The Michigan Court of Appeals recently held that licensing relationships between a trademark owner and multiple licensees constituted textbook “naked licenses”–as a result, the trademark owner lost exclusive rights to the mark. The holder of the mark MOVIE MANIA licensed the mark for over five years to multiple parties without placing restrictions on use of the mark, standards on advertising or store operations, or any requirements related to the rental or sale of merchandise at the licensee-owned MOVIE MANIA stores, nor did the mark holder enforce its rights to the mark. These practices are examples of “naked licensing,” or, the practice of “allowing others to use a 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.” When a mark no longer distinguishes goods or indicates source in the eyes of the consumer (by, example, naked licensing), the mark is deemed “abandoned” under federal trademark law. As a result, when the mark holder of MOVIE MANIA eventually attempted to enforce its rights at a later date against a party using the mark, the Court held that it already forfeited its rights to the mark and therefore had no rights to enforce.
TIP: When drafting a trademark license, be sure to “dress” it appropriately. For example, place restrictions on the use of the trademark and impose standards on the licensee with respect to advertising associated with the trademark, and be sure to actively enforce those restrictions and standards, as well as your rights against use of the mark by unlicensed third parties.