Legal Definitions - product-line exception

The product-line exception is a legal rule that can make a company responsible for defects in products manufactured by a previous company it acquired, even though the general principle is that a new owner is not typically liable for the past actions of a business it buys.

This exception applies when a successor company:

• Acquires all or substantially all of the assets of the predecessor company.
• Continues to manufacture the same product line as the predecessor.
• Does so under the same or a very similar brand name.
• Benefits from the predecessor company's established reputation and goodwill in the market.

In such circumstances, the law may consider the successor company to be a continuation of the original business, particularly from the perspective of consumers, and therefore hold it accountable for product defects that occurred before the acquisition.

Examples:

• Scenario 1: Specialty Food Manufacturer

  "Gourmet Bites Inc." was a small, well-regarded company known for its unique line of artisanal crackers. A larger food conglomerate, "Global Snacks Group," acquired all of Gourmet Bites Inc.'s manufacturing facilities, recipes, brand trademarks, and customer lists. Global Snacks Group then continued to produce and sell the exact same artisanal crackers under the brand name "Gourmet Bites by Global," leveraging the original company's reputation for quality. Years later, a consumer became ill due to a contaminant found in a batch of crackers that had been produced and sold by the *original* Gourmet Bites Inc. before the acquisition.

  How it illustrates the term: The product-line exception could apply here. Global Snacks Group acquired all the assets, continued the identical product line (artisanal crackers) under a very similar name ("Gourmet Bites by Global"), and directly benefited from the established goodwill of Gourmet Bites Inc. This continuity could make Global Snacks Group liable for the defect in the crackers produced by the predecessor company.

• Scenario 2: Industrial Equipment Manufacturer

  "Durable Machines Corp." specialized in manufacturing a specific type of heavy-duty industrial pump. When Durable Machines Corp. faced financial difficulties, "PowerFlow Systems Inc." purchased all of its patents, machinery, inventory, and even retained many of its key engineers. PowerFlow Systems Inc. then continued to produce and market the identical industrial pump model under the brand "DurableFlow Pumps," emphasizing its long-standing reliability in its marketing. A few years after the acquisition, a factory worker was injured when a "Durable Machines Corp." pump, manufactured prior to the acquisition, malfunctioned due to a design flaw.

  How it illustrates the term: This situation demonstrates the product-line exception because PowerFlow Systems Inc. acquired all the predecessor's assets, continued producing the identical product line (heavy-duty industrial pumps) under a similar brand name ("DurableFlow Pumps"), and clearly benefited from the market presence and reputation for durability established by Durable Machines Corp. Therefore, PowerFlow Systems Inc. could be held responsible for the injury caused by the original company's defective product.

• Scenario 3: Children's Furniture Company

  "SafeSleep Cribs," a small, family-owned business, was known for its handcrafted wooden cribs and nursery furniture. "Family Comfort Holdings," a larger corporation, acquired all of SafeSleep Cribs' designs, manufacturing equipment, remaining inventory, and its online retail platform. Family Comfort Holdings then relaunched the furniture line as "SafeSleep Collection by Family Comfort," using the original designs and marketing materials, and promoting the products based on the established "SafeSleep Cribs" reputation for safety and craftsmanship. A child was later injured when a crib, manufactured and sold by the *original* SafeSleep Cribs company before Family Comfort Holdings took over, collapsed due to a manufacturing defect.

  How it illustrates the term: The product-line exception could apply here. Family Comfort Holdings acquired all the assets of SafeSleep Cribs, continued to produce and market the same product line (wooden cribs and nursery furniture) under a very similar brand name, and directly benefited from the goodwill and consumer trust that SafeSleep Cribs had built. This continuity of identity and product line could make Family Comfort Holdings liable for the defect in the crib produced by the predecessor company.