Toward a Coherent Theory of Strict Tort Liability for Trademark Licensors

In this Article, I argue that the control tightrope and the general indeterminacy of licensor liability law is neither necessary nor desirable. Once the courts acknowledge that the relevant task is to design a set of flexible vicarious liability rules-rules that account for licensor control and involvement but which do not require proof of agency--constructing a coherent theory of licensor liability should be possible. The challenge is to articulate a set of rules that will impose strict (vicarious) liability on licensors who are not mere passive investors but who exert substantial control over their licensees, and who use the licensing arrangement to improperly shield themselves from liability. Such rules should be clear enough to enable licensors to determine in advance the type of conduct that will expose them to strict liability and require them to insure against that risk. Finally, such rules should distinguish between Lanham Act control and the type of control that is likely to trigger strict liability. Toward these ends, I argue that a more cogent theory of licensor liability can be constructed by borrowing the basic analytical framework as well as certain key precepts from corporate veil piercing law. In the corporate context, courts are faced with a similar dilemma of determining whether investors, who are not liable under traditional agency principles, have nevertheless exerted inordinate control over their corporations or otherwise abused the privilege of doing business in the corporate form such that they should be held liable for the acts of the businesses in which they have invested. In the corporate context, the law grants shareholders an initial presumption of limited liability on the theory that such a rule will stimulate investment and contribute to the overall good of the economy. The remainder of this Article is divided into four parts. Part II provides an overview of basic trademark law and the historical evolution of trademark licensing in the United States. Part III surveys the cases that have applied the enterprise theory (or similar theories) of strict liability to trademark licensors. Part IV identifies a number of problems with the current case law in this area. Part V attempts to construct a coherent model of strict liability for trademark licensors along the same lines sketched above