“Freecyclers” are people who encourage others to pass on their goods rather than disposing of them. Unfortunately for one group of freecyclers, this generous approach to life doesn’t always fly in the world of intellectual property. In fact, in FreecycleSunnyvale v. The Freecycle Network, the U.S. Court of Appeals for the Ninth Circuit found that lack of control over the use of trademarks can amount to abandonment of those rights.

The Bare Facts

The Freecycle Network (TFN) is an umbrella nonprofit group dedicated to the practice of freecycling, a locally based activity primarily coordinated by online groups. TFN allows member groups to use three trademarks: 1) Freecycle, 2) The Freecycle Network and 3) a logo. It relies on local moderators to regulate use of the trademarks. FreecycleSunnyvale was a TFN member group that used the logo and Freecycle mark. In November 2005, TFN sent e-mails to FreecycleSunnyvale ordering it to cease and desist using the name and logo. FreecycleSunnyvale filed a declaratory action seeking a finding of noninfringement based on a defense of naked licensing.

What is Naked Licensing?

Naked licensing occurs when a licensor fails to exercise adequate quality control over its licensee’s use of a licensed trademark and, as a result, the trademark may no longer represent the quality of the product or service consumers have come to expect. In other words, by not enforcing the terms of the trademark’s use, the licensor may forfeit its rights to enforce the exclusive nature of the trademark. In this case, the district court sided with FreecycleSunnyvale, and TFN appealed.

A Matter of Control

On appeal, the Ninth Circuit considered whether, by allowing FreecycleSunnyvale to use the trademarks with so few restrictions, TFN had entered into a naked license resulting in the abandonment of the trademarks. The court began by noting that the lack of an agreement with provisions restricting or monitoring the quality of goods or services produced under a trademark supports a finding of naked licensing. TFN and FreecycleSunnyvale had no express licensing agreement.

So, even if, as TFN contended, its e-mailed admonition to FreecycleSunnyvale’s founder not to use the trademarks for commercial purposes constituted an implied licensing agreement, that e-mail contained: No contractual right to inspect or supervise FreecycleSunnyvale’s services, and No ability to terminate the license if FreecycleSunnyvale used the trademarks for commercial purposes. Courts have excused the lack of a contractual right to control quality in other cases, but only where the licensor demonstrated actual control through inspection or supervision.

The Ninth Circuit found that TFN’s alleged quality control standards weren’t enforced or effective in maintaining consistency. Finally, the court held that TFN and FreecycleSunnyvale didn’t enjoy the type of close working relationship that allowed TFN to rely on FreecycleSunnyvale’s quality control measures. Regardless, reliance on a licensee’s own quality control efforts is insufficient to overcome a finding of naked licensing without other indicia of actual control.

The Naked Truth

This case illustrates, once again, why trademark holders must take affirmative steps to maintain the quality of their marks. If they don’t, they could lose the right to enforce those marks.

About the trademark law firm:

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution. 

Klemchuk LLP hosts Culture Counts, a blog devoted to the discussion of law firm culture and corporate core values with frequent topics about positive work environment, conscious capitalism, entrepreneurial management, positive workplace culture, workplace productivity, and corporate core values.