The Massachusetts Appeals Court has served up a reminder to Massachusetts trademark licensors that they may be subject to liability for injuries caused by defective products bearing their licensed mark, even if they are not the manufacturer or seller of the defective product. Under the "apparent manufacturer" doctrine, a nonseller trademark licensor may be liable for defective products if the licensor "participated substantially" in the design, manufacture or distribution of the products. In Lou and others v. Otis Elevator Company, No. 09-P-632 (Mass. Ap. Ct. September 3, 2010), Otis had licensed its marks and its technology to a Chinese joint venture. The plaintiff, a Massachusetts resident who was four years old at the time of the accident, was injured in Tianjin, China by an escalator manufactured by the joint venture. The plaintiff's hand was almost severed by the escalator. Otis did not manufacture or distribute the escalator, but the escalator bore the "OTIS" mark and it had been manufactured under Otis' technology license. After a trial in 2007, Otis was found liable and the plaintiff was awarded $3.3 million in damages, plus $3.3 million in prejudment interest.
Otis appealed, arguing that the trial judge had erred by instructing the jury in a manner that expanded the "apparent manufacturer" doctrine. The appeals court disagreed (PDF), holding that a nonseller trademark licensor who participates substantially in the design, manufacture or distribution of the licensee's products may be held liable under Massachusetts law as an apparent manufacturer. By licensing its technology, as well as its mark, Otis had participated substantially in the design of the relevant product.
While the fact that Otis had licensed its technology as well as its trademark weighed strongly in favor of liability in this case, even where a mark is licensed without any accompanying technology, many courts will find liability based on the licensor's duty to control the quality of the products that bear its marks.
For transactional attorneys, this case illustrates the importance of including in any license of trademarks and technology an indemnity protecting the licensor against product liability suits. Due to the inconsistent treatment of trademark licensors in product liability cases, it would be prudent to include such an indemnity provision even if the trademark is licensed without any other technology or intellectual property rights. The license should also require the licensee to maintain adequate insurance so that it can meet its indemnification obligations.