tangor - 7:00 pm on Nov 14, 2011 (gmt 0)
"exhaustion of trademark" is not the same as "trademark dilution" or failure to protect "trademark in use".
Exhaustion simply means that you can sell your Ford Escort (car) to a third party without consulting the trademark holder (Ford)...
Dilution is allowing others to use the trademark in THEIR business with no attempt made to stop that activity (look up "asprin" and "kleenex" or "xerox" for examples...) which can lead to Failure to protect trademark "in use" and result in loss of trademark.
Unlike copyrights, which have fixed terms, Trademarks can be continually renewed (look at trademarks found on some soft drinks, movie characters, heroes found in books, etc.) When the trademark holder fails to protect or renew, then the trademark can be lost.
We can't give legal advice, but opinions are reasonable... In this case there are two opinions immediately available: 1. Draw up a license agreement with that other party for the use of your trademark (and you get paid for it... meanwhile retaining all right to the trademark) or 2. a cease and desist.
Consult an attorney. If this product has any legs or value, you don't want to mess with your trademark!