Tim the Troll had a brilliant idea. He was doing well by charging tolls to cross a bridge he sat under. Travelers expected they would have to pay a premium when Tim put up his “Troll Bridge” sign. Tim successfully registered the trademark “Troll Bridge.” He then licensed “Troll Bridge” to anyone who wanted to pay the license fee. Tim did not care what the licensees did with the name, so long as Tim got his payments on time. The gold flowed into Tim’s pockets.
The good times soon ended, unfortunately. Billy Goats Gruff, Ltd., started offering travelers its “Troll Bridge Protection” service. Tim sued Billy Goats Gruff for trademark infringement. Billy Goats Gruff’s defenses included an argument that Tim the Troll lost his exclusive rights to “Troll Bridge” because he issued naked licenses. The court agreed and Tim lost his exclusive rights to “Troll Bridge.” The loss ended Tim’s lucrative licensing deals.
A naked license is easy to create. All it takes is a trademark owner allowing someone to use the mark with little to no control over how that person uses the mark. A trademark owner can avoid a naked license by: (1) having a written license agreement; (2) include quality and use controls in the agreement; and (3) enforcing those controls.
The owner also should avoid naked licenses when allowing a related company to use the mark. For example, a company that allows a subsidiary to use the trademark should have a written licensing agreement with quality and use controls that are enforced.
A trademark owner owes the duty to protect the trademark. A court will not protect a trademark when the owner gives out naked licenses or otherwise fails to protect the mark. Tim the Troll may have kept his exclusive rights to “Troll Bridge” had he heeded that warning.
Got a trademark? Do not strip its protections by giving naked licenses.
This post provides general information only. This post is not intended to create an attorney-client relationship or to be legal advice about your situation. Laws change and your situation may be different. You should consult with a licensed attorney for legal advice specific to your circumstances.
© 2015 Macy Law Firm, PC