Licensing Your Trademark? Avoid Naked Licensing.

Control Your Quality

Control Your Quality

What is Naked Licensing (NL)? It is not the act of filing an Intellectual Property license naked. Although, I would not be surprised if that came to mind. Really, NL occurs when a “licensor does not exercise adequate quality control over its licensee’s use of a licensed trademark such that the trademark may no longer represent the quality of the product or service the consumer has come to expect.” See 2nd circuit, 9th circuit , and 5th circuit cases. In other words, you fail to control the quality of your product. And, by doing so, you forfeit your right to enforce the exclusive nature of your mark.

When does this usually occur? In most cases, the absence of a licensing agreement, or the absence of provisions within a licensing agreement governing quality control of the mark, supports a finding of NL. The good news, even if you fail to include quality control measures in your contract, you may overcome it by showing evidence of actual quality control or reasonable reliance on the quality control measures of the licensee.

Most cases which reach litigation address situations where an agreement was absent or quality control was unaddressed or unclear. For example, in FreecycleSunnyvale v. The Freecycle Network (TFN), the plaintiff argued that its use of the defendant’s mark was non-infringing due to a NL. The trademark owner argued that it had granted the plaintiff, a local chapter of his multi-chapter recycling organization, with an implied license to use the mark. The owner argued that the implied license, which included a single email instructing the plaintiff “[y]ou can get the neutral logo from, just don’t use it for commercial purposes. . . .” contained adequate quality control measures by inclusion of that restriction. However, the court disagreed, noting that the email contained no express discussion of quality control.

So how do you avoid this? The primary lesson is to have a valid and thorough contract covering, in detail, how and when quality will be controlled (the more specific the better). This includes, among other things, statements that indicate that the trademark owner must and will maintain its ability to control the quality control measures in connection with the licensed marks. In TFN’s case, a written license agreement with express provisions providing TFN with inspection and quality control rights may have likely saved TFN’s marks. Obviously, copying from a form book or using forms passed around by others can result in a defective agreement and, as in this instance (NL), loss of all rights in the mark.

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