Corporate groups and the authorised use of trade marks - Trademark

It has become increasingly common for corporate groups to hold their trade marks and other intellectual property within a dedicated, non-trading entity.

While this may assist with asset protection, it can lead to concerns about whether use of the trade mark by another member of the group is "authorised". The recent Full Federal Court decision of Trident Seafoods Corp v Trident Foods Pty Ltd examined this issue in the context of a trade mark that was used by the parent but owned by a subsidiary.

Background

Trident Foods is an established brand in Australia. At first instance, her Honour Gleeson J noted that the brand was so popular that "it is probably in most households at some point during the year". Perhaps the brand's most well-known product is its sweet chilli sauce, however over the years its trade mark has been applied to products including tinned fish, sauces and various flavourings across multiple supermarket aisles.

Prior to the proceedings, Trident Foods held two registered word marks consisting only of "TRIDENT", in respect of classes 29 and 30, with the first having been registered in 1973 and the second in 1983 (the TF Marks).

In 2001, Trident Foods became a wholly owned subsidiary of Manassen Foods Australia Pty Ltd (Manassen). From that time, while Trident Foods retained ownership of the TF Marks, Manassen was their sole user. At all relevant times, the directors of the two entities were the same.

In 2007, US giant Trident Seafoods entered the Australian market using the trade mark "BOUNTIFUL". According to its evidence, Trident Seafoods is the "largest vertically integrated seafood distributor in North America". However, Australia and New Zealand are the only jurisdictions in which it uses the BOUNTIFUL mark; in all others it is known by "TRIDENT SEAFOODS". Trident Seafoods' 2014 application to register its logo, primarily in relation to tinned fish, was blocked by the TF Marks.

First instance decisions

Registrar's delegate

Shortly after filing its logo application, Trident Seafoods commenced action to remove the TF Marks for non-use. The Registrar's delegate determined that:

TF Foods did not demonstrate that it had used the TF Marks, or that Manassen was an authorised user of them, but
the discretion under s 100(3) of the Trade Marks Act 1995 (Cth) ('the Act') should be exercised to keep the marks on the register. This is because the TF Marks have acquired a substantial reputation and their removal, which would allow the Trident Seafoods mark to proceed to registration, that would lead to confusion for potential purchasers of TRIDENT branded foods.

Federal Court

Tridents Seafoods case

Trident Seafoods appealed. Under s 7 of the Act, a use will only be authorised where it is under the control of the trade mark owner. Trident Seafoods argued that Trident Foods had not exercised financial, quality or "actual" control (having regard to Lodestar Anstalt v Campari America LLC (Lodestar)) over Manassen's use of the TF Marks. To the contrary, the corporate relationship between them would suggest that Manassen is in fact in control of Trident Foods.

In relation to s 100(3), Trident Seafoods' primary arguments were that there was no evidence of any actual confusion and that any use of the TF Marks following the relevant period was "colourable" as it was purely a reaction to the non-use proceedings.

Trident Foods case

Trident Goods argued that it had in fact exercised the requisite control over Manassen's use of the TF Marks. This arose through:

The common directors, registered address and principal place of business
A quality control manual used across all the members of the group
The product labels identifying Trident Foods as the owner of the marks
A licence agreement executed after the commencement of the non-use proceedings, which reduced to writing a previous unwritten agreement.

It further argued that if s 100(3) became relevant, the TF Marks had been used extensively following the non-use period and that, combined with the substantial reputation in the TF Marks, will lead to confusion if they are removed from the register.

Her Honour agreed with Trident Seafoods' submission that the corporate relationship "does not place Trident Foods in a relationship of control over Manassen; rather, the converse is the case". Her Honour was not persuaded that the commonality of directors alone altered that relationship, or that the quality control manual or product labelling amount to "actual control".

Accordingly, it was necessary for her Honour to decide whether to "does not place Trident Foods in a relationship of control over Manassen; rather, the converse is the case exercise her discretion to keep the marks on the register.

Her Honour noted that:

The non-use mechanisms in the Act are designed to protect the integrity of the register and the interests of consumers.
The use of the marks after the non-use application has been filed is relevant, but only to the extent that such use "is in good faith and not colourable". To determine whether this threshold is met, the court can consider the quantum of sales under the mark, whether the owner has a residual reputation in the mark and whether use of the mark is "contrived" for the purpose of defeating a trade rival's plans.
Her Honour found that Trident Foods was motivated to reintroduce tinned fish sales under the TF Marks by the non-use applications and that the quantity of tinned fish sold was "miniscule" relative to other goods.

However, there was no evidence that the sales were unprofitable or sold on an uncommercial basis to be colourable. Further, the TF Marks had been used for a long period on a broad range of goods, increasing the likelihood of confusion for consumers who are likely to associate the name with a single supplier.

For the purpose of s 100(3), it does not matter that such use was not by the registered owner. On these grounds, her Honour refused to remove the TF Marks from the register.

Appeal

On appeal, the Full Court (comprised of Reeves, Jagot and Rangiah JJ) saw no reason to interfere with Gleeson J's exercise of discretion under s 100(3). In this regard, the court agreed that the sales after the relevant period, although initiated in response to Trident Seafoods' actions, were not contrived or uncommercial.

The court also found that her Honour's reasoning that the risk of confusion was heightened because consumers associated multiple Trident branded products with a single supplier was "unassailable".

However, the court disagreed that s 100(3) was relevant at all, on the basis that Manassen's use of the TF Marks was in fact authorised by Trident Foods. The court said:

"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."

The court differentiated the circumstances from Lodestar, in which the parties had no relationship other than purported licensor and licensee.

The court explained that the Trident Foods and Manassen must have a unity of purpose due to their relationship, and that this obviated the need for any specific example of Trident Foods exercising actual control over Manassen's use of the TF Marks.

Further, it would be "commercially unrealistic" not to infer that Trident Foods had the requisite control given that the directors "wished to ensure the maintenance and enhancement of the value of the brand". Accordingly, the Full Court refused the appeal albeit for different reasons than those given below.

Analysis

In one sense the Full Court's decision can be seen as a breakthrough from any lingering worry after Lodestar; at least in respect of closely connected entities. However, the judgment does raise some interesting questions:

The court implicitly acknowledged that actual control (in the Lodestar sense) is a requirement for authorised use under s 7 of the Act. However, this decision effectively creates a presumption that actual control exists, without the need for any evidence, where two parties have a relationship that can be described as unity of purpose.
Expect to see unity of purpose as a litmus test in future judgments on authorised use. The term "unity of purpose" has appeared in other contexts; for example, in stamp duty assessments which involve multiple, related transactions (see Wakefield v Commissioner of State Revenue [2019] QSC 85).
The court found unity of purpose in this case because the common directors "wished to ensure the maintenance and enhancement of the value of the brand". Could the same be said if the entities were related but not parent/subsidiary, or did not have entirely common directors?
What about two unrelated companies who enter into a licence agreement which acknowledges that both parties must maintain and enhance the value of the brand (and act accordingly)?

The latter hypothetical is much closer to the situation in Lodestar which the Full Court distinguished, however it may be that particular arm's-length arrangements (especially those that involve exclusivity) can be considered to have the requisite unity of purpose.
Gleeson J's reasoning was influenced by the decisions of Ritz Hotel Ltd v Charles of the Ritz Ltd ('Ritz Hotel') (which involved a subsidiary trade mark owner and parent "user") and Health World Ltd v Shin-Sun Australia Pty Ltd (which involved the owner and user having different shareholders, but common directors). In both cases, the court found that the use was not "authorised", but in Ritz Hotel the court exercised its discretion to keep the mark on the register due to the potential for confusion.

The Full Court did not expressly state that these decisions were wrong, but caution should be exercised when looking at cases regarding authorised use pre-Lodestar.

Conclusion

Decision-makers at all three levels found that there was simply too much risk of confusion should the TF Marks be removed from the register. Those wishing to enter the Australian market must carefully consider whether their mark is likely to cause confusion because of any "residual" reputation that exists in any similar mark, whether it has been used or not.

On the other end of the scale, corporate groups should not think that the Full Court's decision will protect them; not only may unity of purpose come to have a narrow meaning, but Trident Foods no doubt could have avoided significant expense if it had a written licence agreement with Manassen and could point to instances of actual control, or had assigned the TF Marks to Manassen as part of the 2001 acquisition.

Key takeaways

In the absence of express authorisation, if a trade mark is owned by one member of a corporate group but used only by another, whether that use is authorised will depend on their relationship - whether they have common directors and whether the two entities have "unity of purpose".
However, corporate groups with undocumented or inactive licence arrangements should not relax; unity of purpose may not apply to them, especially where the directors are not common. Avoid any issue by having formal and written licensing arrangement in place between group companies, with registration on the Personal Properties Securities Register.
The court has a broad discretion to keep marks on the register, even if the requirements for a non-use application have been established.
Use of a mark after the relevant period can be a factor, even if it is purely a reaction to the non-use application, provided that it is not uncommercial.
The overriding concern of the court when exercising its discretion is the integrity of the register, which is underpinned by the court's commitment to consumer protection. This makes it especially important for new market entrants to consider whether there is any residual reputation in a mark similar to theirs, even if it is not currently in use.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Australia: Corporate groups and the authorised use of trade marks