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The Perils of Naked Licensing

It’s hard to believe that after 3+ years of blogging, I haven’t had a chance to talk about naked licensing. Well, a Michigan court just gave me that chance in the case of Movie Mania Metro, Inc. v. GZ DVD’s Inc., Hazim Jarbo, and Sandra A. Zielke. OK, so what is naked licensing?

Trademarks don’t operate like other types of property. A trademark is inseparable from the goodwill embodied in the mark. Coca-Cola can’t sell its brand name or logo to another company without also selling the reputation of the product itself.

Trademarks can, however, be licensed. I can grant you a license, under certain terms, to use the mark in connection with goods or services, but I have to exercise quality control. I can’t just license it out to everyone who comes along and collect checks without doing anything to supervise their use of the mark.

On to the Michigan case. Hang in there, because naked licensing lawsuit fact patterns can get complicated. The plaintiff, Movie Mania Metro, Inc. (we’ll just call them “Plaintiff”) has operated video stores in Michigan under the brand name MOVIE MANIA since 1989. In 1999, Plaintiff sold one location to CLD. They gave CLD a license to use the MOVIE MANIA name for $1 a year and didn’t exercise much, or any, control over their use of the mark.

As these things go, CLD sold to one Adnan Samona. Plaintiff allowed Samona to continue using the name without any written license agreement. Samona opened several other stores under the same name; Plaintiff didn’t object.

Finally, in 2010, Samona sold his business to the Defendants. Defendants asked Plaintiff for their OK to use the name. Plaintiff all of a sudden decided a licensing agreement was in order. Defendants refused, and opened yet another store with the same name. At this point, I think you can guess why they are called “Plaintiff” and “Defendant.” A lawsuit was filed claiming trademark violations under Michigan and federal law. I’ll focus on the federal side. I’ll also avoid the obvious question: who the heck was still opening video stores in 2010?

After summarizing the case and the relevant law, the court stated:

Plaintiff’s lax attitude toward its mark underwent a radical shift in 2010 when defendant expressed an interest in using “Movie Mania.” But plaintiff’s sudden discovery of responsible-trademark-holder religion seems more like a conversion of convenience than a profession of genuine faith. And, in any event, plaintiff’s actions by 2010—namely, its failure to control the activities and standards of the other businesses to which it had licensed the “Movie Mania” mark—had already destroyed any function of source identification that the “Movie Mania” mark possessed. The mark is thus abandoned under 15 USC § 1127(2) and plaintiff has lost its “trademark rights against the world.” (Citing a prior case under federal law.)

This matter is not without controversy. In this well-reasoned post, trademark blogger Pamela Chestek states, “My argument is that trademark owners are simply being punished for behavior that is seen as too lax, without any regard for whether that laxness has actually effected a loss of distinctiveness, which is what an ‘abandonment’ under the Lanham Act requires.”

That remains for the courts to sort out. In the meantime, this case serves as a valuable reminder to trademark owners: be careful about your licenses. A trademark is not simply an opportunity for rent-seeking or an annuity that will pay off rain or shine without any diligence on your part. Take care not to expose yourself to naked licensing.

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