On the day before Thanksgiving, FreecycleSunnyvale (FSV) had another reason to give thanks: The Ninth Circuit ruled in its favor that The Freecycle Network (TFN) (an organization focused on the free recycling and reusing of goods) had lost control of its trademark FREECYCLE due to naked licensing.
Naked Trademark Licensing and The Freecycle Network's Bare Activity
An owner of a trademark has a duty to monitor and control the quality of goods and services sold under the mark to ensure that the public can safely rely on the mark as an indicia of a certain level of quality when used by others. If a trademark owner fails to exercise adequate quality control over the use, this "naked" licensing can result in abandonment of the trademark.
In the present dispute, The Freecycle Network is an organization dedicated to the practice of giving an unwanted item to someone else so that it can be reused for its intended purpose, rather than disposing of it. TFN coordinates these "free recycling" networks through locally-run Internet groups through sites such as Yahoo!; local moderators are responsible for enforcing TFN's rules and policies with some considerable flexibility.
FreecycleSunnyvale was founded without TFN's knowledge or assistance. FSV later corresponded with TFN to become associated with the larger organization and received permission to use TFN's FREECYCLE mark. After the relationship soured, TFN attempted to terminate FSV's right to use the marks; FSV filed a declaratory judgment action for noninfringement and alleged that TFN had abandoned its marks through naked licensing, and TFN counterclaimed. The trial court found that TFN had failed to control the use of its FREECYCLE marks and issued summary judgment in FSV's favor.
On appeal, the Ninth Circuit Court of Appeals affirmed the ruling. As an initial matter, the panel determined that it need not decide whether a "preponderance of the evidence" or "clear and convincing" standard for abandonment by naked licensing should apply because both standards were met in this case. The panel first held that the parties had not entered into any agreement with provisions restricting or monitoring the quality of goods or services produced under FSV's trademarks, which supported a finding of naked licensing. The court then determined that, in fact, TFN had failed to maintain actual control over its member groups' services and use of its trademarks, rejecting TFN's reliance on terms of service for Yahoo! groups and a vague and unevenly applied, "Keep it Free, Legal, and Appropriate for all Ages" standard. The court also found that TFN had failed to meet a lower standard for actual quality control that might be applied to non-profits that share common goals. Finally, the court held that TFN and FSV groups did not enjoy the type of close working relationship that would permit TFN to rely on FSV's quality control measures - particularly without other indicia of control.
The case provides a cautionary tale for organizations that permit others to use their trademarks without adequate actual control over the quality of the goods or services provided under the marks and the manner of use of the marks themselves. Organizations which rely primarily on their licensee's quality control must be particularly cautious to exercise some measure of actual control, or risk losing their trademark rights.
A copy of the court's opinion can be found here.