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A Better Partnership
September 10, 2014

COA Distinguishes Between Federal and State Trademark Law Regarding Naked Licensing and Abandonment

In Movie Mania Metro, Inc. v. GZ DVD’S INC., No. 311723, the COA affirmed the trial court’s holding that a registered trademark holder engaged in naked licensing constitutes abandonment under the federal Lanham Act, but rejected the trial court’s holding that naked licensing also constitutes abandonment under Michigan’s Trademark Act. The COA further held that, although naked licensing does not constitute abandonment under Michigan law, naked trademarks are nevertheless invalid.
 
Plaintiff operated a video-rental business using the name “Movie Mania” in 1989 and subsequently licensed the mark with the Michigan Department of Regulatory Affairs in 1996. Thereafter, Plaintiff allowed several unaffiliated parties to use the “Movie Mania” name in conjunction with other local video-rental businesses. Plaintiff did not place restrictions on the licenses and the affiliates had almost unfettered discretion with regards to the mark’s use. In 2010, Defendant bought one of the local “Movie Mania” businesses and sought permission to use the name. Plaintiff prohibited its use unless Defendant paid a fee and signed a licensing agreement. Defendant ignored Plaintiff’s demands and opened the store displaying the “Movie Mania” mark. Plaintiff initiated an action against Defendant for trademark infringement under The Lanham Act, Michigan’s Trademark Act, and common law.
 
Naked licensing occurs when a license holder allows non- holders the ability to use a registered trademark without setting standards or exercising control over the nature and quality of the non-holder’s use of the mark, thus losing its significance. The Lanham Act codified the concept of naked licensing in a specific context, abandonment. Under the Lanham Act’s definition, if a trademark holder engages in acts that cause the trademark to lose its significance, the holder abandons the mark and relinquishes all rights to it. However, under Michigan’s Trademark Act, the definition of abandonment is narrow and occurs only when a trademark holder discontinues the mark’s use with intent not to resume.
 
The COA concluded that Plaintiff was engaged in naked licensing because he retained little control over the mark’s use when he allowed previous unaffiliated parties access to the “Movie Mania” name without requiring an agreement. Because The Lanham Act encompasses naked licensing within its definition of abandonment, the court held that Plaintiff relinquished his rights to the mark under federal law.
 
However, the Court concluded that Plaintiff did not abandon the trademark under Michigan’s Trademark Act because the definition of abandonment under Michigan law does not encompass naked licensing like the Lanham Act. Under Michigan’s definition of abandonment, the court explained that because Plaintiff continually owned two video stores with the “Movie Mania” name, he did not have intent to discontinue the mark’s use. Rather, the Court relied on the definition of trademark and its requirement that the mark be “distinctive.” The Court explained that by practicing naked licensing, Plaintiff lost whatever distinctiveness “Movie Mania” possessed, invalidating its trademark status. Therefore, the Court affirmed the trial court’s order. 

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