Seattle Trademark Lawyer

Outrage is right.

Property, intangible’s Pamela Chestek expresses it over the Ninth Circuit’s treatment of naked licensing in the FreecycleSunnyvale v. The Freecycle Network case that STL discussed last week.

Shows you who I hang out with, but two different friends mentioned Ms. Chestek’s post.

Here’s why. Quoting Ms. Chestek:

“The Ninth Circuit applies a ruthless standard that strips trademark owners of significant value and furthers consumer confusion by punishing companies that, out of naivete, don’t adhere to an exacting legal standard that has little or no relationship to the policy basis for the [naked licensing] doctrine or the goals of the Lanham Act.”

The Fifth Circuit’s a lot more practical — and closer to the doctrine’s statutory origin, Ms. Chestek argues.

In Exxon Corp. v. Oxxford Clothes, 109 F.3d 1070, 1079 (5th Cir. 1997), the Fifth Circuit explained:

“The language of subsection 1127(2) reflects that to prove ‘abandonment’ the alleged infringer must show that, due to acts or omissions of the trademark owner, the incontestable mark has lost ‘its significance as a mark.’ This statutory directive reflects the policy considerations which underlie the naked licensing defense: ‘[i]f a trademark owner allows licensees to depart from his quality standards, the public will be misled, and the trademark will cease to have utility as an informational device … [a] trademark owner who allows this to occur loses his right to use the mark.’ Conversely, if a trademark has not ceased to function as an indicator of origin there is no reason to believe that the public will be misled; under these circumstances, neither the express declaration of Congress’s intent in subsection 1127(2) nor the corollary policy considerations which underlie the doctrine of naked licensing warrant a finding that the trademark owner has forfeited his rights in the mark.”

Ms. Chestek’s right — proof that The Freecycle Network’s mark had lost its significance was thin.

But so was the licensor’s control over its mark.

In the end, I’m not outraged by the result when the The Freecycle Network articulated only the barest of standards for its licensee’s use of its mark and then didn’t even enforce those standards.

FreecycleSunnyvale belongs to The Freecycle Network, an organization that facilitates the recycling of goods.

FreecycleSunnyvale (FS) filed suit against The Freecycle Network (TFN) seeking a judgment of noninfringement arising from a trademark licensing dispute. It then moved for summary judgment on the issue of whether its defense that The Freecycle Network had engaged in a naked license enabled FreecycleSunnyvale to avoid infringing The Freecycle Network’s trademark as a matter of law.

The Northern District of California granted the motion and dismissed The Freecycle Network’s infringement claim.

On appeal, The Freecycle Network argued that it exercised control over its marks through a number of means, namely: (1) its “‘Keep it Free, Legal, and Appropriate for all Ages’ standard and TFN’s  incorporation of the Yahoo! Groups’ service terms; (2) the non-commercial services requirement [as expressed in an email between the parties]; (3) the etiquette guidelines listed on TFN’s website; and (4) TFN’s ‘Freecycle Ethos’ which, TFN contends, establishes policies and procedures for member groups, even if local member groups are permitted flexibility in how to apply those policies and procedures.

The Ninth Circuit rejected the sufficiency of those measures and affirmed the district court’s dismissal.

“First, we disagree with TFN’s contentions that the ‘Keep it Free, Legal, and Appropriate for all Ages’ standard and its incorporation of the Yahoo! Groups’ service terms constituted actual controls over its member groups. The undisputed evidence showed that TFN’s licensees were not required to adopt the ‘Keep it Free, Legal, and Appropriate for all Ages’ standard, nor was it uniformly applied or interpreted by the local groups. Similarly, FS was not required to use Yahoo! Groups and was not asked to agree to the Yahoo! Groups’ service terms as a condition of using TFN’s trademarks. Moreover, the Yahoo! Groups’ service terms, which regulate generic online activity like sending spam messages and prohibiting harassment, cannot be considered quality controls over TFN’s member groups’ services and use of the trademarks. The service terms apply to every Yahoo! Group, and do not control the quality of the freecycling services that TFN’s member groups provide. Thus, the ‘Keep it Free, Legal and Appropriate for All Ages’ standard and the Yahoo! Groups’ service terms were not quality controls over FS’s use of the trademarks.

“Second, we conclude that TFN’s non-commercial requirement says nothing about the quality of the services provided by member groups and therefore does not establish a control requiring member groups to maintain consistent quality. Thus, it is not an actual control in the trademark context. Third, because member groups may freely adopt and adapt TFN’s listed rules of etiquette and because of the voluntary and amorphous nature of these rules, they cannot be considered an actual control. For example, FS modified the etiquette that was listed on TFN’s website and TFN never required FS to conform to TFN’s rules of etiquette. Fourth, TFN admits that a central premise of its ‘Freecycle Ethos’ is local enforcement with local variation. By definition, this standard does not maintain consistency across member groups, so it is not an actual control.

“Even assuming that TFN’s asserted quality control standards actually relate to the quality of its member groups’ services, they were not adequate quality controls because they were not enforced and were not effective in maintaining the consistency of the trademarks. Indeed, TFN’s alleged quality controls fall short of the supervision and control deemed inadequate in other cases in which summary judgment on naked licensing has been granted to the licensee.”

Given these findings, the court found that TFN had engaged in naked licensing. Therefore, it found TFN had abandoned its trademark rights.

The obvious lesson here is if a licensor does not control the quality of the goods or services used in connection with the licensed mark, the license is considered to be a naked license. A licensor that engages in naked licensing abandons all rights to the licensed mark. So, licensors, you need not only to have the right to control your licensee’s quality — you need to exercise that right.

The case cite is FreecycleSunnyvale v. The Freecycle Network, __ F.3d. __, 2010 WL 4749044, No. 08-16382 (9th Cir. Nov. 24, 2010).

The Seattle Times ran a story today on Washington Mutual’s efforts to protect its trademark rights.

The failed bank reportedly still uses a number of marks in Canada and Mexico.

The story says that WaMu continues to prosecute applications to register THE CARD THAT REWARDS YOU AND YOUR PET; YOUR PET. YOUR CARD. PERFECT TOGETHER.; and WHOO HOO.

WaMu also has opposed a Florida bank’s application to register SIMPLIFY BANKING. MAGNIFY LIFE. on claim that the mark is confusingly similar with WaMu’s prior mark, SIMPLER BANKING. MORE SMILES.

“I guess attorneys need to create work,” the Florida bank’s CEO reportedly said.

WaMu says it has the bankruptcy court’s permission “to protect and maximize the value” of its assets, “including its valuable intellectual property, to benefit the company’s bankruptcy estate and its creditors.”

The bank reportedly told the bankruptcy court it expects to obtain less than $1.5M in value for its “non-core” trademarks and domain names that do not mention Washington Mutual or its “WaMu” nickname.

The article invites criticism of what must look like throwing good money after bad. 

But if there’s value in WaMu’s trademarks, domain names, and other intellectual property, paying lawyers to preserve that value for the benefit of the bank’s creditors makes good sense — even if it costs $30k per month to do so (the amount the bank reportedly paid its intellectual property lawyers for such work in January).

Of course, if WaMu stopped using the marks when it stopped functioning as a bank — and did not intend to resume use —  then the marks would be deemed abandoned and wouldn’t have any value at all.

STL readers may recall that Exxon Mobil Corp. sued X On Wireless Corp. in the Western District for trademark infringement last year. This year, the parties settled.

On Feb. 24, the parties filed a Consent Judgment memorializing X On Wireless’ agreement not to resume any use of its now-abandoned X ON mark. The judgment permanently enjoins X On from using any mark, name, word, term, or domain name that incorporates “X ON.”

So why did X On Wireless adopt X ON as its trademark in the first place? To trade on Exxon’s goodwill is my guess. Why else would it adopt a sound-alike to Exxon’s famous, fanciful mark?

The case cite is Exxon Mobil Corp. v. X On Wireless Corp., No. 08-5652 (W.D. Wash. Feb. 24, 2009).

This morning I spoke at the Washington State Bar Association’s CLE on “Licensing Essentials.” (STL preview here.) I focused on naked licensing. Here are my slides. (Note that some formatting was altered during the upload).

Posted on December 15, 2008 by Michael Atkins in Trademark Abandonment, Trademark Law 101 | Post a Comment | Email | Print