March 26, 2015
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March 23, 2015
New Concerns Over Product Liability Risk for Trademark Licensors
It is typically assumed that trademark licensors are not subject to liability in product liability actions for defective or harmful products of their licensees. However, a recent Connecticut state court decision upheld a $2.4-million product liability verdict against the Tile Council of North America even though the Tile Council was a trademark licensor that had not actually manufactured or sold the product at issue. In this case, the Estate of Hannibal Saldibar filed a complaint against the Tile Council for damages suffered from alleged exposure to asbestos-containing products. The suit sought to establish the Tile Council’s liability on the basis of its status as trademark licensor to the product manufacturer. Although the Tile Council neither manufactured nor sold the products, it did require its licensees to follow various protocols as part of its licensing program. In ruling in favor of Saldibar, the court held that Tile Council exercised control over the distribution, marketing, and manufacture of the products in question in a manner ensnared by Connecticut’s product liability statute.
Under the Connecticut Products Liability Act, a “manufacturer” includes “a product seller or entity not otherwise a manufacturer that holds itself out as a manufacturer.” Conn. Gen. Stat. § 52-572m (emphasis added). The Tile Council contended that it did not qualify as a manufacturer because it never processed, made, distributed, sold, shipped or re-branded any products. However, the plaintiff contended that the Tile Council did qualify as a “manufacturer” under the statute because, in addition to holding certain patents concerning characteristics of dry-set mortar and in addition to licensing the manufacture of the mortar to various suppliers, the Tile Council controlled how the product in question was manufactured, marketed, and sold.
Critically, the court explained that, in supervising the design and the manufacture of licensed products, the Tile Council mandated the percentage of asbestos to be used in the manufacture of the mortar in question and specified that a particular asbestos fiber be purchased from a particular supplier. Further, the Tile Council imposed testing requirements for the material, required that each product display the Tile Council’s trademark, required that its licensees market the products with the Tile Council’s name, charged licensing fees, and recommended that the licensees affix a warning label to the products. Accordingly, the court reasoned that the Tile Council fell within the scope of a “manufacturer” under the Connecticut Products Liability Act and therefore crossed the threshold for liability. Notably, the court distinguished a similar case in which liability did not run to a trademark licensor on the basis that the licensor did not have substantial involvement with the design, manufacture, or distribution of its products. Burkert v. Petrol Plus of Naugatuck, Inc., 216 Conn. 65 (1990). Specifically, the court noted that in Burkert the licensor did not exercise control over the formulations of its products, had little supervision over the production and distribution of the product, and did not receive financial benefits from its licensing program. Other courts have adopted a similar liability scope under the “apparent manufacturer” doctrine whereby licensors who maintain a significant degree of control or involvement in the design, marketing, and distribution of a defective product may be held liable for the defective harmful products as if the licensors were the manufacturer. See, e.g., Hebel v. Sherman Equip., 442 N.E.2d 199, 204 (Ill. 1982); Torres v. Goodyear Tire & Rubber Co. Inc., 901 F.2d 750, 751 (9th Cir. 1990).
While we at Neal, Gerber & Eisenberg LLP do not believe that this decision significantly alters the liability risk for licensors, we do feel that the decision highlights a need for licensors to assess the nature of the control that they exercise over their licensees. Of course, by granting licensees full autonomy or by exercising minimal control over the nature and quality of licensed products, licensors risk accusation of “naked licensing” and the possible loss of rights in their marks. Moreover, we believe that the decision in Saldibar is instructive insofar as it further defines what types of control can be construed to subject licensors to this type of liability. Accordingly, trademark licensors should carefully consider the types and amount of control that they exercise in order to provide comfort that they are not taking on undue risk.
1 Hannibal Saldibar v. A.O. Smith Corp., 53 Conn. L. Rptr. 261 (Conn. Super. 2011).