United States: Licensors Beware: Substantial Participation In Design, Manufacture And/Or Distribution Of Licensee's Product May Impose Liability Under Apparent Manufacturers Doctrine (AMD)

Background

In a service-based economy, many industrial and consumer products are manufactured and sold through trademark licensing arrangements. Under these types of contractual agreements, the owner of the trademark licenses its brand name or mark to another company in exchange for a licensing fee. The authorized user of the trademark then has a contractual right to manufacture and sell the goods bearing the trademark. However, in some circumstances, the mere act of licensing the trademark to a manufacturer of a product for a fee can expose the licensor to a product liability claim under the Apparent Manufacturers Doctrine (AMD).

Recent case law decisions handed down by courts in various jurisdictions reveal that the liability of trademark licensors that neither manufactured nor sold the allegedly defective products that only bore their trademark may be limited to those licensors that substantially participated in the design, manufacture and distribution of the products.

Origin of AMD and Limitations on Passive Trademark Licensors

Courts have attempted to address the liability of trademark licensors under the AMD initially set forth in § 400 of the Restatement (Second) of Torts (1965). Under § 400, a product seller that puts out as its own an allegedly defective product manufactured by another will be held liable as an apparent manufacturer. Section 400 essentially substitutes the seller for the manufacturer in terms of liability on the rationale that the name/mark is an inducement for the purchase of the allegedly defective product based on the licensor's reputation and skill. However, Comment "d" to § 400 expressly sets forth that "one puts out a chattel as his own when he puts it out under his name or affixes to it his trade name or trademark." Thus, the language of Comment "d" seemingly imposes "apparent manufacturer" liability on any entity that had its name/mark on the product regardless of whether or not the entity played a role in the manufacture or distribution of the product. Therefore, some courts applied the AMD to trademark licensors who had no role in the chain of distribution of the allegedly defective product that simply bore its trademark.

In 1997, the American Law Institute promulgated the Restatement (Third) of Torts § 14, which attempted to clarify when trademark licensors who are not in the chain of distribution may be held liable for defective products under an "apparent manufacturer" theory. Comment "d" to § 14 expressly excludes from liability "the licensor who does not sell or otherwise distribute products." However, Comment "d" further expressly states that "trademark licensors are liable for harm caused by defective products distributed under the licensor's trademark or logo when they participate substantially in the design, manufacture or distribution of the licensee's products ... in these circumstances they are treated as sellers of the products [that] bear the marks." Thus, a trademark licensor who neither manufactured nor sold the allegedly defective product but substantially participated in the design, manufacture, marketing and/or chain of distribution of the product may be held liable.

The Liability of a Trademark Licensor Is Generally Limited to Situations Where It Substantially Participated in the Design, Manufacture and Distribution

Under Comment "d" of § 14, the focus in determining liability is no longer whether the presence of the trademark was an inducement for the purchase but rather whether the trademark licensor substantially participated in bringing the product to market. This approach to apparent manufacturer liability is commonly referred to as the "enterprise liability" test. Under this test, no proof of reliance on the trade name or mark is necessary. Where the court recognizes the AMD as a means of imposing liability upon an entity that neither manufactured nor sold the product, courts have generally relied upon one or more of three tests for assessing liability of apparent manufacturers:

  • The objective reliance test, which asks whether a reasonable consumer would have thought that the alleged "apparent manufacturer" actually manufactured the product
  • The actual reliance test, which asks whether the plaintiff actually and reasonably relied upon the trademark in purchasing the product
  • The enterprise liability test.

While all three tests are applicable to apparent manufacturers, the only test applicable specifically to a trademark licensor is the enterprise liability test, i.e., whether or not the licensor substantially participated in the design, manufacture and/or distribution of the product to have exercised control over the product. Courts that have addressed the AMD specifically in the context of trademark licensors apply this test and hold that where there is no substantial participation, the licensor cannot be liable.

Recently in Rublee v. Pfizer, Inc., 199 Wn. App. 364, 2017 Wash. App. Lexis 1488 (June 26, 2017), the Court of Appeals of Washington in addressing the AMD to determine the liability of Pfizer, Inc., albeit not an authorized trademark licensor but whose name appeared on bags of asbestos products manufactured by the Quigley Company, applied the enterprise liability test, among other tests, to conclude that Pfizer was not an apparent manufacturer of Quigley where there was no proof that Pfizer participated substantially in the design, manufacture and/or distribution of the Quigley product, among other reasons. Likewise, on May 31, 2016, another asbestos case addressing the apparent manufacturer liability of Pfizer, Inc., came before the Court of Appeals in Maryland. There, the Court of Appeals of Maryland applied the same tests and reached the same conclusion based on a similar factual scenario. See Stein v. Pfizer, Inc., 228 Md. App. 72, 137 A.3d 279, 2016 Md. App. LEXIS 51 (May 31, 2016).

A number of jurisdictions have limited the liability of trademark licensors to those who have substantially participated in bringing the product to the market:

  • Colorado also has reiterated that the AMD does not apply to a trademark licensor with "no involvement in production, marketing, or distribution of product." See Heinrich v. Master Craft, 131 F. Supp. 3d 1137 (D. Colo. 2015) applying Colorado law.
  • Massachusetts also agrees. Applying Massachusetts law, the District Court explained that "a nonseller trademark licensor who participates substantially in the design, manufacture or distribution of the licensee's product may be held liable under Massachusetts law as an apparent manufacturer." See Anunciacao v. Caterpillar Inc., No. 07-10904-JGD, 2011 U.S. Dist. LEXIS 118374 (D. Mass. Oct. 13, 2011).
  • New York also has held that a trademark licensor is not liable "where there is no evidence of a trademark licensor's 'actual control' over the production, including the capacity to exercise control over product quality, or the distribution, including sales." See Auto Ins. Co. of Hartford Conn. v. Murray, Inc., 571 F. Supp. 2d 408 (W.D.N.Y. 2008).
  • In SSP Partners v. Gladstron Invs. (USA) Corp., 169 S.W.3d 27 (Tex. App. 2005), the court recognized "a trademark licensor may be liable as an apparent manufacturer when the licensor is significantly involved in the manufacturing, marketing, or distribution of the defective product."
  • In Schenepf v. Kansas Gas Service Company, No. 04-4143, 2005 U.S. Dist. LEXIS 4167 (D. Kans. Mar. 4, 2005), the court rejected a broad principle that the AMD did not apply to trademark licensors. Instead, the court suggested that a claim against a trademark licensor was viable should there be facts illustrating defendant's "substantial or integral involvement in the manufacture, sale, distribution, or marketing of the alleged defective product."
  • Likewise, in Iragorri v. United Techs. Corp., 285 F. Supp. 2d 230 (D. Conn. Sept. 30, 2003), the court noted that "the Connecticut Supreme Court ... refused to extend the apparent manufacturers doctrine to trademark licensor 'not involved in the production, marketing, or distribution of the defective product.'" The court further explained that jurisdictions applying the AMD to trademark licensors have generally relied "on the trademark licensor's involvement in the actual distribution, marketing, or manufacture of the product" and where such proof is lacking, a claim must fail.
  • In Harrison v. B.F. Goodrich Co., 881 So. 2d 288 (Miss. Ct. App. 2004), the Mississippi Court of Appeals relying on § 14 noted "there is no liability for an allegedly defective product on the part of a trademark licensor who was not involved in the design, manufacture, or sale of the product."

Non-Uniform Application of the AMD

Courts have generally limited the liability of trademark licensors to those that substantially participated in the design, manufacture and distribution of the product. However, some jurisdictions have continued to apply the AMD to licensors who did not substantially participate in the design, manufacture and distribution of the product. For instance in Kennedy v. Guess Inc., 806 N.E.2d 776 (Ind. 2004), a court in Indiana denied Summary Judgment to a licensor that did not design, manufacture and/or sell the product on the ground that the licensor exercised some control over the product inasmuch as it approved the placement of the logo on the product. However, even in that case, the Indiana Supreme Court noted that "Indiana common law should treat trademark licensors as having responsibility for defective products placed in the stream of commerce bearing their marks, but only so much of the liability for those defects as their relative role in the large scheme of design, advertising, manufacturing, and distribution warrants."

Other jurisdictions, such as Arizona, Georgia and Michigan, have rejected the AMD entirely and not just specifically in regard to trademark licensors. In New Jersey, the Product Liability Act, N.J.S.A. § 2A:58C-1 et seq., which is generally the exclusive remedy for harm caused by a product, specifically defines a manufacturer as "any person who designs, formulates, produces, creates, makes, packages, labels or constructs any product or component of a product" and as a "product seller" − in other words, anyone who actually designed, manufactured and sold the product.

In short, where a plaintiff seeks to impose liability on a trademark licensor as an "apparent manufacturer" under the AMD theory, the licensor may avoid liability where the AMD is not recognized at all or by identifying its lack of a role or a limited role in the design, manufacture and distribution of the product showing that it did not exert the required amount of control over the allegedly defective product to be considered the "apparent manufacturer."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Katten Muchin Rosenman LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Katten Muchin Rosenman LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions