Is a "Naked" License Just a License Without Clothes?|
There is such a thing as a "naked" license, and in a sense, it does mean a license without clothes. The term "naked license" is a phrase that arises under U.S. trademark law, and it refers to a license that is granted by a trademark holder without retaining the right to police the licensee's use of the mark. In other words, a license granted without any provisions relating to the quality and nature of use of the mark is considered a "naked" license.
The repercussions of granting a naked license can be serious. Courts have held that in granting a naked license, the trademark owner abandons its right in the mark. The rationale is that if the trademark owner is no longer involved in assuring that its mark is associated with a certain level of quality or controlled source, the mark no longer serves its function as a quality and/or source identifier. In order to avoid forfeiture of trademark rights, quality controls must be included in a written license agreement.
In Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002), the U.S. Court of Appeals for the Ninth Circuit held that the trademark owner-in this case, the owner of a mark pertaining to wine-had an affirmative obligation to maintain a certain level of quality control with respect to all goods and services sold under the mark at
issue. Because the license agreement contained no quality control provisions, the court concluded that the trademark owner had abandoned the mark and could not assert any rights in relation to the mark (including the right to collect royalty payments). Although a representative of the trademark owner testified that he occasionally tasted the licensee's wine (i.e., the wine sold pursuant to the license agreement), the court concluded that the trademark owner effectively play no role whatsoever in holding the wine to a certain quality standard.
In fact, after litigation commenced between Barcamerica and Tyfield, Barcamerica presented Tyfield with a revised license agreement that included quality control provisions. Tyfield refused to sign the new agreement, and the court viewed the presentment of this agreement to Tyfield as an admission on the part of Barcamerica that it had an obligation to perform quality control for the licensed product.
In order to avoid forfeiture of trademark rights, all trademark license agreements should be in writing, and they should include quality control provisions. A typical clause provides: "Licensee agrees to cooperate with Licensor in facilitating Licensor's control of such nature and quality and to supply Licensor with specimens of all uses of the Mark upon request." Please contact us if we can assist with your trademark licensing needs.