Comes to Connected Vehicles

As automakers focus on making vehicles more “connected,” consumers find themselves focusing on the potential negative implications of this new technology.  Consumers are reportedly afraid that the new “connected” technology in vehicles will give hackers a new application for their skills.  These fears are not wholly unsubstantiated, as results of an independent study by the U.S. Department of Transportation suggested that automobiles are susceptible to hacking, which could become more serious as manufacturers add new features to vehicles that will, for example, permit someone to reprogram a vehicle’s engine control system to correct a software problem.

Researchers from the University of Michigan’s Transportation Research Institute (UMTRI) polled 1,600 motorists about connected vehicles.  Survey results reveal that nearly thirty percent of the respondents are “very concerned” about potential security breaches from hackers and data privacy issues, as new technology would allow tracking of vehicle speed and location.  Another thirty-seven percent are reported to be “moderately concerned” about the same issues.  Respondents to this survey also expressed concerns over system failure and performance, as well as drivers relying too much on technology, or being distracted by it.

To address the first category of concerns, automakers such as Daimler and Ford have invested heavily in implementing security systems in their vehicles.  It remains to be seen, how, if at all, the remaining concerns are addressed, or whether consumers will ever find full comfort in connected technology. 

For more information on this topic, click here.

False Advertising Claim Does Not Require Direct Competition: Replacement Parts Manufacturer Can Sue OEM

For years, federal courts have been split on whether a false advertising claim under the Lanham Act required that the plaintiff and defendant be in direct competition.  Last week, the United States Supreme Court answered the question with a simple and straightforward response:  “no.” 

LexMark International manufactures laser printers and toner cartridges.  In order to prevent “remanufacturers” from being able to refurbish used LexMark toner cartridges, LexMark gave customers a discount on new cartridges if they agreed to return empty cartridges to the company.  In addition, LexMark installed a microchip in each cartridge that disabled the empty cartridge unless the chip was replaced by LexMark. 

Static Control made and sold microchips that mimicked Lexmark’s and allowed remanufacturers to refurbish used LexMark toner cartridges that were equipped with the LexMark microchip.  It is important to note that Static Control did not manufacture or remanufacture toner cartridges.  Rather, it simply sold the replacement microchip to remanufacturers, who used them to refurbish and resell the used LexMark cartridges.  Upset at Static Control’s product and the inevitable results, LexMark not only sued Static Control, but went on the offensive in the marketplace.  Specifically, LexMark “sent letters to most of the companies in the toner cartridge remanufacturing business” and advised them that it was illegal to sell the refurbished LexMark cartridges and that it was illegal to use Static Control’s microchip to refurbish those cartridges.  These claims, and others, were the basis of Static Control’s false advertising counterclaim against LexMark.

LexMark filed a motion to dismiss Static Control’s Lanham Act claim, arguing that Static Control lacked standing.  The District Court agreed, stating that Static Control’s injury was “remote” and that Lexmark’s intent was to “dry up spent cartridges at the remanufacturing level” rather than at Static Control’s level.  The Sixth Circuit reversed the dismissal of Static Control’s claim, which led to the appeal to the United States Supreme Court.

The Supreme Court rejected all of the various tests articulated by the litigants and the previous courts for determining whether a party had standing to bring a false advertising claim under the Lanham Act.  Instead, it developed essentially a two-part test:  (a) do the plaintiffs fall within the statute’s “zone of interest”, and (b) are the plaintiffs’ injuries proximately caused by the unlawful conduct?  Using the language of the Lanham Act, the Supreme Court determined that the “zone of interest” for the Lanham Act was “injury to a commercial interest in reputation or sales.”  As for proximate cause, the Supreme Court found that this requirement was met when “deception of consumers causes them to withhold trade from the plaintiff.”  With this test, Static Control clearly had standing to bring a claim against LexMark.

The lesson from all of this?  Be careful what you say out there.  If your actions in the marketplace could proximately cause an injury to another’s “commercial interest in reputation or sales” then your actions may trigger litigation, even if that party is not a competitor.

It’s a Bird… It’s a Wave … No – It’s Just Driver Convenience!

We have all seen use of hand gestures in everyday driving.  More likely than not, those hand gestures communicate some immediate emotional reaction to another driver.  Soon, those hand gestures may not have anything to do with someone else’s driving.  Hand gesture control of vehicle electronics is on its way.

Automakers like Mercedez-Benz and Ford are exploring installing gesture sensing systems into their vehicles; other automakers like Honda and Hyundai have already applied for gesture patents.  And, companies like Microsoft, Apple and Google have likewise filed for related patents and have reportedly purchased gesture-system companies. 

With gesture systems, a driver would be able to control certain aspect of the vehicle with body movements.  For example, Ford has already started using gesture technology by allowing a person carrying a key to open the rear hatch for a Ford Escape by wagging a foot under the rear bumper.  Potential uses being considered include gestures to control volume for the car’s audio system and other such functions.  The goal of this technology, like most technology, is to provide an additional level of convenience for drivers.  These systems would likely be used to compliment the already available voice command features. Pretty soon, you’ll be able to turn the volume up and communicate with your fellow driver all in one wave!

For more information on this up and coming technology, please click here.

Watch Out, Suppliers! Counterfeiting Is Not Only For the Fashion Industry Anymore.

You may have heard of counterfeit purses, watches, and other designer products.  But counterfeit products have infiltrated industries well-beyond the fashion market.  Counterfeits can now be found in all industry sectors, from cosmetics and pharmaceuticals to automotive. 

The very nature of counterfeits makes them difficult to detect.  A consumer may drive to his or her local auto parts store, or with the click of a mouse online, unknowingly purchase counterfeit parts like brake pads, bearings or airbags.  Such products, while bearing the supplier’s trademark, are inferior in quality and may pose a risk to the public’s health and safety.  Counterfeits can also take a major financial toll on automotive suppliers.  In 1997, the Federal Trade Commission estimated that counterfeiting in automotive parts cost automotive suppliers $12 billion annually, including $3 billion annually in the United States alone. 

Solving the counterfeit problem may seem like a daunting task for any single auto supplier.  But, if each supplier considers the following steps, such efforts may help to curb the counterfeiting epidemic plaguing our nation:

 1.  Educate your employees on the value of your intellectual property and the goodwill associated with it;

2.  Meet with your local United States Attorney and let him or her know of the impact counterfeiting has on your business;

3.  If you find that counterfeit products are being distributed on the internet, notify the domain owner, website advertisers, and carriers;

4.  File a civil action to recoup the damages your business has suffered;

5.  Consider publishing positive enforcement actions or issuing a press release to inform the public that you value your intellectual property and will not tolerate counterfeiting; and

6.  Consider creating product labels using new technology that is difficult to replicate.

Casting Our Eyes Forward – The Macomb Auto Suppliers Forum

There was plenty to talk about last Thursday night for the more than 150 Warner Norcross guests who braved the cold weather (and potholes!) to attend the Macomb Automotive Suppliers Forum led by a keynote discussion by Nigel Francis, MEDC’s senior automotive advisor, who spoke about collaborative efforts within the sate to retain and grow Michigan’s automotive industry.  The keynote was followed by a panel discussion that included Francis along with Macomb County Executive, Mark Hackel, Vice President of MICHauto, Glenn Stevens, and Vice President of Global Operations for Macomb based Fori Automation, Mike Beck.  The panel was moderated by Tom Manganello, Chair of Warner Norcross’s Automotive Industry Group. 

Clearly, in Michigan, automotive is once again King.  After bottoming out in 2009, we are grateful that the industry’s inspired comeback is pushing maximum capacity.  Francis suggested that Michigan now has the opportunity to reorganize the industry while in a position of strength and he shared the state’s strategy to do so. 

Francis outlined a three part plan to help Michigan to remain the #1 global auto industry hub.  First, focus on retaining the important assets we have; second, strengthen and support those assets; and third, invest in growth and new opportunities.

The panel picked up on these topics and each panelist discussed the challenges and opportunities they see in the current Michigan economy.  County Executive Hackel provided a road map for how Macomb County is working to develop its niche businesses.  Macomb County has a robust economic development team to assist companies located there; members of this team were present at the event.  Stevens discussed how MICHauto is working to develop the automotive business in Michigan on all fronts – suppliers, OEMs, and any other company in the “autosphere.”  Beck discussed how Fori Automation has been able to stay in the same spot in Macomb County all of these years, yet thrive globally.  The consensus was that it is the resources in Macomb County and Michigan that allow companies like Fori Automation to stay strong through rough economies and meet the challenges of the global economy. 

As a long term strategy, the panelists agreed that talent needs to top the list and will require investment.  Although Michigan has one of the best trained workforces, the state lost thousands of good people over the last decade and students coming out of our schools aren’t showing as keen an interest in auto jobs as did previous generations.  To grow the state’s talent pool, Francis said that all of the cards are on the table from K-12 education, university outreach, special programs (he urged guests to familiarize themselves with Michigan’s MAT 2 program that is showing great results) and even potential tax incentives for engineers.

Francis reminded the audience of the importance to first load the gun, then aim, then fire and conceded that Lansing has loaded the gun and is taking aim.  The best news, and the bottom line, was that after many years of taking the automotive industry for granted, automotive is clearly the top priority for Michigan today.  That focus alone should help the bullish forecasts become a reality and return automotive and Michigan to its throne.  Warner Norcross is considering replicating the event in other regions in the coming months.

The Truth Shall Set You Free – FTC’s False Advertising Settlement with Nissan and its Ad Agency

We have all seen the car commercials that are clearly pure fantasy.  A recent one depicts a group of people in San Francisco running late for a meeting.  The driver is not worried because she can make her car jump on moving trains and avoid traffic.  The best part of this commercial is the disclaimer at the bottom that tells viewers not only that the commercial uses professional drivers on a closed course, but that the commercial is “fantasy.”  Now we all know that a car jumping onto a moving train is pretty clearly fantasy, but what about a truck pushing a dune buggy up a sand dune? 

 As Nissan and its advertising agency recently learned, if you are going to show a truck pushing a dune buggy up a sand dune and your truck is actually pulled up that dune by cables, your disclaimer doesn’t save you from a false advertising claim.  In the Nissan commercial, the disclaimer simply stated the commercial was “fictionalization.”  As a viewer, one could imagine that a truck might be capable of climbing a sand dune and perhaps even pushing another vehicle up that dune – even if that moment is fictionalized for the cameras. 

The Federal Trade Commission considered the advertising to be false and filed administrative complaints against Nissan and its ad company.  “Special effects in ads can be entertaining, but advertisers can’t use them to misrepresent what a product can do,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This ad made the Nissan Frontier appear capable of doing something it can’t do.”  So the next time you’re watching a car ad, you might think about the thin line between fantasy and fiction. 

You can read more about the claims and the settlement here.

A New Wave for the Automotive Industry – Paid Apprentice Training

What’s the price tag for a college education?  According to the National Center for Education Statistics, the price for undergraduate tuition, room and board at a public college rose a whopping 42% between 2000-01 and 2010-11.  The National Center for Education Statistics reports that “for the 2010–11 academic year, annual current dollar prices for undergraduate tuition, room, and board were estimated to be $13,600 at public institutions, $36,300 at private not-for-profit institutions, and $23,500 at private for-profit institutions.”  For more information on these and other statstics, click here

How does that affect the automotive industry you may ask?  Well, these astronomical prices may deter great candidates from pursuing a college degree and then seeking employment within the industry, especially considering that employment opportunities after graduation are never guaranteed.  So, what can the automotive industry do to address this concern?  Paid vocational training.  After all, paid vocational training, which is now being referred to as the “German-style” training, has been extremely effective in putting great candidates in the right positions in Germany for years.

The Michigan Economic Development Corporation, Henry Ford and Oakland Community Colleges, and eleven German auto suppliers with operations in Michigan are in the process of implementing a “German-style” paid apprentice program in the State that has already been endorsed by the Governor.   There is already a trial run apprentice program at the Henry Ford Community College with a focus on teaching apprentices the mechatronics trade – i.e., learning to manage automated assembly lines.  Under this program, the apprentices work 40 hours a week in the classroom or on the job, and get paid approximately $200 per week.  There are also plans for a second class of mechatronics apprentices this fall, and possibly two new programs, in industrial design and information technology.  As Sophie Stepke, who has been tasked with starting an apprentice program for her employer in Michigan, explained: “Detroit… Michigan… is all about auto manufacturing – so have students (start) being trained in that area and then let’s see it comes down to all professions.”  For more information on this new venture, click here.

GM Backs Off on Controversial and Troubling Provisions in its July 2013 Terms & Conditions

Seven months of pushback from suppliers later, and it appears that GM has finally gotten the message . . . or, at least part of it.  On February 11, GM issued updated purchasing terms and conditions, which back off of some of the most controversial and troubling provisions of the revamped purchasing terms and conditions that GM rolled out in July of last year.  GM’s Vice President of Global Purchasing and Supply Chain, Grace Leiblein, was quoted by Automotive News as explaining that the reason for the revision of the terms and conditions was that initial changes to the terms and conditions “left a lot of room for interpretation” and were being “interpreted differently than [GM’s] business intent.”  Lieblein acknowledged that it was a “misstep” for GM to revise the terms and conditions without input from its supply base.  She suggested that the updated terms and conditions were being issued as an expression of GM’s commitment to, and trust in, its suppliers.  

The updated purchasing terms and conditions issued today implement the following key changes to the July 2013 purchasing terms and conditions: 

  • In Section 8, Protection Against Labor Disruptions (previously entitled “Protection Against Supply Interruptions”), GM  has removed much of the broad language requiring suppliers to take all actions necessary to ensure uninterrupted supply of goods for at least 30 days during any “foreseeable or anticipated” event or circumstance that could lead to delay of either GM’s production or a supplier’s performance, which technically would have required suppliers to predict potential issues both upstream and downstream.
    • GM has narrowed this provision to ensuring uninterrupted supply of goods for at least 30 days only during “foreseeable or anticipated” labor disruptions or the expiration of the supplier’s labor contracts, which is essentially what was required of suppliers under the 2011 terms and conditions.  The deletion of this broad language reduces the supplier’s risk of breaching this provision by failing to predict circumstances that may arguably have been “foreseeable or anticipated” by others in the supply chain, but for which the supplier may have had insufficient information to be able to protect its supply.  
  • In Section 13, Product Warranty; Warranty of Performance, GM has deleted the last sentence, which required the supplier to warrant and guarantee that the goods “will not, at any time (including after expiration or termination of this Contract), pose an unreasonable risk to consumer or vehicle safety.”  This sentence, which appeared to obligate suppliers to a perpetual “safety warranty,” was one of the most, if not the most, distressing provisions of the July 2013 terms and conditions, both from a legal and supplier perspective. 
    • While Section 13 still contains language that is of concern, the removal of this language reduces suppliers’ risk of future liability by putting a finite number of years on a supplier’s warranty obligations, regardless of however difficult that period of time may be to determine given the other vague language that remains in this provision. 
  • Section 15, Duty to Inform and Notify has been deleted in its entirety.  That section required suppliers to notify GM of facts and circumstances “reasonably likely to give rise to” : (i) any failure by the supplier to perform its obligations, (ii) and delay in the delivery of goods and services, (iii) any defects or quality problems relating to the goods or services, (iv) any changes to in the supplier’s corporate structure or organization, (v) any deficiency in GM’s “specifications, samples, prototypes or test results”, (vi) any failure by the supplier, its subcontractors or common carriers to comply with applicable laws and regulations, or (vii) any change in the supplier’s “authorized representatives, insurance coverage or professional certifications”. 
    • As a result of this key change, suppliers are no longer under an obligation to police the entire supply chain (including GM in some circumstances) in order to anticipate situations where the listed circumstances are “reasonably likely” to arise.  This is particularly helpful in reducing suppliers’ risk of liability for breach where suppliers were under this obligation even though they had no, or only partial knowledge of, and may not have access to, all of the information necessary to comply. 
  • In Section 15 (previously Section 16), Audit Rights; Inspection of Seller’s Premises, GM has deleted the reference to “all pertinent information” from the first sentence as well as the following sentence “If requested by Buyer, Seller will promptly provide to Buyer its most current income statements, balance sheets, cash flow statements and supporting data and schedules.”  This sentence gave GM broad access to supplier financial information, regardless of whether such information was relevant to the supplier’s business with GM, causing a number of concerns for suppliers, from potential securities law violation worries to concerns that such information would be used to demand price decreases from the supplier or to give GM the ability to terminate without liability. 
    • In the updated terms and conditions, GM has expressly limited its ability to access a supplier’s books and records for the purpose of auditing the supplier’s compliance with the contract by inserting the words “books and records solely” into the first sentence.  While this change does alleviate the breadth of GM’s audit rights to some degree and precludes GM from arbitrarily demanding access to supplier financial information, GM’s audit rights remain broad and risky for suppliers, especially when viewed in light of other provisions of the updated terms and conditions. 
  • In Section 23 (previously Section 24), Intellectual Property Rights, GM has substantially revised the language of subparagraph (d), which relates to “background intellectual property rights.”  Previously, though subparagraph (d) purported to provide GM with a limited license to a supplier’s background intellectual property, the license was in fact very broad.  It allowed GM to use a supplier’s background intellectual property to do a wide variety of things, including, to make or have the parts made by a third party (i.e. a supplier’s competitor), and the circumstances in which the license could be used were vague enough to allow GM access to a supplier’s background intellectual property if GM wanted or needed it.  The circumstances in which GM could exercise the license to a supplier’s background intellectual property previously included the following: (i) where GM deemed it to be “reasonably necessary for the direct purposes of this Contract”, without cost to GM, (ii) in the case of termination for cause or in case of a force majeure event alleged by Seller for the lifetime of the applicable product or program, without cost to GM, or (iii) if after “good-faith consultation” with the supplier, GM deemed it “reasonably necessary” to prevent interruption or delay to its production operations and for as long as deemed “reasonably necessary” by GM at a reasonable royalty rate to be negotiated. 
    • In the updated terms and conditions, though GM did not modify the scope of the license in terms of what the license allows GM to do with a supplier’s background intellectual property, including its ability to make or have the supplier’s parts made by a competitor, GM did significantly limit the circumstances in which it can use the license by removing much of the vague language and inserting clearer and narrower language.  Under the updated terms and conditions, GM is entitled to use the license to a supplier’s background intellectual property, at no cost to GM, only if: (i) the supplier “breaches or repudiates its obligations by being unable or unwilling to deliver goods or services” or (ii) the supplier is unable to supply goods or services because of a force majeure event, but only for as long as the supplier is unable to supply.  In addition, GM also added a sentence expressly limiting the duration of the license to the expiration date of the contract.  While the remaining subparagraphs of this Section still contain problematic language, again, particularly when viewed in conjunction with the other provisions, the changes to subparagraph (d) are considerable and provide suppliers with more protection than they previously had under the July 2013 terms and conditions. 

Other changes reflected in the updated purchasing terms and conditions include the following: 

  • In Section 9, Seller’s Assurance of Performance, GM has deleted the phrase “as determined by Buyer in its reasonable discretion”, eliminating GM’s ability to unilaterally determine whether assurances of continued performance provided by a supplier are adequate. 
  • In Section 17 (previously Section 18), Payment; Setoff and Recoupment, GM has added language to limit its ability to withhold payment to a supplier pending receipt of evidence that the goods supplied by the supplier are free of liens, claims and encumbrances to only those situations where GM “has reasonable grounds to believe” that goods supplied by the supplier “may be subject to any liens, claims or encumbrances.” 
  • In Section 28 (previously 29), Insurance, GM has removed the burden for suppliers to name GM as an additional insured or beneficiary of all liability policies.  

GM’s decision to issue these important revisions to the purchasing terms and conditions after overhauling its purchasing terms and conditions just seven months ago is a key victory for suppliers to GM.  However, suppliers doing business under these updated terms and conditions without the proper legal protections are still exposed to significant risks and should consider consulting their legal advisors for assistance in navigating the updated terms and conditions in order to best protect their businesses.

Macomb Automotive Suppliers Forum – February 27, 2014

Warner is pleased to host the Macomb Automotive Supply Forum on February 27.  The forum promises to be an insightful event that addresses global, regional and local opportunities and challenges facing Macomb County auto suppliers and to provide guidance on how they might best position themselves for the future.

Nigel Francis, Senior Automotive Adviser to the State of Michigan and Senior VP of the MEDC’s Automotive Industry Office, will present the keynote presentation on Michigan’s new strategic road map to promote, retain and grow the auto industry in Michigan.  Presidents, CEOs, CFOs, Purchasing Directors, Sales Directors and other senior executives at automotive suppliers are invited to attend.   For more information, including registration details, visit: http://www.wnj.com/MacombAuto2014.

Drum Roll Please – The North American Car and Truck of the Year Winners Are . . .

It’s that time of the year – the NAIAS (better known as the Detroit Auto Show) is here, as are the announcements for the North American car and truck of the year.  And, the winners are: the 2014 Chevrolet Silverado and the 2014 Chevrolet Corvette Stingray.  Congratulations to GM for snagging the two awards!  The runners up for truck of the year were Jeep Cherokee and Acura MDX; the runners up for car of the year award were Cadillac CTS and Mazda3.  Congratulations to all suppliers involved with these vehicles! 

Now go out there and check these cars out in person at the Auto Show.  We’ll see you there.

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