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Ninth Circuit Affirms Dismissal of Trademark Claim Based on Naked License

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).

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