Trade mark licensing arrangements can often offer significant benefits for trade mark owners by increasing brand exposure and royalty revenue streams. However, as we have previously reported, recent Australian cases (such as Lodestar Anstalt v Campari America LLC [2016] FCAFC 92 (Lodestar)) demonstrated that licensing arrangements may expose trade mark owners to the risk of trade mark removal.

Since Lodestar, the position relating to authorised use in the context of third-party licences has been reasonably settled, in that theoretical control mechanisms over trade mark use contained within a licence agreement may not be enough to establish use of the trade mark on behalf of the owner. Instead, trade mark owners must exercise these control mechanisms in practice to ensure their valuable trade mark rights are maintained (Our full analysis of the Lodestar decision and its implications for trade mark owners can be found here).

In Trident Foods Pty Ltd v Trident Seafoods Corporation [2019] FCAFC 100 (Trident) the Full Court of the Federal Court has examined trade mark ‘use’ provisions in the specific context of inter-company licences. In summary, businesses can expect that following Trident, the court’s approach to authorised use in the inter-company context represents a relaxation of the more strict approach which continues to apply to third-party arrangements.

Trident- the facts

This case concerned a non-use challenge by the US Company Trident Seafoods Corporation brought against Australian trade marks owned by an Australian company, Trident Foods Pty Ltd (Trident Foods).

Trident Foods was the registered owner of two relevant TRIDENT marks registered in 1973 and 1983 (together the Trade Marks). The Trade Marks were registered in respect of various class 29 food products including fish and seafood. Trident Foods had itself been using the Trade Marks for its products to satisfy the use requirements until around 2000, when Trident Foods was acquired by Manassen Foods Australia Pty Ltd. Trident Foods then becoming a wholly owned subsidiary of Manassen.

From this point onwards, all sales of products under the Trade Marks were made by Manassen and not Trident Foods. Accordingly, the party using the relevant Trade Marks was the parent company (Manassen) of the registered trade mark owner (Trident Foods). Importantly, Trident Foods no longer used the Trade Marks itself, although Trident Foods and Manassen had common directors, a common registered address and a common principal place of business.

The issue

The key question requiring judicial consideration was whether use by a parent company of trade marks owned by a wholly owned subsidiary constituted “authorised use” by the trade mark owner for the purposes of sections 7 and 8 of the Trade Mark Act 1995 (Cth) (the Act) when there was no evidence of actual use control mechanisms being exercised.

The requirements of “use” of a trade mark in the context of a licence arrangement are governed by section 8 of 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”.

The decision

In the initial decision, it was determined that Trident Foods could not rely upon any use by Manassen because Trident Foods did not control the activities of its parent company. In this sense, the decision followed the accepted position in Lodestar.

However, on appeal the full court unanimously held that the use by Manassen constituted ‘authorised use’ and held that Trident Foods had satisfied the use requirements in relation to relevant goods and services for the relevant period. As a result, the removal applications were unsuccessful and Trident Foods could retain its registered Trade Marks.

In the appeal the Full Court noted that the key consideration was not whether one company controlled the other (in a financial sense), but whether the trade mark owner had control. A key point was the fact that common directors between Trident Foods and Manassen made it unnecessary for Trident Foods to give directions in relation to the use of the marks. The shared directorship gave an inference of actual control to support a ‘unity of purpose’ between the companies. In this way, and in a departure from Lodestar, substantial weight was given to the commercial reality of the circumstances. In doing so, it was considered significant that at all relevant times both Trident Foods and Manassen had the same directors and consequently inferred from the evidence that the two companies operated with a ‘unity of purpose’.

Further, the protection of the valuable goodwill in Trident Foods’ marks required active engagement by the directors of Trident Foods. It was therefore commercially unrealistic to suggest that the parent was using the marks without the knowledge, consent and authority of Trident Foods when the common directors had obligations to ensure the maintenance of the value of the trade marks. To that end, Trident Foods necessarily controlled the parent company’s use of the marks because the directors of both companies had a common purpose, being to maximise sales and to enhance value of the brand. It was commercially unrealistic in the circumstances not to infer that the owner of the marks controlled the use of the marks.

The lesson

In respect of trade mark licensing arrangements in the inter-company context, businesses must continue to ensure that elements of ‘actual control’ exist. Where direct financial control exists from a trade mark owner to a trade mark user, this has long been accepted as a means of demonstrating control over trade mark use. Often, in complex group structures this direct financial control will not exist. In these cases, after Trident, the commercial realities between related entities are likely to allow courts to infer actual control. If the need to infer control arises, ensuring shared directorships between a trade mark owning entity and a trade mark using entity within a group of companies can be significant.

This can be contrasted with the third-party context where practical evidence of actual control by the trade mark owner is significant and often crucial to the establishment of authorised use.

Businesses in any circumstances can continue to safeguard their trade marks and brands by including clear indicators of actual control by the trade mark owner and applying these in practice. Such indicators could include: guidelines as to brand use; notices; supervisions and inspections; or statements on products to the effect that the relevant trade mark is a registered trade mark of the trade mark owner and is being used under licence.