Naked Licensing

Another way of losing your mark is something called naked licensing. I become fairly popular with my mark. My mark becomes desirable. I decide to franchise. So I’m McDonald’s, I go out and I have a bunch of new McDonald’s restaurants. However, in my franchise agreement, I do nothing that regards the quality of the product. Something I should say with a trademark, when you have a trademark, it implies a certain quality. So therefore, as a trademark owner, if I license out my marks to other parties, I have to make sure that they are performing to my standard of quality. That means my license agreement must say, we’re going to inspect your restaurant every six months, and you have to comply. And here are our rules and regulations, our quality standards. If you don’t have that in your license, that’s called a naked license, and theoretically you can lose your mark because you’re not controlling the most important aspect of your trademark, and that is the quality of your goods.