Licensing trademarks to franchisees can be a valuable and successful business model—think McDonald’s, Papa John’s, Dunkin’, Orangetheory—but it also comes with some risks. One of those risks is naked licensing, which occurs when a licensor (or franchisor) fails to adequately control the nature and quality of the goods or services sold by the licensee (or franchisee). The consequence of naked licensing is dire: abandonment of the licensor’s or franchisor’s trademark and all associated trademark rights. Needless to say, a finding of naked licensing and abandonment can be detrimental to any trademark owner, particularly a franchisor whose business model revolves around trademark licensing. The issue of naked licensing in the context of franchising was at the forefront of the summary judgment decision in Endo Fitness LL, LLC v. F-19 Holdings, LLC. Fortunately for the defendant and franchise owner F19, the U.S. District Court for the Central District of California found that it did not engage in naked licensing of its “Fitness 19” brand by licensing that brand to a network of over 38 gyms.
