Licensing A Trademark - Even To A Family Member
May 11, 2011

By Joseph E. Tierney IV

In a case that came down earlier this month, the Court of Appeals for the Seventh Circuit reiterated an old saw of trademark law, namely, that trademark owners who fail to control the quality of their licensee’s goods or services stand to lose their trademark.

Trademark law requires that decision-making authority over the quality of the goods or services provided remains with the owner of the mark. Why is this important? As happened in Eva’s Bridal Ltd. v. Halanick Enterprises, Inc., to the extent a trademark owner fails to include such provisions in a license agreement or fails to have a license agreement in place, the trademark owner risks abandonment of its mark and loss of income from its licensees.

The story of the Eva’s Bridal case begins in 1966, when Eva Sweis established a shop in Chicago called “Eva’s Bridal” which sold dresses for brides and bridal parties. The shop was a success and Sweis allowed her children to open their own shops under the same name. Eventually, one of the Eva’s Bridal locations passed to Eva’s daughter Nancy and her husband Said Ghusein, who operated an Eva’s Bridal Shop in Oak Lawn, a suburb of Chicago. Nancy and Said continued the pattern of licensing the name to relatives. Three years after opening a shop in Orland Park, another suburb, they sold the Orland Park store to Nayef Ghusein for ten dollars ($10). The sale agreement further required Nayef to pay $75,000 a year for the right to use the “Eva’s Bridal” name and marks.

The license agreement expired in 2002, but Nayef continued to operate the store under the Eva’s Bridal name, but no longer remitted a royalty. In 2007, Said filed a lawsuit under the Lanham Act, contending that Nayef violated the Act by using the Eva’s Bridal mark without payment.

The court dismissed the lawsuit on the grounds that Said abandoned the Eva’s Bridal mark by engaging in “naked” licensing. Naked licensing is the practice of allowing others to use your mark without exercising reasonable control over the quality and nature of the licensee’s goods, services or business. In the Eva’s Bridal case, the written agreement did not have any restrictions that required Nayef to operate the Orland Park store in any particular way and did not give Said any power of supervision over how the business was conducted.

If you own a trademark and permit others, even family members, to use it, you should have a written agreement in place that includes provisions as to the nature and quality of goods or services that your licensee renders.

Contact Joseph E. Tierney, IV (jtierney@dkattorneys.com) at 414-225-1471 or your Davis & Kuelthau attorney with any questions regarding trademarks or trademark licensing.

 

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