How to Lose Your Trademark Through “Naked” Licensing

Initially utilized as a source or origin indicator, today trademarks further assure consumers about the quality and nature of a product or service.  In other words, consumers may justifiably assume and rely upon the fact that any product or service carrying a specific mark is necessarily of equal quality to that of other products or services carrying the same mark.

Implicit with any trademark, therefore, is a communication to consumers that the owner maintains control over the quality and nature of any sales or distributions of similarly-marked products or services made by third-parties.  Since the mid-1900’s, courts have repeatedly affirmed this implication by imposing an affirmative duty upon registered trademark owners to “take reasonable measures to detect and prevent misleading uses of [their] mark by [third-parties],” or, otherwise, “suffer cancellation of [its] federal registration.”  See Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358, 366 (2d Cir. 1959).

One manner in which a trademark owner polices uses of its mark is by granting a license to a third-party.  The trademark licensing agreement contractually permits the licensee to sell a product or service carrying the owner-licensor’s mark.  A licensing agreement will be enforceable, however, only where the owner-licensor maintains a certain level of “control” over the quality and nature of those products or services that are sold and/or distributed by the licensee.

Because trademark licensing is generally governed by the laws of contracts, one way licensors can maintain control over a licensee’s uses is by inserting quality-control requirements into the their licensing agreements.  If the licensee then fails to abide by the licensor’s quality specifications per the agreement, the licensor may then assert claims against the licensee for breach of contract and trademark infringement.

“Naked” licensing, however, occurs when a trademark licensor enters into a licensing agreement, but fails to include or fails to enforce any quality control provisions.  For example, the Ninth Circuit held an agreement between the owner-licensor of the “Leonardo Da Vinci” mark and a wine vineyard to be a “naked” license because the owner-licensor: (1) failed to include quality control provisions in the licensing agreement; (2) made only sporadic wine tastings of the vineyard’s products; and (3) merely relied upon the vineyard’s reputation for quality control.  See Barcamerica Int’l USA Trust v. Tyfield Importers, Inc., 289 F.3d 589, 596-97 (9th Cir. 2002).  Consequently, the licensor was prevented “from asserting any rights in the mark.”  See id. at 597.

Additionally, “naked” licensing presents potentially dire consequences for the licensor and licensee, as well as the general consumer-public.  First, the general consumer-public will be deceived by misrepresentations about the quality of or the owner-licensor’s connection to the products or services.  Second, the owner-licensor and licensee may lose their abilities not only enforce their respective rights against each other, but also may lose their abilities to assert rights against any other unauthorized third-party uses.  And, finally, a court may determine that the owner-licensor has forfeited or abandoned its registration which, in turn, may ultimately lead to cancellation of the mark with the United States Patent and Trademark Office.

Authored by: Scott A. Meyer and John Sokatch.

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Chalker Flores, LLP Successfully Prosecutes a Chemical Composite Materials Patent

Chalker Flores, LLP, an intellectual property, business, corporate and litigation law firm in Dallas, Texas, recently successfully prosecuted a chemical composite materials patent in the United States on behalf of one of its clients titled “Covalently Functionalized Particles for Synthesis of New Composite Materials.”  The patent issued January 3, 2012, U.S. Patent Reg. No. 8,088,451.

Chalker Flores, LLP provides intellectual property, business, corporate and litigation legal services of the highest quality.  Founded by Dr. Edwin Flores and Daniel Chalker, additional partners include Scott Meyer, Chainey Singleton and Tom Jacks.  The lawyers of Chalker Flores, LLP provide big-firm expertise with boutique service and pricing.  Clients include individual inventors, start-ups, spin-offs, major national universities, research institutes and medium to large corporations.  If you would like more information about Chalker Flores, LLP, or to schedule an appointment please contact Cynthia Minchillo at cminchillo@chalkerflores.com or 214-445-4060.