Licensing Trade Marks as a Group Company to your Subsidiaries: Key Legal Considerations

Introduction

It is quite common for a group company (also known as a holding company) to hold the intellectual property for the entire group. If this is the case, the group company will license valuable intellectual property rights to its subsidiaries rather than transfer ownership. This may be for additional protection or because the intellectual property is used across several companies.

However, even where the trade mark is used within the same group, trade mark licensing must be carefully constructed to avoid risks including issues related to trade mark validity, competition law and tax compliance.

This article will focus on how trade mark licensing must be constructed properly to ensure trade mark validity and provide guidance on how to ensure one of your most important assets remains protected.

Trade Mark Licensing

When applying for a trade mark in Australia, one of the conditions of obtaining registration is that you continually use the mark. As a result, other parties may make an application to remove your trade mark from the trade mark register as a result of non-use.

A potential problem for holding companies is that they may hold and own the trade mark and license its use to its subsidiaries but they do not actually use the trade mark themselves. This can be detrimental as it means that you may have spent funds on obtaining a trade mark that is later deregistered, losing key brand protection and significantly decreasing the value of your brand and business.

This can be quite common in the following scenarios:

1. A foreign entity licenses its Australian trade mark to its Australian subsidiary;
2. The trade mark is owned by an individual or sole trader who after they register the mark, uses it through a company;
3. A company licenses the trade mark to a licensee, who then sub-licenses the trade mark to a third party; and/or
4. Where there is not a properly drafted licence agreement.

Trade Mark Validity

In order to ensure the validity of your trade mark where it is held by a holding company and licensed to a subsidiary operating company, a proper licence agreement must be in place.

For a trade mark to remain valid, the trade mark owner (in this case the holding company) must authorise the use of the trade mark by its subsidiary, which is usually done through a properly drafted licence agreement.

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

If this occurs, the subsidiary operating company is deemed to be using the trade mark on behalf of its owner, protecting it from removal from the registry due to non-use.

Control of a Trade Mark

Control of a trade mark is defined under section 8 of the Trade Marks Act 1995 (Cth). Authorised use of a trade mark by an owner is deemed to be but not limited to circumstances where they exercise financial control or quality control over the mark. Essentially, there must be control as a matter of substance according to Lodestar Anstalt v Campari America LLC [2016] FCAFC 92, [97]. This means that merely having a licence agreement in place is not enough to constitute control.

Examples of actual control include:

1. Requesting samples of the goods or services associated with the trade mark;
2. Monitoring the quality of goods and services;
3. Contacting the licensee to discuss trade mark use; and/or
4. Taking steps to ensure compliance with the licence agreement.

Conclusion

If your business operates using a group company structure with subsidiaries acting as operating entities, you should review the ownership of your trade marks and ascertain whether there are proper licence agreements in place. If you do not do so, you may be exposing yourself to potential actions against your trade mark that may result in its removal from the trade mark register for non-use.

Losing your trade mark registration can severely impact your brand value and business operations.

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