Manufacturers get a raw deal – control of trade mark use in Australia

Most trade mark owners would be aware that they must use their trade marks or risk losing their registrations if challenged.  If the registered owner does not themselves use the trade mark in Australia, but instead licenses a related company or a third party to use the mark, their registration will not be vulnerable to cancellation if they can show that the licensee’s use was under their control.

In recent years, Australian courts have clarified what amounts to control in this context.  We consider some of those cases and their implications for trade mark owners.

Quality control must be exercised

In 2016, five judges of the Full Federal Court held that quality control by a trade mark owner must be evidenced “as a matter of substance”: Lodestar Anstalt v Campari America LLC [2016] FCAFC 92 at [97].  That is, a trade mark owner/licensor cannot simply rely on contractual provisions as evidence of quality control of the goods to which the licensee applies the trade mark.

In Lodestar, the Court considered whether a trade mark for wine could be removed for non-use.  Although the agreement in question contained a provision requiring the wine to be of a certain quality and allowed Campari (the trade mark owner/licensor) to request samples or seek information from the licensee about the application of the trade marks, the Court held that actual control could not be established.  The Court found that “at no time during the relevant period did Austin Nichols [Campari] contact Mr O’Sullivan [the licensee] about the wine he was making or selling or both… [or] for any information about the use of the trade marks or Mr O’Sullivan’s wine making operation”.

Common officers or a financial interest is not sufficient

Two years later, trade mark owners were once again warned of the risk of trade mark registrations being removed for non-use for failure to demonstrate actual control.  Although trade mark owners can rely on financial control to demonstrate authorised use by a licensee, Calico Global Pty Ltd v Calico LLC [2018] FCA 2096 highlighted some pitfalls in that approach.

Mr Owens, the managing director of Calico Pty Ltd (Calico) applied to register a trade mark in his name, which he subsequently assigned to Calico.  Calico exclusively licensed the use of the trade mark to its related entity, Calico Global Pty Ltd (Global).  Mr Owens was also a managing director of Global and had a 50% interest in both Calico and Global.  The licence granted to Global required it to: “clearly indicate in all its correspondence and dealings that it was acting as Calico Pty Ltd’s licensee” and “observe any directions or instructions” from Calico.

In non-use proceedings brought by Calico LLC, the Federal Court considered (among other things) the nature of the services, the nature of the trade mark use in the relevant period, whether Calico had ever given any directions to Global regarding use of the trade mark and whether Global had complied with the obligation to indicate it was Calico’s licensee.  The Court made adverse findings in respect of these issues.  It held that by assigning the trade mark to Calico, Mr Owens had distanced himself from the trade mark, and irrespective of the fact that he was the directing mind and held a 50% interest both companies, neither he nor Calico exercised any actual control over Global’s trade mark use in the relevant periods.  Importantly, the Court emphasized that “Calico had a distinct legal personality from that of its members and officers.”

The specific relationship between the licensor and licensee is important

Another interesting decision emerged last year in which a Court found that even if quality control provisions in an agreement are vague, the absence of instructions from a trade mark owner/licensee is not always necessary to establish control.  In the context of trade mark non-use proceedings in Hells Angels Motorcycle Corporation (Australia) Pty Ltd v Redbubble Ltd [2019] FCA 355, Hells Angels Australia (HMAC AU) relied on an exclusive licence agreement it had been granted by its US chapter (HMAC US) to demonstrate that it was an “authorised user”.  The agreement however, did not contain any provisions governing HMAC AU’s use of the trade marks nor HMAC US’ control over the trade marks. 

Nevertheless, the Court accepted evidence that showed that HMAC AU’s “obedience to the trade mark owner was so intuitive and so complete that no formal instruction was necessary“.  In finding that HMAC AU’s use of the trade marks was authorised, the Court considered other factors including the purpose of the trade marks (which was “primarily” to indicate membership in a club rather than having an overarching commercial purpose), the knowledge of HMAC’s members as to the source and origin of goods bearing the trade marks, the limited supply of the relevant goods to the wider public, and consistency in the way the trade marks were used.

Related entities must have a “unity of purpose”

In Trident Seafoods Corporation v Trident Foods Pty Ltd [2019] FCAFC 100, the Full Federal Court clarified what amounts to financial control between related entities in a corporate group.  Trident Foods, the registered owner of various TRIDENT trade marks and a wholly owned subsidiary of Manassen Foods Australia Pty Ltd (Manassen), authorised Manassen (its parent company) to use the trade marks in Australia.  In the appeal of a non-use action, the Full Court reversed the primary judge’s decision, holding that Manassen’s use of the trade marks in the relevant period did constitute authorised use. 

The Court confirmed that the test for financial control is not whether one company is in control of the other, but rather, whether Trident Foods, despite being a wholly-owned subsidiary of Manassen, had control over Manassen’s use of the trade marks.  Although there was no formal licence agreement in place between the related companies, the evidence showed that both companies had shared processes, common directors and operated with a unity of purpose to maximise sales and enhance the value of the TRIDENT brand and trade marks.

Assessing control by looking at the whole distribution chain

Most recently, the Full Federal Court delivered a decision that is of particular relevance to manufacturers of raw materials.  In Ceramiche Caesar S.p.A v Caesarstone Ltd [2020] FCAFC 124, a dispute arose between:

  • Ceramiche, an Italian ceramic tile manufacturer that had sold tiles bearing the trade mark CAESAR and had a registered trade mark for CAESAR (stylised) in class 19 for “ceramic tiles for indoor and outdoor use“; and
  • Caesarstone, an Israeli manufacturer of quartz surfaces, that had sold slabs bearing the trade mark CAESARSTONE through two Australian distributors.

The distributors did not sell the Caesarstone slabs directly to Australian consumers, but instead sold them to stonemasons, who would convert the slabs into finished products such as benchtops, countertops, vanities and splashbacks, that would be sold to consumers.

On the issue of whether Caeserstone could claim that the distributor’s use of the CAESARSTONE trade mark constituted “authorised use”, the Full Court held that the relationship between the licensor/licensee was at arms-length in respect of the raw materials (slabs) they were sold.  Given that the distributors then used stonemasons to turn the slabs into finished products that bore the CAESARSTONE trade mark, Caeserstone needed to demonstrate actual control over the finished products.  Caeserstone’s claim failed as it could not produce such evidence.

Although the following observations from the Court were made in obiter, they are in line with the above authorities:

  • while Caesterstone did provide instructions to the distributors, those instructions were mainly to ensure that the slabs would not get damaged during transportation/storage, not in respect of the quality of the finished products;
  • although Caesterstone provided technical support manuals to the distributors which they passed on to the stonemasons, the Court held that the “provision of technical information is not, at least of itself, the exercise of quality control“; and
  • the quality of the finished products really turned on the significant skill, labour and craftsmanship of stonemasons, over which Caesarstone had no actual input, e.g. Caeserstone did not inspect the finished products.

Practical implications

  • In addition to ensuring that trade mark licences/distribution agreements contain sufficient quality control provisions in respect of trade marks, trade mark owners must actually exercise the steps in those provisions and keep records of communications, instructions and directions to their licensees.
  • Financial control in intra-group arrangements will be assessed on a case-by-case basis.  Even if a trade mark owner has a 50% or more financial interest in the trade mark licensee, this alone may not be sufficient to establish “financial control”.  A key consideration is whether the trade mark licensor and licensee operate with a “unity of purpose” when it comes to the goods or services under the trade mark.
  • Manufacturers of construction materials, food products, chemicals and other “raw materials” should consider whether their trade mark should cover both the raw materials and the finished consumer product.  If the raw materials are extensively modified along the distribution chain, it may be difficult to maintain a trade mark registration in respect of the finished product unless the manufacturer can demonstrate actual quality control over the end-products.  It would be prudent for trade mark owners to review the application and control of the trade marks through all stages of the distribution chain.