Naked Licensing: No Fun For Trademark Owners

DEREK FAHEY, ESQ.

A trademark owner may license another party to use its mark, but the owner must retain adequate control over the quality of the goods or services offered under that mark. A license without meaningful quality control can be treated as a “naked license,” potentially resulting in abandonment of trademark rights.

Quality Control Is Essential

Trademark law protects consumers’ ability to rely on a mark as an indicator of consistent source and quality. A licensor should therefore establish standards, monitoring procedures, approval rights, inspection rights, and remedies for noncompliance.

Written and Implied Controls

A written agreement creates a stronger record of the parties’ obligations, but courts may also consider the practical relationship between the parties. In some circumstances, a close and longstanding working relationship can support an inference that the licensor reasonably relied on the licensee’s familiarity with established standards.

That exception is risky. Trademark owners are better protected by documenting quality requirements and actively enforcing them rather than relying on informal understandings.

Licensing Best Practices

License agreements should define permitted uses, quality standards, reporting and inspection rights, approval procedures, termination rights, and corrective measures. Consistent oversight helps preserve the mark, protect consumers, and reduce the risk that a valuable trademark is deemed abandoned.