If you grant others the right to use your trademark (known as a trademark license), you must always supervise the nature and quality of the goods or services being produced using that trademark. For example, if you are the owner of a trademark for clothing and license its use to a shoe company, you must supervise the quality of the shoe company’s products using your trademark. Your failure to supervise is referred to as a “naked license,” and the results can be disastrous.
Some examples …
In a 2002 case, a court cancelled the trademark rights of a licensor (the owner) of a wine trademark because the company failed to supervise a company that had licensed the trademark. (Barcamerica International USA Trust v. Tyfield Importers Inc., 289 F.3d 589 (9th Cir. 2002).) Most trademark licenses are drafted to avoid this result by requiring that samples of all licensed trademark goods be periodically submitted to the trademark owner for approval and quality control.
Two more recent cases also demonstrate how this rule is applied. In Eva’s Bridal Ltd. v. Halanick Enterprises, 639 F.3d 788 (7th Cir. 2011), a family owned bridal shop failed to supervise its licensees and as a result the bridal shop abandoned its right to the licensed mark. A similar result was reached when an organization (The Freecycle Network) did not exercise contractual or actual control over a licensee. The arrangement was considered to be a “naked license,” resulting in trademark abandonment and the loss of all trademark rights. (FreecycleSunnyvale v. Freecycle Network., 626 F.3d 509 (9th Cir. 2010).