Trade mark intra-group licensing – control your trade marks

15 May 2019

An entity that owns a trade mark but does not use it (for example, when the registered owner licenses the trade mark to a related entity) must control the use of that trade mark. Otherwise, a competitor may successfully apply to have the trade mark’s registration cancelled.

Who’s at risk and what are the consequences

Many businesses are structured so that the registered trade mark owner doesn’t use the trade mark in the market place, but did you know you could lose your trade mark registration if you don’t use it or control its use?

Your competitors could seek the removal of your trade mark citing non-use, as well as being more easily able to use similar trade marks. That means all that money you spend on advertising and delivering high-quality goods or services could end up assisting your competitor. The loss of a trademark can significantly decrease the value of your brand. Think less protection and less market distinguishability.

It’s common!

Why the owners of trade marks don’t always use them

How common?There are several reasons why the owner of a trade mark may not actually use it.

For example, many corporate structures include an ‘IP holding company’, which owns the business’ intellectual property (including trade marks) and then licenses that intellectual property to an ‘operating entity’. The operating entity trades using the trade mark and accepts commercial risk and liability to creditors. The IP holding company does not. This protects the valuable intellectual property assets.

But the IP holding company itself does not actually use the trade marks, which means the registered trade marks may be removed from the Register for non-use.

Similar issues may also arise where the trade mark owner:

(a) is a foreign entity who licenses its trade mark to an Australian subsidiary operating company partly owned by the foreign entity and other entities;

(b) is a sole trader who, sometime after it registers its trade mark, trades as a company with shareholders;

(c) licenses the trade mark to a licensee, who then sub-licenses the trade marks to a third-party operating company;

(d) does not enter into a properly drafted licence agreement.

These structures happen. A lot.

So how do you protect your trade mark?

Trade mark owners must ‘authorise use’ of the trade mark by the operating entity. When that happens, use by the operating entity is taken to be use by the trade mark owner and will protect against an application to remove the trade mark for non-use.[1]

Authorised use is when the trade mark is used under the control of the trade mark owner.

What does it mean to ‘control’ a trade mark?

Without limiting what under the control of means, the Trade Marks Act 1995 (Cth) (TMA) provides that control can be exercised as:

(a) financial control; or

(b) quality control.

There must be control as a matter of substance.[2] Merely granting a licence, even if the licence permits actual control,[3] doesn’t mean there is actual control.

If the operating entityis a wholly owned subsidiary of the trade mark owner,then there is probably enough financial control.[4] However, if the operating entity is not a wholly owned subsidiary of the trade mark owner, the trade mark owner must actually control use of the trade mark by the operating entity. There must be something more than a mere licence agreement between them.

Actual control can be demonstrated if the terms of the licence:

(a) permit actual control to be exercised, and that control is exercised. For example, if the trade mark owner:

(i) solicits samples of the goods or services;

(ii) requests information about the goods or services,

(iii) monitors the quality of the goods or services;

(iv) contacts the licensee to discuss the goods or services; or

(v) takes other steps to confirm the licence terms are being complied with,

for goods and services marketed by the licensee using the trade mark; or

(b) set out in detail a quality standard to be achieved (for example, a detailed document regarding the specifications and quality of goods or services that must be associated with the trade mark).

Actual control requires active and ongoing work. If you don’t do that work, you can lose your trade mark registration.

How does this affect your business?

If your business operates using a corporate structure, you should review your trade mark ownership and licensing arrangements to ensure they do not expose your trade marks to an application for removal due to non-use. Otherwise, you may lose your trade mark registration and the ability to stop competitors using trade marks similar to yours. If that happens, the value of your trade marks, and brand, could plummet.

[1] s 7, TMA.

[2] Lodestar Anstalt v Campari America LLC [2016] FCAFC 92, [97].

[3] Ibid, [22].

[4] Ibid, [95]; Pioneer Kabushiki Kaisha v Registrar of Trade Marks [1977] HCA 56, [31].