The importance of controlling third party use of your trade mark

In Australia, a person must use or intend to use their trade mark in the course of trade, otherwise they risk an abandonment of their rights in the trade mark. Use must be by the registered owner of the trade mark or by a person authorised by the owner.

So, although it is not necessary for the owner itself to use the registered trade mark, the owner of the trade mark must authorise use by a third party and maintain ‘control’ over the use of that trade mark. If the trade mark owner does not maintain sufficient control over its use, the trade mark registration may be vulnerable to removal from the Register.

In this article, we examine control in the context of trade mark ownership and the importance of a trade mark owner maintaining control over third party use of a trade mark. Specifically, we take a look at:

• situations where an entity might own a trade mark, but not itself use the mark
• the meaning of ‘control’ under the Trade Marks Act 1995 (Cth)
• whether a trade mark licence agreement is necessary
• the importance of the relationship between the licensee and licensor when analysing control
• key questions to ask when preparing a licence agreement
• key takeaways for trade mark owners.

When would an entity own, but not use, a trade mark?

There are a number of reasons why an entity may own a registered trade mark but not use it.

For instance, many corporate structures include an intellectual property holding company. These companies generally ‘hold’ the registered trade marks on behalf of the corporation. Rather than using the trade mark itself, the holding company licences the use of those trade marks to other entities within the corporate structure. 

Other examples of an entity owning a registered trade mark, but not itself using the mark, include arrangements in franchising relationships, or where a foreign entity licences its trade mark to an Australian subsidiary company.

In these examples, the entity that owns the registered trade mark is not itself using the mark, leaving it potentially vulnerable to removal for non-use.

Meaning of control under the Trade Marks Act

Under section 8 of the Trade Marks Act, 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 trade mark owner must be able to exercise sufficient control over the nature and quality of the goods and services dealt with or provided by the authorised user of the trade mark in connection with the trade mark. ‘Control’ may be in the form of quality control or financial control. To summarise:

• quality control refers to the degree of control over the other party’s use of the trade mark and, in particular, the control over any products or services it is applied to. For example, permitting inspections of manufacturing premises by the licensor, providing product samples to the licensor before selling the products, or reviewing marketing materials relating to the trade mark prior to their publishing or distribution
• financial control refers to the degree of control the licensor has over the licensee’s trading activities and finances. For example, a licensor parent company with a more than a 50 per cent ownership stake in the licensee subsidiary company, or where the licensor shares substantial resources with the licensee for the mutual benefit of both licensor and licensee (such as marketing expenditure relating to goods bearing the trade mark).

Is a licence agreement necessary?

Use of a trade mark is commonly authorised by a trade mark owner in the form of a licence agreement. 

Although the Trade Marks Act does not require a licence to be in an express or written form, it can be difficult to determine the existence of an implied licence, and whether the requisite quality and financial controls can also be implied from the conduct of the purported licensor and licensee. Where possible, a trade mark owner should always seek to enter into a written licence agreement which clearly sets out the agreed permissions and limitations on the licensee’s use of the trade mark.

However, a licence agreement by itself is unlikely to be sufficient to demonstrate sufficient control over a trade mark. A number of recent cases have pointed to the importance of ensuring that control mechanisms are not only included in trade mark licences but are actually exercised by the parties.

Start by examining the relationship between the licensee and the licensor

Whether a mechanism contained in a licence agreement is sufficient for the purposes of control under the Trade Marks Act is determined on a case-by-case basis, but will to a large extent, depend on the relationship between the licensor and licensee (for instance, whether they are part of the same corporate group, or whether the parties bear no relationship to one another outside of the licensing arrangements). 

Some relationships may require less formalised control mechanisms owing to a ‘unity of purpose’ between the licensor and licensee. For example, in Trident Seafoods Corporation v Trident Foods Pty Ltd [2019] FCAFC 100, an informal licence arrangement was found to be sufficient having regard to:

• the corporate relationship between Trident Foods (the owner of the TRIDENT trade marks and subsidiary of Manassen) and Manassen (the user of the trade marks)
• the common directors of both companies
• the companies’ common purpose of maximising sales and enhancing the value of the TRIDENT brand.

Where the company using the trade mark is a subsidiary of the trade mark owner, the entity using the trade mark is normally considered to be under the control of the trade mark owner and formal control arrangements will likely not be necessary.

Further to this, it is often the case that the trade mark owner is a subsidiary entity. In this situation, and where there is an absence of proper authority from the trade mark owner including correct control mechanisms or evidence of a clear ‘unity of purpose’, use by the parent company will not constitute use by the owner. In Interactive Engineering Pty Ltd v Orchestral Developments Limited 2018 ATMO 22, the trade mark owner was an intellectual property holding company that was a subsidiary of the company actually using the ORION HEALTH mark. There was no actual use of the ORION HEALTH mark by the holding company and no evidence that the holding company exercised control over the use of the trade mark. Accordingly, registration of that trade mark was refused.

What should be included in the terms of a licensing agreement?

As a starting point, trade mark owners should consider the following key control-related questions when preparing a licence agreement:

• what is the relationship between the licensee and licensor, and how close is the relationship? Is there an overlap in the ownership or management of the respective entities sufficient to establish a ‘unity of purpose’? 
• does the licence agreement include express and detailed quality control provisions? Ideally, licence agreements should include provisions which, for instance, require the licensee to seek permission to deal with the trade mark in certain ways and to report regularly regarding the use of the trade mark
• should the licensing arrangements involve royalty payments from the licensee to the licensor?
• are the proposed quality and financial control mechanisms realistic and measurable?
• what is the registered owner’s interest in the trade mark? Do they want to continue use of the trade mark themselves?
• is it be preferable for the trade mark to be sold or assigned (rather than licensed) to the entity using the trade mark?
• how will the market perceive the licensee’s use of the trade mark? What is the risk that consumers will be deceived or confused by improper use of the trade mark, and what is the best way to mitigate this risk?
• how practical is it for the licensee in its dealings to clearly indicate that it is a licensed user of the trade mark?

Key takeaways

A registered trade mark is a valuable asset and trade mark owners should ensure that their trade marks are properly used and managed. This includes regular intellectual property ‘health checks’ to make sure that your trade marks are not vulnerable to removal actions by third parties.

The key is to ensure that there is a clear nexus between the trade mark owner and the authorised user of the trade mark. Generally speaking, written and well-documented evidence of control is best practice.

If your business has licence arrangements in place, you should review the provisions of the licence and seek assistance if you are not sure whether the quality and financial controls in the licence are sufficient to demonstrate control for the purposes of the Trade Marks Act.

If you have any questions about this article or if you require assistance in conducting an intellectual property health check, please get in touch with us below or send us your enquiry here.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Sarah Butler

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