Trademark Licensing: Social Media and Quality Control | New York Law Journal

Trademark licensors are scrambling to keep up with the evolving use of social media as a tool for business advertising. As technology changes, so must the provisions in a trademark license.

A fundamental tenet of trademark law is that the trademark owner must control the use of her mark. This is fairly simple when the trademark owner sets up her own shop and does her own advertising.

Quality control can become more challenging when the owner licenses others to manufacture goods or offer services using her mark. In those situations the owner must have a licensing agreement which contains quality control provisions and the right to terminate the agreement if the licensee does not comply with those provisions.

If there is no quality control, it is called a "naked license." As intriguing as this concept sounds, it might be more appropriate to call it a "kiss of death license." A licensor could lose all of her rights in a trademark if she has not controlled her licensee's use of her trademark. This means that anyone, including her licensee, can use the mark freely without paying royalties to the former trademark owner. Brrrrrr. No licensor wants to be on that particular nude beach.

An equally serious problem is that a licensee's unsupervised use of a mark in advertising may damage the goodwill and reputation of the trademark owner's brand. If the licensor does not exercise control over advertising, she may find that a thoughtless or disgruntled licensee has published content that is inconsistent with the image the trademark owner wishes to convey or, worse, tarnishes the brand. A licensee may also post content that inadvertently infringes the trademark rights or the rights of publicity of others, thereby exposing the trademark owner to litigation and potential damages.

To prevent these problems, most license agreements provide that the trademark owner must pre-approve all advertising incorporating the mark. The licensee must submit all proposed advertising to the licensor, who has a period of time to approve it, typically 10 or 15 days. This system works well for print, radio and television advertising

Today, the use of social media by businesses to advertise their goods and services has made a 10-day window unworkable. Licensees want and need to have the ability to communicate with their customers using the media preferred by those customers. Five years ago, having a website was a necessity. Today most licensees want to promote their business using Facebook, Twitter and Instagram. The backbone of those systems is that they operate in the "now," not the "10-days-from-now."

This evolution in the way businesses advertise their goods and services has led to an evolution in the way licensors implement quality control over their licensees. It is unlikely that most licensors are available 24/7 to instantly approve all requests by a licensee before the licensee posts or tweets something in social media. Licensors are struggling to accommodate this new reality. The challenge is to devise a system that allows licensees to engage in day-to-day interaction with others via social media, and gives the licensor the ability to control the goodwill and quality of her brand.

One solution is to dramatically shorten the pre-approval window for social media advertising. A licensor may require a licensee to submit any potential posts or tweets to the licensor. If no rejection is received by the licensor within 24 hours, the licensee may post the content. If licensees find this system unworkable, another solution is to eliminate the need for pre-approval in certain situations. The licensor may agree that the licensee can use Twitter and Facebook to advertise the licensed services without obtaining prior approval of the licensor. In either of these scenarios, the licensor would reserve the right to delete tweets and delete or amend posts at any time.

The reality is that by the time the licensor becomes aware of an unsuitable use of her mark, the tweet or post may have been read, forwarded, retweeted or saved by thousands of people. There is no practical way to avoid this. One way to deal with the problem, however, is to also have a provision in the agreement that the licensee will be in material breach and liable for damages if the licensor has to rectify a licensee's social media activity more than three times in a given time period. Provisions like this should provide some incentive for a licensee to be mindful when it uses the trademark in social media.

A licensor should regularly review the Internet and her licensee's social media sites, so that she can shut down a problem as soon as possible. She should enroll her mark in a service like Google Alerts that will notify her when her mark appears on the Internet.

One of the benefits of social media is that it allows the licensor the opportunity to conduct due diligence before signing up a licensee. The licensor should review the social media accounts of every potential licensee. This will give the licensor the opportunity to evaluate the licensee's past use of social media, and the advisability of allowing the licensee to use the licensor's trademarks without prior approval.

Licensors and licensees can use a combination of the above methods to address the goals of utilizing social media to maximize sales and allowing the licensor the necessary control to maintain the good will and value of her trademark. As social media continues to evolve, licensors will need to continue to find creative solutions to maintain quality control over the use of their marks by licensees.

Reprinted with permission from the April 4, 2016 edition of the New York Law Journal© 2016 ALM Media Properties, LLC. All rights reserved.

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