In Eva’s Bridal Ltd v. Halanick Enterprises, Inc., 2011 U.S. App. LEXIS 9539 (7th Cir. May 10, 2011), the United States Court of Appeals for the Seventh Circuit affirmed a district court’s decision that the plaintiffs abandoned their trademark because they had granted a naked license under which the plaintiffs had no “reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used” by the defendants. The plaintiffs had granted various family members licenses to use their trademark Eva’s Bridal to operate bridal salons in the Chicago suburbs, and the defendants had purchased one of these operations, including the license agreement. After expiration of the license agreement, the defendant stopped paying royalties but continued to use the mark. The licensor sued under the Lanham Act, alleging that the defendant no longer had a license to use the mark. The district court dismissed the suit on the grounds that the plaintiffs had abandoned their rights to the Eva’s Bridal mark by engaging in “naked licensing”: licensing the mark without any right to supervise the business, exercise quality control, or dictate how the trademark was used.
On appeal, the plaintiffs argued that there was no need to exercise reasonable control because the defendants operated a “high quality” business. The Seventh Circuit disagreed, finding that a trademark licensor does not need to ensure high quality goods or services—it needs to exercise reasonable control to ensure consistent quality under a trademark license. Analyzing trademark licenses in franchising, the Seventh Circuit noted that popular fast food franchisors do not ensure that the products offered are of the highest quality; rather, franchisors ensure that the products offered under the trademark are of consistent quality so that consumers will receive the same experience at each location. The appellate court did not analyze how much control was necessary because the plaintiffs exercised no control, but noted that the level of control must be “sufficient under the circumstances to insure that the licensee’s goods or services would meet the expectations created by the presence of the trademark.”
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