On the one hand, a trademark owner has a duty to exercise quality control over a licensed product manufactured by a third party.  On the other hand, some courts will apportion product liability to the trademark owner relative to its role in the manufacture, design and distribution of the licensed product (which could encourage the trademark owner to have as little to do with the product as possible).  However one of the points of licencing is to convince the customer that the trademark owner stands behind the licensee (franchising comes to mind). 

There is an intellectual tradition of antipathy towards licensing in part because (I am over-simplifying a complex argument) it deceives the consumer.  A consumer who bought a product relying on the quality of the licensed mark, and then, after the product explodes, finds that he/she had little or no remedy against the trademark owner (but perhaps a judgement-proof overseas manufacturer) may well find themselves in agreement with Lord Diplock that licensing is little more than trafficking in trademarks.

A recent Indiana Supreme Court decision discusses the tension between the Lanham Act and product liability.  It’s a ripe topic for student notes. (thanks to John W for running the actual decision down).

Kennedy v. Guess, Inc., 29502-0211-CV-594 (Indiana  April 21, 2004).