Trade mark qual­i­ty con­trol sorts the geese from the turkeys

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.