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In Brief: As January reaches the halfway point and New Years’ resolutions to work out weaken, a trademark case involving a fitness franchise seems appropriate.
Here’s What Happened:
F-19 Holdings, LLC and F19 Franchising, LLC have used their “Fitness 19” mark for fitness services since 2002. F19 started franchising its gyms in about 2008. Along with the franchise, came the right to use the F19 trademarks.
Endo Fitness LLC sought an F19 franchise. It didn’t work out. Not to be thwarted, Endo opened its own gym and called it “Fitness 19”. Endo then filed a declaratory judgment action to preemptively get a declaration that F19 didn’t properly control the use of its trademarks and thus abandoned them through naked licenses.
What exactly is a naked license? A naked license is where the owner/licensee does not exercise quality control over the licensee. Naked licensing deceives the public that relies on trademarks as a symbol of course and quality. The consequences of naked licensing is that the owner will be deemed to have abandoned it.
F19 brought a motion for summary judgment arguing that it adequately controlled its licensees’ use of the trademarks. The court agreed.
In its opinion, the court identified three ways a licensor can exercise adequate quality control: 1) the licensor can include in the license an express contractual right for the licensor to inspect and supervise the licensee’s operation; (2) the licensor can exercise actual control over the quality of the licensee’s operation; or (3) the licensor can reasonably rely on the licensee to maintain quality control.
In this case, Endo failed to provide any proof that F19’s licenses were naked licenses. Agents of F19 conducted investigations to assure the quality of some F19 franchisees. Endo argued that the inspections weren’t valid quality control because some of the inspections were conducted by the franchisees themselves. Endo didn’t present any authority for this proposition and the court couldn’t find any either. Endo argued that F19 didn’t have written quality control standards for quality control. The court held that the proper inquiry in the naked licensing context is not consistency among franchisees but overall franchisee quality.
So there were no facts in dispute and F19 was entitled to judgment as a matter of law.
Why You Should Know This: A licensor or franchisor as an economic interest in making sure their trademarks are associated with goods and services of a consistent quality. Even if the quality varies a little among licensees. Endo apparently believed that the best defense is a good offense and sought to challenge F19’s trademarks. Endo took a risky stance that didn’t pay off.
For those who draft trademark licensees, the F19 court has provided standards for acceptable quality control.
Case Information: Endo Fitness LL, LLC v. F-19 Holdings, LLC, No. 2:22-cv-03124-MEMF-JC (C.D. Cal., Dec. 1, 2023).