Trade mark owners are at serious risk of losing their registered rights if they do not exercise actual control over licensees.

The recent decision of the Full Court of the Federal Court of Australia in Lodestar Anstalt v Campari America LLC [2016] FCAFC 92 is likely to have significant implications for trade mark owners who license the use of their trade marks to third parties. It now appears that, if required to defend an application for removal of a trade mark registration for non-use, a trade mark owner will need to demonstrate that they have exercised actual control over their licensee’s use of the trade mark. The 'theoretical' contractual control that derives from the provisions of a licence agreement may not be sufficient.

Under the Trade Marks Act 1995, a trade mark registration can be removed from the Register on the grounds of non-use if the proprietor has not used the mark in good faith for a continuous period of three years ending one month before the date of filing of the non-use application and the mark has been registered for five or more years.

In this case, five judges of the Federal Court unanimously held that Campari America LLC (Campari) had failed to establish that the use of its WILD GEESE and WILD GEESE WINES trade marks by its Australian licensee was use "under the control" of Campari. The meaning of ‘control’ became determinative because Campari argued that it had defeated Lodestar Anstalt's (Lodestar) non-use action by establishing use of the trade mark by an authorised user (pursuant to section 7(3) of theTrade Marks Act 1995). Under section 8(2) of the Act, in order to be recognised as an authorised use, the use of a trade mark must be "under the control of" Campari. Control can be established by the trade mark owner exercising quality control over the relevant goods or services of the licensee or financial control over the licensee's trading activities.

Campari had entered into a perpetual, exclusive licence with an Australian company, Wild Geese Wines Pty Ltd (WGW), to use the trade marks in connection with the manufacture and distribution of wine in Australia. The licence included provisions giving Campari certain powers to exercise quality control over WGW's goods, including the right to request three bottles of wine for evaluation during any twelve month period. However, Campari had not in fact acted upon those powers at any time during the non-use period. In particular, not a single sample of WGW's wine had been requested by Campari for evaluation during the relevant period and there was no other evidence of Campari monitoring WGW's compliance with the licence agreement.

In defending the non-use action, Campari argued that the mere existence of a contract that constrained WGW's use of the trade marks meant that the use was "under the control of" Campari.

The first instance judge decided in favour of Campari on the basis of an earlier authority of the Full Court of the Federal Court which he interpreted to mean that the mere theoretical possibility of Campari exercising contractual control over WGW's use of the trade marks was sufficient to constitute authorised use.

On appeal by Lodestar, the Full Court disagreed with that interpretation, considering the earlier authority to be distinguishable on its facts. The Full Court considered that the words "under the control of" in section 8 of the Act required the trade mark owner to have actual control over the use of the trade marks from time to time, in the sense that there must be control as a matter of substance in order to maintain a connection in the course of trade between the goods or services provided under the licence and the registered owner. The mere fact that WGW was licensed to use the trade marks was not sufficient to establish control. The Full Court did not attempt to define what would amount to actual control but conceded this would necessarily involve questions of fact and degree. The evidence showed that Campari had not exercised any actual control over WGW's activities, and the licence agreement had no practical effect on the way WGW conducted its business.

As the onus fell on Campari to establish authorised use of its trade marks and it had failed to do so, Lodestar succeeded in its application to remove the trade marks from the Register.

While it is clear that a bare licence to use a trade mark will not be sufficient to defend a non-use application, the Full Court's decision leaves some uncertainty as to what will amount to the exercise of actual control over a licensee's use of a trade mark. The terms of the licence and the performance of the parties in each case will be key.

The Full Court mentioned that, in some cases, the quality control requirements in the licence agreement may be such that it is not necessary for the trade mark owner to give directions or instructions from time to time. This may be the case where the licence sets out a number of objective steps to be followed by the licensee. However, in other cases, it appears that the trade mark owner will need to be able to show that it is actively monitoring and controlling the licensee's use.

In the circumstances, trade mark owners who license the use of their Australian trade marks to third parties over whom they do not have financial control should consider the following to help guard against their registrations becoming vulnerable to removal for non-use:

  • ensure that an agreement is in place with the licensee setting out clear quality requirements for the licensed goods or services;
  • actively monitor the licensee's compliance with the quality requirements, especially where the licence gives the owner particular rights, such as to review samples and inspect operations; and
  • keep careful records of steps taken to monitor the licensee's use, in case evidence of the owner's ongoing connection with the licensed goods or services is required.