FreecycleSunnvale v. The Freecycle Network

Citation
FreecycleSunnvale v. The Freecycle Network, No. 08-16382 (9th Cir. Nov. 24, 2010).

Factual Background
Dean Beal founded The Freecycle Network (TFN) in March of 2003, an Arizona nonprofit corporation dedicated to “free-cycling.” Free-cycling, a term not coined by Beal, refers to the practice of giving an unwanted item to a stranger so that it can continue to be used for its intended purpose. TFN organizes and facilitates a number of local, online directories and message boards using Yahoo and Google Groups, as well as its own website, www.freecycle.com. Lisanne Abraham founded Freecycle (FS) in October of 2003 in Sunnvale, California, without TFN’s knowledge or involvement. Abraham later emailed Beal directly regarding the use of TFN’s logo. Beal replied by saying “You can get the neutral logo from www.freecycle.org, just don’t use it for commercial purposes or you [sic] maybe Mark or Albert can help you to do your own fancy schmancy logo!”

Late in 2005, TFN sent emails to FS ordering the group to cease and desist using the Freecycle name and logo and Yahoo! subsequently removed the FS group following requests from TFN.

Trial Court Proceedings
FS filed this action for declaratory relief, alleging non-infringement of TFN’s trademarks and tortious interference with FS’s business relations.

FS moved for partial summary judgment on the basis of its naked licensing defense, which the district court granted.

Appellate Court Proceedings
Trademark owners have a duty to control the quality of their trademarks. McCarthy § 18:48. While an owner is entitled to license the use of its marks, the licensor must be diligent about preserving the ability to control the quality of the goods and services sold under the mark. “Naked licensing” occurs when the licensor “fails to exercise adequate quality control over the licensee.” Barcamerica Int’l USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002). Where is licensor is found to have failed to exercise such control, “a court may find that the trademark owner has abandoned the trademark, in which case the owner would be stopped from asserting rights to the trademark.” Id. at 596. The “proponent of a naked license theory of trademark abandonment must meet a ‘stringent standard of proof.’” Id. at 596. While the court noted that few other circuits have determined whether this standard is “clear and convincing” evidence, or a “preponderance of the evidence,” in the present case, applying either standard leads to the conclusion that TFN engaged in naked licensing.

While TFN conceded that it did not have an express license agreement for the use of its trademarks, it argued that a reasonable jury could find that it still had adequate quality control measures in place when FS was authorized to use the marks. While it is true that TFN provided FS with access to its logo under the express condition that it not be used in connection with any commercial enterprise, this solitary restriction falls short of granting TFN any actual control. The noncommercial use provision even failed to provide for a procedure for TFN to revoke use of the mark.

Under Barcamerica, however, the lack of express control provisions or procedures are not dispositive where it can be shown that actual control over the use of the mark was exerted. TFN asserted that there were a number of actual control measure in place, namely, the restriction on commercial use, the “Keep it Free, Legal, and Appropriate for all Ages” standard agreed upon by the moderators of The Freecycle Network, and the etiquette guidelines listed on TFN’s website, which Abraham had either copied from the site in establishing FS, or copied from another TFN member site. The court rejected TFN’s arguments, citing TFN’s own admissions that local moderators were free to interpret and apply the community standards as they saw fit. Further, nothing in the measures of actual control cited by TFN allowed TFN to control any aspect of the quality of goods and services associated with its mark, the guidelines were all directed more at the use of the marks and overall operation of a member group.

TFN further alleged that even if it did not exercise actual control, it “justifiably relied on its member groups’ quality control measures.” While other circuits have accepted this argument, they have required the licensor and licensee to be involved in a “close working relationship ,” something that was not present between TFN and FS. The only written communication between TFN and FS regarding the use of the marks was the initial email between Beal and Abraham and there was no prior relationship or involvement between the parties that would have allowed TFN to rely on the conduct of FS. TFN’s final arguments were similarly dismissed by the appellate court. The first, that it should be subject to a lessor level of quality control because its services are not dangerous to the public was rejected again because there was no level of control exerted, and its remaining arguments, which were raised for the first time on appeal, were not reviewed by the court.

There are a number of organizations, especially in the “green” industry, that have adopted the use of logos and badges to indicate participation in particular programs, or an affiliation for an environmental purpose. This case should be a warning to all trademark holders with an interest in free licensing of their marks to spread awareness, that free licensing without adequate control can be costly.