The term license is derived from the Latin word “license” which means to allow, “license” and means permission. The emergence of the licensing trademark in the market has provided a wide business cycle to authorized users of the brand name. Merely receiving the royalties in the contract without a clause as to quality control would lead the license to be naked licensing. It has been held that without the quality control require unscrupulous licensors or licensees could change the product quality advantage of unwary consumers. A trademark is a medium that determines the brand name, creates trust in the mind of the consumer as the quality and standard of goods and services. under the Trade Mark Act, the registration of registered users is subject to the exercise of proper control by the registered proprietor over the mark used by the registered user. The licensing agreement is a legal document that indicates the future use of the trademark after licensing agreement.
A trademark is understood to have independent value beyond identifying and distinguishing the goods and services of the trademark proprietor. The trademark becomes valuable property for instance the Apple trademark itself can be used as the property to get attract consumers.
Under the U.S. Trademark law, a trademark license may be express or implied. A written agreement is created as a rebuttable supposition of a valid license. The absence of a written agreement is conclusive of naked licencing or that a mark has become abandoned. The trademark owner can authorize the right to use his trademark through licensing agreement. However, failures to adequate control over the quality of products manufactured or services offered by a licensee may be considered as a naked license. Hence, the trademark is deceptive to the consumer. Uncontrolled licensing is not permitted to get royalties and deceive the public. For instance, some products will harm the consumers by consuming or using with belief that it is brand and under well-known trademark. the consumer does not general knowledge to know that a particular trade proprietor has licensed his/her trademark right to licensee.
The trademark licensor has an affirmative obligation under the Lanham Act and case law to take reasonable steps to ensure that the items produced or services provided under a licence agreement satisfy the licensor’s quality requirement. Inadequate quality control might lead to a judicial decision of "abandonment" of a trademark, as a result of the trademark owner's act or omission, which causes the brand to lose its importance as a source of origin. Uncontrolled licensing or naked licensing could cause the trademark to lose significance as a symbol of quality and an indication of origin.
From a strictly legal standpoint, trademark rights can be lost, and have been, due to a lack of proper quality control. It would be unwise to put such valuable marks in danger. Furthermore, poor or absent quality control may result in other legal consequences, such as a finding that the licence is invalid or that there has been a gap in the continuous use of the mark, which could result in the loss of priority rights over another or the inability to maintain registration rights.
In the case of Taco Cabana International v. Two Pesos, Inc., a restaurant owned by two brothers was divided into separate locations and each used the trade dress of the prior location. This arrangement was challenged as a naked license. The court observed “both parties wag engaged in a close working relationship and rightly depend on each party's understanding with standard and measures to ensure reliable quality. No actual deterioration in the quality standards is established, there is no abandonment.
Naked licensing practice is not allowed in the U.S. The court has played a key role to prevent naked licensing by the way of cancellation of instance in case of Baracamerica International USA Trust V. Tyfeild Imports, Inc. The court cancelled the Barcamerica trademark, on the ground of naked licensing and lied down that: “it necessary to bear in mind that ‘ quality control’ does not mean that the licensed products must be of “ high quality” but it should have the equal quality of the product of the trademark owner. The core issue is that the customers have right to presume that the nature and quality of product and service provided in the market under the brand name licensed will possess the equal qualities.”
The distinctive feature of the trademark is to ensure the consumer that the product belongs to a particular brand. The customer develops confidence in the quality of the products, drugs provided and services offered in the market. It will protect the consumer from substandard goods and defective goods.
Trademark licensing is an authorization by the registered proprietor of a trademark granting another person the right to exploit his trademark under stipulated terms and conditions. Trademark licensing has assumed a reputation as an indispensable means of the business organisation on both national and international levels. Licensing is an easy way for the trademark owner to expand his business internationally within a short period. The licensor endures owning the mark and the use of it by the licensee in accustom to the profit of the licensor. A trademark designates the basis or source of a product or service and hence allows customers to make generalizations concerning their quality. When the License agreement does not include quality control over the licensee it is considered as “naked licensing. The trademark proprietor has to ensure the consistency of quality in the good or service, failure to meet terms and conditions s/he shall forfeit the trademark. Failure to exercise control by the licensor over the quality of the goods manufactured, and service provided by the licensee affects the consumer’s right.