Use of trademarks in a corporate group: risks of non-use


Wow, a higher court makes a commercially sensible decision, even in the face of technical legal arguments (and overturns the lower court’s decision)!

There is the principle in trademark law of “use it or lose it”.  If a mark is simply languishing on the trademark register, an alert opportunist may apply for the same mark and seek to have the earlier mark de-registered on the grounds of non-use.  If the mark has simply not been used for 3 years, then the opportunist is likely to be successful.

That is a sensible policy position to adopt.  If a mark is not being used, let another trader have a crack.  This position holds even if historically the first trader built up over a long period of time significant goodwill in the mark if it hasn’t been used for at least 3 years.

The person who is registered as the owner of the mark must be the person who is using the mark to avoid a non-use application. Once again, a simple and uncontroversial proposition.

But what of corporate groups?  Some groups are deliberately structured so that there are separate operating entities from the entity that holds the trademarks.  Operating entities, being the entities that sell products or offer services, carry the risk of commercial failure.  If that unfortunately occurs, this may not cause the group as a whole to fail and the valuable trademarks are insulated from this risk.  That is sound risk planning.

But, within that sound planning, does use by the operating entity constitute use by the separate trademark owner?  Or can an opportunist seek to de-register the trademarks of the separate trademark owner because that entity has not used it?

This is precisely what Trident Seafoods Corporation recently tried to do.  Trident Foods Pty Ltd owned the trademark “Trident” in class 29 for seafood and had done so since the 1970s.  Its parent company Manassen Foods Australia Pty Ltd was the operating entity and undertook all sales of Trident seafood products.

A different company, Trident Seafoods, applied to register “Trident” in class 29 for seafood and to clear the path sought to de-register Trident Food’s marks on the basis that Trident Foods had not used it (although its parent company Manassen had).

Notably there was not a written licence agreement between Trident Foods and Manassen, at least not until Trident Seafoods came on the scene (at which time a written licence was put in place between Trident Foods and Manassen).  That lack of a written licence was a mistake and was partly the reason for the problems.  Trident Foods and Manassen, as is common in corporate groups, had the same directors.

Under the Trademarks Act (s7(3)), a use by a trader that is authorised by the trademark owner is taken to be use by the trademark owner.  A use is authorised by the trademark owner if the use occurs under the “control” of the trademark owner (s8(1)), which is certainly the case if there is quality control (s8(3)) or financial control (s8(4)) by the trademark owner.  This concept of authorised users recognises the widespread practice of licensing trademarks.  So, for example, in a franchise situation, the franchisor and trademark owner will typically license use of its trademarks to the franchisee and will tightly control the quality of products offered. The use by the franchisee is recognised as use by the franchisor/trademark owner.

In a corporate group, often the structure is set up and thereafter there is no active control by the trademark owner of the operating entity.  That is, a set and forget strategy.  But usually there are common directors, all of whom are rowing in the same direction.

Initially, a single judge of the Federal Court held that Manassen’s use of the Trident mark was not use by the trademark owner, Trident Foods.  The lack of a licence agreement didn’t help.  Being part of the same corporate group and having common directors wasn’t enough.  There needed to be “actual control” or “control as a matter of substance”.

Trident Foods appealed.  It really wanted to keep its marks and it wanted to block its competitor from registering the trident mark.

Fortunately, the Full Federal Court ([2019] FCAFC 100) in June 2019 took a much more commercial, pragmatic view to the control test.  The judges made much of the two entities being in the same corporate group with the same directors (at [45]):

“…it significant that at all relevant times the two companies had the same directors. It must be inferred from the evidence that the two companies operated with a unity of purpose. Trident Foods held the trade marks. Manassen sold the products under the TRIDENT brand and thereby used the trade marks …. As directors of Trident Foods, the directors had obligations to ensure the maintenance of the value in the marks. To that end Trident Foods necessarily controlled Manassen’s use of the marks by reason of the simple fact that it owned the marks and its directors, who were also Manassen’s directors, must have had one common purpose, being to maximise sales and to enhance the value of the brand…. it is commercially unrealistic in the circumstances of the present case not to infer that the owner of the marks controlled the use of the marks because the common directors necessarily wished to ensure the maintenance and enhancement of the value of the brand. The fact that this must also have been Manassen’s purpose simply confirms the unity of purpose between the corporate entities. But unity of purpose is not inconsistent with the existence of control in a case such as the present.”

Actual, factual control was not necessary (at [46]):

“it is not surprising given the corporate relationship, the commonality of directors and the shared processes between the owner and the user of the marks that there is no particular illustration of actual control by Trident Foods of Manassen in respect of the marks. The natural and ordinary inference given the relationship between the companies would be of unity of purpose, rendering redundant any particular illustration of the actual control Trident Foods must have had as the owner of the marks. Unity of purpose is indicative of the existence of actual control vested in Trident Foods as the entity owning the marks over Manassen as the entity using the marks.”

Given that the Full Federal Court held that there was control by the trademark owner it also held that therefore the use by Manassen was in effect use by Trident Foods and so its marks were not to be de-registered upon the application of its competitor.  Common, commercial sense prevailed!

Key takeaways:

·       If a corporate group is established with an operating entity different from the entity holding the trademarks, then ensure that there is a written licence agreement between the two which makes it clear that the TM owner authorises and controls the use of the marks by the operating entity;

·       Preferably do not have the TM entity as a subsidiary of the operating entity; it is better if they are both a subsidiary of an inactive holding company (although there remains the risk of the potential liability of holding companies for the insolvent trading of its subsidiaries Corporations Act s588); and

·       Ensure that there are common directors between the two entities; or

·       If there are not common directors (or if the TM owner sits outside the corporate group), then ensure there is practical, actual control by the TM owner of the use of the TMs by the operating entity.