The danger of losing control: authorised use of a trade mark and the exercise of "control" by a trade mark owner

By Sarah Martine and Sean McGuire
17 Aug 2020
Manufacturers should review their trade mark protection and distribution arrangements following a Full Federal Court decision casting doubt on whether suppliers of "raw" materials exercise sufficient control over the finished goods sold under the manufacturer's trade mark, which is crucial for maintaining the validity of a trade mark.

The owner of a registered trade mark may authorise another person to use its trade mark. Authorised use is deemed to be use of a trade mark by the trade mark owner. However, use by a third party must be "under the control of" the trade mark owner; "control" includes quality and/or financial control.

This is not an academic point. It's been clear since the Full Federal Court decision in Lodestar Anstalt v Campari America LLC (2016) 244 FCR 557 that a trade mark owner must be able to establish "control as a matter of substance"; without it, the trade mark may be vulnerable to cancellation for non-use. It could even mean the owner cannot demonstrate "use" of its trade mark in the face of another person's earlier trade mark, overcome a distinctiveness objection, or establish first use (and ownership) of its trade mark for particular finished goods.

The importance of being able to establish "authorised use" of a trade mark, especially when manufacturers produce "raw" materials as opposed to finished goods, was underscored by the recent decision of Ceramiche Caesar S.p.A v Caesarstone Ltd [2020] FCAFC 124.

I come not to bury Caesarstone, but to trade mark it

Ceramiche Caesar S.p.A obtained an Australian trade mark registration in 2004 for "CAESAR" (stylised) in class 19 for "ceramic tiles for indoor and outdoor use". In 2005, Caesarstone Limited applied to register the trade mark "CAESARSTONE" in class 19 for "tiles, panels for floors, floor coverings, wall cladding, flooring, and ceilings; non-metallic covers for use with floors and parts thereof; profiles and floor skirting boards." The Trade Marks Examiner objected to Caesarstone's application on the basis that the claim for "tiles" would present a very high likelihood of consumer confusion with Ceramiche Caesar's prior registration. Caesarstone restricted the specification to include the words "none of the foregoing being in the nature of tiles". The examiner subsequently accepted the application. Ceramiche Caesar then opposed the application and Caesarstone put on evidence of "honest concurrent use" which was accepted by the examiner and then the primary judge. 

The Full Federal Court found that the primary judge had erred in finding that there had been "honest concurrent use" by Caesarstone because its use related to goods that were expressly excluded from the relevant trade mark applications. Caesarstone’s evidence of honest concurrent use was essentially for "tiles". As the amended specification expressly excluded "tiles", the Full Court held that Caesarstone's application could not proceed to registration in respect of floor and wall "tiles".

Distinction between control over "raw" materials and finished goods

An interesting aspect of this case relates to the Full Court's discussion about the honest concurrent use not being "authorised use" because it was not under Caesarstone’s "control". During the relevant period, Caesarstone had sold raw materials (being large stone slabs) to arm's-length Australian distributors. These distributors then used stonemasons to turn the slabs into finished products such as benchtops, countertops, vanities and splashbacks under the CAESARSTONE trade mark.

The primary judge found that the Australian distributors' prior use of the CAESARSTONE trade mark was taken to be use of the trade mark by Caesarstone as it was "authorised use" that occurred under Caesarstone’s "control" (within the meaning of sections 7 and 8 of the Trade Marks Act 1995 (Cth)). There were two bases for this finding – first, Caesarstone had exercised "quality control" and secondly, Caesarstone had exercised control "on a wider basis". As the Full Court found that that primary judge had erred in finding that there had been honest concurrent use, this question of control was not directly relevant to the appeal, however the Court nevertheless made some important comments.

Did Caesarstone exercise quality control?

The primary judge concluded that Caesarstone had exercised "quality control" as it:

  • gave instructions to the Australian distributors in relation to slab transport and storage;
  • provided the Australian distributors with technical and marketing support services; and
  • ensured that the Australian distributors provided fabrication and installation manuals to the stonemasons (and contributed to the content of these manuals).

The Full Court found that the instructions provided to the distributors did not ensure that the finished product would be of a certain quality – it was merely to ensure that the slabs would not get damaged during transportation or storage. The technical support manuals were provided to stonemasons by the distributors and these manuals only used content provided by Caesarstone "as a base". The Court stated that the "provision of technical information is not, at least of itself, the exercise of quality control". The evidence in the matter showed that it was the craftsmanship of the relevant stonemasons who determined the quality of the finished product, not Caesarstone. This involved a significant amount of skill and work.

The Full Court held that the finished products were not the goods that were claimed in the relevant trade mark application, and were also not the goods for which Caesarstone exercised quality control over. The Full Court said that there was no evidence that Caesarstone inspected the work of the stonemasons, or that it conducted any quality control over the final products.

Control "on a wider basis"

In respect to the finding of control "on a wider basis", the primary judge concluded that Caesarstone had exercised such control based on:

  • the visible presence of the CAESARSTONE trade mark on each slab;
  • the circumstances concerning quality control (as above); and
  • evidence given by the General Manager, Marketing and Strategic Development of Caesarstone's Australian subsidiary.

The Full Court noted that the slabs to which Caesarstone's trade mark was applied were not the designated goods. The Full Court said that the trade mark on the slab (the "raw" material) does not indicate a connection in the course of trade between the designated goods and the trade mark owner. The Full Court held that the primary judge erred in finding that Caesarstone had exercised control "on a wider basis" over the designated goods. In contrast to the arm's-length distributors, Caesarstone now distributes through its Australian subsidiary. This should remove the issue of control on the basis that "financial control" could be satisfied in line with comments of the Full Federal Court on corporate groups in Trident Seafoods Corporation v Trident Foods Pty Ltd [2019] FCAFC 100.

Key takeaways for manufacturers

Trade mark owners that manufacture "raw" materials such as building materials, chemicals or food products will generally want to protect the finished products rather than just the raw materials. This makes sense commercially, as manufacturers want to protect the goodwill and reputation in their brands that consumers actually see and buy.

However, for manufacturers that do not exercise control "as a matter of substance" over the finished products that are customised and distributed by arm's-length distributors, there is a real question as to whether or not this would be "authorised use" under Australian law. As noted, the Full Federal Court's comments on the issue were obiter and therefore do not constitute binding authority. However, the comments continue a string of cases over recent years which have taken a strict view on the issue of control and authorised use of a trade mark.

There are two things that manufacturers of raw materials can do to bolster their position.

First, manufacturers should ensure that the specification captures not only the commercially relevant end-user finished products, but also the raw materials. If a third party later challenges the registration for non-use, it will be easier to show clear and unambiguous control over the use of the trade mark in respect of the raw materials. It would then be open to the trade mark owner to rely on discretionary arguments to maintain the validity of the registration for the finished products if the reasoning in this decision is followed in later cases.

Second, manufacturers should review their involvement in the entire chain of supply to ensure control "as a matter of substance" over the finished products sold under their brands that are customised and distributed by arm's-length distributors. This includes exercising actual quality control over the goods dealt with or provided in the course of trade by distributors in relation to which the trade mark is used.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.