FTC staff sends warranty warnings

When the screen goes blue
And the car breaks down
And the smartphone keeps rebooting eternally
Consumers won’t be afraid
No, they won’t be afraid
Just as long as you stand by your warranty.

With apologies to R&B legend Ben E. King, when consumers buy a product with a warranty, it’s with the expectation that businesses will stand by what they sell. But standing by your warranty won’t do customers much good if you disregard the Magnuson-Moss Warranty Act. The FTC staff just sent warning letters to six companies, raising questions about statements the companies are making that appear to tie warranty coverage to consumers’ use of authorized parts or service, a practice that may violate both the Warranty Act and the FTC Act.

According to the Mag-Moss Warranty Act:

No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.

In other words, companies can’t void a consumer’s warranty or deny warranty coverage solely because the consumer uses a part made by someone else or gets someone not authorized by the company to perform service on the product.

There are only two exceptions: 1) if the company provides the article or service to consumers for free; or 2) if the company gets a waiver from the FTC. Under 15 U.S.C. § 2302(c), the FTC may grant a waiver only if the company proves that “the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and the waiver is in the public interest.” Companies may, however, disclaim warranty coverage for defects or damage caused by the use of unauthorized parts or service.

FTC staff recently took a closer look at companies’ warranties and promotional materials and saw language that raised concerns that some businesses were telling consumers that their warranty would be void if they used unauthorized parts or service. The companies used different language, but here are examples of questionable provisions.

• The use of [the company’s parts] is required to keep your . . . manufacturer’s warranties and any extended warranties intact.
• This warranty shall not apply if this product . . . is used with products not sold or licensed by [company name].
• This warranty does not apply if this product . . . had had the warranty seal on the [product] altered, defaced, or removed.

FTC staff suggested that the companies review the Mag-Moss Warranty Act and, if necessary, revise their practices accordingly. The letters also put the companies on notice that we’ll be taking another look at their written warranties and promotional materials after 30 days.

What can other business glean from the warning letters?

Untie the NOT. Take a fresh look at your own warranties. Unless you meet one of Mag-Moss’ narrow exceptions, do not condition warranty coverage on consumers’ use of parts or service from you or someone you authorize.

Read your warranty through consumers’ eyes. Consider the literal wording of your warranties, of course. But like any other advertising representation, companies can communicate claims to consumers expressly and by implication. Subject to those two Mag-Moss exceptions, if the language you choose conveys to reasonable consumers that their warranty coverage requires them to use an article or service identified by brand, trade, or corporate name, revise your practices to avoid a warranty whoops.

Section 5’s prohibition on deception applies to misleading warranty claims. A violation of the Magnuson-Moss Warranty Act is a violation of Section 5 of the FTC Act. But separate and apart from Mag-Moss, a claim that creates a false impression that a warranty would be void due to the use of unauthorized parts or service may be a stand-alone deceptive practice under the FTC Act. When evaluating what they say and do with regard to warranties, savvy companies approach the task by posing the same questions they ask themselves when looking at their ad claims: 1) What will consumers understand us to mean? and 2) Are we telling the truth?

The law’s reach can be global. If you represent foreign companies, counsel them about compliance with the Mag-Moss Warranty Act and the FTC Act. Those laws apply when business practices of non-U.S. companies constitute unfair or deceptive acts or practices that either involve material conduct in the United States or are likely to cause reasonably foreseeable injury within the U.S.