The Brazilian Administrative Council for Economic Defense (CADE) has moved to shelve an administrative prosecution action against Volkswagen, Fiat and Ford. The action was initially originated at the request the National Association of Automotive Parts Manufacturers (ANFAPE), with the request for a preliminary inspection to look into whether practices by the official auto manufacturers amounted to abuse of their dominant position and monopolization of the market. The manufacturers stand accused of using design rights protection to maintain exclusivity over the manufacture of spares parts for the vehicles they produce, to the detriment of secondary or independent automotive parts manufacturers.

CADE’s full body of counselors voted on the administrative action 4-3 in favor of shelving the matter, not being fully convinced of the that the official auto manufacturers were technically abusing their design rights. The Rapporteur in the matter and three others voted in line with the opinion of CADE’s technical support arm and the Federal Prosecutor’s Office to no avail. The decision to shelve the matter has now given the auto manufacturers a victory that can only be reverted by a court of law.

The votes for the shelving indicate that CADE’s role is limited to analyzing the abuse of competition on the exercise of Intellectual Property rights. The Brazilian IP Law does not mandate any limitation to design rights concerning the secondary market. Considering this and the fact that anyone with design rights may enforce them it would not be CADE’s role to impose, primarily, any legal restrictions on the use of legally granted IP rights.

CADE’s decision sets the Brazilian position on the global discussion of this controversy related to the secondary market. Most of the countries in the EU still allow the enforcement of design-protected spare parts against infringement within the secondary market; although, the EU regulation stipulates that if any regulatory change is made within an EU member nation, it should be in favor of automotive parts manufacturers (the so-called “freeze-plus clause”).

It is likely that CADE’s decision will have an impact in the short term on the automotive parts manufacturers’ business in Brazil. That is because the official manufacturers that own the industrial design rights now have a powerful argument for demanding the automotive parts manufacturers to Cease and Desist producing independent car parts that substantially imitate or reproduce the protected designs.