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30 August 2016 Trade mark quality control sorts the geese from the turkeys

By James Skelton, Solicitor

IN BRIEF

The recent decision of the Full Federal Court in Lodestar Anstalt v Campari America LLC [2016] FCAFC 92 means that it is now not enough to simply have the existence of quality control provisions in a trade mark licence. The licensor has an additional obligation to actively monitor the performance of the licensee and exercise the quality control provisions on a regular basis (at least once every three years).

What is a Trade Mark Licence?

A trade mark can be a very valuable asset for any business. A trade mark licence grants rights to a third party to use that asset in trade and commerce for particular goods or services within the scope of the licence. As the trade mark represents the owner's reputation for producing goods or services to a particular standard, it is necessary to ensure that any third party using the trade mark maintains the quality that consumers expect to be associated with products bearing the trade mark.

Quality Control Provisions

Quality control provisions are a fundamental requirement for any trade mark licence and can take two forms:

  1. Standard of products produced – where the licensor requires that the goods or services produced by the licensee under the licence agreement to be of a specific standard and quality
  2. Use of the trade mark – where the licensor sets out specific guidelines of how the trade mark is applied to goods or used in relation to services under the licence, for example any precise colour or positioning requirements

There will usually be associated provisions in the licence agreement to allow the licensor to monitor the performance of these obligations under the licence. The licensor may require samples to be provided by the licensee of products produced under the trade mark or be allowed access to the licensee's facilities. Additionally, the licensor may request samples of different marketing material and collateral produced by the licensee using the trade mark or conduct site visits of a shopfront. Such provisions are necessary to ensure that any quality standards set out under the licence are achieved.

Lodestar Anstalt v Campari America LLC

Lodestar Anstalt, owner of Wild Geese whisky (Wild Geese), registered their WILD GEESE trade mark in 2000. In 2005 Wild Geese Wines Pty Ltd (WGW) filed an application to register WILD GEESE and WILD GEESE WINES as trade marks in Australia. Unsurprisingly, Wild Geese's registration was cited against the two WGW applications as prior conflicting marks. WGW then sought to file an application for removal against the registration to allow it to overcome the examiner's objection.

At the same time, Campari America (formerly Austin Nichols), owner of Wild Turkey bourbon (Wild Turkey), filed their own application for removal against Wild Geese's WILD GEESE registration. An argument then developed between Wild Turkey and WGW regarding the infringement of the WILD TURKEY trade mark by WGW, which resulted in a settlement being reached. The settlement included an assignment to Wild Turkey of the WGW trade marks and the removal application in exchange for a perpetual and exclusive licence in favour of WGW to use the WILD GEESE mark for wine in Australia. Wild Turkey was then successful in its removal application against Wild Geese and secured registration of the WILD GEESE trade mark in Australia.

Application for removal

By 2010, Wild Geese had begun to distribute and sell their Wild Geese whisky products into Australia and sought to file their own application for removal against Wild Turkey's registration for WILD GEESE on the basis that neither Wild Turkey nor WGW had used the mark in Australia in the previous 3 years. In response, Wild Turkey opposed the application, relying on its licence agreement with WGW to demonstrate 'authorised use' under sections 7 and 8 of the Trade Marks Act 1995 (Act).

However, Wild Turkey could not demonstrate that it had ever actively monitored or exercised any of the quality control provisions in its licence agreement with WGW. The Delegate of the Registrar of Trade Marks therefore granted the application for removal on the basis that there had not been sufficient 'authorised use'.

Appeal to the Federal Court

On appeal to the Federal Court, Justice Perram looked to the Full Federal Court decision in Yau's Entertainment Pty Ltd v Asia Television Ltd [2002[ FCAFC 78, noting that "a mere theoretical possibility of contractual control was sufficient to constitute authorised use". Therefore, despite there being no actual exercise of any quality control provisions over the use of the trade mark, the existence of such provisions in the licence agreement was enough to satisfy the relevant standard. The appeal from the Delegate was allowed.

Full Federal Court Decision

The Full Court of the Federal Court, a 5 member bench given the appeal of the previous Full Court decision in Yau, unanimously allowed the appeal by Wild Geese from the single judge decision. They decided that control must be "actual control in relation to the trade mark from time to time". The existence of quality control provisions in a licence, without being monitored or enforced was therefore not considered sufficient to satisfy the standards required by section 8 of the Act and to engage the "authorised user" provisions.

As Wild Turkey had not exercised its quality control provisions over WGW's use of the WILD GEESE mark, the appeal was allowed and the removal application was successful.

Conclusion

Following this judgement, it is critical that anyone wishing to licence the use of their registered trade mark to third parties have a well drafted licence agreement in place with appropriate quality control provisions. Further, it is now simply not enough to have a licence agreement in place. Licensors must exercise appropriate control over the authorised use of their trade marks and regularly exercise the appropriate quality control provisions.

Anyone with existing trade mark licencing arrangements should also review their agreements and quality control monitoring practices to ensure that their registrations are not vulnerable to removal applications for non-use in Australia.

James Skelton, Solicitor  |  Phone: +61 2 9233 5544  |  Email: jas@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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