The Northern District of Illinois recently issued an opinion in a trade dress case between two french press coffee manufacturers that should serve as a reminder to everyone licensing trade dress to third-parties that crafting decent contractual quality control principles is only half-the battle in defeating claims that you’ve granted a naked license that could allow others to copy your trade dress without fear of infringement. You also have to enforce those quality control provisions if you are going to defend against claims that you’ve granted a naked license that undoes your trade protections.
The case involved claims between Bodum USA, Inc., the maker of the Chambord french press and A Top New Casting, Inc., the maker of the SterlingPro french press. Bodum sued A Top alleging that the SterlinPro infringes on the trade dress Bodum has in the Chambord because the SterlingPro “copies the look and overall appearance” of the Chambord. These two pictures are from the complaint:
After some discovery, A Top moved for summary judgment against Bodum based on one of A Top’s affirmative defenses arguing “that Bodum relinquished its rights to enforce its trade rights when it granted a third-party company a purportedly ‘naked’ license to the Chambord design.”
As a reminder, “A party asserting that a trademark owner engaged in naked licensing faces a heavy burden. See Restatement (Third) of Unfair Competition § 33 cmt. c (Am. Law. Inst. 1995) (“Because a finding of inadequate control can result in a forfeiture of trademark rights, courts impose a heavy burden on the person asserting a lack of reasonable control by a licensor.”); TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 885 (7th Cir. 1997) (same).” Basically, a defendant attempting to show a naked license has to demonstrate that the person claiming the rights granted others to “use the mark without exercising reasonable control over the nature and quality of the goods, services, or business on which the mark is used by the licensee.”
The Court in this case examined the claims in light of the factual circumstances regarding Bodum’s conduct and the contractual provisions from the licensing agreement Bodum had with the third-party which stated:
4. Quality Control
A. Licensed Merchandise shall substantially and reasonable conform to the level of quality with respect to materials and workmanship as Licensee’s current Monet product models.
B. Licensee will comply with all laws, rules, regulations and requirements of any governmental or administrative body which may be applicable to the manufacture, advertising, merchandising, packaging, publicity, promotion, sale, distribution, shipment, import and export of the Merchandise and its componentry.
C. For purposes of monitoring quality, Licensee agrees to provide Licensor, [sic] a sample of each model of Licensed Merchandise, upon request, provided Licensed Merchandise is not commercially available to Licensor.
The main claims that these contractual provisions were enforced and monitored came from testimony that Bodum’s outside counsel “has examined the licensed products every year since 1997 at an annual houseware display show. [He] has become familiar with the design and operation of French press coffeemakers through his representation of Bodum in over a dozen trade dress lawsuits. He says that each year he inspected the licensed products and did not notice any change in their quality. Specifically, during [His] annual examinations of the products, he visually inspected the coffeemaker’s frame, feet, handle, lid, safety lid, carafe, and plunger; visually inspected and felt the steel and glass used in the product components; and opened the lid and tested the plunger. In addition to finding no change in the quality of the licensed products, [He] has stated that he is unaware of any products liability actions alleging defects in the licensed products since the licensing agreement has been in effect. Bodum also notes that during that period the United States Consumer Product Safety Commission has not issued a recall of any of the licensed products.”
A top argued that the language of the quality assurance sections of the contract were inadequate because Bodum did not have any express right to inspect or supervise the licensee’s operations and denied that outside counsel was qualified and that his annual inspection was sufficient – arguing that adequate quality control requires testing products in a factory where they are made.
Unmoved by A Top’s assertions, the Court found that the quality control at issue was sufficient for jury to find that Bodum’s quality control did not amount to a naked license:
In evaluating naked licensing claims, the Seventh Circuit “tend[s] toward the view taken by the Restatement (Third) of Unfair Competition, which advocates a flexible approach but allows licensors to rely at least somewhat on the reputation and expertise of licensees.” TMT N. Am., 124 F. 3d at 885. Under that approach, if the trademark owner has good reason to rely on the licensee’s reputation and expertise, “the existence of contractual obligations undertaken by the licensee may be sufficient in itself to constitute reasonable quality control . . . at least in the absence of evidence indicating significant deviations from the agreed standards or procedures.” Restatement (Third) of Unfair Competition § 33 cmt. c. Where the risk of deviations in quality is great, however, the mere presence of contractual obligations may be insufficient, and “greater control such as periodic inspections of facilities or products may be necessary.” Id.
… Bodum carefully examined the licensed products at the outset to evaluate their quality and agreed to a provision that contractually obligated the licensee to maintain that same quality. … In addition, Bodum has presented evidence that its outside counsel annually inspected the licensed products, and a reasonable jury could conclude that a visual inspection by a well-informed layperson is sufficient to ensure the consistent quality of a device as simple as a French press coffeemaker. Cf. Restatement (Third) of Unfair Competition § 33 cmt. c (greater control may be necessary where licensed goods or services are “particularly complex”). A Top’s arguments for the contrary conclusion are unpersuasive. It contends that a trademark holder may not rely on the expertise of the licensee to monitor quality control unless the licensor and licensee have a “special” or “close working relationship.” … A reasonable jury could conclude, however, that the “quality control” provision in the license agreement is a material term, such that Bodum could terminate the agreement when it became aware of quality deviations.
Bodum French Press Opinion The takeaway here is that the two parts of quality control (the contract and the monitoring) – even at a minimum – should be undertaken.