What's in a name? Possibly, strict liability as an apparent manufacturer.

• Jurisdiction: United States
• Author: Higgins, Erin K.
• Date: 01 July 2011

This article originally appeared in the May 2011 Products Liability Committee Newsletter.

In Lou v. Otis Elevator Co., (1) the Massachusetts Appeals Court held that a trademark licensor who participates substantially in the design, manufacture, or distribution of a licensee's products may be held strictly liable for product defects, even if the licensor was not an actual link in the distribution chain. In its decision, the court recognized that no prior reported Massachusetts case had applied the "apparent manufacturer" doctrine to a non-seller. (2) In the circumstances of the Lou case, however, the court concluded that extension of the doctrine to a non-seller trademark licensor was warranted, because the extent of Otis's involvement meant that it was being held strictly liable for "its own role in placing a dangerous product in the stream of commerce." (3)

1. The Facts of Lou v. Otis Elevator

   The plaintiffs in Lou were the parents of a four-year-old boy whose hand became stuck in a gap between the skirt panel and the treads of an escalator in a Chinese department store. The boy was a Massachusetts resident, who had traveled with his parents to visit his Chinese grandparents. The escalator was manufactured and sold by China Tianjin Otis Elevator Company, Ltd. (CTOEC). CTOEC had both a trademark licensing agreement and a technical cooperation agreement with Otis Elevator Company (Otis), a New Jersey corporation. Pursuant to the trademark agreement, Otis licensed to CTOEC the fight to use the Otis trademark within China. Pursuant to the technical cooperation agreement, Otis agreed to furnish CTOEC with Otis's "know-how," as defined in the agreement, and with a "broad range of technical and managerial support." Additionally, evidence at trial established that Otis had assigned management personnel to the CTOEC factory in China, including individuals responsible for management of escalator production. Further, the escalator that caused the injury prominently bore the Otis trademark, on the comb plates at the top and bottom of the escalator, and bore no other trade name or mark.

   On these facts, the Massachusetts Appeals Court found that the trial judge correctly had instructed the jury that a non-seller 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. The court therefore affirmed the jury's verdict in plaintiffs' favor, in the amount of $3,500,000, plus an additional $3,300,000 in prejudgment interest. The Massachusetts Supreme Judicial Court subsequently denied Otis's request for further appellate review. (4)

   In its decision, the Lou court traced the development of the "apparent manufacturer" doctrine, first recognized in Massachusetts in 1915, and expressly adopted the most recent formulation of that doctrine, found in the Restatement (Third) of Torts: Products Liability, [section] 14 (1998), and specifically comment (d) to that section. The court's approach, replicated below, is helpful in analyzing the extent to which trademark licensors can involve themselves in the design and manufacturing process before subjecting themselves to strict liability under [section] 14.

2. Development of the Apparent Manufacturer Doctrine

   Massachusetts first recognized the "apparent manufacturer doctrine" in Thornhill v. Carpenter-Morton Co. (5) In that case, a paint supplier was treated as the manufacturer of a can of flammable oil stain where the supplier put its own name on the can, without any reference to the actual manufacturer, so that "its representation to the purchasing public that it was the manufacturer must be taken as essentially true." (6) Almost twenty years later, the drafters of the Restatement (First) of Torts (1934) used the Thornhill case as the basis for its illustration of the principles set forth in [section] 400 of the First Restatement, titled "Vendor Selling As His Own Product Chattel Made By Another." Section 400 provided, in relevant part:

   One who puts out as his own product a chattel manufactured by another is subject to the same liability as though he were its manufacturer. Comment:

   a. The...