Product liability for licensed products – be careful what you attach your name to
Brand licensing is a popular way for brand owners to increase brand exposure. It can also help brands move into new product categories without the need to invest in manufacturing capabilities. However, it’s important to look at product liability for licensed products. A brand owner, not involved in the manufacturing of a product, does not necessarily escape liability if it is defective. The European Court of Justice (CJEU) recently decided this. The case considered the interpretation of a provision in the EU’s Product Liability Directive (85/374/EEC).
Previously, it was generally believed that brand owners were only liable for a defective product where they:
- affixed (or permitted another to affix) their name, trade mark, or other distinguishing feature to a product; and
- presented themselves as a producer in some other way.
The CJEU has now confirmed that only affixing a name, trade mark or other distinguishing feature to a product is sufficient to determine product liability.
The insurer that compensated the consumer brought an action in Finland against Philips seeking damages based on product liability. Philips denied liability on the basis that it was not the producer of the defective coffee machine. According to the Product Liability Directive, the producer is liable for damages caused by a defect in their product. The producer is defined as ‘the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part and any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer’.
The referring Finnish Supreme Court requested the CJEU to clarify whether a person is considered to have presented itself as producer when one’s name, trade mark or other distinguishing feature is affixed to a product or whether additional criteria should be taken into account to determine whether or not such person has presented itself as a producer.
The CJEU interpreted the relevant recitals and provisions of the EU Product Liability Directive strictly, noting that the determination of who is liable for a defective product cannot be made subject to additional criteria that do not follow from the wording of the relevant provisions of the Product Liability Directive (par. 29). Referring to the above definition of ‘producer’, the CJEU confirmed that ‘this does not include any additional criterion’. It is therefore ‘the affixing of distinguishing features by the person whom such features identify or by an authorised person which forms the basis of the status of ‘producer’ within the meaning of that provision’, according to the CJEU (par. 30).
In further support of this broad interpretation of ‘producer’, the CJEU also points to the need to protect consumers. Consumers should not have to determine who is the actual producer of a defective product to bring a claim for damages. Finally, the CJEU notes, that ‘by putting his name, trade mark or other distinguishing feature on the product at issue, the person who presents himself as a producer gives the impression that he is involved in the production process or assumes responsibility for it.’ Accordingly, the CJEU continues, ‘by using such particulars, that person is effectively using his reputation […] to make that product more attractive in the eyes of consumers which, in return, justifies his liability being incurred in respect of that use’ (par. 34).
Takeaways for brand owners
Brand owners are therefore advised to increase their efforts to ensure the quality of their licensed products that are destined for EU consumers. For instance, by including quality standards and warranties in their brand licensing agreements, conducting regular inspections to ensure these are met and agreeing when and how products should be recalled where they don’t meet the standard. Indemnification for product liability should also be included in agreements to complement any recourse that brand owners may have against the actual producer under statutory law, which may be more difficult to rely on.