Turkeys, Geese and the wild question of control

For trade mark owners, there are many benefits to trade mark licensing.  Not only are there financial gains, but licensing agreements can build brand exposure and heighten the reputation of the existing business.

However trade mark licensing is more than a matter of signing off and sitting back to reap the rewards. As recent judicial commentary has indicated, parties to these kinds of commercial transactions need to be acutely aware of what is really required of the licensor to ensure an effective licensing arrangement exists which maintains the validity of the trade marks under licence. With a Full Federal Court appeal on this issue expected shortly, this is a timely reminder that in the future a strong licence regime is likely to not only require that there be theoretical control mechanisms over trade mark use in place, but that these mechanisms also be exercised in practice.

On 26 May 2015, Justice Perram of the Federal Court of Australia handed down his decision in Skyy Spirits LLC v Lodestar Anstalt [2015] FCA 509. This case is the latest chapter in a long running saga, involving the following complicated set of trade mark ownership, assignment and licensing arrangements:

1. Mr O’Sullivan filed for the trade marks WILD GEESE and WILD GEESE WINES (O’Sullivan Marks), and through this filing, became aware of a prior trade mark registration for WILD GEESE in the name of Irish Whiskey (Whiskey Mark).
2. Mr O’Sullivan filed an application to remove the Whiskey Mark from the Australian Trade Marks Register on the ground of non-use.
3. Through this removal action, Mr O’Sullivan became aware of the party, Wild Turkey Bourbon (Wild Turkey), which had also filed a removal application for the Whiskey Mark.
4. As a result, Mr O’Sullivan and  Wild Turkey appear to have decided to pursue their mutual best interests and Mr O’Sullivan agreed to assign his O’Sullivan Marks, together with his removal application, to Wild Turkey and in return, Wild Turkey granted Mr O’Sullivan a perpetual licence to use the O’Sullivan Marks.
5. Wild Turkey succeeded in removing the Whiskey Mark from the Register and registered the O’Sullivan Marks in its name.

At this time, Irish Whiskey’s feather’s became ruffled, as it was left with no registered rights in Australia for the WILD GEESE brand, and a business plan which relied on the use of the trade mark for whiskey products. Irish Whiskey therefore sought to attack the O’Sullivan marks, WILD GEESE and WILD GEESE WINES, now held by Wild Turkey, on the ground of non-use.

At this point, it is important to note that at no time does it appear as though Wild Turkey had used WILD GEESE or WILD GEESE WINES. All use of these marks had been made by Mr O’Sullivan alone.

The issue came down to whether Wild Turkey (as the current registered owner) ‘authorised’ the use of WILD GEESE  and WILD GEESE WINES by Mr O’Sullivan (who had originally filed the applications), within the meaning of the Act. The real consideration came down to what level of ‘control’ was necessary from Wild Turkey to constitute ‘authorised’ use by Mr O’Sullivan.

The requirements of ‘use’ of a trade mark in the context of a licence arrangement are governed by section 8 of the Trade Marks Act 1995 (Cth) (the Act) which states that ‘a person is an authorised user of a trade mark if the person uses the trade mark in relation to goods or services under the control of the owner of the trade mark’ [emphasis added].

Under the trade mark licence agreement between Wild Turkey and Mr O’Sullivan, certain measures of control were introduced, including quality control assurance, restrictions on export trade, prohibitions on the use of amended or abbreviated trade marks and obligations of liability insurance. The court concluded that Wild Turkey in reality exercised no actual control, concluding that ‘the licence agreement was not intended by the parties to it to deliver anything but the appearance of control to the Wild Turkey interest’…

Therefore, the court was left to consider whether theoretical control, never used, was sufficient. The Judge was of the view that it was not, noting that ‘if I say the police are controlling the traffic I do not mean that they are sitting in a nearby coffee shop reading the paper but able to step out on to the road at any moment and control the traffic if they choose.’ His Honour further commented that his interpretation of ‘control’ under section 8 of the Act involved an inquiry into an actual state of affairs and could not be satisfied by a mere possibility of legal control.

Despite these strong views, the judge felt bound by precedent (much to His Honour’s obvious frustration) which expressed a contrary view. As a result, the court found  that:

1. for the purposes of section 8(1) of the Act, a mere theoretical possibility of contractual control was sufficient to constitute authorised use;
2. consequently, use by Mr Sullivan was sufficient to defeat a non-use removal application; and
3. therefore, (and reluctantly) Irish Whiskey did not have power to remove the Wild Turkey trade marks, WILD GEESE  and WILD GEESE WINES from the Register, because the use by Mr O’Sullivan of these marks was ‘authorised’ by Wild Turkey in the circumstances.

Most trade mark licenses include provisions for control over the use of trade marks by a licensee. However, it is often questionable how frequently these control mechanisms are exercised.

At the present time, the mere theoretical possibility of control over use of a trade mark in a licence agreement is considered sufficient for the use by a licensee to be ‘authorised’ by the trade mark owner/licensor. This is important because in circumstances where only the licensee is using a mark, should the trade mark owner or its licensee ever want to rely on the registered rights against third parties, the registration would always be vulnerable to: 1.) removal for non-use; or 2.) a claim that the registered owner is not the true owner of the trade mark.

However, late last year the Full Federal Court heard an appeal of this case.  The hearing is currently adjourned with judgment reserved.  The final decision is expected to be released shortly.

The expectation is that the current position will be overturned. If this occurs, it will become imperative that licensing regimes not only include strong contractual provisions which emphasise the control being exercised by the licensor/ trade mark owner, but also, that these control mechanisms are being exercised in practice.

Licensors and licensees alike should watch this space.

If you would like more information about ensuring a strong trade mark licensing regime which will not impact the validity of your registered rights, or trade mark protection more generally, please contact our Trade Marks Team.