“NAKED LICENSES” Cause Forfeiture of Intellectual Property Rights
Diligent IP owners register and license their intangible corporate assets to generate additional flows of income. Oftentimes, however, the importance of implementing and enforcing effective control mechanisms over their licensees is overlooked and the outcome can be gruesome.
The absence of these control measures typically results in loss of profits, market share and even harm to consumers which exposes both, licensor and licensees, to liability. Inaction by the licensor can lead to involuntary abandonment and cancellation of federal trademark registrations at the USPTO. The lack of supervision of the licensees’ quality standards is known as “naked license”.
Avoid this scenario by requiring your licensees to provide you periodically with samples of products they sell with your brand. Verify consistently the quality standards are compliant with your license. Do not assume licensees are complying with your license since the effects of their breach coupled with your inaction as licensor can transcend beyond the scope of the relationship. It is best to take effective action to monitor the licensees, verify and enforce your license.