Control it or lose it: authorised use under trade mark licence agreements
In a recent decision, the Full Federal Court has found that trade mark owners can lose their registrations if they do not exercise proper control over their licensees.
Lodestar Anstalt v Campari America LLC [2016] FCAFC 92 is the latest instalment in a long running international battle over the use of the ‘Wild Geese Wines’ and ‘Wild Geese’ trade marks owned by Campari. The case arose out of Lodestar’s wish to sell whiskey under the ‘Wild Geese’ trade mark in the face of Campari’s ownership of that trade mark. Lodestar sought to remove Campari’s trade marks on the basis of non-use.
If a trademark has not been used for a period of three years and one month, then an application can be made to have it removed from the Register. The onus is on the trade mark owner to show that during the relevant period the mark has been used by the owner or an authorised user. An ‘authorised user’ is a person who uses a trade mark under the control of the owner. In this instance, the only way that Campari could show use of the trade marks during the relevant period was through use by its licensee, Mr O’Sullivan.
Mr O’Sullivan is the operator of the Wild Geese winery in South Australia and was the original owner of the ‘Wild Geese’ trade marks in Australia. In 2007, not wanting to become involved in the ongoing international dispute between the Wild Turkey and Wild Geese interests, he assigned his rights in the ‘Wild Geese’ trade mark to Campari. In return Campari granted him a perpetual exclusive licence to use the trade marks for consideration of $1. Since that time, Mr O’Sullivan has continued to bottle small quantities of wine under the mark ‘Wild Geese’.
The non-use case turned on the definitions of ‘control’ and ‘use’ under the Trade Marks Act. In particular, to what extent a licensor must control the use of the trade mark for the licensee to be deemed an ‘authorised user’. The evidence in this case was that whilst the licence agreement between Mr O’Sullivan and Campari did contain some quality control provisions, Campari did not actively seek to exercise any of those provisions until after the non-use action had commenced. The agreement contained standard bare control provisions such as restrictions on goods and territory, a prohibition on alteration of the trade marks, and the right to terminate for breach. In addition, it required that the wine must be of an export standard acceptable to the Australian Wine and Brandy Corporation, that Mr O’Sullivan must supply 3 bottles of wine to Campari each year, and if requested by Campari, supply bottles to the Australian Wine and Brandy Corporation for testing.
At first instance, the Federal Court concluded that in practical terms, the licence agreement had no effect on the way in which Mr O’Sullivan conducted his business. However, while the trade mark owner did not exercise any actual control over the use of the trade marks in relation to Wild Geese Wines, the mere theoretical possibility of contractual control was sufficient to constitute authorised use under the Trade Marks Act.
On appeal, the Full Federal Court unanimously overturned the initial decision and held that the correct interpretation of ‘control’ means actual control in relation to the use of the trade mark. They found there must be control as a matter of substance. Besanko J, who delivered the lead judgment, stated that ‘it could [not] be suggested that the mere fact that the registered owner granted a licence to use the trade mark…would be sufficient without more established control’.
It was not brought before the court that the licence agreement in this case was in any way a sham or not intended to have legal effect. However, Nicholas J stated that the terms of the agreement, coupled with the lack of steps taken under it, revealed that the use of the trade marks during the non-use period were not the subject of any real or genuine control by Campari. It is the actual exercise of control that matters, not the right to exercise control. Katzmann J stated that without control, a bare licence to use, particularly a perpetual licence, amounts to a divestment of control which is the antithesis of the requirements for an authorised user.
The Full Court made it clear that ‘actual control’ will depend on the facts of the case and is a question of fact and degree. For example, a licence agreement may contain detailed terms that set out a quality standard to be achieved, and those details may be so extensive that it isn’t necessary for the registered owner to give further direction to the licensee throughout the term in order to evidence actual control.
The Full Federal Court’s decision puts licensors and licensees on notice to ensure that their trade marks do not risk removal for non-use. It highlights the importance of careful drafting of trade mark licence agreements so that they are appropriate for the circumstances. Owners and users of trade marks should ensure that their licence agreements contain explicit quality controls and importantly, that these are enforced on a regular basis and that enforcement is clearly documented.
Please contact us if you would like to discuss your existing or future licence arrangements in light of this decision.
Emma Mitchell
Special Counsel
T: 03 9611 0140
M: 0407 821 157
E: emitchell@harwoodandrews.com.au