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Letter to the Editor

Keystone Will Contest Recommendations to International Trade Commission in Ford Design Claim

The judge ruled that seven of ten design patents directed to parts for the Ford F-150 truck were enforceable and infringed Ford's design patents, but agreed with Keystone and the other respondents that three patents are invalid due to Ford's prior public use of the designs. The judge did not accept the respondents' further arguments that Ford's prior public use and other conduct also render the remaining seven patents invalid and unenforceable, and that even if valid, none of the ten patents is infringed. Consequently, he ruled that the importation of automotive parts covered by these seven patents violates Section 337 of the Tariff Act of 1930, as amended. Ford initially alleged that Keystone and the other respondents infringed 14 design patents directed to various exterior parts of Ford's 2004/2005 F-150 truck, but dropped four additional design patents before the trial commenced.

This ruling will be reviewed by the International Trade Commission, which must issue its ruling on or before March 5, 2007. Keystone and the other respondents believe the judge correctly found an invalidating public use and properly invalidated three of Ford's patents. The respondents, however, will shortly file a petition urging the Commission to review and reverse other portions of the initial determination, as well as earlier rulings by the administrative law judge. The Commission has 45 days from the date of service of the initial determination to decide whether or not it will grant, in whole or in part, a petition for review. If the petition is granted, the Commission will then set a briefing schedule.

If the Commission, nonetheless, ultimately finds a violation of Section 337, it will issue an order prohibiting further importation of the covered parts into the United States. The Commission's actions are subject to the review by the President of the United States, who has the authority to approve or disapprove the Commission's action. The Commission's final decision can then be appealed to the United States Circuit Court of Appeals for the Federal Circuit.

"We believe the decision invalidating three of Ford's patents is correct, but incomplete and that all of the patents are invalid, unenforceable, and not infringed. We, therefore, intend to vigorously pursue our appeal rights," said Richard Keister, president and chief executive officer of Keystone Automotive.

The Commission's Office of Unfair Import Investigations, an independent party to the litigation representing the public interest, supported Keystone and the other respondents on all issues in the investigation, including their position that all of the patents are invalid, not infringed, and unenforceable because Ford fraudulently obtained its patents by intentionally hiding the invalidating public use from the United States Patent and Trademark Office.

The seven patents in question cover 13 parts sold by Keystone, which represents less than 0.1 percent of sales on a trailing 12-month basis. It is not anticipated that the aggregate loss of sales of these parts over time would be material to the financial condition or results of operations of Keystone. However, depending upon the nature and extent of any adverse future rulings, Ford and other automobile manufacturers may attempt to assert similar allegations based upon design patents on a significant number of parts for other models, which over time could have a material adverse impact on the entire aftermarket collision parts industry.

The collision repair parts market is a $16 billion industry that is estimated to be 72 percent controlled by automobile manufacturers. The utilization of aftermarket collision repair parts by the collision repair industry represents, according to Keystone, an estimated 20 to 40 percent savings over those parts supplied by the automobile manufacturers.

Keystone Automotive Industries, Inc. distributes its products primarily to collision repair shops through its 136 distribution facilities, of which 22 serve as regional hubs, located in 38 states and Canada.

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