On 28 June 2016 the Full Court of the Federal Court of Australia handed down its judgement in Lodestar Anstalt v Campari America LLC [2016] FCAFC 92, an appeal from Skyy Spirts LLC v Lodestar Anstalt [2015] FCA 509 which concerned an application for removal of a registered trade mark on the basis of non-use.

In Australia, if a registered trade mark is not used for a continuous period of 3 years, provided the trade mark has been registered for a total of 5 years, it is vulnerable to a third party application for removal on the basis of non-use.

The registered owner of the trade mark in question had not used the trade mark in Australia. It had however granted a perpetual, exclusive licence of the mark to an Australian company that allowed use of its trade mark in Australia on wine manufactured and distributed by the Australian company. The Australian company had in fact used the licensed trade mark on its wine during the relevant period.

Under the Australian Trade Marks Act 1995 (Cth), there will be relevant “use” of a trade mark if there has been use by the registered owner or an “authorised user”. A person is an “authorised user” if they use a trade mark under the “control” of the registered owner. There is no system in place in Australia to register authorised users. Although it is possible to register licence interests with IP Australia, it is not enough to merely demonstrate that the person is a licensee of the registered owner. The licensee must also be shown to be exercising its rights under the control of the registered owner, for example if the registered owner exercises quality control over the branded goods and/or services, or if the registered owner exercises financial control over the licensee’s trading activities.

In the case in question, the written licence agreement incorporated obligations to observe quality control measures. These included that:

  • The wine would be “of a quality at least sufficient to obtain a continuing approval of the wine for export by the Australian Wine and Brandy Corporation”.
  • If requested by the licensor, the licensee would provide samples of the wine to the licensor for evaluation, and that after such an evaluation, the licensee would, if requested, provide samples to the Australian Wine Research Institute for analysis and to the Australian Wine and Brandy Corporation for continuing approval.
  • If the licence agreement was breached, the licensor could terminate the licence.

At first instance, the Court found that the mere contractual ability of the registered owner to exercise quality control was sufficient to qualify the licensee as an “authorised user”, even if the licensor did nothing to monitor or impose quality standards in practice.

The Full Federal Court came to a different conclusion. The appeal was allowed on the basis that no actual quality control had been exercised by the licensor. The licensor had not requested the licensee to provide any samples to it during the relevant non-use period. The additional quality standard of maintaining the “continuing approval” of the Australian Wine and Brandy Corporation was found to have made no practical difference to how the licensee used the mark given over 99% of wine submitted was approved during the relevant period. It was found that in the circumstances, commercial use of the trade marks on the wine labels did not operate to indicate any connection with the course of trade with the registered owner. Accordingly the licensee was not an “authorised user”, and the non-use application was successful.

What are the implications of this decision for owners of registered trade marks?

To avoid the risk of removal of a registered trade mark on the basis of non-use, trade mark owners should carefully review both their written licence terms and their licensing arrangements in circumstances where the registered owner does not itself use the trade mark in the course of trade. This issue may arise for example where the registered owner of the trade mark is an IP holding company that does not itself use the mark, rather it licences one or more other entities to use the mark.

The decision of the Full Federal Court makes it clear that a registered owner may not be able to rely solely on some of the fairly “standard” authorised user provisions that are sometimes inserted in to trade mark licence agreements if those clauses don’t have any practical effect, even if those provisions were not merely put in place to give the appearance of control. Further, registered owners may need to implement and maintain systems to actively monitor and enforce quality standards.