In the recent case of Lodestar Anstalt v Campari America1, the full bench of the Federal Court of Australia ordered the removal of two trade marks from the register for non-use because the registered owner did not exercise actual practical control over the use of the trade marks by its licensee.

Under the Australian Trade Marks Act 1995, ‘authorised use’ by a licensee is treated as use by the owner, but other use by a licensee is not, even if that use is permitted by the licence. A trade mark can be removed from the Register if it has not been used in Australia by either the registered owner or an ‘authorised user’ for a three year period. A licensee is an authorised user only if its use of the mark is controlled by the owner.

Under the Act, ‘control’ for the purpose of determining authorised use can be either:

  • financial control over the licensee’s trading activity (for example a parent company licensing a subsidiary), or
  • quality control over the goods or services in relation to which the trade mark is used.

Why is this case important?

The Lodestar case is important because a 2002 decision2 by a full bench of the Federal Court had been understood to mean that a mere theoretical possibility of contractual control was sufficient to establish authorised use and defeat a non-use application. The appeal court in the Lodestar case held that this is not correct. The mere fact that a licensee is licensed to use the trade mark is not sufficient to establish control, or authorised use.

The facts

An Irish whisky company, Austin Nichols & Co, Inc. (Austin Nichols), a predecessor in title to the respondent (Campari America LLC), owned two registered trade marks in Australia: WILD GEESE and WILD GEESE WINES. Austin Nichols did not use the marks in Australia itself. In 2007, it authorised an unrelated company, Wild Geese Wines Pty Ltd (WGW), to apply the marks to wine produced by WGW.

The parties executed a licence agreement which had all the usual hallmarks of a trade mark licence: term, exclusivity, territory, termination provisions and contractual control measures to ensure (or so it thought) that Austin Nichols could show that WGW was an authorised user of the marks.

The control provisions included that the wine bearing the marks would be ‘of a quality at least as sufficient to obtain the continuing approval of the wine for export by the Australian Wine and Brandy Corporation (the AWBC)’. If ‘continuing approval’ was met (evidenced by the AWBC approval), the wine product was taken to be of sufficient quality to meet the standard under the control provisions in the agreement. In addition, there were various provisions requiring WGW to provide samples to Austin Nichols for evaluation yearly, and on request. So far, the agreement has worked well based on previous case law.

In 2010, Lodestar Anstalt, the manufacturer of Irish whisky under the brand Wild Geese, sought removal of the marks for non-use by Austin Nichols. But how? Austin Nichols was using the trade marks in Australia through its authorised user, WGW, and it had contractual provisions in the licence to prove it!

The issue

The facts showed that prior to Lodestar’s removal application, Austin Nichols never called in any WGW wine samples for testing, never monitored or informed itself of where WGW was selling its wine, and the AWBC approval was found to be of no practical use. The AWBC quality ‘export’ standard involved no more than a rejection of what WGW admitted was ‘truly undrinkable wine’. Of the 18,000 samples AWBC tested in 2010, only 40 samples failed, and the evidence showed this was typical. The quality control was illusory.

The Court held that having a contractual power to control the way in which the trade mark was used did not in itself result in the licensee’s use of the trade mark being authorised use if the power was not in fact exercised. It clarified previous case law (relied on by the primary judge) which suggested that a mere theoretical possibility of contractual control was sufficient to establish authorised use. It is not.

It was found that there was no use by the owner of the marks, Austin Nichols, in the previous three years, as Austin had no actual control over the way WGW used the marks in relation to the wine. The Court ordered the reinstatement of the Registrar’s initial decision that the marks should be removed from the Register.

Take home message

The potential to control a licensee’s use of a mark is no longer sufficient to successfully defeat an action for removal for non-use.

If you are the owner of an Australian trade mark, you need to have actual control over its use in Australia. This will be the case if the owner:

  • is an overseas company that exports goods to Australia, or supplies goods or services there, under the trade mark
  • exercises financial control over a company (such as a subsidiary) that supplies goods or services under the trade mark in Australia
  • selects the goods sold by its licensees under its registered trade mark in Australia, and actively checks that only those goods are sold by the licensees, or
  • has an active compliance program of quality control of the goods or services supplied by its licensees under its registered trade mark in Australia that is not a sham.

As long as one of these above requirements is continuously satisfied, the owner will use the trade mark either directly, or through an authorised user.

What should a trade mark owner do?

A trade mark owner that does not use its trade marks itself in Australia, and does not have a subsidiary that does so, needs to have a trade mark licence in place that permits it to control the selection or quality of the goods or services supplied under the trade mark. It also needs to have an active compliance programme, which may include detailed product specifications and provision of product samples at regular intervals for inspection and approval.