Apple and Pear Australia Limited (APAL), the owner of well-known PINK LADY trade marks in over 80 countries, has been successful in its appeal to the Court of Appeal of Victoria against Pink Lady America, LLC (PLA) regarding rights over PINK LADY trade marks in Chile.
While the matter concerned valuable trade marks which are registered in Chile, it was essentially a contractual dispute concerning the scope of rights granted under a trade mark licence. The licence, being a contract between APAL and PLA, a company incorporated under the laws of Washington State, in The United States, was governed by the laws of the State of Victoria, Australia. The appeal has relevance not only for the construction and implication of terms for trade mark licences but also, more generally, commercial contracts.
The PINK LADY trade mark was first used in connection with the Cripps Pink apple variety. The Cripps Pink variety was bred by John Cripps at the Department of Agriculture and Food, Western Australia (DAFWA) in the 1970s, by crossing the Golden Delicious and Lady William apple varieties.
APAL is a not-for-profit company limited by guarantee and the peak industry representative body for Australian commercial apple and pear growers. APAL has commercialised the PINK LADY trade marks in various overseas markets since the early 1990s when it acquired a number of registrations from DAFWA. APAL licenses the use of its marks to a network of exporters and importers around the world. In particular, APAL licenses the use of the following mark in respect of specific apple varieties (Flowing Heart Mark):
Brandt’s Fruit Trees Inc (BFT), a company incorporated under the laws of Washington State, is the owner of certain PINK LADY trade mark registrations in the United States and Mexico and has licensed PLA to use and manage those trade marks.
APAL, BFT and PLA were some of the parties to an agreement between members of the International Pink Lady Alliance (IPLA). In essence, the IPLA provided a forum whereby PINK LADY rights holders and licensees met regularly to discuss matters relating to the commercialisation of the PINK LADY marks, marketing strategies.
In late 2006 to early 2008, PLA filed three applications to register trade marks relating to PINK LADY, in Chile. One of the marks was the following device mark (Kangaroo Device Mark), and in relation to ‘fresh fruit’:
APAL opposed the registration of these marks. As a means to resolve the tensions, APAL and PLA entered into an option deed in or around June 2007. In essence, the option deed provided a mechanism for PLA to transfer the PINK LADY marks (including the Kangaroo Device Mark) which it had filed in Chile to APAL in exchange for APAL withdrawing the oppositions and APAL granting a licence to PLA. The licence conferred rights to PLA in respect of exports from Chile to the United States, Mexico and Canada over apples of the Cripps Pink variety. The licence was subsequently varied to extend to the Rosy Glow variety by deed of variation.
The proper scope and construction of this licence, and the option deed more generally, was at the heart of the appeal.
Key terms of the option deed included:
- Clause 5.1, which relevantly provided that:
‘…APAL will hereby grant to PLA an exclusive licence to use the Trade Marks with respect to all trade in Products between the Territory (Chile) and North America (The United States, Canada and Mexico). This licence will be royalty free, and will last in perpetuity subject only to the quality control provisions contained therein..’
- Clause 1.1, which defined the term ‘Trade Marks’ as meaning ‘the pending trade marks as set out in Schedule 1’.
- Schedule 1, which set out the three pending trade marks which were filed by PLA in 2007 and 2008:
- Clause 6.4, which set out certain mutual obligations of the parties:
‘6.4 Mutual Obligations of Parties
Both APAL and PLA undertake:
(b) not to do, or assist any other person to do, any act which would or might:
(i) invalidate or put in dispute PLA’s or APAL’s title to the Trade Marks
(ii) invalidate, or render unenforceable, any registration of the Trade Marks in due course or
(iii) support an application to remove the Trade Marks as registered Trade Marks in the Territory
(c) not to oppose or cancel, or assist any other person to oppose or cancel, any application for registration, or issued registration of the Trade Marks and
(d) not to use a substantially identical or deceptively similar mark to the Trade Marks in the Territory without the written authorisation of APAL after the date of the assignment.
Subsequent to the negotiation and finalisation of the option deed, APAL and PLA negotiated and entered into a ‘joint export licence’ with respect to the Chile market. This licence was developed as the means for APAL and PLA to conduct their commercial activities with apple exporters in Chile by using a single document, in replacement of the separate licences they had been previously issuing. This licence was issued and used in 2008 to 2011.
In 2008, the transfer from PLA to APAL of the three pending PINK LADY trade marks was effected. APAL prosecuted each pending mark in its own name so that registrations were first issued to APAL, in APAL’s name.
In 2008, the members of the IPLA (which included APAL, BFT and PLA) resolved to adopt a new logo to replace the Kangaroo Device Mark. By 2010, the Kangaroo Device Mark was no longer being used by the members of the IPLA and its replacement, the Flowing Heart Mark, was being used, including in relation to exports of apples from Chile under each joint export licence from 2010.
In or around 2012, tensions arose between APAL and PLA.
The following events transpired:
- APAL and PLA each ceased issuing the ‘joint export licence’ in respect of exports from Chile.
- On or about 7 December 2012, APAL filed an application to register the Flowing Heart Mark in Chile.
- PLA filed an opposition to APAL’s application in March 2013.
- In May 2013, APAL issued a single export licence from Chile to markets which included Canada and which referred to both the Flowing Heart Mark and the Kangaroo Device Mark.
- In September 2013, PLA also filed its own applications to register a number of trade marks, including the Flowing Heart Mark, in Chile.
- By letter dated 1 April 2014 to the Chilean apple export industry, PLA published the following statement:
‘Few people know that Pink Lady America was the original owner of the first successful Pink Lady trademark registration in Chile. Since 2007, Pink Lady America had an agreement with APAL allowing APAL to administer the Pink Lady Brand in Chile, subject to certain requirements. APAL did not honour that agreement, and so starting in 2014 Pink Lady America has taken back control of the Pink Lady Brand in Chile.’
Supreme Court decision
APAL commenced proceedings in the Supreme Court of Victoria on 7 April 2014, seeking declaratory relief, injunctive relief to the extent necessary, damages and costs. PLA put on a defence and counterclaim. The parties came before Croft J for trial in August and September 2015.
In essence, APAL’s position was that the licence under the option deed was narrow in scope and encompassed only the specific trade marks which were initially filed by PLA and subsequently assigned to APAL in or around 2008, including the Kangaroo Device Mark. In particular, APAL contended that the Flowing Heart Mark was not licensed to PLA under this licence.
APAL alleged that PLA’s conduct described above was in breach of clause 6.1 and 6.4 of the option deed and was repudiatory.
PLA did not deny engaging in the conduct, but rather it denied that the conduct constituted breaches of the proper construction of the option deed. PLA instead alleged that APAL’s conduct described above breached the licence with the consequence that PLA was entitled to own the marks.
In essence, PLA’s position was that the scope of the licence was broader. PLA asserted that, on a proper construction of the licence, its scope included the Flowing Heart Mark. In the alternative, PLA argued that PLA and APAL had, in 2012, varied the scope of the licence under the option deed so that it also included the more modern Flowing Heart Mark.
PLA’s position was that the variation to the option deed occurred at the time, and as a consequence of, the resolution by the IPLA members to replace the Kangaroo Device Mark with the Flowing Heart Mark.
PLA also asserted that it was entitled to claim ownership of the various PINK LADY trade marks which were registered in APAL’s name in Chile as the option deed contained an implied term that it was entitled to do so APAL if denied PLA the full benefit of the licence.
At trial, key findings were:
- On a proper construction of the option deed, the exclusive licence from APAL to PLA to use ‘the Trade Marks’ was not restricted to the three trade marks listed in Schedule 1 to the option deed and instead extended to any ‘future refreshed marks’ (which included the more modern Flowing Heart Mark and any other ‘refreshed’ marks resolved by the IPLA from time to time).
- His Honour’s reasoning stemmed from a consideration of the surrounding circumstances and background to the formation of the option deed, including the context of the parties’ dealings and the IPLA operating agreement.
- His Honour found that, unless the definition of ‘Trade Marks’ extended to any ‘future refreshed marks’ (ie marks beyond those listed in Schedule 1) the licence would quickly become worthless to PLA. As such, APAL’s proposed construction – that the definition of ‘Trade Marks’ was limited to the three marks specified in Schedule 1 – led to an ‘absurd’ result.
- This was because, by virtue of the IPLA resolution, by 2010, the international trade of PINK LADY branded apples was moving from marks such as the Kangaroo Device Mark (with geographic indicia, such as a kangaroo) to the more modern Flowing Heart Mark and that, by 2012, almost all exports of PINK LADY branded apples to North America from Chile were using the more modern Flowing Heart Mark.
- As a consequence of this construction, APAL was found to have breached the option deed.
- Moreover, as a consequence, APAL was ordered to ‘re-assign’ the trade marks registered to APAL in Chile to PLA (as well as the recently filed pending Flowing Heart Mark in APAL’s name) as there was an implied term of the option deed that, should APAL deny to PLA the full benefit of the licence, APAL was obliged to reassign the trade marks to PLA.
- Because APAL’s own conduct was in breach of the option deed, APAL’s case that PLA had breached the option deed could not be made out. This was because, on APAL’s breach, PLA became entitled to a ‘re-assignment’ of the trade marks and could, therefore, exercise the rights of the owner, to the exclusion of APAL.
Court of Appeal decision
APAL appealed to the Court of Appeal.
The appeal concerned two key issues, being:
- the proper construction and scope of the trade mark licence in the option deed; and
- the consequences of APAL breaching the licence.
APAL’s appeal was successful.
The key findings by the Court of Appeal included (per Justice of Appeal Tate, with whom Justice Ferguson and Justice McLeish agreed):
- On a proper construction of the terms of the licence within the option deed, its scope was limited to the three trade marks specified in Schedule 1 of the option deed.
- There was no relevant ambiguity in respect of the terms of the option deed to permit any other finding. Amongst other things, the Court of Appeal found that the definition of ‘Trade Marks’, and the terms of the option deed more generally, were unambiguous and clear. As a consequence, surrounding circumstances could not be used as an aide to construing the meaning of those terms.
- Even if a relevant ambiguity could be identified (or was unnecessary) to permit using surrounding circumstances, they did not support the broader construction which was found by the trial judge.
- This is because the factual circumstances surrounding the execution of the option deed revealed that its object and purpose was to resolve tensions surrounding the filing of three pending trade mark applications in Chile by PLA, including in circumstances where APAL opposed those applications. As a consequence, both parties benefitted from entering in the option deed.
- Moreover, a strictly legal, or literal, interpretation of the option deed led neither to an absurdity or futility. The Court of Appeal found that the strict legal interpretation of the licence meant that PLA could enjoy the benefits of the three specific marks until at least 2009 (following which PLA was not permitted to use those marks through its membership of the IPLA) and this was not a nominal’ period of time. Furthermore, PLA would no longer have been prohibited from using those specific marks if it left IPLA (as it did so in June 2010). These benefits would have existed in perpetuity.
- It followed that PLA had, in filing applications to register its own PINK LADY marks in Chile, opposing APAL’s application of the Flowing Heart Logo in Chile and representing that it was the owner of the PINK LADY trade marks in Chile, evinced a clear intention to no longer be bound by the licence or the option deed as a whole and therefore had repudiated the deed.
- It followed that APAL was entitled to accept the repudiation (as it did) and terminate the option deed.
- Moreover, while the issue as to whether APAL had an obligation to ‘re-assign’ the PINK LADY marks to PLA on a breach by APAL was moot given that the Court of Appeal found that APAL was not in breach, it was observed that no such obligation would have existed, in any event.
- There was no such implied term for various reasons. Fundamentally, the Court of Appeal found that such a term was contradictory to the express terms which granted PLA a ‘perpetual’ exclusive licence. The court also found that such a term was not necessary as PLA could have sought specific performance or an injunction to compel APAL to honour the terms of the licence if APAL had breached that licence.
This decision highlights the complex legal considerations which apply to the construction of commercial contracts. In particular, the decision highlights when it is, and when it is not, permissible to rely on material which is external to a commercial contract in order to assist with its construction.
Notably, all three Court of Appeal judges cited the following passage by Chief Justice French, Justice Nettle and Justice Gordon from the recent High Court decision in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:1
‘Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning’.
The Court of Appeal unanimously concluded that the terms of the option deed were unambiguous and clear, and so reliance on external material as an aid to construction in this instance was not permissible.
In doing so, the Court of Appeal noted that the requirement that a relevant ambiguity be present (also referred to as the ‘gateway requirement’)2 in order to permit evidence of events, circumstances and things external to the contract as an aid to its construction, remains binding authority.3
Ferguson and McLeish JA noted that the authorities are not settled as to whether or not evidence of matters external to the contract may be called in aid to establish an ambiguity. However, they also found that it was not necessary to decide this issue in this instance as the external material on which PLA sought to rely ‘did not suggest a construction contrary to the plain meaning of the option deed as ascertained without reference to that material’ and ‘nor [did] it suggest any commercial nonsense or inconvenience so as to cast doubt on that plain meaning’.4
Hall & Wilcox represented APAL in these matters.
1(2015) 256 CLR 104. 2Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261 at 270 . 3This is the ‘true rule’ of contract construction, as stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352. 4 -[ 232]