What is Naked Licensing?
Naked Licensing
A case involving the World-Famous Mustang Ranch Brothel illustrates how trademark rights can survive periods of nonuse and how courts analyze claims of naked licensing and abandonment when a business changes hands under unusual circumstances.
Naked Licensing and the Presumption of Abandonment — Trademark law generally disfavors “naked licensing,” which occurs when a trademark is transferred or licensed without the accompanying goodwill of the business. Separately, abandonment is presumed when a mark is not used for three consecutive years with an intent not to resume use. However, both doctrines depend heavily on intent and surrounding circumstances, not just the passage of time.
Government Seizure and Continued Trademark Intent — In Burgess v. Gilman, the federal government seized the Mustang Ranch Brothel in 1999 and held the property for several years without operating the business. Although the government itself had no intention of running a brothel, the court found that it had consistently intended to sell or license the business assets to a third party who could continue use of the trademark. This intent defeated claims that the mark had been abandoned despite more than three years of nonuse.
Goodwill Can Transfer Without Every Business Asset — The court also rejected the argument that the eventual buyer received only a naked license. It concluded that the transfer of the brothel buildings, which embodied the reputation and identity of the Mustang Ranch, was sufficient to convey goodwill along with the trademark. A valid trademark transfer does not require every historical asset to change hands, only enough to preserve the mark’s source-identifying function.
For more information, see our blog post “Naked Licensing” and the World-Famous Mustang Ranch Brothel.
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This article is provided for informational purposes only and does not constitute legal advice. For guidance on specific legal matters under federal, state, or local laws, please consult with our IP Lawyers.
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