United States: Open Source Software Copyright Licenses Did Not Cause Trademark To Be Abandoned Under "Naked Licensing" Theory

Abstract

A California district court dismissed a trademark infringement defense based on allegations that the trademark owner had abandoned its trademark rights through “naked licensing,” but here the court found the open-source license granted by the owner of trademarks was in fact a copyright license, not a trademark license.

Background

Software maker Neo4j has entities in the USA and Sweden that have various rights, responsibilities, and activities:

Users (licensees) of the open source version of the Neo4j software can download the source code and use, modify, support, combine, and convey the open source software for free; however, these licensees are required to provide notice of any modifications they make. In addition to the open source version of the software, Neo4j offers a commercial version with additional features and support that are not available in the open source version.

In 2014, Neo4j entered into a partnership agreement with PureThink, a software development company, under which PureThink agreed to license Neo4J's trademark and sell and support the commercial version of Neo4j's software for a percentage of the fees.

The parties' relationship crumbled, and Neo4j formally notified PureThink that it materially breached the agreement and terminated the agreement when PureThink failed to cure these material breaches.  Neo4j then sued PureThink for trademark infringement, among other causes of action. In its answer and counterclaims, PureThink alleged Neo4j abandoned its trademark based on a “naked license” theory. According to PureThink, Neo4j did not have actual or adequate controls of the quality of third-party modifications to the open source code versions licensed under the GPL and AGPL licenses and to PureThink's modifications to the commercial version of the source code. Neo4j moved to dismiss PureThink's “naked license” defense to trademark infringement, and the court granted Neo4j's motion.

Court Decision

The court explained that trademark rights can be abandoned and lost when the mark becomes generic or otherwise loses its significance in identifying the source of the branded goods or services. In particular, a trademark owner can inadvertently abandon its trademark rights and lose its ability to assert those rights by granting a so-called “naked license.” A “naked license” occurs where the trademark owner fails to monitor the quality of goods that a licensee produces under that trademark and the trademark ceases to function as a source identifier for the branded goods or services.

In this case, PureThink argued that Neo4j abandoned its “Neo4j” mark under a “naked licensing” theory by failing to control the quality of the third-party modifications to the open source software—allowing the “unfettered and uncontrolled use of the Neo4j trademarks” through use on the open source software repository.  

The court disagreed that Neo4j granted a naked trademark license, pointing out that the open source licenses granted to third-parties on the open source software repository were copyright licenses, not trademark licenses. Users of the open source version of the software did not have any right to use the Neo4j trademark without a separate trademark agreement. Naked licensing does not occur where there is no trademark license.

Under an additional naked licensing theory, PureThink alleged Neo4j abandoned its trademark because Neo4j failed to exercise quality control over PureThink's modified version of the software. Unlike PureThink's earlier naked licensing theory, this theory was based on an express trademark license that was included in the agreement between PureThink and Neo4j. But, the court rejected PureThink's arguments, explaining that while it was possible Neo4j failed to exercise quality control over the license in its agreement with PureThink, licensee estoppel precluded PureThink's defense.

Licensee estoppel prevents a licensee from challenging the validity of a trademark if that challenge occurs during the term of the license. Here, the facts PureThink alleged to support Neo4j's lack of quality control occurred during the pendency of the Neo4j/PureThink agreement, such that PureThink was estopped from challenging abandonment because of naked licensing.

Strategy and Conclusion

This case demonstrates a central aspect of licensing trademarks.  For a trademark to continue to be a valid and enforceable right after it is licensed, a trademark owner must provide for monitoring the quality of the goods and services of its licensee. Otherwise, the rights can be challenged as being abandoned and lost.

The Neo4j, Inc. decision can be found here.

Originally Published by Finnegan, December 2020

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