Seventh Circuit Affirms Abandonment of Mark As a Result of Naked Licensing
Eva Sweis established "Eva's Bridal" shop in Chicago in 1966 and allowed her children to operate shops under the name. The business passed to Said and Nancy Ghusein who later sold one of the shops to Nayef Ghusein under an agreement that required payment of $75,000 a year for the use of the "Eva's Bridal" name and marks.
That license agreement expired in 2002 but Nayef Ghusein continued to operate the store under the "Eva's Bridal" name without any payment for use of the name. Plaintiffs sued under the Lanham Act but the District Court dismissed the suit, concluding that plaintiffs had abandoned the mark by engaging in naked licensing in that the license agreement did not require the licensee to operate the business in any particular way and did not give the licensor any power of supervision over the business. Plaintiffs had therefore abandoned the mark and defendants could use it without payment.
The Seventh Circuit readily agreed with the District Court's conclusion and also rejected any special rule for "high quality" businesses with respect to trademark licensing:
This argument that licensors may relinquish all control of licensees that operate "high quality" businesses misunderstands what judicial decisions and the Restatement mean when they speak about "quality." There is no rule that trademark proprietors must ensure "high quality" goods--or that "high quality" permits unsupervised licensing. . . . The sort of supervision required for a trademark license is the sort that produces consistent quality.
Or, as the court stated somewhat differently, the "trademark's function is to tell shoppers what to expect--and whom to blame if a given outlet falls short."
The Seventh Circuit concluded that it didn't have to answer the question of how much authority over quality must remain with the trademark owner because the case offered "the paradigm of a naked license" where the "plaintiffs did not retain any control--not via the license agreement, not via course of performance."
The case cite is Eva's Bridal Ltd. v. Halanick Enterprises, Inc., No. 10-2863 (7th Cir. May 10, 2011).
