IP Law Bulletin

(1) Licensing & Quality Control

The mention of trademark licensing might bring to mind massive consumer brands like Disney or Nike, but there is more to brand licensing than key chains, t-shirts, and bumper stickers. Licensing can enable a brand owner to capitalize on the goodwill attached to a brand as a result of the owner’s core product or service offerings by allowing controlled usage of the mark by others in complementary—or even entirely different—contexts. The owner/licensor might not have the expertise, manufacturing capabilities, or geographic reach to exploit a mark more fully on its own. Often doing so through a licensing partner makes the most sense—but there should be clear parameters and licensee obligations that protect the brand.

The license grant conditions should be defined carefully in terms of product/service usage scope, geographic territory, term, and exclusivity. The licensee should agree to take no action inconsistent with the licensor’s ownership of the mark, which includes the licensee’s agreeing to refrain from registering any version of the mark as a trademark or domain name. The license should include (usually as an exhibit incorporated by reference into the agreement) trademark usage guidelines to ensure brand consistency and avoid the use of the brand in a generic manner.

It is critical that the agreement include quality control provisions. This does not mean that the product or service must be of the highest quality imaginable. Instead it means that the product or service offered by the licensee under the mark is consistent with the quality of the products or services rendered by the licensor and other licensees. If the quality is not consistent, there is danger that consumers will no longer perceive the licensed mark as identifying a single source. The result of uncontrolled or “naked” licensing can be the brand death sentence—loss of rights in the mark entirely.

Courts are divided on how much quality control must be exerted to avoid this dire consequence. Some courts are satisfied that control has been sufficient if the license agreement merely pays lip service to the notion of quality control, but most courts will require more active engagement by the licensor. The best practice is to include specific provisions in the license agreement that enable the licensor to physically inspect the product and/or observe the rendering of the services or the facilities for the services upon reasonable notice to the licensor, and for the licensor to actually follow through with exercising those rights.

There is such a thing as going too far with controlling the licensee’s activities, however. The degree of quality control imposed should not extend beyond quality per se to broader aspects of the licensee’s business such as the licensee’s day-to-day business operations and methods. Beware the accidental franchise! Dictating how the licensee does business (beyond quality control) runs the risk of the licensor being deemed to have complex and onerous franchise law compliance obligations under the laws of one or more states—a result that licensors should take pains to avoid.

(2) Registering Additional Branding Elements

Effective trademark registration portfolio management requires a balancing act between protecting the brand and managing cost. Trademark owners at a minimum should prioritize registering the plain text version of their company names and of their one or two most important product or service marks. After taking those steps, many companies move on to apply to register secondary “word” marks, working down a list of words that are used to identify products or services. That approach often has merit, especially where the secondary marks are nonetheless important and where budget allows. Before moving on to the protection of secondary marks, however, brand owners should consider focusing more on establishing trademark registration protection for the multiple aspects of their house marks, and for the most important product or service marks.

We recommend reflecting on how relevant consumers experience your primary brand, and what differentiates your brand from that of others. If your company logo is comprised of a fancifully-scripted word alongside a distinctive graphical element, then the business might register the words in plain text, the words in stylized script, the graphic as a stand-alone element, and the words alongside the logo (i.e., the entire mark). That’s four trademark registrations covering just one logo. Whether such a comprehensive (and more costly) approach is warranted or overkill depends upon the degree to which the lettering that comprises the literal element of the mark is truly distinctive so as to merit its own application, and whether the graphical element is unique enough to truly distinguish the logo and be remembered apart from the words. Having several different logo element registrations in place can amount to useful arrows in your enforcement quiver. If, on the other hand, the lettering style in the logo is ordinary, or if the logo graphic is commonly used by others in your field, the effort and expense associated with protecting those elements as “stand-alone” marks might not be worthwhile.

Secondary product name marks might be of less consequence, and not worth trying to register, particularly where they will be offered for limited time (e.g., where the technology will become obsolete), where the revenue associated with the product or service line is limited and the mark thus is not all that important, or where the secondary product names are commonly used terms in the field or directly communicate something about the nature of or an aspect of the product or service. In the latter case, such a mark is “weak” and either does not qualify for registration or, if registered, might only be enforced so narrowly that a registration would not be as valuable as a registration for a more distinctive mark (unless, of course, you are able to demonstrate acquired distinctiveness or secondary meaning).

There are other considerations worth noting. If the visual elements and the literal elements of the logo overlap without space in between, the elements might be considered to be integrated such that they do not make separate commercial impressions of their own. In that case, they could not be registered apart from the logo as a whole. Another consideration is whether the business is committed to the logo (or a tagline), or if instead it might adopt a different logo (or tagline) over the coming few years. In the latter case, the cost associated with securing registration might not be worthwhile given that the registration process generally lasts roughly a year and sometimes more, meaning that the benefits associated with the registration would not be enjoyed for long before another logo or tagline is introduced.

The subject of changing logos gives rise to a related question. What if a registered logo evolves over time? Does the registrant need to obtain a new registration to protect the new version of the logo? Can the registrant successfully assert the registration, which no longer precisely mirrors the version of the logo in commercial use in litigation, and enjoy the presumption of validity conferred by registration? The answer to both questions depends upon whether the changes are truly slight or instead amount to a “material alteration” of the logo.

Changes that would probably not be deemed material include: if the orientation of the graphical element of the logo changes somewhat relative to the appearance of the words; if some minor background graphical elements are deleted; or if the lettering style of the words that comprise the logo were to change mildly. This means that the registration would be effective for purposes of enforcement in the interim—but before the registration could be maintained at the United States Patent and Trademark Office (USPTO) come the next maintenance deadline—a Section 7 Amendment requesting the “immaterial alteration” of the logo (along with evidence of the registrant’s use of the new version of the logo) must be filed prior to or in parallel with the Declaration of Use. If changes to the logo are not obviously immaterial, then it is a good idea to file the Section 7 Amendment request quickly so that you learn sooner rather than later how the USPTO will react to the request, and whether a new application filing is called for (which would be necessary in the case of an amendment being rejected as a material one). Further information about “trademark creep” can be found in two of our earlier publications: Does the Evolution of a Design Mark Affect Your Trademark Rights and How to File a Trademark Application: The Guts of a U.S. Trademark Application (Part 2 of 2).

(3) Trademark Fair Use

Nutter’s series about the life cycle of a brand touched upon trademark policing and enforcement issues in an earlier installment. The bottom line is that you must police your mark, or risk losing it. Think of this ongoing obligation as part of the price to be paid in exchange for enjoying a powerful right. After all, trademark rights, in theory, can last forever, unlike patents or copyrights.

There will be instances, however, where another company uses your company’s mark in a manner that arguably does not amount to use of the mark in a true trademark sense. Or maybe your company has reason to make reference to a competitor or some other third party for purposes of comparing your company’s product or service with that of the third party, or in describing how your company’s product is compatible with the third party’s product. Is that okay?

Whether a given use of another’s mark is an unlawful “borrowing” of goodwill, that is, where one is riding the coattails of another unfairly, or instead is a lawful fair use depends upon contextual factors including:

• The size of the depiction of the third party mark, and whether the mark appears in plain text or logo form (use of another’s logo is much more likely to be deemed to suggest sponsorship or affiliation, and thus a violation of their rights);

• The frequency of the depiction of the third party mark;

• Whether the company that is mentioning the other’s mark could have made the point without using the mark;

• Whether the words that comprise the third party’s mark describe the nature of or an aspect of the product or service in question, and whether the complained-of use is merely using the word or phrase in a descriptive sense; and

• Whether any other aspects of the use of the third party mark that cause the impression that the owner of the third party mark being used is the source of the product or service, is affiliated with the user, or that the third party sponsors or endorses the product or service.

Finally, under some limited circumstances the use of another’s mark can be defended successfully as a parody. This defensive argument can be invoked where the party using a third party mark is using the mark in an ironic way to make social comments about or poke fun at the mark, and where the use of the brand is necessary in conveying that message. The fact that the usage is humorous is not enough. Rather, the test is whether using another’s mark as part of the joke helps convey the non-commercial speech message. As a general rule, a business’ use of a competitor’s mark in a disparaging manner only rarely will give rise to an argument that confusion is not likely because it would be perceived as a parody by consumers—just ask Starbucks and Louis Vuitton.