Product Liability Risk In Licensing Trademarks With Technology

AsbestosA Connecticut Superior Court judge has upheld a jury verdict that once again demonstrates the product liability risks faced by trademark licensors, particularly those who license technology as well as their marks. In Hannibal Saldibar v. A.O. Smith Corp, the court upheld a $2.4 million judgment against the Tile Council of North America, which had licensed its trademarks and patented technology for dry-set mortar to tile manufacturers, in favor of the estate of Saldibar, a plaintiff who had allegedly developed mesothelioma as a result of asbestos exposure. The case is currently on appeal. As we had reported in our post on the Massachusetts case of Lou and others v. Otis Elevator Company here, a licensor that participates in the design, manufacture or distribution of products may sometimes be liable for defects in those products under the “apparent manufacturer” doctrine.

The Connecticut Products Liability Act defines a “manufacturer” to include an entity “not otherwise a manufacturer that holds itself out as a manufacturer”. The Tile Council argued that it was merely a trade association that had developed certain patented formulas, and that it did not fall within the ambit of the statute because it did not formulate products or control the ingredients utilized by manufacturers. The court was not persuaded by these arguments. In its decision on the Tile Council’s motion for summary judgment, the court held that when the Tile Council had licensed its formulas to manufacturers, it had set out detailed specifications that included the percentage of asbestos and even specified a designated grade of asbestos fibre to be purchased from a particular supplier. The Tile Council had even recommended that mortar containing asbestos should be labeled with a warning: “DANGER CANCER HAZARD CONTAINS ASBESTOS FIBERS AVOID CREATING DUST.” This degree of control, together with the use of the Tile Council marks, crossed the threshold for liability. The Tile Counsel thus fell within the scope of the “apparent manufacturer” doctrine and the product liability statute.

The Court distinguished an earlier trademark licensor liability case, Burkert v. Petrol Plus of Naugatuck, Inc., 216 Conn. 65 (1990), on the basis that the trademark licensor in that case, General Motors, had only required that the licensed product meet certain performance standards. General Motors had otherwise exercised no control of the formulation of the licensed product. In that case, General Motors’ performance standards requirement did not rise to the level of a substantial involvement with the design, manufacture or distribution of the product, and accordingly General Motors was not liable.

The verdict highlights that the brand recognition that a licensor receives from use of its trademarks on products that incorporate its technology comes with the risk of product liability. The licensor also faces conflicting interests. On the one hand, the licensor has to retain control of the manner in which its mark is used in order to maintain trademark rights. On the other, control of the formulation of a product, or perhaps even part of a product, may result in product liability for the licensor even though the licensor is not the actual manufacturer. In drafting quality control provisions, licensors should consider whether they are able to walk this fine line so as to protect their marks without incurring product liability – the Burkert case provides an illustration of how this can be done. In any case, licensors should always address product liability risks through insurance coverage and indemnification where possible.

 

Published In: Civil Remedies Updates, General Business Updates, Communications & Media Updates, Products Liability Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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