Intellectual Property

When The Emperor Has No Clothes: 3 Tips To Avoid Inadvertent 'Naked Licenses' Under Trademark Law

Even the most seasoned parties and professionals can easily overlook this -- to their detriment.

By  
on

Protecting a brand is not easy; it requires diligence and strategy. Unlike owners of other forms of intellectual property, trademark holders have an affirmative duty to police their trademarks, and can lose trademark rights if they fail to do so.

Most companies view this obligation through the lens of infringement — whether via third-party use of confusingly similar marks, or unauthorized uses of the actual trademarks that harm their brand. Equally important, however, is policing unauthorized uses of their trademarks by authorized trademark licensees. From ensuring that licensees are using the correct form of the mark to how it is presented on products or in marketing materials, such oversight is critically important. In fact, such “quality control” is essential to ensuring not only protection of the brand and its associated goodwill, but the validity of the underlying license. Unfortunately, even the most seasoned parties and professionals can easily overlook this concept, to their detriment.

Failure to exert such quality control, or otherwise properly supervise the nature and quality of a licensee’s use of your trademarks, results in what’s known as a “naked license” that can strip your company (or client) of its trademark rights. Why is quality control by a licensor so important? The answer lies at the core of trademark law. Trademarks help distinguish one’s goods or services from those of another, operating as source identifiers. When a consumer views a trademark on goods (or in conjunction with services) with which they are familiar, they not only immediately understand the origin of the product or service, but draw reasonable inferences about the nature and quality of the goods or services with which the trademark is associated. As a result, the consumers are able to make purchasing decisions correlated to the marks. If the nature and quality of the goods or services associated with the mark is not maintained, then consumer confidence in the goods or services can erode because the goods and services no longer meet the standards the consumer has come to expect, harming the brand.

Oddly, many trademark owners often gloss over the quality control provisions in their trademark licenses or otherwise rely on simple language that states the trademark owner can exert “quality control” or “supervise” the use of the marks with the authorized product or service. This approach traverses dangerous territory. Contractually stating that the trademark owner can exert certain controls is one thing – having too few controls or otherwise failing to actually follow through on them is quite another. Courts are not hesitant to explore whether a trademark owner actually took steps to exert control over a licensee’s use of the owner’s trademarks, and so taking appropriate steps to maintain quality control and actually supervise such use cannot be overstated. Why? Because the result can be catastrophic – abandonment of the trademarks and a complete loss of trademark rights. Yep – your brand will be stripped of the very protections that trademark law provides (especially for federally registered trademarks), all because the appropriate steps weren’t taken to ensure appropriate use of your trademark(s) by the licensee(s).

So what is a trademark owner to do to ensure its brand “keeps its clothes on”? Actually, it is simpler than you may think. At a minimum, a trademark owner should:

  1. Ensure that the contractual language specifically states that the licensor maintains quality control over the use of the licensed marks. This should also provide that the licensor has sole and absolute discretion in determining whether the licensee’s use of the licensed trademarks is appropriate. In any event, contractual language should be added that allows the licensor to cancel the license in the event the licensee fails to abide by the licensor’s established quality control standards.
  2. Create trademark licensing guidelines for licensees, so the parties have an objective reference point regarding the licensor’s expectations for brand management. These guidelines should address how the marks should be depicted (including colors and designs where featured in the mark, as applicable), as well as the actual use and placement of the mark to ensure it is done correctly. Such guidelines should not be static (as brands continue to develop or additional marks may come within the purview of the license), so appropriate language should be added to allow such guidelines to be updated from time to time.
  3. Inspect the licensee’s use of the licensed trademarks on a regular basis. In some cases, requiring the licensor’s consent to use of the licensed trademarks on marketing materials before they go to final print may be advisable (especially where the licensee is unsophisticated or otherwise needs closer supervision). The point here is to be proactive and diligent in reviewing trademark usage by the licensee.

The above points are not exhaustive, but reflect the “bare” essentials for trademark quality control that go a long way to ensuring that trademark licenses stay “clothed” under trademark law. Using written licenses that contain decent quality control provisions and supporting guidelines are essential pieces to clothe the brand, but taking proactive steps to monitor compliance truly completes the outfit. The point here is to take action – brand owners cannot just sit on the sidelines and admire their trademarks from afar. If they do, they may find themselves like the emperor in that children’s fable leading the procession with his “new clothes,” only to find that their brand simply isn’t wearing any at all.

Sponsored

Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business. News outlets reach out to Tom for his insight, and he has been quoted by national media organizations. Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at tom.kulik@solidcounsel.com.

Sponsored

Topics

, , , , , ,