Avoiding the Pitfalls of Naked Licensing

Naked licensing doesn’t just threaten your brand—it can also result in the loss of your trademark.

As top intellectual property attorneys serving Seattle, we help individual creators and businesses safeguard their most valuable assets. Whether you need to set up a trademark or defend your rights of ownership and usage, we’re here for you. Contact us online to get started .


As an entrepreneur, finding ways to set yourself apart from your competitors is crucial to success. Whether you sell a service or a product, you’ll want your brand to be easily identifiable to customers as superior or unique. One of the best tools for creating a positive brand association is through the use of a trademark.


When most people think of trademarks, they think of logos like the Nike “Swoosh.” Although some of the most successful trademarks include similarly distinctive designs, logos aren’t the only form of trademark branding. A trademark can also be words, shapes, a series of colors or a combination of these; it can even include auditory elements, such as the MGM lion’s roar.


Regardless of which type of trademark you decide to use, you will want to ensure it is unequivocally connected to the image, messaging and quality of your brand. This is easy enough to accomplish when you’re the only one using it, but maintaining consistency can be challenging when you allow others to use it.


Before you license your trademark to another entity, you need to be aware of the risks. Failing to enforce certain standards and oversee quality control can result in damage to your brand and even a loss of ownership over it. In the world of trademark law, this situation is referred to as “naked licensing,” and it can have disastrous consequences for your business.


This article will explain everything you need to know about naked licensing, including the potential consequences of a naked license, trademark cancellation and how to protect your brand from trademark issues.


At
By Design Law , we know that there is no one-size-fits-all solution to protecting intellectual property. That’s why we cater each of our legal strategies to the specific needs, circumstances and goals of our clients. Ready for top-tier legal help? Schedule a free consultation online.


Key Aspects of Naked Licensing

One of the many benefits of owning a well-established, trusted trademark is the ability to license it to other entities in exchange for royalties. However, licensing your trademark without implementing the necessary quality controls could result in naked licensing, a situation that trademark owners should avoid at all costs.


The following factors contribute to a license being considered naked:


  • Lack of quality control. The trademark owner is responsible for setting and enforcing the standard of quality for goods and services produced under their trademark. Without adequate quality control, there’s no assurance that new licensees will take the appropriate measures to live up to quality standards.


  • Poorly outlined contractual terms. A vague, inaccurate or improperly structured contractual agreement can result in naked licensing. It’s essential that your licensing agreement contain clauses that detail how a product’s quality should be maintained and monitored.


  • Insufficient monitoring. It’s important for the trademark’s owner to monitor the licensee’s use of their trademark and ensure they are adhering to the agreed-up standards of quality and maintaining the overall brand reputation.


  • Failure to ensure compliance. Even when quality control terms have been outlined, they might not be enforced. That’s why the trademark owner must actively ensure the licensee’s compliance.


  • Damage to brand reputation. Lack of trademark monitoring can lead to the production of low-quality goods and services that are inconsistent with the overall brand. These products not only damage brand reputation but also erode consumer trust in the brand.


  • Legal and financial risks. Although naked licensing isn’t a crime in and of itself, it can lead to legal consequences, including costly disputes and the potential dilution or loss of your trademark rights.


Naked licensing doesn’t just affect the trademark’s owner; it also affects the consumers who select products and services based on brand recognition. To prevent the degradation of their brand, it’s essential for trademark owners to diligently monitor its usage by licensees.


Tips for Avoiding Naked Licensing

A trademark’s primary function is to indicate the source and quality of a particular good or service, and naked licensing threatens its ability to do so. Fortunately, there are many ways to effectively safeguard your trademark. Here are some strategies for protecting your brand and avoiding naked licensing:


  • Develop strong quality control standards. Documenting clear, specific standards for the quality of services and goods sold under your trademark can help you maintain its integrity.


  • Enforcing quality control. Establishing quality control standards isn’t enough—you need to enforce them. Although your strategy will depend on the specifics of your business and brand, you may be able to ensure quality by conducting periodic inspections or by requiring samples and descriptions of goods and services.


  • Adopting a formal licensing agreement. Your quality control measures and the licensees’ obligations should be explicitly stated in a formal licensing agreement that is legally binding and enforceable.


  • Reserving the right to inspect and audit. Depending on the nature of your business, you may want to reserve the right to inspect your licensee’s operations or audit their use of your trademark to ensure they’re in compliance.


  • Providing training and guidelines to licensees. Many issues can be avoided by providing training and guidelines to licensees about how to properly use your trademark.


  • Maintaining communication with licensees. By maintaining clear lines of communication with licensees, you can promptly address any issues that arise regarding trademark quality standards.


  • Taking action against non-compliance. It’s essential to address non-compliance swiftly and consistently. Depending on the nature of the licensee’s offense, you may even consider termination of the license to dissuade other licensees from engaging in similar violations.


  • Reviewing and updating your policies. Every legal agreement should be reviewed and updated periodically to ensure they remain in line with current market standards.


  • Partnering with a legal expert. From establishing trademarks to exploring potential licensing opportunities to ensuring compliance of licensees, your business needs a dedicated legal professional.


Of all the strategies for avoiding the pitfalls of naked licensing, partnering with a legal expert is by far the most important. That’s because when you hire the right trademark attorney, they can take care of all the rest. And the best part? Finding a legal professional to meet your business needs is easier than you think.


By Design Law: Top Trademark Attorneys in Seattle

You’ve worked hard to establish your business, your brand and your reputation—why risk losing it all to naked licensing? As experienced IP lawyers in Seattle , By Design Law has the resources, expertise and passion to safeguard your trademark and protect your brand.


Whether you need help establishing a trademark, copyright, patent or other legal protection tool, we can help. Get started today by scheduling a
complimentary consultation online.


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