Important recent decision in Lodestar Anstalt v Campari America LLC [2016] FCAFC 92

Brand names are important business assets that need to be carefully selected, built and managed. One effective way to build brands is through brand licensing. Licensing of brand assets can be used to build brands by extending use of the brand to different product categories or territories where the brand owner does not have the required manufacturing or distribution resources.  Apart from providing a valuable source of income for the owner, effective licence activities increase brand value by raising consumer awareness of a brand, increasing the brand’s footprint and broadening its identity.  However, for both business and legal reasons, the licensing of brands and brand names must be carefully managed and controlled.

Registered trade marks provide the most effective legal means to protect brands but, as with brands, they must be carefully managed and controlled, especially in a licensing arrangement.  If a registered trade mark is not used by the registered owner, or the registered owner does not properly control its use in a licence arrangement, valuable trade mark rights can be lost. This was recently demonstrated in the Full Federal Court decision of Lodestar Anstalt v Campari America LLC [2016] FCAFC 92.

The Australian Trade Marks Act (Act) provides the means to register trade marks and to have existing trade mark registrations cancelled where the trade mark has not been used during a continuous three year period (non-use period).  Where a trade mark is not used by the owner but by a licensee in an exclusive licence arrangement, there must be a proper “authorised use” to protect the registration from a non-use attack.  “Authorised use” is a term defined in the Act as a use of the registered trade mark that is “under the control” of the trade mark owner.

This appeal decision of the Full Federal Court provides important guidance on the degree of control and connection a trade mark owner must maintain with the licensee’s use of the trade mark to satisfy the “authorised use” requirements of the Act.

Background Facts

In this case ownership of Australian registered trade marks 1066650 & 1066646 (the “WILD GEESE Trade Marks”) for “wine” was assigned from Wild Geese Wines Pty Ltd (a company owned by Patrick O’Sullivan) to a predecessor of Skyy Spirits LLC (which later changed its name to Campari America LLC). This was in exchange for the grant of a perpetual licence back from the new owner to Wild Geese Wines to use the trade marks exclusively in Australia for a one-off fee of $1. The licence included terms at clause 3 dealing with quality control which required:

  • the wine produced by Wild Geese Wines to be of a sufficient standard to obtain approval from the Australian Wine and Brandy Corporation (AWBC) for export, and
  • Wild Geese Wines to provide samples of the wine upon request from the trade mark owner to the trade mark owner, the Australian Wine Research Institute or to the AWBC.

If the licence agreement was breached in a material way the new trade mark owner was entitled to terminate they licence and so deprive Wild Geese Wines of the right to use the WILD GEESE Trade Marks (clause 10.1).

Lodestar attacked the registrations for the WILD GEESE Trade Marks on the grounds that the trade marks had not been used in Australia. At first instance (Skyy Spirits LLC v Lodestar Anstalt [2015] FCA 509), Perram J found that the WILD GEESE Trade Marks had been used by the licensee, Wild Geese Wines (such as on the product label shown below). Also, despite finding that the owner had exercised very limited control over how the WILD GEESE Trade Marks were used and that the licence agreement itself was not intended to deliver anything but the appearance of control, he found that there was nevertheless an “authorised use”.  Although expressing is own view that the authorised use provisions of the Act required more than minimal actual control he felt bound by the previous Full Court decision in Yau’s Entertainment Pty Ltd v Asia Television Ltd [2002] FCAFC 78 and so dismissed Lodestar’s applications to remove the registrations for non-use,. Perram J interpreted this earlier decision in Yau as requiring only a mere theoretical possibility of contractual control for there to be an “authorised use”.

Click here to view the image.

Lodestar appealed the decision to the Full Federal Court.

Main Issue for the Full Federal Court

The central issue on the appeal to the Full Federal Court in Lodestar Anstalt v Campari America LLC [2016] FCAFC 92 was whether the authorised use provisions in the Act required no more than a mere theoretical possibility of contractual control and if Yau had been wrongly decided or interpreted by Parram J at first instance.

Decision

The Full Court consisting of five judges allowed the appeal and ordered removal of the registrations on the basis that there had not been an “authorised use” of the WILD GEESE Trade Marks by the licensee.  The principal judgment was delivered by Besanko J. He reviewed the previous authorities and found that Perram J had misinterpreted Yau. In reaching his decision he referred to the principle stated by Aikin J in Pioneer Kabushiki Kaisha v Registrar of Trade Marks[1977] HCA 56 that a trade mark must indicate a connection in the course of trade with the registered owner, which might be suggested when the trade mark owner has exercised sufficient control over the quality of the goods that are manufactured and provided by a licensee.

Besanko J (with whom the other judges agreed) said that the Full Court’s reference in Yau to mere contractual power being sufficient for an authorised use was obiter dictum only.  He said that “under the control” requires actual control as a matter of substance not a mere theoretical possibility of control that might exist because of certain licence terms.

Besanko J did say that the degree of actual control required for an “authorised use” will depend on the circumstances; for example where the terms in a licence agreement are such that the owner does not need to direct the licensee how to use the trade mark because the terms are sufficiently detailed or where the obedience to the trade mark owner is “so instinctive and complete that instruction (is) not necessary”. However, in the circumstances of this case, he held that the mere fact that Wild Geese Wines was licensed to use the WILD GEESE Trade Marks was not sufficient to establish the required degree of control by the trade mark owner.  He found that the wine standard required by the AWBC for any wine to be exported was not an exacting standard and the licence agreement, in practical terms, had no effect on Wild Geese Wines’ wine-making practices.  Besanko J also noted that that the trade mark owner had not requested, at any time during the non-use period, any samples of the wine from Wild Geese Wines and had not monitored the wine-making operations of Wild Geese Wines or how the WILD GEESE Trade Marks were used.

Lesson

Brands and their associated registered trade marks are valuable and strategically important business assets. Licence arrangements can be used to build brand reputation and identity. However, to ensure that trade mark rights are not lost, brand owners must ensure that they have both an appropriate trade mark licence in place and that actual and sufficient control is exercised over how the licensee uses the licensed trade mark.