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FreecycleSunnyvale v. Freecycle Network - 626 F.3d 509 (9th Cir. 2010)

Rule:

Naked licensing occurs when a licensor does not exercise adequate quality control over its licensee's use of a licensed trademark such that the trademark may no longer represent the quality of the product or service the consumer has come to expect. By not enforcing the terms of the trademark's use, the licensor may forfeit his rights to enforce the exclusive nature of the trademark. The key question is therefore whether the licensor produced any evidence to raise a material fact issue as to whether it: (1) retained contractual rights to control the quality of the use of its trademark; (2) actually controlled the quality of the trademark's use; or (3) reasonably relied on the licensee to maintain the quality.

Facts:

Plaintiff FreecycleSunnyvale (FS) is a member group of Defendant The Freecycle Network (TFN), an organization devoted to facilitating the recycling of goods. FS filed a declaratory action against TFN arising from a trademark licensing dispute, alleging noninfringement of TFN's trademarks and tortious interference with FS's business relations. FS moved for partial summary judgment on the issue of whether its naked licensing defense to trademark infringement allowed it to avoid a finding of infringement as a matter of law. TFN argued that it had established adequate quality control standards over its licensees' services and use of the trademarks to avoid a finding of naked licensing and abandonment of its trademarks. The district court granted summary judgment to FS, and TFN sought appellate review.

Issue:

Did the naked licensing defense to trademark infringement allow it to avoid a finding of infringement as a matter of law?

Answer:

Yes

Conclusion:

The Court of Appeals for the Ninth Circuit determined that TFN engaged in naked licensing and consequently abandoned the trademarks because (1) TFN did not retain express contractual control over FS’ quality control measures, (2) TFN did not have actual control over FS quality control measures since, inter alia, licensees were not required to adopt TFN's "Keep it Free, Legal, and Appropriate for all Ages" standard, nor was it uniformly applied or interpreted by the local groups, and (3) TFN was unreasonable in relying on FS’ quality control measures since the parties lacked a close working relationship.

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