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Licensing affords trademark owners an opportunity to expand the market for goods and services bearing their marks. However, if a trademark owner does not adequately supervise the nature and quality of the goods or services a licensee provides under a licensed mark, rights in the licensed mark may be abandoned. In a recent decision affirming a summary judgment, the 9th U.S. Circuit Court of Appeals ruled that the licensor of the “Leonardo da Vinci” trademark for wine had insufficiently supervised the nature and quality of the goods being sold under its licensed mark and had engaged in a “naked” license justifying cancellation of the licensor’s trademark registration based upon abandonment. Barcamerica International USA Trust v. Tyfield Importers Inc., 289 F.3d 589 (9th Cir. 2002). The 9th Circuit reached this conclusion notwithstanding the fact that the licensor held occasional, informal wine tastings of the licensee’s wine and relied on the licensee’s reputation and the licensee’s employment of a “world famous winemaker.” The case serves as a reminder to parties licensing trademarks of their affirmative obligation to supervise and exert control over the quality of goods or services offered by licensees under licensed marks. Trademarks serve the commercial purposes of identifying and distinguishing goods or services offered by different parties and affording customers an assurance that the offerings under a particular mark will be of a consistent quality. A trademark owner may grant a third party a license to provide goods or services under a mark without the licensor abandoning its rights in the mark provided that the licensor maintains adequate quality control of those goods or services. See e.g., Moore Bus. Forms Inc. v. Ryu, 960 F.2d 486, 489 (5th Cir. 1992). This requirement of control over the quality of the licensee’s goods or services is predicated upon the assumption that the public relies on a trademark as an assurance that the goods or services offered under a mark comport with the standards of the licensor and are offered with the approval of the licensor. In the absence of the licensor’s control over the quality of goods or services offered under its licensed mark, the public may be misled as to the trademark owner’s connection to the goods or as to their quality. If a trademark owner is deemed to have engaged in “naked” licensing, that is, licensing without sufficient supervision by the licensor with respect to the quality of goods or services offered under the licensed mark, the result is dramatic: The mark is deemed to have been abandoned, any trademark registration for such mark would be subject to cancellation and the owner would be estopped from asserting rights in the trademark. LICENSING STANDARDS Most trademark licenses are drafted to avoid such a result and, to that end, contain language requiring a licensee to meet objective standards and/or the licensor’s subjective standards with respect to quality. When a mark is licensed for use with manufactured goods, the license may, for example, require the licensee to use a certain grade of raw materials in the manufacturing process and to refrain from offering for sale finished goods that do not pass certain performance tests. When a mark is licensed for use with services, the license may, for example, require the licensee to provide services that achieve a certain result and to provide a warranty on the services rendered. Typically, a quality-control provision in a license also affords the licensor the right and opportunity to inspect the licensee’s goods or services offered under the licensed mark to ensure that they comply with the standards the licensor has articulated. Although the inclusion of quality-control provisions in license agreements has in some instances been held sufficient to establish the requisite control necessary to avoid abandonment of a licensed mark without inquiry as to whether such control was actually exercised ( see e.g., E.I. du Pont de Nemours & Co. v. Celanese Corp. of America, 167 F.2d 484 (C.C.P.A. 1948)), a licensor is well served by taking affirmative action actually to exercise such control. When the specific circumstances of the licensing arrangement are such that the licensor exercises sufficient quality control over the goods or services provided by the licensee under the licensed mark and the public is not deceived as to the usage of the mark as an indicator of quality, the omission of a quality-control provision may not result in an abandonment of the mark. Courts have upheld licensing agreements when the licensor is familiar with and relies upon the licensee’s own quality-control efforts. 289 F.3d at 596 (citing Morgan Creek Prods. Inc. v. Capital Cities/ ABC Inc., 222 U.S.P.Q.2d 1881 (C.D. Calif. 1991)). In the absence of express contractual quality-control provisions, courts are more likely to find adequate quality control by the licensor when the parties have enjoyed a long-standing or close relationship such that the licensor genuinely knows and approves of the quality-control efforts undertaken by the licensee. See e.g., Embedded Moments Inc. v. International Silver Co., 648 F. Supp. 187 (E.D.N.Y. 1986) THE FACTS OF THE CASE In Barcamerica, the 9th Circuit addressed the question of whether a licensor’s quality-control measures were sufficient to avoid a finding of naked licensing of its trademark and the resultant cancellation of the registration of its mark. Barcamerica International USA Trust owned the federally registered trademark “Leonardo Da Vinci” (U.S. Registration Number 1,267,337) for wines. Barcamerica asserted that it had used the Da Vinci mark in commerce continuously since 1980. In 1982, a company related to Barcamerica applied to the U.S. Patent and Trademark Office (PTO) for registration of the Da Vinci mark, and in 1984 the registration was issued and subsequently assigned to Barcamerica. In 1988, Barcamerica entered into a written license agreement with Renaissance Vineyards, pursuant to which Barcamerica granted Renaissance a nonexclusive right to sell wines under the Da Vinci mark. This agreement did not contain a quality-control provision. In 1989, Barcamerica entered into a second written license agreement to replace the 1988 agreement. The 1989 agreement also did not contain a quality-control provision. Despite the absence of express quality-control language in its licenses with Renaissance, Barcamerica maintained that it did, in fact, exercise quality control over the wines sold by Renaissance under the Da Vinci mark. Barcamerica’s principal stated that he occasionally, informally tasted the Renaissance wine and relied on the reputation of a “world-famous winemaker” employed by Renaissance at the time the license agreements were signed. Meanwhile, since 1979, Italian wine producer Cantine Leonardo Da Vinci Soc. Coop. a.r.l. had been selling its wines under the mark “Leonardo Da Vinci” to importers in the United States. In 1995, Cantine filed with the PTO for registration of its own “Leonardo” mark for wines, and during the course of the prosecution of its application, Cantine learned of Barcamerica’s registration and investigated Barcamerica’s use of the Da Vinci mark. After concluding that Barcamerica had abandoned its use of the Da Vinci mark, in 1997 Cantine commenced a proceeding at the PTO’s Trademark Trial and Appeal Board to cancel Barcamerica’s registration, based upon abandonment. Barcamerica responded to the cancellation proceeding by filing a suit in the Eastern District of California against Cantine and Tyfield Importers Inc., the company that had since 1996 served as Cantine’s exclusive importer and distributor of Cantine’s “Leonardo Da Vinci” wines. The suit alleged, among other things, infringement of Barcamerica’s Da Vinci mark. Shortly thereafter, Barcamerica (perhaps sensing a potential weakness in its case) proposed a new license agreement to Renaissance that included a quality-control provision. Renaissance declined to sign the new agreement, and Barcamerica asked Renaissance to sign a declaration stating, among other things, that Barcamerica had been involved in the quality control of the licensed wines. Renaissance refused to sign such a declaration on the ground that it was “neither truthful nor accurate.” Renaissance’s counsel subsequently sent a letter to Barcamerica stating, in part, that Barcamerica had never “had any involvement of any kind whatsoever regarding quality control … of the ‘Da Vinci’ label wines.” THE COURT RULINGS Cantine and Tyfield moved for summary judgment on the theory that Barcamerica abandoned the Da Vinci mark via naked licensing to Renaissance. The district court agreed and added that Barcamerica’s suit was barred by laches because Barcamerica knew of Cantine’s and Tyfield’s use of the “Leonardo Da Vinci” mark in connection with wine since 1993 and had not taken any action. Barcamerica appealed the district court’s decision to the 9th Circuit. On appeal, the 9th Circuit adopted as its own the district court’s opinion with respect to the issue of naked licensing. In the absence of express quality-control provisions in the license agreement between Barcamerica and Renaissance, the 9th Circuit could not find any evidence that Barcamerica was familiar with, or relied upon, the licensee’s quality-control efforts. The court found Barcamerica’s random wine tastings and reliance on the licensee’s reputation insufficient to demonstrate quality controls adequate to defeat a finding of a naked license. Barcamerica failed “to state when, how often, and under what circumstances” the licensed wine was tasted for quality. 289 F.3d at 597. Similarly, Barcamerica failed to provide the 9th Circuit with any information regarding the successor to Renaissance’s “world-famous winemaker” who had died subsequent to Barcamerica entering into the license agreements with Renaissance. The 9th Circuit determined that Barcamerica and Renaissance “did not … have the type of close working relationship required to establish adequate quality control in the absence of a formal agreement.” 289 F.3d at 597. The court distinguished this relationship from those in other cases in which, given the prior business dealings between the parties, a trademark licensor’s reliance on a licensee to maintain quality controls was reasonable and sufficient to avoid deceiving consumers, and thus not a naked license. See, e.g., Taco Cabana International, 923 F.2d 1113, 1121 (5th Cir. 1991). Barcamerica did not disagree with the court’s findings with respect to its lack of quality control, but it argued that since Renaissance made good wines under the Da Vinci mark, the public was not deceived and, accordingly, the license should not be deemed a naked license. The 9th Circuit rejected Barcamerica’s argument, stating, “[w]hether Renaissance’s wine was objectively ‘good’ or ‘bad’ is simply irrelevant. What matters is that Barcamerica played no meaningful role in holding the wine to a standard of quality — good, bad or otherwise.” 289 F.3d at 597, 598. Citing McCarthy’s treatise, the 9th Circuit noted, “[t]he point is that customers are entitled to assume that the nature and quality of goods and services sold under the mark at all licensed outlets will be consistent and predictable.” McCarthy on Trademarks and Unfair Competition � 18:55, at 18-94 (4th ed. 1991). When a trademark licensor fails to exercise control over goods produced by the licensee, such behavior is inherently deceptive and constitutes abandonment of any rights to the trademark by the licensor. 289 F.3d at 598 (citing First Interstate Bancorp v. Stenquist, 16 U.S.P.Q.2d 1704, 1706 (N.D. Calif. 1990)). The 9th Circuit did not articulate a minimum standard of control or inspection that would satisfy the requirement of adequate quality control in a trademark license. Rather, the court noted that such a standard will vary given the circumstances of the license and the particular marketplace in which the goods or services are sold. 289 F.3d at 598; McCarthy, � 18:55, at 18-94,95. With respect to Barcamerica’s quality-control efforts, the court stated that, at the very least, Barcamerica could have been expected to sample (or have a designated wine connoisseur sample) an adequate number of bottles of the Renaissance wines bearing the Da Vinci mark to ensure that they were of sufficient quality to bear the mark. Barcamerica serves as a reminder to trademark owners and their counsel that the use of marks by licensees should be governed by written standards setting forth quality requirements for the licensed goods or services, along with inspection rights, approval rights or other monitoring provisions. During the life of the license, the trademark owner or its representatives are well served by monitoring the licensee’s provision of the goods or services bearing the mark to ensure that the licensee is actually providing the licensed goods or services in a manner consistent with the licensor’s standards of quality. As Barcamerica makes clear, a failure to do so can have drastic consequences. Jeffrey H. Brown is a member, and Luke W. DeMarte is an associate, at Chicago’s D’Ancona & Pflaum (www.dancona.com). They concentrate their practice on intellectual property and entertainment law, including the negotiation and drafting of trademark licenses.

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