If you are a trademark licensor, your agreements with licensees undoubtedly contain quality control provisions, including the right to review how your licensee uses your mark. Quality control protects consumers against misleading uses of trademarks and ensures that licensees offer products and services that live up to the quality associated with the brand. Additionally, a license without quality control is considered a “naked license,” which has been held to be inherently deceptive and can result in the trademark being deemed abandoned. But does exercising quality control expose a licensor to liability for infringement of third party trademarks by its licensee? In the case of Gibson Guitar Corp v. Viacom International Inc. and John Hornby Skewes & Co., Ltd., Gibson Guitars made that argument, but ultimately failed.
Gibson Guitar Corporation owns trademarks for its Flying V Body Shape Design, Flying V Peg-Head Design and the word mark “Flying V.” Viacom owns trademarks for SpongeBob Squarepants and Nickelodeon. Jon Hornby Skewes & Co. Ltd. (“JHS”) is a United Kingdom corporation that promotes and sells various products using the SpongeBob trademarks under a license agreement with Viacom.
When JHS developed a toy ukulele designed in the shape of the “Flying V” and featuring SpongeBob, Gibson Guitars sued both Viacom and JHS, claiming that the ukelele infringed its Flying V word and design trademarks. Gibson alleged that Viacom was contributorily and vicariously liable for JHS’s infringement due to Viacom’s knowledge of the infringement and approval of JHS’s licensed products. Under these theories, a licensor may be held liable for infringement, even though the licensor is not the direct infringer or supplier of the product.
The US District Court for the Central District of California ultimately held that Viacom was not liable under either theory and dismissed the case with prejudice. The court found that if the amount of control required by a license agreement was sufficient to state a claim for contributory infringement by a licensor, it would expose every licensor to claims of contributory infringement for every license. The court further noted that the point of requiring quality control by licensors is not to expose them to liability, but to protect consumers. On the second theory of liability, the court found that the alleged control given to Viacom by the license agreement did not rise to the level of control necessary to give Viacom joint control or ownership sufficient to make Viacom vicariously liability for JHS’s alleged infringement.
After the Gibson case, licensors can take comfort in the fact that basic quality control provisions in license agreements are unlikely to lead to liability for licensee infringement of third party marks. Quality control provisions should remain a key term in any license agreement, including approval rights and the right to monitor use of the marks. Additional provisions that further protect licensors from liability include warranties and indemnities from the licensee regarding use and infringement of third party marks and a clear statement that the parties are independent contractors and have no power to bind each other. It is worth taking a second look at your license agreements to ensure they include these terms and to protect yourself from the potentially infringing actions of your licensees.