Naked Trademark Licensing Strips Eva’s Bride
The 40 year old EVA’S BRIDAL store trademark, used for generations at multiple Chicago locations, could not be used as leverage to collect trademark royalties from another related EVA’S BRIDAL store due to an absence of any reasonable control over the nature and quality of the goods and services provided by the former licensee-defendant, that is, the trademark owner abandoned the trademark by naked licencing of the mark. Eva’s Bridal Ltd. v. Halanick Enter. Inc., Case No. 10-2863 (7th Cir. May 10, 2011) (available here).
In 1996, the Sweis family opened EVA’S BRIDAL in Chicago (see www.evasbridalsofchicago.com). The founding parents permitted their children to open other EVA’S BRIDAL stores. The licensing of the mark to stores owned and operated by family relatives continued as the family grew and expanded. One store was sold to an in-law with a $75,000 per year trademark license fee payable to a senior relative. The license expired in 2002. Demands were made and suit was brought for violation of the unregistered trademark and for false association and designation, 15 U.S.C. § 1125(a) (Lanham Act § 43(a)).
The district court trial judge dismissed the suit on the ground that plaintiffs abandoned the “Eva’s Bridal” mark by engaging in naked licensing — that is, by allowing others to use the mark without exercising “reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used by the licensee”. Restatement (Third) of Unfair Competition §33 (1995); see also id. §30 (discussing abandonment); TMT North America, Inc. v. Magic Touch GmbH, 124 F.3d 876, 885–87 (7th Cir. 1997). The written agreement for the $75K per year license did not require licensee to operate the store in any particular way. It did not give the licensor any power of supervision over how the business was conducted. Licensor never tried to control any aspect of how defendants’ shop operated or how the mark was used. The district judge therefore concluded that the mark had been abandoned and that defendants may use it without payment. P. 2-3.
Licensor testified that (a) they never doubted the high standards of the licensee’s store; (b) they had no reason to supervise; (c) licensee sold dresses from the same designers as licensor; and (d) there was no need for any form of regulation. The court noted that consumers do care about the quality of service, the cleanliness pf dressing rooms, the helpfulness of staff and whether alterations were timely made by licensee. Apparently, no evidence was presented on these topics. Plaintiffs left defendants to their own devices without control.
The trial court found, and the Court of Appeals agreed, that the owner of the EVA’S BRIDAL mark abandoned the trademark by failing to exercise any reasonable control over the use of the trademark by the former licensee-defendant. The trademark owner engaged in naked trademark licensing.
“The sort of supervision required for a trademark license is the sort that produces consistent quality. ‘Trademarks [are] indications of consistent and predictable quality assured through the trademark owner’s control over the use of the designation’. Restatement §33 comment b. See also William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law 166–68, 184–86 (2003).” Pg. 4.
“How much control is enough? The licensor’s self-interest largely determines the answer. Courts are apt to ask whether ‘the control retained by the licensor [is] sufficient under the circumstances to insure that the licensee’s goods or services would meet the expectations created by the presence of the trademark.’ Restatement §33 comment a (summarizing doctrine); see also id. at Reporter’s Note comment c (collecting authority, which we need not set out). It isn’t necessary to be more specific here, because plaintiffs did not retain any control—not via the license agreement, not via course of performance.” Pg. 5.
As a practice pointer, all trademark licenses should identify some type of control to avoid naked licensing.