If nurtured properly, trademarks can continue to function indefinitely, bringing continued and increasing value to the owners. There are, however, ways that trademarks can be “lost.” As an example, a trademark can be abandoned through lack of use or can be lost to the general public through the process of genericide. That happens when the trademark becomes the general, commonly known name for a product or service. ZIPPER is a famous example of a trademark lost when the trademark became the common name for a type of fastener.

“Naked” licensing is another way that trademarks can be lost (or, at a minimum, significantly diminished in functionality). Naked licensing happens when the owner of a trademark allows others to use the trademark without sufficient control. Often, naked licensing occurs when there is NO licensing agreement at all. For example, a person or business might just ask a trademark owner: “Hey, can I use your trademark?” If the owner says “yeah” without reducing the agreement to writing, then naked licensing is taking place.

Naked licensing can also occur even where there is a licensing agreement if the trademark owner does not police or control use of the trademark (or trademarks). The most common area where this happens is in franchisor/franchisee relationships. The owners of the trademark (the franchisor) allow the franchisee to use the trademarks (or marks) but do not “police” or otherwise control how the franchisee uses the trademarks. As a few examples, the franchisee may

• Use the trademarks with unauthorized products/services
• Begin using the trademark/s at new unauthorized locations or in unauthorized sales channels
• Change the trademark in small or significant ways — thus diluting the trademark and/or creating new competing trademarks
• Associate the trademark with unsavory or unacceptable things like pornography, crime, etc.
• Fail to use the trademark (or use all of them)

A trademark can be “lost” through naked licensing through several processes. First, failure to police the trademark lessens the power and functionality of the trademark. That is, consumers stop associating the trademark with some particular goods or services. Second, naked licensing opens up a trademark owner to legal challenges from those who want to use a similar-looking or sounding trademark. Essentially, the legal claim is that the trademark has been abandoned through non-use or improper/inconsistent use.

Good licensing agreements and policing are the keys to avoiding naked licensing and the resulting negative consequences. Among other things, a good licensing agreement will do the following:

• Clearly define the trademark or trademarks (with examples included in the agreement)
• Clearly state how the trademarks are to be used and displayed — often, it is useful to also state examples of how the trademarks should NOT be used
• Limit the use of the mark to use on or with certain products and services
• Where appropriate, limit use of the mark to certain places, marketing channels, etc.
• Prohibit alteration of the trademark
• Prohibit the franchisee from using the mark with other trademarks without authorization
• Limit the franchisee from licensing use of the trademark/s without authorization
• Authorize frequent auditing by the franchisor
• Authorize termination of the license for violations
• And more

What Courts Look for When Evaluating Naked Licensing Claims

Courts applying the naked licensing doctrine look primarily at whether the trademark owner exercised sufficient quality control over the licensed use. The seminal modern case on this issue is Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002), where the Ninth Circuit held that a winery had abandoned its trademark because its licensing agreements contained no quality control provisions and the licensor had not conducted any quality testing of the licensee’s wine. The court stated bluntly: “A licensor’s failure to exercise adequate quality control over its trademark licensees may result in the trademark being held abandoned.”

The Restatement (Third) of Unfair Competition § 33 articulates the same standard: a trademark owner who grants a license without retaining the right to control the quality of the licensee’s goods or services may be treated as having abandoned the mark. Courts have found naked licensing in a variety of contexts, including family-run businesses where a relative was permitted to use the mark informally, franchise situations where the operations manual was outdated or unenforced, and trademark co-existence agreements that lacked quality control provisions.

Elements of a Legally Sound Trademark License

A well-drafted trademark license does more than simply grant permission. It creates an enforceable framework for quality control that satisfies the legal standard and protects the trademark owner’s rights. Beyond the list of provisions described above, a strong license agreement should address the following:

Quality Standards and Inspection Rights

The license should define the minimum quality standards for the goods or services on which the trademark will be used. This can be done by reference to an existing quality standards document, by attaching a product specification, or by requiring the licensee to maintain ISO or other recognized quality certifications. The licensor should have the contractual right to inspect the licensee’s facilities, review product samples, and audit compliance on reasonable notice.

Approval Rights

For any new use of the trademark — new products, new marketing materials, new distribution channels — the licensee should be required to obtain prior written approval from the licensor. This approval right is one of the clearest demonstrations of ongoing quality control and is taken seriously by courts in naked licensing disputes.

Reporting Requirements

Regular reports from the licensee concerning sales volumes, geographic markets, and new uses create a paper trail that demonstrates active oversight. In litigation, this documentation is powerful evidence that the licensor was paying attention.

Record-Keeping and Cure Provisions

The license should require the licensee to maintain records related to quality control and to provide copies to the licensor on request. A cure provision — giving the licensee a defined period to correct a breach before the license terminates — is standard practice and can save the relationship while still protecting the mark.

Policing: The Ongoing Obligation

Executing a well-drafted license agreement is only the beginning. Trademark owners have an ongoing obligation to actually police the use of their marks. Policing typically includes:

• Periodic review of the licensee’s use of the trademark in commerce, including online and social media use
• Monitoring for unauthorized sublicensing or assignments
• Responding promptly to any reports of quality problems or consumer complaints
• Conducting periodic inspections or audits as permitted by the license
• Sending reminders and usage guidelines when standards begin to drift
• Documenting all policing activities in writing

The failure to actually exercise quality control — even where the license agreement grants those rights — can still result in a finding of naked licensing. Courts look at the totality of the circumstances, and a licensor who signed a comprehensive license but never acted on its rights may fare no better than one with no written agreement at all.

Cannabis, Franchise, and Digital Licensing: Modern Challenges

Three licensing contexts present heightened naked licensing risks today. First, cannabis-adjacent trademarks — where federal illegality complicates traditional policing mechanisms. Second, franchise systems — where the sheer volume of licensees makes consistent quality control operationally difficult. Third, digital and technology licensing — where trademarks are used on software platforms, apps, and online services that change rapidly and are difficult to inspect through traditional means. In all three contexts, the solution is the same: written agreements with explicit quality control mechanisms and documented, active enforcement.

Contact Revision Legal

If you have questions about trademark law, the experienced attorneys at Revision Legal can help. We represent businesses, entrepreneurs, and individuals across the country. Contact us through the form on this page, visit our trademark law practice page, or call us at (855) 473-8474.