Reprinted with permission from INTA Bulletin, Vol. 65, No. 18 – October 15, 2010, Copyright © 2010 International Trademark Association

The web 2.0 world continues to revolutionize the ways that companies do business. How have these changes impacted trademark licensing? While the tips provided in this article approach the topic from the perspective of a trademark licensor in the United States, the issues it discusses apply to trademark licensees and licensors outside the United States as well.

Tip No. 1: Include online provisions in every trademark license agreement. Given the vast appeal and reach of the internet, a trademark licensor would be well advised to assume that each of its licensees will want to both market and sell the licensed products and services online. This remains true even if the trademark licensor itself has no online presence or only a marketing, not sales, presence. Indeed, a savvy licensee may view a limited licensor online presence as an opportunity rather than a drawback. If a licensor wants to permit online sales, the license agreement should address key issues such as the territory for such sales and where on the internet such promotion and sales may occur. As discussed in Tip No. 3 below, popular third-party web sellers can have unfavorable license terms. As a result, it may be desirable to either limit the licensee to sales from its own website or to require the licensee to direct all sales to the licensor's website, with appropriate tracking to credit the licensee for such sales.

Tip No. 2: Consider treating sublicensees as licensees or not all. In the traditional licensing world, sublicensees typically had a narrow geographic or product niche and a relatively limited ability to impact the licensed brand. Their selection and supervision were often left to the licensee. Life in a web 2.0 world raises the prominence of sublicensees. If sublicensees have online access, they have the ability to influence the licensed brand – for better or worse – as much as a licensee or even the licensor. Given this increased power, the licensor may want to select the sublicensees itself or at least retain approval rights over the selection of the sublicensee and its activities. If the licensor is now performing the functions that the licensee traditionally performed, it may no longer make economic sense to give the licensee a share of the sublicensees' royalties.

Tip No. 3: Know that sales through third-party retailer sites may come at a steep price. A recent federal court decision illustrates the impact of a pro-retailer online sales agreement, which is designed to help an online retailer boost its Web traffic and benefit competing product. Such was the issue under dispute in Video Professor, Inc. v. Amazon.com, Inc., No. 09-cv-00636-REB-KLM, 2010 WL 1644630 (D. Colo. Apr. 21, 2010). Video Professor alleged that Amazon exploited its licensing agreement to purchase sponsored results from Google, driving traffic to Amazon's site when consumers searched "video professor." When customers landed at Amazon, Video Professor alleged the online retailer manipulated the site's search results to place a competitor's products foremost on the page. The court granted Amazon's motion for summary judgment, holding that Amazon's Vendor Manual—which includes licensing provisions granting the online retailer a non-exclusive, worldwide, perpetual, and royalty-free license to use the trademarks and trade names of the products it sells—granted the retailer broad latitude to promote competing products using the Video Professor brand. Id at *3. The court further held that this right continued after Amazon stopped selling Video Professor's products. Id.

Other online retailers, such as eBay, Barnes & Noble, and Etsy, have agreements with similarly broad trademark provisions. The existence of these provisions argue in favor of the centralizing the decision of whether to sell on these sites with the trademark licensor. By aggregating the volume of the licensor's and the licensees' sales, the licensor will have greater bargaining power with the online retailer to seek to modify the standard terms to limit the use of the licensor's trademarks solely to the promotion of the licensor's products and to limit the duration of the license to the time in which the licensed products or services are sold by the online retailer. Even if the licensor lacks the bargaining power to negotiate the licensing terms with a retailer as large as Amazon, the decision of whether to proceed under the standard terms is a decision better made by the licensor than by a licensee or sublicensee.

Tip No. 4: Include safeguards for user-generated content. Permitting a trademark licensee to incorporate user-generated content on its website or at other online locations adds another level of risk to the trademark license relationship. In addition to infringing trademarks and copyrighted works, user postings can constitute fraud, libel, violations of rights of privacy or publicity, or unfair competition, to name some of the most common issues. If a licensee fails to take advantage of online safe harbors, the ensuing liability arguably could rest with the licensor, especially if the licensor has the ability to review and approve the content of the licensee's online activities (abilities which it should have). If a trademark licensor decides to permit such content, then it should create both online terms of use and a privacy policy for its licensees and require their use by licensees. To limit liability from unlawfully posted videos, music, images and other copyrighted materials, the trademark licensee should be required to comply with the Digital Millennium Copyright Act and to have a registered agent on file with the U.S. Copyright Office before permitting any user-generated content. Finally, as a means of limiting exposure to other types of online claims, licensees should be required to comply with other applicable laws and regulations governing online marketing and sales in the relevant product niche, which likely will include at a minimum the Children's Online Privacy Protection Act, the FTC Testimonial and Endorsement Guides, and the Communications Decency Act.

Tip No. 5: Prevent licensees from owning the brand's online identity or limit such ownership. A recent 9th Circuit decision underscores both the importance of a trademark licensor owning its online identities and the limits on that ownership. In Toyota Motor Sales, U.S.A., Inc. v. Tabari, No. 07-55344, 2010 WL 2680891 (9th Cir. July 8, 2010), auto brokers operated two websites, buy-a-lexus.com and buyorleaselexus.com, without a licensing agreement from Toyota (owner of the Lexus trademark). In response to Toyota's demand letters, the pro se defendants removed the Lexus logo from their sites and added a prominent disclaimer at the top of their website, but refused to turn over the domain names. Id at *1. The district court enjoined the defendants from use of these domain names and any domain name containing the Lexus mark. Id at *2. The appeals court held that use of the mark "Lexus" in the URLs was a direct reference to the trademarked product itself. Thus, the URLs qualified for protection under the nominative fair use doctrine. The Ninth Circuit vacated the injunction and remanded the case to the district court to modify the injunction to permit the defendants at least some use of the Lexus trademark in domain names. Id at *9.

Although not all circuits embrace the nominative fair use defense as broadly as the Ninth Circuit, trademark owners cannot afford to ignore this decision, whose reach could easily extend to other online contexts such as social networking. What is a trademark licensor to do? To the greatest extent practical given limited budgets and restrictions on the numbers of identities that can be acquired or transferred, a licensor first should obtain for itself the most desirable domain names and social networking identities. Then, the licensor should permit its licensees to make use of the domain names and social networking identities subject to all the constraints of the license agreement. If the licensor decides to allow a licensee to own a domain name, social networking username, or other online identity that contains the brand, the licensor should include in its license agreement both specific transfer provisions and a broad further assurances clause requiring the licensee to sign documents and take all actions needed to place ownership of the online identities in the licensor upon the termination of the agreement.

Tip No. 6: Obtain trademark registrations for online activities for licensed brands. One of the classic ways trademark licensors develop strong brands is by obtaining trademark registrations for all goods and services used in connection with those brands. This advice applies equally to the web 2.0 world. While the coverage will vary depending on the specific online use, the United States Patent and Trademark Office's Acceptable Identification of Goods and Services Manual contains the following approved identifications that warrant consideration in a web 2.0 world: "downloadable virtual goods, namely, computer programs featuring {specify nature, type, e.g., articles of clothing} for use in online virtual worlds" in Class 9, "on-line retail store services featuring {indicate field or type of goods}" in Class 35, "providing on-line chat rooms for social networking" in class 38, "computer services, namely, creating an on-line community for registered users to participate in discussions, get feedback from their peers, form virtual communities, and engage in social networking" in class 42, and "online social networking services" in class 45. Even if a licensor is not deriving separate revenue from each of these usages, the enforcement value alone should justify the expense of their registration.

Tip No. 7: Keep the ability to manage your brand's reputation. It can be tempting for a trademark licensor to require its licensees to police all infringing uses of the licensed brand in their niche or at least to give them the opportunity to police the uses that the licensor chooses not to police. This may prove to be a mistake given the very public nature of the online world and the ability of any misstep to go viral. A licensee with a two-year license term will not have the same long-term interest in a brand's reputation or knowledge of the overall brand that its licensor will have. For example, a licensee may adopt a heavy-handed approach in trying to shut down an online usage with either strong fair use or First Amendment defenses. If this approach backfires and the licensee's demand letter appears everywhere on the web and generates thousands of angry customer tweets, the long-term damage will fall mostly on the licensor, not the licensee. As a means of protecting not only its brands, but its corporate reputation, a licensor should consider either retaining exclusive rights to respond to infringements or brand criticism or reserving the ability to give final approval to each infringement that a licensee seeks to police.

Tip No. 8: Limit liability for licensee customer data. Many online brand licenses will involve the online collection of information of financial and other protected information about customers, especially where online sales are involved. In addition to setting out who owns the data and who may use the data both during the agreement and post-termination, the license agreement should address what happens if there is a security breach and customer data is distributed. The licensee should assume the risk for any liability based on the collection of data and its storage. For even greater control, the license agreement could specify where the data may be stored (i.e. specifying or excluding certain jurisdictions) and what law governs its storage.

In summary, the web 2.0 world offers tremendous opportunities for trademark licensors. By understanding its inherent risks and limiting those risks through license agreements, trademark licensors can realize those opportunities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.