Trademark Licensing: How to Let Someone Use Your Mark Without Losing It

Licensing a trademark can be a practical way to expand a business.

Another company may manufacture products, sell services, or operate under your brand while you receive royalties or other compensation. But a trademark license is not merely permission to use a name or logo.

The owner must retain—and actually exercise—appropriate control over the nature and quality of the goods or services offered under the mark. If it does not, the owner may face a doctrine often called naked licensing. In the Ninth Circuit, inadequate quality control can support a finding that the owner abandoned the mark and can no longer enforce it.

This article explains the federal framework for trademark licensing, the Ninth Circuit’s naked-licensing analysis, and the practical agreement and administration issues business owners should address before granting rights to use a brand.

Can You License a Trademark?

Yes. Federal trademark law recognizes that a registered mark, or a mark sought to be registered, may be used legitimately by a “related company.” Under 15 U.S.C. § 1055, qualifying use by a related company can inure to the trademark owner’s benefit and need not impair the mark’s validity or registration, so long as the mark is not used in a manner that deceives the public.

The key definition appears in 15 U.S.C. § 1127. A “related company” is a person whose use of the mark is controlled by the owner with respect to the nature and quality of the goods or services connected with the mark.

Put simply, a trademark owner can allow another party to use the mark, but a valid licensing relationship requires more than collecting a royalty or approving a logo file. The owner needs meaningful control appropriate to what consumers expect from the brand.

What Is “Naked Licensing”?

“Naked licensing” describes a trademark license where the owner does not exercise adequate quality control over the licensee’s use of the mark. The doctrine reflects a basic trademark principle: a mark should continue to identify a consistent, controlled source of goods or services for consumers.

The Ninth Circuit has explained that inadequate control can result in a mark no longer functioning as a symbol of quality and controlled source. If the evidence establishes naked licensing, the consequence can be severe: abandonment of trademark rights. Because abandonment is a forfeiture, however, the party asserting naked licensing bears a stringent burden of proof. Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002); FreecycleSunnyvale v. Freecycle Network, Inc., 626 F.3d 509 (9th Cir. 2010).

That does not mean every imperfect license or every missing provision automatically destroys a mark. The analysis is fact-specific. But the risk is real enough that quality-control provisions and real-world administration should be treated as central features of the licensing arrangement—not afterthoughts.

The Barcamerica Example: Good Products Were Not Enough

In Barcamerica, the trademark owner held a federal registration for “Leonardo Da Vinci” for wine and licensed the mark to a California winery. The agreements lacked quality-control provisions. The owner’s evidence of oversight consisted largely of occasional, informal tastings and reliance on the reputation of a winemaker.

The Ninth Circuit held that the owner had engaged in naked licensing and forfeited its rights in the mark. It also affirmed cancellation of the federal registration. The court’s point was not that the licensed wine was necessarily bad. Rather, the owner had not played a meaningful role in ensuring that the wine met a consistent standard associated with the mark.

That distinction matters. Quality control does not necessarily mean luxury quality or the highest possible quality. It means the trademark owner maintains control sufficient to provide consumers with the consistency and predictability they have reason to associate with the mark.

What Do Courts Look For?

In FreecycleSunnyvale, the Ninth Circuit assessed whether the trademark owner had avoided naked licensing through three related questions:

1. Did the license provide an express contractual right to control quality? A provision giving the owner rights to set standards, inspect, supervise, and address noncompliance is important evidence of retained control.
2. Did the owner exercise actual control? A contract alone is not the entire answer. Courts may examine whether the owner actually implemented standards, reviewed performance, inspected or sampled goods or services where appropriate, and followed up on noncompliance.
3. Could the owner reasonably rely on the licensee’s own quality-control measures? In limited circumstances, a close and informed working relationship may support reliance on the licensee’s controls. But reliance is not a substitute for control merely because the licensee is reputable or the parties have a good relationship.

In FreecycleSunnyvale, the court concluded that the owner lacked an express contractual right to control quality, lacked actual control, and could not reasonably rely on the local group’s own efforts. The decision illustrates why voluntary guidelines, generalized brand preferences, or unenforced rules may not be enough.

A newer licensing relationship does not itself establish naked licensing. It can, however, make it more difficult to justify reliance on a licensee’s internal practices—particularly when the owner has not established standards, supervision, or a reliable record of actual oversight.

What Should a Trademark Licensing Agreement Address?

The right provisions depend on the mark, the business model, and the licensed goods or services. Still, a carefully structured trademark license commonly addresses the following issues.

Quality-Control Standards and Owner Oversight

The agreement should identify applicable standards for the licensed goods or services and give the owner meaningful rights to administer them. Depending on the arrangement, that may include rights to inspect facilities, review samples or deliverables, request records, require corrective action, and approve changes that could affect the customer experience.

The arrangement should also be workable. A right to inspect that is never used—or standards so vague that no one can apply them—does not provide the same protection as a licensing program that is actually administered and documented.

Brand and Trademark-Usage Rules

The agreement should identify the licensed marks and explain how they may be used. This may include rules for logos, colors, packaging, advertising, websites, social-media materials, notices, and trademark legends. It may also address whether proposed new uses or marketing materials require advance approval.

Clear usage rules help prevent inconsistent presentation and give the owner a practical basis for reviewing how the brand appears in the market.

Scope of the License

A license should describe what the licensee is permitted to do and what it is not permitted to do. Common scope issues include:

• the particular marks covered;
• the goods or services covered;
• the territory;
• the term;
• whether the license is exclusive or nonexclusive;
• sales channels or customer categories; and
• any reserved rights of the trademark owner.

Exclusivity and duration are commercial decisions, not independent naked-licensing triggers. They should nevertheless be defined carefully so that the parties understand where the license begins and ends.

Sublicensing and Assignment

A licensee’s ability to sublicense, assign, or otherwise transfer its rights should be addressed expressly. Each additional user of the mark creates another relationship the owner may need to control. If sublicensing is permitted, the agreement should make clear what approvals, written obligations, and quality-control requirements apply to each sublicensee.

Royalties, Reporting, and Audit Rights

If compensation is tied to sales, revenue, units, or another performance measure, the agreement should state how the amount is calculated, when reports are due, when payments are due, and what records the licensee must maintain. Audit rights and a process for addressing reporting discrepancies can reduce avoidable disputes.

The royalty structure is commercially important, but royalty payments do not replace quality control. A license can be financially successful and still create trademark risk if the owner does not retain and exercise appropriate supervision.

Termination and Post-Termination Cleanup

The owner should have a practical right to terminate or suspend the license for material noncompliance, including quality-control failures and unauthorized trademark use. The agreement should also address what happens after termination: when use must stop, how digital materials are removed or updated, whether inventory may be sold through during a controlled wind-down, and how the licensee confirms compliance.

Without a usable exit process, a trademark owner may have difficulty stopping continued use of the mark after the relationship ends.

A Signed Agreement Is Only the Beginning

The agreement is the foundation, but the trademark owner’s conduct after signing matters. A well-administered licensing program may include written brand standards, documented approvals, periodic reviews, records of inspections or sampling when appropriate, and prompt follow-up when problems arise.

The degree of oversight should fit the business. A restaurant brand, software platform, consumer product, professional-service offering, and retail concept may call for different standards and methods of review. The goal is not unnecessary micromanagement. The goal is to ensure that the owner can demonstrate real, informed control over what consumers encounter under the mark.

The Bottom Line

Trademark licensing can monetize a brand and expand a business, but it should not be handled as a bare permission slip. Federal law ties legitimate related-company use to the trademark owner’s control over the nature and quality of the licensed goods or services. The Ninth Circuit’s naked-licensing decisions show why the owner needs both a carefully designed agreement and a practical process for using the control rights it retains.

Before granting another business the right to use a valuable brand, identify the standards consumers associate with the mark, decide how those standards will be monitored, and build that process into both the contract and the parties’ day-to-day practices.

This article is provided for general educational purposes only and is not legal advice. Trademark licensing issues are fact-specific and may involve federal law, state law, contract law, and the particular goods or services at issue. Consult qualified counsel about a specific licensing arrangement before signing or implementing it.

Authorities discussed: 15 U.S.C. §§ 1055, 1127, 1064; Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002); FreecycleSunnyvale v. Freecycle Network, Inc., 626 F.3d 509 (9th Cir. 2010).