Rachel, Rebecca, and Ruth were all successful in their businesses in Houston, Texas. They were also committed Christians, each active in their own churches. They eventually met each other, and became friends. They all shared a common goal of trying to use their business skills to reach out and help the disadvantaged, for the purpose of presenting the Gospel to them, the good news of eternal salvation through Jesus Christ.
One day in June 2008, Rachel said to Rebecca and Ruth, “I have a friend, Mary, who is willing to donate truckloads of rice to help feed the poor, but she would like some help in all the administrative aspects of that.” Rebecca said, “Let’s form a 501(c)(3), recruit some board members and donors, and find someone to head it up. Let’s have as our ultimate goal presenting the Gospel to the poor: the good news of eternal salvation through Jesus Christ.”
Ruth responded, “This is great, let’s do it, let’s call it “Reaching Out – Houston”, let’s advertise to potential donors of money and rice, and to charitable groups, using a logo — a hand reaching out with some rice in it.” Soon, they had a board of successful Christian business executives, and the donations started coming in.
Reaching Out – Houston’s board hired Rebecca’s friend Martha as the CEO, and soon Reaching Out – Houston began distributing rice not only from Mary, but also from other rice farmers, to many other charitable organizations in the Houston area.
Then one day in June 2011, Martha’s friend Mark (who attended a church from the same denomination as Martha) in Iowa asked Martha if Reaching Out – Houston would allow him to use the “Reaching Out” name for a similar organization in Iowa to distribute corn to help feed the poor in Iowa. Mark assured Martha that his ultimate goal was presenting the Gospel to the poor: the good news of eternal salvation through Jesus Christ.
The Reaching Out – Houston board not only agreed to let Mark use their name, but it also helped Mark set up the 501(c)(3). Martha emailed to Mark the Board’s operating guidelines and rules of conduct, including the ultimate goal of presenting the Gospel to the poor: the good news of eternal salvation through Jesus Christ. Mark’s email response thanked the Board for their help, and promised to abide by the guidelines and the rules of conduct. Soon Reaching Out – Des Moine, with Mark as the CEO, was distributing corn to help feed the poor. Recently, various Christians in other States have asked Reaching Out – Houston to help them set up “Reaching Out” groups, and so Reaching Out – Houston is in the process of helping set up charitable organizations in various States, using the now famous “Reaching Out” name.
Unfortunately, in December 2013, Ruth learned that Reaching Out – Des Moine was distributing corn to only those charitable organizations that agreed to promote polygamy, so as to increase the birth rate of potential Iowa farmers. When Martha questioned Mark about that, his response was, “The Bible encourages polygamy, and Iowa needs more farmers.” Recently, in January 2014, Martha sent an email to Mark, asking him to immediately stop using Reaching Out – Houston’s two federally-registered trademarks: the “Reaching Out” name, and the Reaching Out logo. (Reaching Out – Des Moine had been using a modified version of the logo – a hand with corn, instead of rice.) Mark refused to stop, stating that they had invested two years, and a lot of donors’ money, in building their reputation with the Reaching Out name and logo.
What should Reaching Out – Houston do? The Board of Reaching Out – Houston has been reviewing the following passage from the Bible, and wondering how it should proceed:
1 Corinthians 6:1-7 (NKJV):
1 Dare any of you, having a matter against another, go to law before the unrighteous, and not before the saints? 2 Do you not know that the saints will judge the world? And if the world will be judged by you, are you unworthy to judge the smallest matters? 3 Do you not know that we shall judge angels? How much more, things that pertain to this life? 4 If then you have judgments concerning things pertaining to this life, do you appoint those who are least esteemed by the church to judge? 5 I say this to your shame. Is it so, that there is not a wise man among you, not even one, who will be able to judge between his brethren? 6 But brother goes to law against brother, and that before unbelievers! 7 Now therefore, it is already an utter failure for you that you go to law against one another. Why do you not rather accept wrong? Why do you not rather let yourselves be cheated?
The names in this story have been changed, and the facts altered slightly, to protect the people involved.
Unfortunately, the law states that Reaching Out – Houston will be “misleading” and “deceiving” the public if they do nothing. They have an affirmative duty to stop the unauthorized use of their name. In fact, they have to be willing to actually SUE the recalcitrant group, asking the court to enjoin any further use of their name:
“If a trademark owner allows licensees to depart from its quality standards, the public will be misled, and the trademark will cease to have utility as an informational device.” Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 387 (5th Cir.1977). (Quoted by the court in TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 885 (7th Cir. 1997)).
“The purpose of the quality-control requirement is to prevent the public deception that would ensue from variant quality standards under the same mark or dress. Taco Cabana Int'l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1121 (5th Cir. 1991) aff'd sub nom. Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992). (Quoted by the court in Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1077 (5th Cir. 1997).
“Naked licensing is an ‘[u]ncontrolled licensing of a mark whereby the licensee can place the mark on any quality or type of goods or services,’ raising ‘a grave danger that the public will be deceived by such a usage’.” Doeblers' Pennsylvania Hybrids, Inc. v. Doebler, 442 F.3d 812, 823 (3d Cir. 2006).
“The unauthorized use of a trademark which has the effect of misleading the public to believe that the user is sponsored or approved by the registrant can constitute infringement.” Burger King Corp. v. Mason, 710 F.2d 1480, 1492 (11th Cir.1983).
“It is clear that a trademark owner has a duty to exercise control and supervision over the licensee's use of the mark. Sheila's Shine Prods., Inc. v. Sheila Shine, Inc., 486 F.2d 114, 124 (5th Cir.1973).” Ron Matusalem & Matusa of Florida, Inc. v. Ron Matusalem, Inc., 872 F.2d 1547, 1551 (11th Cir. 1989).
“Clearly the only effective way to protect the public where a trademark is used by licensees is to place on the licensor the affirmative duty of policing in a reasonable manner the activities of his licensees.” Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358, 367 (2d Cir. 1959).
“[A] trademark owner has an affirmative duty to supervise and control the licensee's use of its mark, in order to protect the public's expectation that all products sold under a particular mark derive from a common source and are of like quality.” Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 993 (9th Cir. 2006).
“’[A] trademark owner has ‘an affirmative duty * * * to take reasonable measures to detect and prevent misleading use of his mark by his licensees or suffer cancellation of his federal registration.’ Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358, 366 (2d Cir. 1959). … [A] trademark licensor may succeed in a trademark infringement action against one who is still his licensee.” Franchised Stores of New York, Inc. v. Winter, 394 F.2d 664, 669 (2d Cir. 1968).
“[W]ithout a preliminary injunction, appellants will be unable to control the use of their mark by unauthorized licensees; the mere possibility that defendants could during the interval until trial depart from the teachings of the Church is sufficient to warrant the issuance of a preliminary injunction.” Church of Scientology Int'l v. Elmira Mission of the Church of Scientology, 794 F.2d 38, 44 (2d Cir. 1986).
In yet another similar case in California, the recalcitrant 501(c)(3) (FreecycleSunnyvale (“FS”)) sued the original 501(c)(3) (The Freecycle Network (“TFN”)) after the original group asked it to stop using their name. “FS filed a declaratory action against TFN arising from a trademark licensing dispute, alleging noninfringement of TFN’s trademarks and tortious interference with FS’s business relations.” The federal district court granted summary judgment to FS, the recalcitrant 501(c)(3). On appeal, the Ninth Circuit concluded as follows:
“TFN (1) did not retain express contractual control over FS's quality control measures, (2) did not have actual control over FS's quality control measures, and (3) was unreasonable in relying on FS's quality control measures. Therefore, we conclude that TFN engaged in naked licensing and consequently abandoned the trademarks. The district court's grant of summary judgment in favor of FS and against TFN is AFFIRMED.”
FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 520 (9th Cir. 2010).
So, it’s your choice. Control your licensees, or lose everything…
Tim Headley is an attorney who has been helping businesses protect their creative works since 1984, by specializing in "Intellectual Property", specifically patents, trademarks, copyrights, and trade secrets. Before that he taught theology in a Bible school in La Paz, Bolivia, for three years, and then worked as an electrical engineer in Houston for three years. He can be reached at firstname.lastname@example.org.