Trade mark holding companies – are they worth it?

Lodestar Anstalt v Campari America LLC – How are your IP assets structured?

The Full Court of the Federal Court’s recent decision in Lodestar Anstalt v Campari America LLC [2015] FCA 509 (Lodestar) raises some serious questions as to the validity of a very common form of asset structuring with respect to trade marks.

The case concerns the ‘non-use’ provisions found in Part 9 of the Trade Marks Act 1955 (Cth) (the Act).

Under this part of the Act, a person may apply to have a trade mark removed from the Register. One of the bases on which such an application can succeed is where the trade mark has not been used for 3 years prior to the filing of the non-use application. The question then becomes what constitutes ‘use’ in the relevant sense.

The Act defines ‘authorised use’ as the use of a trade mark by an authorised user of the trade mark to the extent only that the user uses the trade mark under the control of the owner of the trade mark. It also defines ‘authorised user’ as being a person who uses the trade mark in relation to goods or services under the control of the owner of the trade mark.

The position Australian courts have previously taken with respect to this provision has primarily been to treat licencing of a trademark to constitute use. The origins of such approach derive from the wording of the Act as originally drafted. A leading statement with respect to that regime came from the reasons of Aickin J in the High Court decision of Pioneer Kabushiki Kaisha v Registrar of Trade Marks (1977) 137 CLR 670 where he stated that:

 “[T]he essential requirement for the maintenance of the validity of a trade mark is that it must indicate a connexion in the course of trade with the registered proprietor, even though the connexion may be slight, such as selection or quality control or control of the user in which the parent company controls a subsidiary.”

Since that decision, the concept of a connection in the course of trade has been removed from the Act and the authorised use provisions introduced the concept of ‘control’ as an express element in the definition of authorised use.

The Federal Court decision in Yau’s Entertainment Pty Ltd v Asia Television Ltd [2002] FCAFC 78 (Yau) has been taken as authority for the proposition that contractual control, such as through a licence agreement, was enough to amount to ‘use’ as required under the Act. The judge at first instance in Lodestar relied on Yao as authority for the proposition that for the purpose of the provision “a mere theoretical possibility of contractual control was sufficient to constitute authorised use”.

On appeal, the Full Court of the Federal Court held that such statement was not made in express terms and that with respect to the particular facts in the Yau decision, there was clearly a degree a high degree of control over the goods of the trademark to which that decision related. The Full Court therefore took that view that contractual control does not, by itself, constitute control in the required sense.

The Full Court ultimately held that control in required sense means ‘actual control’ in relation to the use of the trade mark and it means actual control in relation to the trade mark from time to time. The Court noted that control involves questions of fact and degree and there must be control as a matter of substance.

So what does this mean?

The corporate structures of many well-known businesses often provide for trade marks (and other assets) being held in a holding company within a group of companies which then licences the use of the asset to any operating company within the group. Principles of asset protection would see that such structures underpin many businesses.

The Lodestar decision raises some serious questions in relation to such structures, such as:

  • Does a holding entity which does nothing more than licence a trademark to an operating company have a sufficient level of control to defend a non-use application?
  • What level of control does a franchisor need to have over its trade marks in order to defend against such an application?
  • Is it safer for your trade marks to be held by the operating company rather than simply a holding company?

Whilst the Court would ultimately have a view as to what amounts to the necessary level of control on any particular set of facts and circumstances, it may be that you should avoid having trade marks registered in the name of an entity unless that entity itself carries on business using the trade mark or trade marks in question.