Insufficient control in trade mark licence agreement results in successful non-use claim

Campari America LLC (previously known as Skyy Spirits or Austin Nichols) (Campari) has been unsuccessful in an appeal before the Full Federal Court in relation to a non-use application brought by Lodestar Anstalt (Lodestar).¹  The consequence of this decision is that Campari’s Australian registered trade marks for WILD GEESE and WILD GEESE WINES (collectively, WILD GEESE Trade Marks) are to be removed from the register.

Lodestar Anstalt v Campari America LLC provides valuable insight into what are fundamental principles of trade mark licensing and the risks arising from a failure to exercise sufficient control, by the registered owner, over the use of registered trade marks which are the subject of a licensing agreement.

In essence, the decision reinforces the proposition that any trade mark licence agreement ought to confer more than a simple permission to use the registered mark. Rather, it ought to contain contractual mechanisms whereby the owner can effect, maintain and enforce quality control over goods or services which are provided under, or in association with, the trade mark. Further, it is prudent for the trade mark owner to, during the term of the licence agreement, actually exercise that control.

Events leading to the dispute

On 21 June 2000, Lodestar obtained a registered trade mark for the words WILD GEESE in Australia in classes 32 (which includes beers and other non-alcoholic drinks) and 33 (alcoholic beverages other than beer).

In July 2005, an individual sought to register the trade marks WILD GEESE and WILD GEESE WINES for his company, Wild Geese Wines Pty Limited (WGW). However, due to Lodestar’s prior registered mark, WGW’s applications for the WILD GEESE Trade Marks were not able to proceed to registration. In response, he initiated a non-use proceeding to remove Lodestar’s trade mark on the basis of the mark not having been used for a continuous three year period.

In 2007, a dispute broke out between WGW and Campari (with Campari asserting that the use of the WILD GEESE Trade Marks infringed its WILD TURKEY trade mark) which resulted in an understanding whereby WGW would assign its interest in the WILD GEESE Trade Marks to Campari, which, in turn, would licence them back to WGW for a one off fee of $1. WGW would also assign its non-use proceeding against Lodestar to Campari.

Soon after, Campari’s non-use proceeding resulted in the removal of Lodestar’s WILD GEESE trade mark from the register. Campari then registered the WILD GEESE Trade Marks which it licenced to WGW on a perpetual, exclusive, royalty-free licence, as was agreed in 2007.

Several years later, Lodestar then initiated a non-use proceeding against the WILD GEESE Trade Marks. It was asserted by Lodestar that there was no actual control by Campari of WGW’s use of the trade mark and that, without this actual control, the trade mark had become vulnerable for non-use.

That is, it was asserted that the use of the WILD GEESE Trade Marks by the licensee in these circumstances should not be deemed to be use by the registered owner.

Lodestar’s basis for a non-use application

The current proceedings concerned the licence agreement (Licence) between Campari and WGW, and the definition of authorised user and authorised use pursuant to section 8 of the Trade Marks Act 1995 (Cth) (Act).

Section 7(3) of the Act provides that ‘an authorised use of a trade mark by a person is taken, for the purposes of this Act, to be use of a trade mark by the owner of the trade mark.’ This is relevant for the purpose of a non-use proceeding as authorised use is sufficient to defeat such a proceeding.

Section 8 of the Act relevantly provides:

The meaning of ‘under the control of’ in section 8 is then further informed by Justice Aickin ’s judgment in Pioneer ² which requires that the trade mark must indicate a connection in the course of trade with the registered owner.³

Importantly, this decision turned on the meaning of ‘control’ and how it was interpreted for the purpose of section 8. For this reason, the court was made to consider the commercial reality of the Licence between Campari and WGW.

It was argued by Lodestar that a right to control is not sufficient and, instead, section 8 contemplates that actual control must be exercised.⁴ Lodestar contended that without this actual control there was no authorised use of the trade mark between the period of 27 August 2007 and 27 August 2010 (Non-use Period). Consequently, despite WGW selling wine bearing the WILD GEESE Trade Marks during the Non-use Period, Lodestar asserted that there was no use of the trade mark for the purpose of section 7(3) of the Act.

Was there actual control exercised in the Licence?

As a matter of substance, Campari had to demonstrate that it exersized actual control over the use of the WILD GEESE Trade Marks. For Instance a mere licence or revocable authority would not have been sufficient.⁵ There were several clauses in the licence which were argued by Campari which conferred this actual control:

• the wine ‘be of a quality at least sufficient to obtain a continuing approval of the wine for export by the Australian Wine and Brandy Corporation’ (AWBC)
• Campari was able to ask for samples of the wine or ask for information about the use of the trade marks
• WGW must only use the trade marks in connection with Australian wine only
• Campari’s ability to terminate the agreement for a material breach.

In relation to the first point above Justice Greenwood noted in his judgment that this proved to be ‘illusory’ as the AWBC approved 99% of wine submitted. Besanko J, in his judgment went on to state:⁶

It is plain that the standard had no effect on Mr O’Sullivan’s wine making practices. He was interested in making good to high quality wine. At no time during the relevant period did Austin Nichols [Campari] contact Mr O’Sullivan about the wine he was making or selling or both… Austin Nichols never asked Mr O’Sullivan for any information about the use of the trade marks or Mr O’Sullivan’s wine making operation.

In relation to the other arguments put forward by Campari, Justice Katzmann concluded that the agreement made no practical difference to the way the trade marks were used or how WGW conducted its business.⁷ Accordingly, given that no actual or practical control was exercised, the ‘control’ requirement under section 8 of the Act was not met.

Consequently, the five justices who heard the appeal were unanimous that despite the sale of wines bearing the trade mark during the Non-use Period, there was no use by the registered owner due to this lack of actual control.

It is important to note that the licence agreement was not considered to be a sham. Justice Nicholas expressed that he had no doubt that the licence agreement was intended to operate in accordance with its terms.⁸

¹Skyy Spirits LLC v Lodestar Anstalt [2015] FCA 509.
²Pioneer Kabushiki Kaisha v Registrar of Trade Marks (1977) 137 CLR 670.
³Lodestar Anstalt [2016] FCAFC 92, [95].
⁴Ibid, [163].
⁵Ibid, [97].
⁶Lodestar Anstalt [2016] FCAFC 92, [107].
⁷Ibid, [108].
⁸Ibid, [123].