Court Judge Rules Against Ford in Internet Case

The Texas Department of Transportation has won a legal battle against Ford Motor Co. over Ford's right to sell used vehicles to consumers over the Internet.

In a decision handed down by U.S. District Court Judge Sam Sparks, the court ruled against Ford, citing Texas motor vehicle laws that prohibit automakers from also being auto dealers.

Michigan-based Ford had challenged the laws, arguing that they unconstitutionally discriminate against e-commerce and interstate commerce, as well as infringe on the automaker's First Amendment rights to advertise and sell the vehicles online.

In his 15-page ruling, Judge Sparks disagreed, writing that the Texas law was created to "equalise the market power between manufacturers and dealers and further the public interests of the citizens of Texas by prohibiting manufacturers from acting in the capacity of a dealer." The ruling was issued July 21.

And because the law is clear in forbidding any used vehicle sales by manufacturers, Sparks ruled that Ford's legal arguments claiming Constitutional protection were moot. Any used vehicle sales by a manufacturer would be illegal, he wrote, whether "by mail, phone calls, leafleting, skywriting or drum signals." In a footnote, he added, "as well as on a plane, on a train, in a house, or with a mouse."

Ford sold the vehicles on the Internet in the Houston area until November. The carmaker advertised the used vehicles on a Web site, listing prices and descriptions. Consumers were able to put down a $US300 deposit and then complete their transactions at a local Ford dealership.

But the sales halted when Texas officials threatened Ford dealers with $US10,000 fines if they participated. The Texas law also stipulates that anyone selling used vehicles must have a dealer's license.

Peter Olsen, a Ford spokesman, today said the automaker is reviewing whether it will appeal the ruling. The company has until Aug. 21 to file an appeal.

Carol Kent, director of enforcement for the Texas Department of Transportation's Motor Vehicle Division, said the judge's ruling protects the state's consumers.

"This is not an Internet case," she said. "It is a manufacturer-selling-directly [type of] case."

A similar case has been unfolding in Arizona, where two trade associations representing automakers have filed a lawsuit in federal court. They are seeking to block a new law that prohibits car manufacturers from selling directly to consumers via the Internet.

Marcelo Halpern, an attorney specializing in e-commerce at the Chicago law firm of Gordon & Glickson LLC, today called the Texas ruling an "affirmation that real-world laws also apply in e-commerce."

Sparks "is not passing judgment on whether the law is or is not legal," Halpern said. "He's saying [Ford] can't get around the law by doing [its selling] on the Internet."

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