Property, intangible

a blog about ownership of intellectual property rights and its licensing

Ho Hum Naked Licensing Case

I came away from reading Eva’s Bridal Ltd. v. Halanick Enterprises, Inc. pretty much nonplussed. It’s a naked licensing decision out of the 7th Circuit, and I generally can get fairly riled up about naked licensing cases. But this case is so lacking in any facts that I just can’t say it was wrong – could be right, could be wrong, I just don’t know.

Eva Sweis started a bridal shop named “Eva’s Bridal.” Eva allowed her children to open shops with the same name. The business ultimately “passed to Said and Nancy Ghusein (née Sweis),” which I assume from the names are Eva’s daughter and son-in-law. The Ghuseins “continued the pattern of licensing the name to relatives.” (No mention of how this licensing was done or to whom: implied? Express? Who knows.) One shop was opened by Said and Nancy and then sold to Nayef Ghusein, a person we must assume by the name is also a family member. (Cousin? Son? Uncle? Nephew?) Nayef had a royalty-bearing license to use the mark, paying $10 for the store and $75,000 per year for the license. The license expired in 2002 and Nayef never paid anything more but continued to use the mark. In 2007 Said and Eva’s Bridal Ltd. sued Nayef for trademark infringement. (My idea of fun at the family Fourth of July picnic after that.)

The defendant raised a naked licensing defense. These are the only relevant facts mentioned in the decision:

The written agreement did not require Nayef and Halanick to operate the Orland Park store in any particular way and did not give the licensor any power of supervision over how the business was conducted. Nancy conceded during her deposition that she and her husband Said never tried to control any aspect of how defendants’ shop operated or how the mark was used.

A clear naked license.

So what’s the problem – it looks pretty naked, right? But go back to what an abandonment is, a loss of significance as a mark. I’m willing to buy the theory that this definition of abandonment could mean that a mark was first understood by consumers as indicating the same source or origin as the original but has subsequently strayed far enough away that it no longer does and now represents to consumers that it has a different (its own) origin or source. (I don’t really agree with that – an abandonment is a loss of rights against the world, so I think it should mean the mark has lost all trademark significance altogether, not just with respect to one licensee. But I’m willing to go with it here.)

But is that what was going on here? The court made passing reference to the concept that the stores using the same trademark should have similarities:

A person who visited Eva’s Bridal of Oak Lawn and then Eva’s Bridal of Orland Park might not have found a common ambiance or means of doing business.

Might? Well, did they or not? The court seems to acknowledge it should matter to a naked licensing defense, but there were no facts mentioned at all. Did they co-market? Were the two stores in geographic locales that might lead a consumer to think they were related? Did they use the same logotype for the signage? Did they work in concert as one business? Could one store get a dress sent over from another store? Those are signals understood by a consumer as indicating they were a chain of stores, one source. If instead consumers never had reason to believe they were related – store employees said to customers they weren’t related, they had different trade dress, they were far apart geographically – then I could agree the original Eva’s Bridal had abandoned the mark with respect to the defendant store. But there’s just no clue in the decision.

Nevertheless, the court found there was a naked license through rote application of a rule that is not anchored in what a trademark is or what the doctrine is meant to protect:

Trademark law requires that “decisionmaking authority over quality remains with the owner of the mark.” Restatement § 33comment c.[*] How much authority is enough can’t be answered generally; the nature of the business, and customers’ expectations, both matter. Ours is the extreme case: plaintiffs had, and exercised, no authority over the appearance and operations of defendants’ business, or even over what inventory to carry or avoid. That is the paradigm of a naked license.

[emphasis in original] This decision, as in most naked licensing decisions, makes no finding about whether the trademark has actually lost significance as a mark as required by the law. Rather, it simply metes out punishment to a “bad” trademark owner who doesn’t follow some set of ambiguous rules for “control” that may – or may not – have any effect on the significance of the mark.

And what about the other stores? Under traditional naked licensing doctrine the original Eva’s Bridal has no rights anymore, but is that the legal outcome in this case? Should it be? Might it not be that the other family members running those other “Eva’s Bridal” are all behaving properly and there still is a unitary brand significance for the other stores? Could it be that the Nayef outlier store is causing great confusion for the other stores? (What made them finally sue Nayef anyway?) More questions left over from the rote application of a rule without thought about its greater implications.

So what’s the naked licensing takeaway here? This case doesn’t actually give me much heartburn because I think it has so little future relevance. As I said, maybe it’s right, maybe there was an abandonment as to this particular store, it’s just that the court didn’t elaborate, which you get to do when you’re an appeals court. The rebuttal to the naked license defense was that Said had no reason to doubt Nayef and that Nayef sold the same brands of dresses that Said had sold when he started the store – pretty feeble. The court characterized it as the “extreme case” and I expect in most situations a lawyer can muster up stronger facts than were elicited here.

There was a laches defense that neither the district court nor the appeals court considered, jumping straight to naked licensing. Laches would have been a much less mischievous defense.

Extra credit – as pointed out by the reader who sent me the case, where was the licensee estoppel defense?

Anyway, at least it’s a short decision. My post is probably longer.

Eva’s Bridal Ltd. v. Halanick Enter., Inc., No. 10-2863 (7th Cir. May 10, 2011) (Easterbrook, C.J.).

* Surprisingly, the decision cites the Restatement of Unfair Competition also exclusively as authority. How about some binding law here?

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One response to “Ho Hum Naked Licensing Case”

  1. Hi Pam,

    Looks like this decision harkens back to our old debate about Section 5’s abandonment v. related companies language as the basis of the Naked Licensing doctrine. And now another Circuit joins my dark side 😛

    I went into some detail re this debate on my latest post, and I still think that the related companies language is the better policy basis for this doctrine. But I do agree with you that the evidence in this case for ceding control was flimsy, and I am also curious about where the licensee estoppel argument had gone. (Several Circuits seem to have abandoned the licensee estoppel defense after the Supreme Court ruled that you couldn’t use it in patent cases — I do not remember the name of the case off-hand.)