September 02, 2014

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Trademark License And Products' Liability

- Debolina Partap, AVP & Head Legal [ Wockhardt Group ]

Debolina Partap

In USA, persons injured by defective products can sue a wide class of persons or companies, including trademark licensors. The law pertaining to this is different in different countries

Trademark Licensing Agreements and Products Liability Law in the United States

Products liability law in the United States allows persons injured by defective products to sue a wide class of persons or companies. A trademark licensor may naturally be concerned about the possibility that a defective product bearing the trademark but, in fact, made by a licensee will expose the licensor to costly liability for damages caused by the product. Put simply, under various legal theories, trademark owners may be held liable for the mistakes or negligence of their licensees.

The Duty to Supervise and Control: A Catch-22 situation

Normally, a defendant in a products liability suit would seek to avoid exposure by demonstrating that it had no control over the design, manufacture or sale of the defective product.

Unfortunately, if a trademark licensor mounts this defense, it will likely lose its trademark rights altogether as a result. That is because a trademark licensor's failure to supervise and control its licensees' use of the mark can lead to a ruling that the licensor abandoned the mark. The license creates a catch-22 situation, making liability difficult to avoid if the licensor is not careful.

A number of courts have held a non-seller trademark licensor liable under the theory that its quality control regime made it the de facto manufacturer of the licensee's products. Non-seller trademark owners have also been found liable under U.S. theories of "strict liability,"

Ironically, it may be that the more lax a trademark licensor is in exercising quality control, the better off it is in avoiding products liability.

Certification Marks

Perhaps, the purest example of a non-seller trademark licensor is in the certification mark context. A certification mark serves as a sort of warranty, in that its sole purpose is to indicate to consumers that the commercial product or service-manufactured or sold by someone other than the certifier itself-meets the certifier's standards or tests of quality. 15 U.S.C. § 1127. The classic example is the famous UL symbol, used by Underwriters Laboratories to certify that products (mostly electrical devices and components) meet certain safety standards.

Draft Carefully

In light of case law concerning the interplay between products liability and trademark licensing, the best practice for licensors is to draft their license agreements carefully to include adequate provisions governing indemnification and limited liability.

United Arab Emirates: New Draft of Anti-Commercial Fraud Law Improves Trademark Enforcement Remedies

Debolina Partap is the Associate Vice President and Head Legal for the Wockhardt group in India. Debolina Partap has been in the legal field for about two decades and has established a niche in the field of legal compliance system, legal solutions management and brands safety and development.

A much-debated draft of the United Arab Emirates' (UAE's) Anti-Commercial Fraud Law recently has been further amended.

The law will effectively serve as a reenactment of Federal Law No. 4 of 1979, the "Antifraud and Cheating Law," which will now be repealed. There has been controversy over the draft law-which will serve jointly with the Trademarks Law as a legal source for enforcement of trademarks-because the earlier draft version sanctioned practices that were not acceptable to most brand owners.

Specifically, the earlier draft allowed for re-exportation of counterfeit goods as a remedy to be taken in cases involving the seizure of counterfeit goods. It also failed to protect confusingly similar trademarks, as it defined counterfeit goods as those goods bearing, without authorisation, a trademark identical to the mark registered and subject to protection.

These two controversial clauses have now been amended. In the latest draft, the remedy against seized counterfeit goods has been restricted to destruction, without the opportunity to have them re-exported. In addition, "counterfeit goods" have been defined as goods bearing either an identical or a confusingly similar trademark.

The latest draft has been approved by the National Council of the UAE and has been sent back to the cabinet for further approval through legislative channels.


Disclaimer - The views expressed in this article are the personal views of the author and are purely informative in nature.

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