What You Don’t Know About “Naked Licensing” Can Hurt You!

Short answer: if you let a partner, reseller, or OEM use your trademark without a written license and without exercising real quality control, you can be found to have “naked licensed” the mark, and the penalty is losing it entirely. The fix is simple: a trademark license with quality-control obligations built into your partner agreements.

This is a legal blog, so yes, I am talking about naked trademark licensing. It is a handful of nuggets every software or SaaS executive should keep in mind for their partner, OEM, and reseller deals, because the downside is severe and the fix is easy.

“Naked licensing” is a defense to a trademark infringement claim, and the consequence of tripping it is grave: abandonment of your trademark. Here are three things to remember.

1. Never Let Anyone Use Your Marks Without a License Agreement.

Any third party using your trademark should be doing so under a license that expressly conditions their use on your trademark guidelines. In plain terms, you have to supervise how they use your mark and keep it tied to the right goods and services. You do not need a separate document; you can embed this language directly in your software or SaaS partner, reseller, or OEM agreement, which is its natural home (see SaaS OEM, Reseller, and Referral Models).

2. Remember What Is at Risk.

You build a trademark, your company name or logo, and over time customers come to associate your business and its reputation with it. If you do not exercise control when third parties use your mark, you can be found to have abandoned it, which means you lose it. All that brand equity, gone, because there was no quality control behind the license.

3. Does This Really Happen?

Yes. In a November 2010 case, the owner of the “Freecycle” mark had let affiliated groups use it without a written license and without exercising control over how it was used. The court found no contractual or actual control, held the mark abandoned, and the owner could no longer stop affiliates from using it however they liked. That is the naked-licensing nightmare in a single case.

The Contract Fix.

None of this is hard to avoid. License the mark in writing, require adherence to your trademark guidelines, and reserve the right to review and approve how the mark is used. What does “control” actually look like? It does not require you to micromanage every use. It does mean you set written brand and usage guidelines, keep the right to approve how the mark appears, and actually follow up when something is off. The same discipline applies to co-branding and to letting a reseller put your logo on their site: license it, condition it on your guidelines, and monitor it. Trademark is one of the four IP pillars for a software company (alongside copyright, patent, and trade secret, see Intellectual Property Basics for Software Companies), and it is the one you can lose simply by being careless with your partners. Trust me on this one.

Resources:

• Microsoft Trademark Guidelines
• SaaS OEM, Reseller, and Referral Models
• Intellectual Property Basics for Software Companies

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.