Licensor Liability for Product Defects Under New York LawLast week it was reported that Disney was sued for the wrongful death of an infant whose head was caught between the bars of a Winnie the Pooh bassinet. According to Disney, the functional and structural design as well as the manufacture and sale of the Simplicity bassinets were solely the responsibility of Simplicity Inc., as was the need to assure the product's compliance with legal and industry safety standards. If so, why are the plaintiffs suing Disney? The answer to this question is fairly straightforward: Simplicity collapsed earlier this year in the wake of major crib recalls and babies' deaths. Consequently, the plaintiffs' attorneys, as they should, are looking for a deep pocket they can collect from.
A more difficult question is, what liability does a licensor have for products that bear their trademark, or are sold under their name? While under California law (which is where that lawsuit is brought), even licensors - not just manufacturers, distributors or retailers -- may be held liable for injuries related to the sale and use of these products, the law in New York is less favorable to plaintiffs.
In fact, a Federal Court in New York addressed this very issue earlier this year. In that case, the Court began its analysis by reiterating the general rule in New York that a trademark licensor is not liable under New York law for injuries caused by the product which carries the licensor's trademark unless the licensor is shown to have had significant involvement in the distribution, or is capable of exercising control over the quality of the product. Stated differently, a trademark licensor may be liable for damages arising from the use of a defectively designed or manufactured product where the licensor had the "ability to control the design, manufacture or quality of the [product]."
From the licensor's perspective this rule may seem unduly harsh, but it does have a policy rationale: by imposing liability for defective products on sellers and others in the product's distribution chain, sellers and distributors will be compelled to insist that their manufacturers produce safe products, and to obtain indemnification (including defense and insurance) from such manufacturers in the event of adverse legal claims based on injuries from defective products.
Finally, and in a parallel vein, the Federal court noted that although no New York State court has directly addressed this issue, New York's courts would likely extend the trademark licensor's liability to circumstances where the licensor received substantial royalties on the sales of the defective product as well.
In sum, although New York law, at first blush, strictly limits plaintiffs' ability to recover for their damages against the trademark licensor of a defective product, further analysis reveals that the exceptions to this general rule may be more significant than the rule itself.