Naked licensing, also known as “uncontrolled licensing,” refers to a situation where a trademark owner grants a license to another party without maintaining sufficient quality control over the licensed goods or services. In a typical licensing agreement, the trademark owner licenses its trademark to another entity (licensee) in exchange for royalties or other considerations. The licensee then uses the trademark to market and sell goods or services under the brand name. However, when a licensing arrangement is considered “naked,” it means that the trademark owner fails to exercise adequate control over the quality or nature of the products or services provided by the licensee. This lack of control can lead to a loss of distinctiveness or reputation associated with the trademark, potentially harming both the trademark owner and consumers. Maintaining quality control is crucial for a trademark owner to ensure that the licensed goods or services meet certain standards and maintain the brand’s reputation. If the trademark owner does not actively monitor or enforce the quality standards, it can weaken the trademark’s distinctiveness and potentially result in the loss of trademark rights.
Key factors in determining whether adequate quality control exists include: (1) whether a trademark owner retained contractual rights over the quality of the use of the trademark; (2) whether a trademark owner actually controlled the quality of the trademark’s use; and (3) whether a trademark owner reasonably relied on the licensee to maintain the quality. (Finnegan) A key decision in the realm of naked licensing comes by way of the Ninth Circuit in Freecycle Sunnyvale v. The Freecycle Network, in which the federal appeals court determined that a trademark owner engaged in naked licensing by failing to adequately control the use of its trademarks by members of its non-profit organization. Based on its analysis, the Court invalidated the trademarks.
To avoid naked licensing, trademark owners should establish clear licensing agreements that include provisions for quality control, regular monitoring, and the ability to enforce the quality standards. By maintaining control over the licensed use of their trademarks, owners can protect their brand’s integrity and reputation.