Top 10 Hot Legal Points Dickinson Wright Wants Our Automotive Clients To Know In 2011

January 2011

The automobile industry is emerging from perhaps its biggest crisis ever in North America and Europe. At the same time, it is experiencing growth opportunities in overseas markets. The new norm is change. From financial distress to bailout money, from increased costs to the “right-sizing” of the domestic automotive industry, vehicle manufacturers and their suppliers are facing challenges - and opportunities - never before seen. To thrive, automotive companies must continue to be innovative and proactive while at the same time minimizing transactional and legal risks.

Dickinson Wright PLLC is recognized as one of the nation’s preeminent automotive law firms, with a long history in the industry. Our association with major automotive corporations dates back to the 1920s. Dickinson Wright’s Automotive Group is dedicated to the success of its automotive clients. We are proud to represent not only North American based companies but also those headquartered on other continents. From offices in Toronto, Canada, the traditional Midwest, and Nashville, the heart of the “new auto industry” of the South, approximately 50 Dickinson Wright attorneys “touch” this industry daily. Several of our attorneys have served as in-house counsel at OEMs and automotive suppliers, but we all have a passion for the industry.

With an understanding of the regional, regulatory, and global issues governing the industry, gained through tens of thousands of automotive client engagements, our automotive attorneys, led by James A Plemmons, provide legal support on a broad range of matters. Based on this experience and expertise, the following is a list of 10 things Dickinson Wright wants to make sure its automotive clients are focused on in 2011.

1. Rigorously Evaluate NHTSA-Related Product Issues. Suppliers should rigorously evaluate any issues concerning safety-related defects and noncompliance with safety standards attributed to their products. In the past year, the number and size of safetyrelated recalls conducted by OEMs has increased, in part, due to intense NHTSA and media scrutiny. However, the standard for determining whether a safety-related recall is necessary has not changed, and proposed new safety standards and modifications to recall laws and regulations, including increased civil penalties, were not enacted in 2010 and face an uncertain future. Trial and regulatory attorney Richard A. Wilhelm says that with sufficient data, suppliers can still defend against claims that defects are safety-related or that costly recalls were required.

2. Be Mindful of Increased Union Organizing Efforts. The newly reconstituted National Labor Relations Board (NLRB) has signaled an intent to make it easier for unions to organize unrepresented employees. Dickinson Wright labor attorney William M. Thacker warns that the NLRB already has proposed new rules that would require employers to post notices informing employees of their right to join a union and is expected to overturn existing precedent in various areas. Moreover, NLRB member Mark Pearce recently suggested that the time between the filing of a union representation petition and the election itself should be as brief as possible. In other words, the time for the employer to educate its employees about unionism may be greatly reduced, thus increasing the chances of a union victory. Proactively addressing these issues is critical. Automotive companies wishing to remain union free should act now to develop policies and strategies aimed at mitigating the impact of these anticipated substantial changes in U.S. labor law.

3. Benefit Plan Compliance Will Require Resources. The historymaking Patient Protection and Affordable Care Act (a/k/a the Health Care Reform Act) required a substantial commitment of resources in 2010 as automotive companies struggled to understand and implement the short-term changes in a compressed time frame. ERISA law expert Cynthia A. Moore says that the PPACA changes will require continual monitoring until January 1, 2014, when the law becomes fully operational. Companies need to understand the law and plan for implementation to maximize cost savings and avoid tax penalties. In addition, the Obama administration is focused on disclosure and transparency in the retirement plan area, particularly in the area of fees assessed against participant accounts in defined contribution plans. The DOL’s fee disclosure
initiatives will require a significant amount of attention from retirement plans during 2011.

4. Raw Material Pricing Volatility Requires Action Now. Several years ago the supply chain was beset by cutoffs, shutdowns and litigation due to the spike of steel prices. A few years later, it was resin. As the world economy continues to recover, many analysts expect steel prices to rise in 2011. Dickinson Wright trial attorney Daniel D. Quick anticipates that while many will have learned their lessons from previous gyrations, there will still be negotiations, skirmishes and full-blown litigation as raw material prices remain volatile. If companies did not revise and strengthen terms and conditions last time this happened, there is still time, plus any number of options are available to handle the difficult supplier once there is a dispute.

5. Manage Troubled Supplier Issues Arising from Capacity Limitations. The leader of Dickinson Wright’s automotive practice, James A. Plemmons, is seeing an ever-growing need to proactively manage a new type of troubled supplier scenario -- as volumes climb, suppliers are encountering capacity and financing issues as their severely consolidated operations reach maximum capacity, restrictions continue on working capital availability, and raw material prices remain volatile. Every customer within the supply chain should monitor leading financial and production indicators of its suppliers and, if trouble arises, take immediate action to minimize the risks associated with jeopardized production.

6. Ensure Employed Foreign Nationals’ Exposure To Company Technology is Not a Deemed Export. An illegal export of regulated technology or technical data is “deemed” to take place when it is released to an alien in the US who is a national from a restricted country. Effective February 20, 2011, in conjunction with certain work visa petitions, the US Citizenship and Immigration Services will require companies to certify in writing that the foreign national employee will either not be exposed to regulated technology or technical data or that the company will obtain a license before such an exposure occurs. Dickinson Wright attorney Jeffrey E. Ammons notes that while many automotive products are not subject to the deemed export rules, some “dual-use” technology related to certain alloys, pumps, valves and electronics may be regulated. Larry J. Stringer, Dickinson Wright immigration attorney, suggests that in the face of increased governmental scrutiny regarding the deemed export rules, companies should review the applicable regulations to ensure their employment of a foreign national does not violate them.

7. Pay Attention to Intellectual Property Issues Associated with OEM Terms & Conditions. Vehicles and/or vehicle components being developed by OEMs with the use of government funds may be the subject of intellectual property-related terms and conditions which are significantly different than the standard approach used in most OEM purchase orders and/or purchasing-related documents. Although most OEMs obtain some rights to their supplier’s intellectual property that arises from the supplier’s
work under a purchase order as well as certain rights to related independently-developed or background intellectual property, if government funds are utilized by the OEM for a certain program (vehicle and/or component, or associated manufacturing facility), the OEM and/or the government may seek to obtain broader rights to their supplier’s intellectual property. In addition, in some cases, the supplier may have already started work under a purchase order or advanced development arrangement without
knowing about these additional intellectual property terms and conditions. Contract attorney Roger H. Cummings and IP attorney Richard A. Jones are evaluating and tracking required changes in terms and conditions related to or resulting from customer involvement with government grants/cooperative agreements and suggest automotive companies pay close attention to these new intellectual property related terms.

8. Stay on Top of Cross Border Insolvency Issues. As many businesses in the Canadian automotive industry continue to face serious financial challenges, it is crucial to understand the Canadian insolvency and restructuring process, including the different implications that various types of Canadian insolvency proceedings have for all parties and the differences between the Canadian and U.S. legal contexts. This is particularly important in light of the substantial amendments recently made to Canadian insolvency legislation. Based on Dickinson Wright LLP Toronto lawyer Lisa S. Corne’s extensive experience and expertise advising clients in the automotive industry in relation to both
Canadian and cross-border insolvency matters, she recommends clients in the Canadian automotive industry take pre-emptive steps to review financial circumstancesaffecting critical suppliers, major customers, and competitors in order to identify financial weakness, and develop and implement strategies to preempt and minimize damages, or maximize acquisition opportunities as far in advance as possible.

9. Continue to Look for Opportunities to Buy or Sell. Dickinson Wright corporate lawyer Mark R. High observes that, coming off a very difficult couple of years, many suppliers have taken the opportunity to re-examine their goals, refocus their efforts, and restructure their operations. This can mean that plants and even entire divisions are available. At the same time, anticipating a future with volumes starting to ramp up again, companies are looking to broaden their reach, either in products or geography or just capacity. Thus, this is a good time to right-size the business, whether by expanding the footprint or shedding unwanted facilities. Some companies are doing both, determined to concentrate on their areas of strength.

10. Continue Efforts to Protect Research and Tooling Investments. As the industry continues to recover, volumes begin climbing, and excitement surrounds the many new product launches on the horizon, clients are again making substantial investments in new product designs and tooling. Safeguarding that investment continues to be critical. Dickinson Wright attorney M. Kimberly Stagg reminds clients to use specialized design and development agreements, to check on internal processes used to protect assets, to ensure appropriate language is included in terms and conditions, to implement the use of bailment agreements, and to continue to evaluate the impact of any changes to applicable state and federal laws that might impact your ability to swiftly enforce your rights to those assets or your liability for third-party liens, claims and encumbrances.

FOR MORE INFORMATION, PLEASE CONTACT:
James A. Plemmons in Detroit, MI, head of the firm’s
automotive practice, at 313.223.3106 or jplemmons@
dickinsonwright.com.

 

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