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Lack of Control Leads to Loss of Trademark

Trademarks are used to “distinguish a good as originating from a particular source.” They are important to business owners to protect the investment made in a particular mark and the goodwill that now comes with it. Trademarks also protect the general public by not allowing deceptive businesses to use a valuable mark to dupe consumers into purchasing lower quality products or services. Since trademarks are so valuable to businesses, many business owners seek trademark protection for names of their businesses or products. When done correctly, this trademark protection can be very effective. When trademarks and trademark protection are mismanaged by businesses, significant loss can be the result. Such was the case in Movie Mania Metro, Inc. v. GZ DVD’s, Inc., et al.

In 1996, a movie rental company called “Movie Mania” registered its name as a trademark with the Michigan Department of Regulatory Affairs. After registering “Movie Mania” as a trademark, the company allowed many different businesses to use the “Movie Mania” name for their own movie rental operations. In 1999, Movie Mania sold one of its locations to a different company. In the transaction, Movie Mania agreed to allow the new company to continue to use the “Movie Mania” name in exchange for only $1 in annual royalties. There were essentially no other limits place on the use of the trademark. The new movie rental business was sold twice more after the initial sale. After the first sale, Movie Mania again gave permission for the “Movie Mania” trademark to be used by the new owners.

After the second sale of the movie rental business, in 2010 to the current defendants in the lawsuit, Movie Mania demanded a fee and licensing agreement in exchange for allowing Defendants to continue use of the “Movie Mania” trademark. Defendants refused to comply and began using the trademark anyway. In January 2011, Movie Mania told Defendants that the “Movie Mania” name was a Michigan trademark. In fact, the trademark had expired in 2006. Movie Mania did not actually renew the mark until April 2011. After Defendants refused to stop use of the mark, Movie Mania brought a trademark lawsuit in Macomb Circuit Court.

In its lawsuit, Movie Mania brought trademark claims under common law, Michigan law, and federal law. Defendants moved for summary judgment and claimed that Movie Mania had abandoned the mark since it failed to renew the mark in 2006, allowed other businesses to use the mark with almost no supervision, control, or licensing agreements, and failed to protect the mark in general. The trial court granted summary judgment in favor of Defendants because Movie Mania had engaged in “naked licensing” and had thus abandoned its trademark. Movie Mania appealed the decision.

At the Court of Appeals, the three-judge panel agreed that Movie Mania had indeed engaged in “naked licensing.” The court explained that “naked licensing” is the practice of “allowing others to use [a] mark without exercising reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used by the licensee.” Movie Mania had done this by exercising almost no control or supervision over the use of its mark by other parties. The court described Movie Mania’s behavior as a “textbook example of naked licensing.” As a result of Movie Mania’s “naked licensing,” it had abandoned its trademark under federal law.

However, the question was slightly different under Michigan law. The court noted that “naked licensing” actually does not constitute abandonment of the trademark under Michigan law. Even though the mark was technically not abandoned under Michigan law, Movie Mania still was not entitled to protection because under Michigan law, “naked licensing” destroys the validity of a trademark by making that mark non-distinctive. Thus, even though Movie Mania had avoided abandonment under Michigan law, it did not prevail because it had destroyed its own mark by its lack of protection and control over the mark. The court affirmed the trial court’s decision in favor of the Defendants.

This case shows the importance of protecting a trademark. Lack of protection and control over a trademark can lead to the abandonment of that mark, or even its very destruction. These outcomes all lead to overall loss on the part of the business. A good attorney can advise a business owner on how to avoid these pitfalls. The attorneys at Dalton & Tomich, PLC have experience assisting businesses in attaining and maintaining trademarks, especially here in Michigan. If you have more questions about this area of law or would like to file for your own trademark protection, please do not hesitate to contact us. We would be glad to speak with you.

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