When accused of trademark infringement by popular designer Fendi, Burlington Coat Factory attempted to defend the lawsuit by raising the affirmative defense of “naked licensing.” Do not let the thought provoking name fool you. The doctrine has nothing to do with disrobing. Instead, the doctrine is designed to prevent confusion by consumers as to the source of the goods so that they are not misled as to the quality of the goods. In other words, it is an uncontrolled licensing of a mark whereby the licensee can place the mark on any quality or type of goods.
In a case venued in the United States District Court Southern District of New York, Burlington Coat Factory alleged that Fendi assemblers were selling non-conforming bags and that a witness saw a bolt of Fendi fabric in an assembly warehouse. To establish naked licensing, it must be shown that party provided a license to use a trademark without sufficient quality specifications or control provided by the licensor. One example is where there are “back door dealings” with a handshake or without sufficient parameters in the license agreement. However, the bar to establish this doctrine is high. This is not surprising as the penalty under the doctrine is severe. A court finding such naked licensing can determine that the trademark is abandoned or that the trademark owner is estopped from challenging a breach of a licensing agreement. In order to establish a naked license, a party need not show an intent to abandon the trademark. Last month, in the Fendi case, the court found that Burlington Coat Factory had not met this high bar. The court explained that Fendi had comprehensive control mechanisms in place. Mere isolated incidents of non-compliance with those mechanisms were insufficient to establish the defense.
Wine manufacturer Barcamerica was not so lucky. In a 2002 case, the Ninth Circuit found that Barcamerica’s license of its “Leonardo Da Vinci” trademark for wines to Renaissance constituted a naked license. All that Barcamerica had done in connection with the license was to participate in an informal wine tasting and found that the wine was “good.” This was not enough. The Ninth Circuit found that Barcamerica had instituted “no meaningful role in holding the Renaissance wine to a standard of quality.”
Take away: make sure to have sufficient quality controls set forth in your license agreements when you license your valuable trademarks to others. Indeed, last April, DuetsBlog issued this warning in connection with my colleague Michael Olsen’s blog post “Don’t Forget the Trademark License or You May be Caught Naked.”