Project Description

Child Injured In China Obtains $3.35 Million Jury Verdict In United States Against Otis Elevator Company; $8.9 Million Final Judgment

TOP TEN JURY VERDICT IN MASSACHUSETTS IN 2007*

Judgment upheld by Massachusetts Appeals Court in 2010 on issue of first impression – Nonseller trademark licensor who participates substantially in the design, manufacture, or distribution of the licensee’s products may be held liable under Massachusetts law as an apparent manufacturer.

A little boy is grievously injured.

Kevin was visiting his grandmother in Changzhou China when he fell on an escalator and his right hand became caught in the space between the escalator’s moving steps and the stationary skirt panel located adjacent to the steps. Once his hand became entrapped in the escalator, the machine ripped off the skin, fractured the bones and severed the nerves, arteries and ligaments of the hand, and nearly amputated it.

Four year old Kevin was rushed to a hospital in China where he stayed for two months, undergoing two major surgeries that saved his hand. Physicians in the United States performed three more surgeries, allowing Kevin to use his right hand to assist his left hand with everyday functions. Kevin’s family is hopeful that additional surgery in the future will further improve the hand’s function.

It’s an Otis escalator until a little boy is injured.

The escalator was manufactured in a factory of the China Tianjin Otis Elevator Company (‘CTOEC’), a limited-liability joint venture organized by Otis Elevator Company and an investment arm of the Chinese government, the China International Trust Investment Corporation. Otis claimed that it did not participate in the design, manufacture or sale of the product and that as a mere owner of CTOEC and licensor of the Otis trademark it had no liability for the manufacture of the product. For a decade Otis’ website, however, advertised Otis’ “branch offices” and manufacturing operations in China and promoted Otis as a global manufacturing enterprise.

Otis also claimed that it had no involvement in the design of the escalator or the supply of key component parts fabricated in Germany, both of which it claimed was the responsibility of its wholly owned subsidiary Otis Gmbh. Otis had successfully defended itself from other claims involving foreign owned elevators and escalators with similar arguments.

In this case, at the outset of the trial the Court ordered Otis to produce documentation of the terms of employment of CTOEC’s officers which established clearly that CTOEC’s key managers were transferees sent to China by Otis on Otis’ business. The defined scope of their responsibilities for Otis specifically included overseeing the manufacturing operations of CTOEC. There was other ample evidence that the manufacturing operations of Otis and its affiliates were functionally integrated, and that Otis was substantially involved in the escalator design.

Evidence at trial indicated that Otis’ safety standards were lowered in China.

The transfer of manufacturing technology to China had been a continuing problem for Otis since it founded the joint venture in 1984. Otis’ relationship with CTOEC had been the subject of a Harvard Business School study in which an unnamed Otis senior executive was quoted as saying “when we transferred our drawings, CTOEC often didn’t know what to do with them.”

Evidence at the trial showed that Otis did not convey to CTOEC its so-called “worldwide” safety standard for the running clearance between the steps and adjacent skirt panels essential to the safe use of stainless steel skirt panels. Otis’ design for the China market, moreover, used unlubricated high friction stainless steel skirt panels that had not been used or permitted in the United States for safety reasons since 1983. Otis’ Director of Global Escalator Products admitted that Otis was motivated to continue the use of stainless steel skirt panels by competitive pressures in Europe and Asia.

Otis and its Chinese joint venture lost or destroyed evidence.

Otis engaged Kevin in seven years of litigation, during which we discovered evidence of falsified factory records and falsified and missing maintenance records. Otis, moreover, was found responsible for the loss or destruction of the most critical piece of physical evidence in the case, the skirt panel where Kevin’s hand became entrapped in the escalator.

Otis found liable as an apparent manufacturer of the escalator.

Under the rule of law that the court applied known as the apparent manufacturer doctrine — a manufacturer which causes a product to be marketed under its own name cannot avoid responsibility for the product by pointing the finger at a foreign affiliate who is beyond the court’s jurisdiction. The doctrine, which has wide international currency, recognizes that injuries due to unreasonably dangerous products are a cost of doing business, and that it is neither fair nor economically efficient for the injured party to shoulder the burden of allocating that cost among the defendant and its affiliates.

Massachusetts Appeals Court upholds jury verdict, holding that non-seller trademark licensor may be held liable as an apparent manufacturer; SJC denies Otis further appellate review.

The Massachusetts Appeals Court upheld the jury’s verdict against Otis, holding on a issue of first impression in Massachusetts that a non-seller trademark licensor who participates substantially in the design, manufacture, or distribution of the licensee’s products may be held liable under Massachusetts law as an apparent manufacturer. The Supreme Judicial Court denied Otis’s application for further appellate review. The Appeals Court decision is reported at Lou v. Otis Elevator Co., 7 Mass.App.Ct. 571 (2010).

The final judgment, with interest, totaled $8.9 million.

*As reported by Massachusetts Lawyer’s Weekly

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