Trademark Owners Beware: “Naked” Licensing Without Quality Control Can Result In Abandonment of Your Mark
 
September 24, 2002
 
Daniel K. "Dan" Hampton- Boston

A recent case from California highlights a basic principle of trademark law:  a license of rights in a mark without adequate quality control by the mark’s owner can result in abandonment of the trademark.  In Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002), the United States Court of Appeals for the Ninth Circuit applied this principle to find that the owner of the registered trademark “Leonardo Da Vinci” for wines had abandoned its trademark by entering into a “naked” license of the mark, under which it failed to exercise adequate quality control over the licensee’s use of the mark.

Facts of and Decision in the Barcamerica Case

Barcamerica obtained a registration for its “Leonardo Da Vinci” mark for wines in 1984.  In 1988, it entered into a non-exclusive license agreement with Renaissance Vineyards, allowing Renaissance to use the “Da Vinci” mark.  The agreement had no quality control provision.  In 1989, Barcamerica and Renaissance replaced the initial agreement with an exclusive license, but this agreement still lacked a quality control provision. 

Meanwhile, an unrelated wine producer in Italy had been selling wines there bearing the “Leonardo Da Vinci” mark since 1972.  Since 1996, Tyfield Importers had held the exclusive rights to import and distribute those wines in the United States.  When Tyfield learned of Barcamerica’s registration of the “Da Vinci” mark, it brought a cancellation action before the Patent and Trademark Office seeking to cancel the registration based on abandonment.   Barcamerica responded by filing the lawsuit that ultimately made its way before the Ninth Circuit. 

The district court considering that case granted summary judgment to Tyfield based upon its conclusion that Barcamerica had abandoned its mark through naked licensing.  In opposition to the cancellation of its mark, Barcamerica argued: (1) that its principal had exercised quality control by occasionally, informally tasting the wine, and (2) that it established quality control by relying on the reputation of a “world-famous winemaker” employed by Renaissance at the time the agreements were signed, but who was deceased at the time of the proceedings.  The district court found that these measures were insufficient and the Ninth Circuit agreed, largely adopting the district court’s analysis. 

Naked Licensing Undercuts the Consumer Reliance Upon Which Trademarks Are Based

The Barcamerica Court began its analysis with the fundamental principle that trademarks function as a symbol of quality and source for the goods on which they appear.  For that reason, naked licenses, where no quality control occurs, can result in the mark losing its function as an identifier of source and quality.  This notion leads to the rule that a trademark can be abandoned by failure to exercise adequate quality control over a licensee.  Significantly, this standard for abandonment is objective and the resulting forfeiture is involuntary – the trademark owner need not have had any subjective intent to abandon the mark.  Furthermore, it is not necessary to show that consumers actually view the mark any differently due to the failure to exercise quality control, because courts view naked licensing as inherently deceptive.

The Barcamerica Court noted, on the other hand, that there need not be formal quality control where the particular circumstances of the licensing agreement indicate that the public will not be deceived.  Courts have upheld licensing agreements when the licensor is familiar with and relies upon the licensee’s own efforts at quality control, or when a close, working relationship between the licensor and licensee established adequate quality control.  Furthermore, the duty to exercise quality control does not mean that the goods need to be of high quality.  The goods may be of high, middle or low quality, as long as that quality is equal to the quality of goods branded by the mark’s owner.

What Should Trademark Owners and Licensees Do to Avoid Abandonment?

If you are granting a license to another party to use your mark, your agreement needs to provide a mechanism for quality control, and you need to follow through on whatever mechanism you adopt.  This quality control regimen should be integrated to the related effort that trademark owners should engage in to police their mark against infringement by others and to make sure the mark remains in continuous use.  Failure to engage in either method of protecting the goodwill and consumer identification embodied in the mark could result in a court finding that the mark has been abandoned, just as occurred in the Barcamerica case.

Even if you are the licensee, you should be concerned about quality control provisions in your licensing agreements.  Because your rights in the license depend on the continued viability of the trademark, a license with inadequate quality control provisions can be just as detrimental to you as to the trademark owner in that a naked license can allow competitors to use the licensed mark. 

Even if you have your own internal quality control, it is important that the license agreement makes that clear and provides a sufficient basis from which to conclude that the licensor can reasonably rely on your efforts.  Certainly Renaissance learned that lesson the hard way in the Barcamerica case, because the cancellation of Barcamerica’s “Da Vinci” mark made Renaissance’s exclusive license to use that mark worthless. 

For more information, contact Daniel K. Hampton, toll free at 888-688-8500, or via e-mail at dhampton@hklaw.com.