A unanimous appeal judgment handed down by the Full Court of the Federal Court of Australia earlier this year, signals the importance of trade mark owners exercising “control” over use of their trade mark by licensees, or risk cancellation of the trade mark for non-use.

It is very common for the trade mark owner not to be the actual user of the trade mark. Related parties within the same corporate group may have different functions of ownership or use, or local distributors/licensees may be appointed to use a trade mark owned by a foreign brand owner.

Previously, theoretical control over the licensee’s use of a trade mark was considered sufficient for the purposes of establishing ‘authorised use’ of the mark by the licensee. However the Lodestar Anstalt v Campari America LLC decision signals that ‘use’ of trade marks under a licensing agreement is considered to be ‘authorised use’ only where there is actual control by the owner over the conduct of the licensee’s business in connection with the trade mark.

In Lodestar, the licensee was found not to be an authorised user due to the licensor’s lack of factual control over the use of the marks – this was despite the fact that the licence agreement provided for quality control of the product to which the trade mark applied. The trade mark was therefore removed for non-use.

Campari’s predecessor granted Mr Sullivan, a QC and winemaker, a perpetual licence to use its ‘Wild Geese’ trade marks. The licensing agreement stipulated that: the wine would be of a quality sufficient to obtain continuing approval for export by the Australian Wine and Brandy Corporation (AWBC), the winemaker would provide samples of the product upon request, the winemaker could not export the wines without the approval of the licensor, and the licensor retained powers to terminate the agreement if conditions were not fulfilled. These clauses provided the licensor with nominal control of the use of the mark. However, the Court ruled that the latitude afforded to the licensee meant that there was no actual control on these facts. The AWBC approval process was not a high bar, with over 99% of wines obtaining approval. Samples were never requested by the licensor. Mr Sullivan’s use of the trade marks was not affected by licensor in any meaningful way.

If you license use of your trade marks, license agreements should be reviewed to make sure they provide for actual control, and practices should be put in place to ensure actual control is exercised. What amounts to ‘actual control’ will depend on the facts of the case. In Lodestar, ‘actual control’ was said to be generally present where the measures taken by a licensor had a practical effect on the licensee’s business activities. Where a licensor monitors and informs itself of the licensee’s use of the mark, this will indicate substantive control. For example, if the winemaker in Lodestar had sent samples of his wine to the trade mark owner at regular intervals, this may have qualified as ‘control’. Contractual conditions might satisfy the requirement for ‘control’, depending on whether there is evidence that the licensee has taken steps to comply with the terms.