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Tuesday, May 20, 2008

Did Hershey's Just Abandon its Trademark?

Hersheys_full_largerHere is something I picked up at the local Target store. It's a Hershey's-brand three-compartment silicone muffin pan. When you bake muffins in this pan, they come out - adorably, of course - in the shape of oversized Hershey's chocolate bars - complete with the Hershey's name and logo intaglioed in the shape of the finished muffin. The imprint of the Hershey's name and logo is substantially the same as what one finds on a Hershey's milk chocolate bar, after the foil is unwrapped.

Clearly, if you buy this muffin pan, there is an implied license to use it to make muffins with the Hershey's logo. That is, there is an implied trademark license. But, as you might expect, Hershey's exercises no control over the muffins you make with their logo in the pan you purchased.

Thus, this looks like a case of "naked licensing" - a fast way for a trademark owner to be involuntarily stripped of trademark rights.

Whoops.

"Naked licensing," according to the courts, "is an uncontrolled licensing of a mark whereby the licensee can place the mark on any quality or type of goods or services."*

That's clearly what is happening with the muffin pan.

So what's wrong with naked licensing? It goes to the very essence of trademark. The reason for protecting trademarks is that they give consumers information. Specifically, they give potential buyers of goods a reliable indication of the source of those goods. If a trademark owner licenses a trademark nakedly, that is, without retaining control over the quality of the goods made under that mark, then the trademark has completely lost its source-identifying function.

A trademark owner engaged in naked licensing is "raising a grave danger that the public will be deceived."* For instance, someone buying a Hershey's muffin at a bake sale may be - likely is - getting a product which the Hershey's company had absolutely no hand in making, other than providing the mold. In fact, the "Hershey's" muffin could be made with entirely with Nestle's chocolate. Yikes!

The penalty for naked licensing is apocalyptic for the trademark owner. Trademark rights are lost completely. A 2006 case says:

“When the trademark owner fails to exercise reasonable control over the use of the mark by a licensee, the presence of the mark on the licensee's goods or services misrepresents their connection with the trademark owner since the mark no longer identifies goods and services that are under the control of the owner of the mark. This may result in the trademark ceasing to function as a symbol of quality and controlled source, leading to an involuntary loss of trademark rights."*

Hersheys_legalThe packaging for the muffin pan - identified as a "Hershey's Licensed Product" - contains this legend: "THE HERSHEY'S TRADEMARKS AND TRADE DRESS ARE USED UNDER LICENSE." This prophylactic spray of legalese is steeped in irony. How could Hershey's put such care into making sure the muffin pan manufacturer had a license and would declare the same, yet witlessly end up issuing a license to all muffin-pan buyers to start churning out food items under the Hershey's brand?

The NFL has struggled with this sort of problem in its sales of embroidered team-logo patches. The patches come with an admonition saying the patches are not intended to be affixed to clothing.

So what are you supposed to do with an officially licensed NFL patch then? The web-based NFL Shop suggests that you "add football flair to any scrapbook, framed autograph or even to your room decor[.]"

So, has Hershey's lost its trademark?

Well, I doubt it will be litigated. And the legal realist in me doubts a federal judge would exact such a dear price from an iconic American company. And, of course, we'd have to see what arguments would turn up when the issue was briefed by resourceful and creative litigators. Regardless, it's an interesting situation to ponder.

I think I'll cook up some Hershey's muffins for my Intellectual Property class this fall - using Nestle's chocolate, of course.

[Cross-posted on Pixelization.]
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* All case quotes from Doeblers' Pennsylvania Hybrids, Inc. v. Doebler, 442 F.3d 812, 823-834 (3d Cir. 2006) (brackets, internal quotes, and citations, including to 2 McCarthy on Trademarks § 18:48, removed, punctuation changed).

Posted by Eric E. Johnson on May 20, 2008 at 09:18 AM in Intellectual Property | Permalink

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Comments

I respectfully disagree with suggestions, in the comments above, that Hershey's muffin-pan merchandising does not implicate naked-licensing problems. I won’t leave a point-by-point rebuttal, but I must say I find it a very strange stance to assume that items bought at Target are for home use only. Small-business owners, no doubt, buy all sorts of things at Target. Target actually offers a special credit-card account for businesses. A quick visit to the Target website reveals they sells software clearly designed for commercial applications, including something called “Corporate Identity Creator.” Don’t tell me that’s not for commercial/trademark applications.

I also just disagree with James that legal effects here depend upon actual harm to consumers. Perhaps we could flesh out an interesting argument on that score - time and resources permitting - but I’ll just say that’s not my reading of the law.

Finally, I’ll note that Ron Coleman at Likelihood of Confusion has my back:

http://www.likelihoodofconfusion.com/?p=1514

Posted by: Eric E. Johnson | Jun 4, 2008 4:27:53 PM

Just spotting this now and the comment I wanted to make has already been made by Mark. Good catch, tho!

Posted by: greglas | Jun 4, 2008 8:21:55 AM

These things are clearly intended for home use. I've seen them for sale in Target and grocery stores. The idea that Hershey is giving an implied license to re-sell these muffins to third parties is ridiculous.

Posted by: Ryan | May 23, 2008 5:05:56 PM

Eric -

As you frame the issue, this probably isn't naked licensing because (assuming we're just talking about you baking muffins at home) you probably don't need any type of license to make muffins with the Hershey's mark. If the use you're contemplating doesn't need to be licensed, there's no reason to subject it to all the licensing requirements.

The better question would be this: what if someone bought a whole bunch of these things and started selling the Hershey's muffins in a local bakery? That's an interesting problem because I assume the bakery's defense to a claim by Hershey's would be implied license. If we believe that, then we have the problem you suggest - a bakery selling goods that bear the Hershey's marks under implied but uncontrolled licenses. Even here, however, I doubt a court would strip Hershey's of all its rights (even assuming the court would find a naked license, which they are loathe to do). It could instead simply find abandonment in the market for muffins or other baked goods. That would limit the scope of Hershey's rights, but not be as catastrophic as you suggest.

Still, it's hard to imagine Hershey's lawyers didn't see this coming.

Posted by: Mark McKenna | May 20, 2008 11:43:19 AM

Also, I'm amused that the muffins don't bear the (R) symbol next to the the mark.

Posted by: James Grimmelmann | May 20, 2008 11:12:23 AM

This is pretty much what I tell my Intro to IP class. I'm not sure I believe it. My problem is that naked licensing only severs the association between mark and goods if the goods in fact no longer have characteristics that correspond to the ones consumers associate the mark with. The mere fact that you can buy a Hershey's baking pan and bake muffins bearing the Hershey's mark doesn't mean anything by itself; If you don't bake mark-bearing muffins, consumers haven't been harmed. If you bake high-quality mark-bearing muffins, consumers haven't been harmed. If you bake terrible mark-bearing muffins and eat them yourself, consumers haven't been harmed. Indeed, only if you bake absurdly large numbers of substandard muffins and expose the public at large to them will it affect consumer perception of the mark.

Posted by: James Grimmelmann | May 20, 2008 11:08:56 AM

Professor Johnson, I'm pretty sure that's wrong. You're making a big leap from NFL patches to a home cook. I wrote more here.

Posted by: Austin | May 20, 2008 10:31:06 AM

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