66 Pages Posted: 17 Apr 2008
Date Written: 1998
In the past fifty years, trademark licensing has become an increasingly popular method of structuring business relationships in the United States. Today, trademark licensing can be found in every sector of the American economy. Yet, despite the increased prevalence of trademark licensing arrangements, courts and legislatures have not developed clear rules for determining whether trademark licensors can be held strictly liable for personal injuries caused by their licensees' defective products.
In several cases, courts have applied an enterprise theory of liability to impose strict liability on trademark licensors. Broadly stated, the enterprise theory holds that any entity that significantly participates in the enterprise that places a defective product into the stream of commerce will be treated as a seller, and thus subject to strict liability under the Restatement of Torts.
Although courts have applied the enterprise theory to trademark licensors based on factual findings that a particular licensor had a sufficient participatory connection to its licensee, or was significantly enough involved in its licensee's operations, they have not clearly defined what they mean by these terms. Nor have courts developed a coherent theory to explain why certain licensor conduct should be deemed significant for strict liability purposes. Their approach frequently boils down to nothing more than an I-know-it-when-I-see-it test.
In this Article, I argue that the control tightrope and the general indeterminacy of licensor liability law is neither necessary nor desirable. Once the courts acknowledge that the relevant task is to design a set of flexible vicarious liability rules, constructing a coherent theory of licensor liability should be possible.
Toward these ends, I argue that a more cogent theory of licensor liability can be constructed by borrowing the basic analytical framework as well as certain key precepts from corporate veil piercing law. Licensor liability law might benefit from a similar analytic framework--that is, an initial presumption of limited licensor liability coupled with clear, flexible piercing tests.
Under the proposal advanced here, a licensor's presumption of nonliability would be disregarded if particular tests were satisfied. I propose that the presumption be disregarded when a particular licensor: (1) was the functional equivalent of a manufacturer of the defective goods; (2) controlled the particular activity that gave rise to the product defect at issue; (3) knew, or reasonably should have known, that the licensee was not adequately insured against reasonably foreseeable product liability risks; (4) induced consumers to believe that the defective goods were manufactured by the licensor or that the licensor vouched for the safety of the defective goods, and plaintiff purchased the goods in reliance on such a belief; or (5) contracted with a foreign licensee/manufacturer not subject to personal jurisdiction in the state where the defective goods were sold.
Keywords: Strict, strictly, liable, Liability, Tort, Restatement, Trademark, Licensors, Licensing, enterprise theory, participatory connection, I-know-it-when-I-see-it, corporate veil piercing law, piercing tests, functional equivalent, manufacturer, product liability, reliance, personal jurisdiction
Suggested Citation: Suggested Citation
Franklyn, David J., Toward a Coherent Theory of Strict Tort Liability for Trademark Licensors (1998). Southern California Law Review, Vol. 72, No. , 1998. Available at SSRN: https://ssrn.com/abstract=1100116