Trademark Owner Loses “Freecycle” Trademark in a Naked License Defense to Trademark Infringement

Trademark owner's beware.  Trademark infringement claims are often defended based on the "naked license" issue:  In an opinion handed down on November 24, the Ninth Circuit ruled that The Freecycle Network was estopped from asserting rights to the “Freecycle” trademark because it had abandoned its rights in the mark by failing to maintain quality control over its licensee’s use of the licensed trademark. 

This case began with a claim for declaratory judgment brought by a local chapter, Freecycle Sunnyvale, against the national group it belonged to, The Freecycle Network. The Freecycle Network’s goal is to forward and promote the practice of “Freecycling” which wiki defines as “the act of giving things no longer wanted or needed away for free.”

The Freecycle Network had given permission to the Sunnyvale chapter to use the “Freecycle” trademark in connection with a Yahoo! Groups discussion forum. Sometime thereafter, a dispute arose between the national chapter and the local chapter as to the use of the “Freecycle” trademark. To protect itself from claims of trademark infringement, Freecycle Sunnyvale brought a declaratory judgment asserting that The Freecycle Network had abandoned the mark by engaging in naked licensing when it permitted use of the mark without either the right to control, or actual control over, Freecycle Sunnyvale’s activities.

Writing the opinion for the ninth circuit, Judge Callahan identified the primary issue as “whether [Freecycle Sunnyvale’s] naked licensing defense to trademark infringement allowed it to avoid a finding of infringement as a matter of law.” Callahan held for Freecycle Sunnyvale, finding that the national group had abandoned their rights to the “Freecycle” trademark by failing to provide any evidence of conduct effecting proper trademark quality control steps.

The rule on Naked Licensing;

Importantly, Judge Callahan drew attention to the fact that there was only one previous Ninth Circuit case addressing the naked license defense to trademark infringement. In Barcamerica Intern. USA Trust v. Tyfield Importers, Inc. the Ninth Circuit opined, “it is well established that where a trademark owner engages in naked licensing, without any control over the quality of goods produced by the licensee, such a practice is inherently deceptive and constitutes abandonment of any rights to the trademark by the licensor,” 289 F.3d 589, 598 (9th Cir. 2002).

Callahan went on to note that a trademark owner seeking to overcome the naked licensing defense must introduce evidence sufficient to demonstrate that it “exercise[d] adequate quality control over the licensee.”

Adequate Trademark Quality Control;

Adequate quality control may be demonstrated either through an express contractual right to quality control where the licensee maintained actual control over quality,

Or,

Through a reasonably justifiable reliance on “the licensee’s own efforts to control quality.”

Licensing your trademark without quality control may result in the loss of your trademark;

A Tip to Trademark Owners: contact an Intellectual Property Attorney to protect your trademark. Before licensing use of your trademark to any potential licensee, make sure to retain trademark viability by implementing a contractual right of quality control over the licensee’s use of the mark.

A trademark must have some identity (consumer image) and consumer goodwill in the mark for it to remain enforceable. The Freecycle case highlights for trademark owners the importance of these factors in adhering (and making sure licensees adhere) to strict quality control standards for retaining associated trademark identity and goodwill. As The Freecycle Network learned, licensing use of its trademark without quality control standards resulted in a loss if its trademark.

Pursuant to this, IPLitigationUpdate provided an important “Lesson Learned” from Freecycle in evaluating a company’s use of quality control standards;

“When licensing a trademark, the safest course is to provide for a contractual right of quality control over the licensee’s use of the mark or, failing that, to maintain a record of actual quality control and/or a record that justifies reliance on the licensee’s own efforts to control quality.”

What doesn’t qualify as trademark quality control;

In contrast to what you should to do maintain quality control, Judge Callahan enumerated specific instances of The Freecycle Network’s conduct which did not qualify as quality control over the “Freecycle” trademark. The following are illustrative of what a trademark owner should not rely on to demonstrate quality control over its trademark.

Specific instances of conduct not qualifying as trademark quality control (the * explains why);

1) Emailed admonition to member to not use trademarks for commercial purposes,
*Does not establish a contractual right to quality control.
2) The “Keep it Free, Legal and Appropriate for All Ages” standard,
*Not quality control for a member’s use of the trademark.
3) Service terms of Internet social networking provider (in this case Yahoo! Groups),
*Not actual quality control over licensee's use of trademarks on that service.
4) Requirement in the license grant stipulating the trademark is to be used for non-commercial purposes only,
*Did not establish actual control requiring member groups to maintain consistent quality.
5) Listed rules of etiquette,
*Did not establish actual control requiring member groups to maintain consistent quality.
6) The “Freecycle Ethos” that had central premise of local enforcement with local variation,
*Did not establish actual control requiring member groups to maintain consistent quality.
7) Quality controls that were not enforced and were not effective in maintaining consistency of trademarks,
*Inadequate for establishing quality control.
8) Trademark owner (The Freecycle Network) could not to rely on licensee's (Freecycle Sunnyvale) quality control measures,
*Licensor cannot rely on Licensee’s quality control measures for establishing quality control of the trademark.

The case is FreecycleSunnyvale v. Freecycle Network, 08-16382, 2010 WL 4749044 (9th Cir. 2010) and the full opinion can be found here, courtesy of IPLitigationUpdate.

To summarize;

Consulting an intellectual property attorney specializing in trademark law is a trademark owner's best bet to ensure that the trademark is protected and remains enforceable into the future. to speak with an with an IP trademark specialist attorney, call us at 866-936-7447.

A trademark owner risks losing its trademark by ‘abandonment’ in a naked license defense to trademark infringement where the mark owner has cannot establish adequate trademark quality control measures. To prevent losing a trademark, the mark owner may demonstrate adequate quality control by either of two methods;
1) through an express contractual right to quality control where the licensee maintained actual control over quality, or
2) through justified reliance on the licensee’s own efforts to control quality.

For conduct not supporting adequate quality control, refer above to “Specific instances of conduct not qualifying as quality control”.