In its most recent decision (Case C-264/21), the Court of Justice of the European Union (CJEU) has clarified what is meant by a ‘producer’ in the Council Directive 85/374/EEC of 25 July 1985, also known as the Product Liability Directive, by deciding that trademark owners should respond for the damages as normal producers, despite the lack of involvement in the manufacturing process.
The Product Liability Directive seeks to protect consumers against the damages inflicted by defective products by establishing, in its article 1, the producer’s liability.
For the purposes of the aforementioned framework, a ‘producer’ is defined as “the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part and any person who, by putting his name, trademark or other distinguishing feature on the product presents himself as its producer”. In other words, a ‘producer’ can either be a person who is at least partially involved in the manufacturing process of the product or someone who presents him or herself as being the producer.
In scenarios where the subsidiary produces the product and the trademark owner incorporates the distinctive feature in a subsequent step, no major issues arise. Since the owner was involved at least in one step of the creation process, liability seems certain, existing at least some degree of fault or negligence by not ensuring the product is ready to be used by consumers.
Meanwhile, there were doubts regarding the position of trademark owners, who simply see their trademark or distinctive sign incorporated in products, without interfering in the manufacturing process. In these cases, the subsidiary oversees the manufacturing process and incorporates the trademark, with its owner having no previous access to the product.
Questions were raised about trademark owners, in such circumstances, being within the scope of the definition of ‘producer’ for the purposes of the Directive, or not. The reasoning of the Product Liability Directive for imposing liability to the producer is clear, as he or she is in the best position to ensure that the damage can be avoided. On this note, before this decision, many believed that the lack of involvement in the manufacturing process resulted in trademark owners being outside the scope of the definition, as they had not interacted in any way with the product, allowing the subsidiary to incorporate the distinctive feature autonomously. The absence of an examination process means that trademark owners are not in a strong position to foresee the damages that can be caused by the product.
The question was referred to the CJEU for a preliminary ruling, under article 267 TFEU. It was imperative for the CJEU to shed some light on this matter and clearly define the boundaries of the definition of ‘producer’, which has now been done in Case C-264/21.
The practical case
In this case, an insurance company was forced to compensate a consumer for the damages caused by a fire, under a home insurance policy. The fire department established that the coffee machine of a well-known mark, purchased by the consumer the previous day, was the source of the fire.
The insurance company, after compensating the damages of the defected coffee machine, brough an action against the trademark holder, seeking a compensation based on the producer’s liability for defective products. Nevertheless, the trademark owner stated that the action should be dismissed, as the specific coffee machine had been produced by a subsidiary in Romania.
The case revolved around trademark owners being considered a producer for the purposes of the Product Liability Directive. On the one side, the insurance company was seeking compensation, basing its pretension on the affixation of the specific trademark on the coffee machine and its packaging. In its view, since the trademark was incorporated in the product, the company was the manufacturer and, consequently, liable for the damages. On the other hand, the trademark holder had no interaction in the manufacturing process of the product, as its production had been completely delegated in a subsidiary, the real producer of the coffee machine at issue.
The matter was referred to the Finland’s District Court, where the company which owns the trademark was held liable for the damages caused by the coffee machine. The court based its judgement in the fact that the trademark holder had marketed the product across Finland and, by bearing its distinctive sign, it should be considered a producer.
The decision then reached the Court of Appeal that concluded that the owner of the well-known trademark fell outside the scope of article 3(1) of the Directive. In its view, there was not enough evidence proving that the company promoted the product as its own.
The case was, once again, appealed, reaching the Supreme Court, which proceeded to question the definition of ‘producer’ contained in article 3(1) of the Directive, referring the matter to the CJEU for a preliminary ruling. The main question revolved around the existence of possible additional criteria that had to be fulfilled for considering a trademark owner a producer or if having the distinctive sign incorporated in the product was the only requirement for imposing liability.
The CJEU, in paragraph 27 of its judgement, stated that the provision intended trademark owners to respond for the damages as normal producers, despite the lack of involvement in the manufacturing process. The CJEU considered a wide definition of producers, broadening the scope of article 3(1), which clearly intensifies the protection awarded to consumers.
For the final consumer, the affixation of a distinctive feature in a product will be enough for considering the trademark holder as the producer itself. In most scenarios, the real producer will not be identified altogether, as someone purchasing a coffee machine will not have enough information about its real manufacturer.
Henceforth, consumers are not required to address the actual producer of the defective product when seeking compensation, since trademark owners cannot escape liability by claiming the non-interference in the manufacturing process.
The Case’s Future Impact
According to the CJEU, trademark owners will now be considered ‘producers’ for product liability purposes. By having the trademark affixed to a product, no additional criteria need to be fulfilled to be legally responsible for the damages.
Article 1, read in conjunction with article 3, will determine liability for the damage caused, with the injured person being entitled to bring an action against both the trademark owner and the manufacturer. With this decision, when trademark owners incorporate their distinctive sign in a product, they assume involvement in the production process and responsibility for the damages that might be caused.
By expanding the definition of a ‘producer’, the consumer has more chances to secure a compensation for the damages inflicted. In most scenarios, in the eyes of consumers, trademark owners are, in fact, the producers because they have their distinctive feature incorporated in the product, despite not being involved in its manufacturing process. It would be difficult to require normal consumers to make a distinction between the subsidiary involved in the manufacturing process and the main company, who only incorporated its distinctive sign in the product.
This new status quo reinforces consumer rights and should prompt trademark holders to keep a close eye on the manufacturing process of the products to which they affix their trademark, which is a welcomed addition for ensuring an extra quality control.