Mustang Ranch Brothel Teaches Lessons of Naked Licensing and Trademark Abandonment Claims

In my white paper entitled Brian Casper on Trademark Licensing, I discussed several ways a trademark owner could lose the right to enforce its trademark. The interesting case of the “World-Famous Mustang Ranch Brothel” highlights some important limitations on the prohibition of naked licensing and the concept of abandonment.

Naked Licensing and Trademark Abandonment

To recap from the previous paper: A naked license is an assignment of a trademark without the corresponding goodwill associated with that trademark. Abandonment is presumed under the law when a trademark owner ceases use of a mark for a period of three years with the intent not to resume use.  

The 2006-2008 U.S. District Court case of Burgess v. Gilman out of the District of Nevada has an excellent discussion about the limits of naked licenses and the presumption of abandonment. The facts of that case are interesting: The World-Famous Mustang Ranch Brothel was seized in 1999 by the U.S. Department of the Treasury in conjunction with criminal proceedings against the former owner who was convicted of racketeering. The Government held on to the property—with no intent on operating a brothel—from 1999 until it was transferred to the Bureau of Land Management and auctioned off in 2003. However, while the Government did not consider operating a brothel while it held the property and business for four years, it did consider selling or licensing it to a third party, who could use those assets to operate a brothel. And this is what happened in 2003 when Gilman was the highest bidder on the buildings and the “World Famous Mustang Ranch” trademark.

Questions of Trademark Abandonment and Transfer of Goodwill

Before the purchase by Gilman, the original owner—believing the government had abandoned the trademark—licensed the trademark to Burgess who planned on operating the similarly named brothel right across the street. 

Ultimately, the court held that the trademark had not been abandoned because the Government had considered selling the property to a third party who could use the trademark and therefore, while the Government let more than three years pass, it had a valid reason for nonuse and did not do so with the intent to stop using the trademark. 

Burgess also argued that Gilman had only received a naked license. But the court concluded that the brothel buildings that were sold with the trademark were representative of the goodwill of the business that was all that was necessary for a valid transfer of the mark.

Key Takeaways Regarding Claims of Naked Licensing or Trademark Abandonment

• A challenger asserting abandonment likely must not only prove non-use for three consecutive years, but also the intent to not resume using the trademark (this can be a very hard issue to prove in a contested case).

• The transfer of goodwill does not require the transfer of all the assets associated with the business.

For more insights on Trademark Litigation, see our Intellectual Property Litigation Overview.

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