Royal Enfield Motors Ltd, India’s largest maker of middle-weight premium motorcycles, may face hurdles in rolling out its Bharat Stage (BS) VI norms compliant motorcycles from next year if the company fails to resolve a patent infringement dispute with parts maker Flash Electronics in a US court.
The issue relates to the usage of the regulator rectifier, a component mandatory for all BS-VI compliant products.
Earlier this year, New Delhi-based Flash Electronics, which claims to have the patent for this component in the US and Europe, filed a lawsuit against Royal Enfield in the eastern district court of Wisconsin in the US, alleging patent infringement by Royal Enfield. Flash Electronics claims the motorcycle maker has infringed its patent on the component by sourcing it from Aurangabad-based Varroc Group.
If this matter does not get resolved out of court or Royal Enfield fails to get a favourable judgement, it may have to look for a new foreign supplier, according to two people directly aware of the development. This might significantly increase the cost and hurt the company’s ability to establish itself in developed markets such as the US and Europe. The company could also find it difficult to get a new vendor on board in such a short time and even if they do the cost may be higher.
“Most original equipment manufacturers (OEMs) have a multi-vendor policy and Royal Enfield also might move to another supplier. However, there is a question of cost involved in this. Also, this component will have to be used while rolling out the BS-VI products and given the already increased prices and subdued demand for the past one year, this might be a problem for the company," said one of the people cited above.
A regulator rectifier converts the alternating current produced in motorcycle engines into direct current to charge batteries, power headlights, and light up instrument panels, thus driving the motorcycle’s electrical systems.
Royal Enfield follows a multi-vendor strategy wherever necessary and is not dependent on any particular vendor for manufacturing BS-VI compliant vehicles, said a spokesperson.
“There are several other suppliers of this component who could be considered expeditiously if necessary. The ongoing infringement lawsuit does not impact our manufacturing process or production guidance for the year. We will be ready with our BS-VI motorcycles in line with the regulatory timeline," the spokesperson said in reply to an email.
Sales of Royal Enfield’s motorcycles have been declining over the past one year because of an increase in ownership cost and the overall decline in consumption demand in the economy.
Sanjeev Vasdev, managing director of Flash Electronics, said that Royal Enfield approached Flash on 30 May to find a resolution on the case. The Flash management, along with the legal counsel had five meetings with the senior management of Royal Enfield but the two parties did not come to an agreement. However, Royal Enfield has offered Flash all of its international business and a look at domestic at a later date.
“Since resolution talks continued from 30 May to 23 July, Flash had put on hold further legal action, which has now been re-initiated. Flash would ensure Royal Enfield stops infringement and is penalized and is forced to stop production. As regards to Flash patent, it is clear that Royal Enfield internally recognizes the same and that’s the reason for the offer of 100% international business but their ego is preventing them to stop at that," Vasdev said in response to an email sent by Mint.
Most other Indian OEMs such as Bajaj Auto Ltd use Flash as the single source for maintaining the cost advantage as the same product from foreign firms are far more expensive.