Trade mark protection: licensing lessons from Lodestar

On 28 June 2016, the Full Federal Court, consisting of five judges, handed down its decision in Lodestar Anstalt v Campari America LLC [2016] FCFA 92 (“Lodestar”). The court unanimously held that a mere licence agreement authorising use of a trade mark was not sufficient to show that the licensee was an authorised user of the trade mark. This decision has significant implications for registered owners who do not use a trade mark themselves, but license it to other trading entities for use.

In order for a trade mark to remain registered, the registered owner must continue to use it as its trade mark in Australia. Use by a licensee of the trade mark will be deemed use by a registered owner only where the licensee is an “authorised user” within the meaning of section 8 of the Act.

Section 8(1) of the Act provides 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. “Control” is not defined in the Act, but it does state that control over the quality of the goods or services, or financial control over the person’s trading activities may be sufficient forms of control. The decision in Lodestar basically turned on the meaning of “control” within section 8 of the Act.

In Lodestar, the court held that in order for a licensee to be an authorised user, the registered owner must exercise actual control (as opposed to theoretical control) over the licensee’s use of that trade mark. This means that a mere licence agreement empowering the registered owner to control the use of the trade mark was not sufficient to make the licensee an authorised user of it. As a result, the court held that the trade mark had not been used by the registered owner and accordingly should be removed from the register.

This case serves as a reminder of the potentially dire consequences that can ensue from not having a properly implemented licensing arrangement. In order to avoid a Lodestar situation, you should take the following actions:

1. Have a clearly drafted licence agreement in place. This agreement should contain mechanisms to enable the registered owner to exercise control over the licensee’s use of the trade mark. The purpose of the control is to ensure that the trade mark always maintains a connection to the registered owner, even if the connection is slight. Regular quality checks of the goods or services to which the trade mark is being applied, or the provision of finances to fund the trading activities of the licensee will be deemed to be sufficient control for this purpose.
2. Once the licence agreement is in place, make sure that the registered owner exercises the relevant control at least once every three years. The main problem for the respondent in Lodestar was that the registered owner did not exercise any control over the use of the trade mark by its licensee during the relevant three year period. If the registered owner could show that it had exercised control at least once throughout the relevant period, this could have prevented the removal of the trade mark.
3. Ensure that the control exercised by the registered owner facilitates a connection between the registered owner and the trade mark. Although the type of control is not strictly defined by the Act, the policy behind the provision is clear –the trade mark must indicate a connection in the course of trade with the registered owner. Once this connection is lost, the trade mark may be removed from the register, not only for non-use but also because it has become deceptive – that is, it no longer indicates the true origin of the goods or services.
4. Ensure that at least once every three years either the registered owner or an authorised user is using the trade mark in the course of trade in Australia. The use may be infrequent or slight, but it must be use within Australia.
5. For the licensee or authorised user, it may be prudent to make an application to IP Australia to record your interest in the trade mark on the register. This way, you will be notified of any changes made or proceedings issued in relation to the trade mark.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Corporate & Commercial team on 03 5273 5263.