Nonprofit Abandoned Marks via "Naked License" to Member

An umbrella nonprofit corporation devoted to facilitating the recycling of goods (“The Freecycle Network,” or “TFN”) engaged in “naked licensing” of its trademarks by failing to establish and maintain adequate quality control standards over its licensees’ services and use of the trademarks, according to the U.S. Court of Appeals in San Francisco. TFN was deemed to have abandoned the marks. Therefore, TFN could not go forward with a lawsuit against one of its member groups and licensees (“FreecycleSunnyvale,” or “FS”) for infringing TFN’s marks, FREECYCLE, THE FREECYCLE NETWORK, and a logo.

TFN had granted FS the right to use the marks without retaining the right to control FS’s activities and without the exercise of actual control over such activities. Trademark owners have a duty to control the quality of the goods and services sold under their marks by licensees, the court said. Failure to exercise adequate quality control constitutes “naked licensing,” which can be construed as abandonment.

When FS joined TFN’s network, the parties did not enter into an express trademark license agreement. Even if an e-mail from TFN to FS’s founder, advising her, “You can get the neutral logo from www.freecycle.org, just don’t use it for commercial purposes,” constituted an implied licensing agreement, it contained no express contractual right to inspect or supervise FS’s services, and it contained no ability to terminate FS’s license if FS used the marks for commercial purposes.

TFN’s purported standards for member organizations to follow in setting up and operating online discussion groups did not constitute actual control over licensees because the members were not required to adopt the standards and the standards were not uniformly applied or interpreted by the local organizations. In addition, TFN’s requirement that the marks be used noncommercially said nothing about the quality of the services provided by network members, the court reasoned.

TFN did not justifiably rely on its member groups’ quality control measures, the court said. TFN did not have a close, long-term relationship with FS or its founder. TFN had no experience with FS that might have supported its alleged confidence in FS’s quality control measures. Moreover, reliance on a licensee’s own control quality efforts is not enough to overcome a finding of naked licensing, without other indicia of control.

FreecycleSunnyvale, 9th Cir., ¶61,724.