When goods and services in question are manufactured by one company but distributed by another, the trademark ownership is determined through an Agreement of License. An Agreement of License is an official contract between the owner of a brand and a company or individual who wants to use the brand in association with a product, for an agreed period of time, within an agreed territory. The nature of the contract determines the terms and conditions under which the manufacturer or distributor of a product has permission to use the trademark of another company. This agreement is a crucial piece of evidence which is also valid in a court of law to ensure that the trademarked component is not being copied and produced illegally. Following the decision of the Court on the Wrist-Rocket Manufacturing Co. v. Saunders case, in the absence of any written agreement, the factors that courts have used to determine trademark ownership, include the following:
Who invented the trademark?
Who first affixed it on the product?
Who maintains the quality of the product?
With whom the relevant public identifies the goods?
Product liability law in the EU
Under the different European legal systems, liability for damage has traditionally been based either on contract law or the law of wrongful behaviour (e.g., tortious liability in the absence of a contract). In order to harmonise product liability throughout Europe, the directive on product liability (Directive 85/374/EEC) has been introduced, which established a uniform product liability system across the EU, replacing the divergent national rules. According to the Product Liability Directive, liability should extend to importers of products and to persons who present themselves as producers by affixing their name, trademark or other distinguishing feature or who supply a product the producer of which cannot be identified. The directive also provides that if several persons are liable for the same damage, they will each be jointly and individually liable. The courts have not hesitated to expand the scope of liability to non-manufacturing defendants, such as licensors of products whose involvement takes place prior to the manufacturer's.
Fennia v. Philips
One of the most significant cases in determining liability for defective products arose between Keskinäinen Vakuutusyhtiö Fennia (‘Fennia’), an insurance company, and Koninklijke Philips NV concerning compensation for damage resulting from a fire caused by a coffee machine. According to a report drawn up by the fire department, a coffee machine (the Philips Saeco Xsmall HD8743/11) manufactured by Saeco Group SpA, a Romanian subsidiary of Philips, caught fire. The packaging of the coffee machine bears the logos of both Saeco and Philips, so the insurance company submitted its claim to Koninklijke Philips NV, which is the registrant of both the Philips and Saeco logos. Koninklijke Philips denied their liability and argued that it is the manufacturer that is responsible for product defects, not the trademark owner.
In its judgment of 7 July 2022 in Fennia v Philips (Case C-264/21), the Court of Justice of the European Union (‘CJEU’) affirmed that trademark owners are liable for defective products under the Product Liability Directive, even if they are not involved in the manufacturing process. With this landmark decision, the CJEU acknowledged that trademark proprietors who authorise their trademark put on a product are liable towards the consumer for a defect in that product. This also applies if they were not involved in the production of that product.
Despite the growing practice of trademark licensing, many licensors still fail to consider the implications of attaching their name to a product over which they lack manufacturing control. When a product is damaged or has certain defects, the customer has the right to claim compensation for the damages incurred by the product from all parties involved in the production process of the product, including the trademark owners. This means trademark owners should be extra careful about what products they place their trademarks on or what other parties they authorise to do so. When it comes to contracts with manufacturer licensees, trademark owners should ensure that liability for defects is governed properly or, if such agreement on mutual liability is not agreed upon, owners should strictly monitor the quality of the products their licensees produce to reduce the risk of being held liable.