pivoting production to meet COVID-19 related shortages
2 mins reading time
Manufacturers switching to make products in short supply because of the COVID-19 pandemic face a number of unique issues. We addressed the IP issues in an earlier article and here discuss issues relating to their obligations under Australian Consumer Law.
spare parts and repairs
It is to be expected that many of the manufacturers currently pivoting to make goods that are in short supply will switch production back once normal supply channels are able to cope with demand again. In some cases they may wait until demand for their normal goods picks up. Whatever the case, their presence in the face mask/hand sanitiser/ventilator industry is likely to be temporary.
It is worth noting however that those manufacturers will nevertheless still be subject to obligations under the Australian Consumer Law (ACL) as to spare parts and repair facilities.
what goods are subject to the ACL?
Under Part 3-2 of the ACL, supplies of goods to a consumer are subject to unavoidable statutory guarantees. A “consumer” is anybody who buys goods of a kind that are ordinarily acquired for personal, domestic or household use or consumption, or that are priced below $40,000.
Taking the example of a ventilator, apparently the costs of those are well within the $40,000 range. As such, the sale of a ventilator is deemed to be a sale to a consumer, regardless of whether the actual purchaser is an individual, a corporation or government. So what does that mean?
guarantee as to repairs and spare parts
Under section 58 of the Australian Consumer Law, when a person supplies goods in trade or commerce to a consumer, there is a statutory guarantee that the manufacturer of the goods will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available for a reasonable period of time.
This potentially has serious implications for a business that manufactures such goods as a stop-gap measure to meet a current shortage. It is expected that once the health emergency is over, that business will switch back to their normal production and have no further dealings in the interim goods.
managing the risk
The statutory guarantee under section 58 cannot be excluded under the Australian Consumer Law. However there are steps that can be taken to mitigate the risk:
- Supply the goods as a subcontractor of an existing manufacturer, with an agreement that the existing manufacturer will maintain spare parts and repair facilities. There should be an indemnity from the existing manufacturer for any failure to meet those obligations.
- Ensure that purchasers are alerted to the limitation on repair facilities and spare parts. This is relevant in two ways: section 58(2) provides an exemption when consumers are given reasonable notice of limited repair facilities and spare parts. It is important to consider how that may work in practice if the messaging to downstream purchasers cannot be controlled. Even a bold notice on retail packaging might not be visible if the goods are resold online. Therefore the sale to resellers should be avoided. Instead it is safest if sales are made directly to end users.
The IP and Trade team at Macpherson Kelley is able to provide case by case guidance on how to handle such arrangements.
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pivoting production to meet COVID-19 related shortages
Manufacturers switching to make products in short supply because of the COVID-19 pandemic face a number of unique issues. We addressed the IP issues in an earlier article and here discuss issues relating to their obligations under Australian Consumer Law.
spare parts and repairs
It is to be expected that many of the manufacturers currently pivoting to make goods that are in short supply will switch production back once normal supply channels are able to cope with demand again. In some cases they may wait until demand for their normal goods picks up. Whatever the case, their presence in the face mask/hand sanitiser/ventilator industry is likely to be temporary.
It is worth noting however that those manufacturers will nevertheless still be subject to obligations under the Australian Consumer Law (ACL) as to spare parts and repair facilities.
what goods are subject to the ACL?
Under Part 3-2 of the ACL, supplies of goods to a consumer are subject to unavoidable statutory guarantees. A “consumer” is anybody who buys goods of a kind that are ordinarily acquired for personal, domestic or household use or consumption, or that are priced below $40,000.
Taking the example of a ventilator, apparently the costs of those are well within the $40,000 range. As such, the sale of a ventilator is deemed to be a sale to a consumer, regardless of whether the actual purchaser is an individual, a corporation or government. So what does that mean?
guarantee as to repairs and spare parts
Under section 58 of the Australian Consumer Law, when a person supplies goods in trade or commerce to a consumer, there is a statutory guarantee that the manufacturer of the goods will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available for a reasonable period of time.
This potentially has serious implications for a business that manufactures such goods as a stop-gap measure to meet a current shortage. It is expected that once the health emergency is over, that business will switch back to their normal production and have no further dealings in the interim goods.
managing the risk
The statutory guarantee under section 58 cannot be excluded under the Australian Consumer Law. However there are steps that can be taken to mitigate the risk:
- Supply the goods as a subcontractor of an existing manufacturer, with an agreement that the existing manufacturer will maintain spare parts and repair facilities. There should be an indemnity from the existing manufacturer for any failure to meet those obligations.
- Ensure that purchasers are alerted to the limitation on repair facilities and spare parts. This is relevant in two ways: section 58(2) provides an exemption when consumers are given reasonable notice of limited repair facilities and spare parts. It is important to consider how that may work in practice if the messaging to downstream purchasers cannot be controlled. Even a bold notice on retail packaging might not be visible if the goods are resold online. Therefore the sale to resellers should be avoided. Instead it is safest if sales are made directly to end users.
The IP and Trade team at Macpherson Kelley is able to provide case by case guidance on how to handle such arrangements.