Licensors of Well-Known Names or Logos May Be Liable For Damages Under Japan’s Product Liability Act

By Osamu Ishida, Darcy Kishida, and Rena Takamatsu

INTRODUCTION

Most Japanese consumers are familiar with high-end automobile manufacturers that design, engineer, manufacture, and sell exotic sports cars. If one of those sports car manufacturers makes a defective, unsafe car that injures its owner, both the manufacturer and the owner understand that the manufacturer should be liable for damages. But what about products with the car manufacturer’s logo that the car manufacturer did not design, engineer, manufacture, or sell but merely licenses its logo to appear on? For instance, would that car manufacturer still be liable if the product wasn’t an actual car but was instead a defective remote-controlled toy car that was designed, engineered, manufactured, and sold by a Japanese toy company? How about a defective stroller with the car manufacturer’s logo that was made and sold by a leading Japanese manufacturer of baby products? Or a defective, fire-prone laptop with the car manufacturer’s logo, if that laptop was made and sold by a Japanese computer manufacturer?

Unsurprisingly, it depends. Under Article 2(3)(2) and Article 3 of Japan’s Product Liability Act, a company that does not design, engineer, manufacture, or sell a defective product may nevertheless be held liable for damages under certain circumstances. One of those circumstances is when a logo owner licenses its logo to another company (the manufacturer/seller) for use on a product in such a way that consumers may mistakenly believe that the logo owner had manufactured the product.

The manufacturer, the seller, and the logo owner can all be liable

To protect consumers, Japan’s Product Liability Act allows the manufacturer and, under certain circumstances, the seller of a defective product to be held liable for damages caused by that product (manufacturers are often, but not always, also the seller of products). But as the logo owner in the examples above, the car manufacturer neither manufacturers nor sells the products. Instead, the logo owner merely licenses its logo for a fee. In that case, is the logo owner liable for damages if those products are defective and cause injury or death?

In the remote-controlled toy example, the logo owner would probably be held liable under Japan’s Product Liability Act. It would not be much of a stretch for a Japanese consumer to believe that the logo owner (a famous foreign car manufacturer) would design, engineer, and/or manufacture a toy car, even one with a Japanese toy company’s name on it. After all, the car manufacturer makes cars, and the toy in question is a miniature toy car. This similarity would likely be enough to cause consumers to believe that the car manufacturer had manufactured the toy. This is true even though the manufacturer’s/seller’s name appears prominently on the product.

The stroller example is less clear-cut. First of all, the product isn’t a car or even a toy car. That fact makes it less likely that consumers would believe that the car manufacturer had designed, engineered, or manufactured the stroller. Very broadly, however, a stroller is a vehicle of sorts. It has four wheels, and consumers use it to transport babies from one place to another. In that sense, a stroller is not entirely dissimilar from a car. It is therefore not outrageous that consumers would believe that the car manufacturer had manufactured the stroller. However, the fact that the name of the manufacturer/seller appears on the product may be enough to protect the car manufacturer from liability in this case because the manufacturer/seller of the stroller is a well-known manufacturer/seller of strollers.

The laptop scenario is perhaps the least problematic for the car manufacturer. A computer is nothing like a car. No reasonable consumer would believe that a famous sports car manufacturer had designed, engineered, or manufactured a laptop, especially one with a Japanese computer manufacturer’s name on it. Of course, there are no guarantees, especially in this area of law. Even under these favorable circumstances, it’s possible for the car manufacturer to be found liable for damages.

Minimizing the risks

Because there’s no way to eliminate the risk completely, companies that license their trademarks and logos for use on products should consider taking prudent steps to minimize their potential exposure. They could, for instance, choose only large, reputable licensees with a history of manufacturing/selling safe and reliable products.

Licensors could also insist that their names or logos appear on products less prominently than the manufacturer’s/seller’s name. This could mean making sure that the licensor’s logo is smaller than the manufacturer’s/seller’s logo, or that it’s in a less conspicuous position on the product. If appropriate, licensors could even go a step further and include an easy-to-see disclaimer stating that the licensor did not manufacture the product. In the stroller example, the automobile manufacturer could require the Japanese stroller manufacturer to include a statement on the product that makes it clear the automobile manufacturer did not manufacture the stroller, or require the stroller manufacturer to carry a sufficient amount of product liability insurance.

Finally, companies could insist that their trademarks or logos appear only on products that are very different from the company’s core business to avoid having consumers believe that the company had designed, engineered, or manufactured the products.

Because there’s no sure-fire way to avoid liability, licensors should adopt multiple approaches to minimize their risk.

If you have questions about this topic, please contact any of the authors directly or our firm’s Litigation Practice Group through the contact information available on our firm’s website.

KOJIMA LAW OFFICES  | Tokyo | www.kojimalaw.jp