What You Don’t Know About “Naked Licensing” Can Hurt You!

January 13, 2011

Ok, ok, this is a legal blog, so I am actually talking about naked trademark licensing issues here (a few nuggets for every company seeking growth capital or a venture capital investment).

“Naked Licensing” is, in essence, a legal defense to a trademark infringement claim. You should absolutely become more aware of this concept, for the consequences of not knowing can be really grave (aka a big deal).


What is Naked Licensing?

Ok, did you get that part about ‘abandonment of the trademark‘?

Now that I got your attention, here are 3 things to remember to help avoid this:

1) Don’t Let Anyone Use Your Trademarks Without a License Agreement. Hopefully I made this completely clear, for that is one of the best ways to avoid a negative outcome. The trademark license agreement should expressly state that any use of your trademark is subject to your trademark guidelines, and steps should be taken to ensure your trademarks are used in an appropriate manner. You can embed this language in any reseller, distribution or other channel agreement, so it’s not necessary to add it to a standalone agreement.

2) Remember What is at Risk Here! Think about it, you develop your trademark (maybe your company name or logo) and people associate your product or service with that name or logo. However, if you don’t take certain protective measures when allowing third-parties to use your trademarks, you could abandon the mark (= you lose it). 

3) Don’t Scare Me With This. Does it Really Happen? Absolutely. Here is a case from November 2010. Long story short, the owner of the trademark rights to “Freecycle” (see above) let other groups use their trademark without a written trademark license agreement and without exerting control over the mark and associated services. They simply stated in an email ” . . . just don’t use it for commercial purposes.” That was it. The court found no written contractual control over the mark and no actual control, so the result stated that the Freecycle mark has been abandoned (because of naked licensing). What that means is the original trademark owner could not stop a Freecycle affiliate from using the mark. It does not get any more real, relevant and recent than this folks!
 

So every software or SAAS company working on their business growth strategies should sit up and take notice of this issue, because I know you have trademarks. You need to review your processes for allowing partners, resellers, etc. to use your trademarks. You can easily avoid this outcome if you understand the risks of naked licensing and take measures to prevent it

Here is a copy of the court opinion (if you want to read the nitty gritty details).

Disclaimer
: This is not legal advice, as it is provided for educational and informational purposes only. Hire an attorney if you need legal advice on these issues.

President and Shareholder

<strong>Jeremy Aber</strong> consults OpenView portfolio companies on legal and contract matters. Jeremy runs his own IT focused law firm, the <a href="http://www.aberlawfirm.com/">Aber Law Firm</a>, and has over 18 years experience in technology and corporate law.