In a previous article “Perpetual contracts: can they be terminated?”, the termination of contracts with no agreed end date or provisions governing termination was discussed. Term and termination are key issues that need to be carefully considered and clearly addressed in IP licences. In particular, trade marks are capable of being registered in perpetuity provided the relevant fees are paid. Therefore, trade mark licences may potentially be perpetual in term.
The term of a licence agreement generally refers to the period of rights granted to the licensee for the exploitation of the licensed IP (such as trade marks) and other related obligations. In the context of trade mark licences, if the licence term is long, it is highly recommended that the parties consider and include mechanisms to address any change in commercial and business circumstances and prospects of further expansion of goods and services to be offered and market segments.
The following cases reinforce the importance of considering the term, termination rights and consequences of trade mark licences.
Fonterra Brands (Australia) Pty Ltd v Bega Cheese Ltd  VSC 75
On 8 May 2001, Fonterra and Bonland Cheese Trading Pty Ltd (Fonterra) entered into a trade mark licence agreement (TMLA) with Bega, in which Bega granted to Fonterra sole and exclusive licences to use various Bega trade marks (defined in the TMLA) on or in relation to particular cheese and butter products (also defined in the TMLA). The initial term of the licence was 25 years, with possible extensions in perpetuity, in successive 25-year periods.
At the time of entering into the TMLA, Bega’s business was focussed on natural and processed cheddar cheese and not other cheese varieties. Therefore, the products licensed were the full range of Bega’s cheese products at the time. From May 2001 to about September 2017, Fonterra were the sole suppliers of the products bearing the Bega trade marks. In mid-2017, Bega informed Fonterra that it was going to use its Bega trade marks in relation to its own products. Subsequently, in late 2017, Bega commenced offering for sale peanut butter, nut spread and some cheese products, as well as advertising further cheese products, condiments and Vegemite, under or by reference to a Bega mark similar to some of those licensed to Fonterra.
Fonterra considered Bega’s actions to be in breach of clauses 3.1 and 3.2 of the TMLA and sought an injunction from the Court to prevent Bega continuing to do so. In addition, Fonterra sought rectification of clause 3.2 of the TMLA to restrict Bega’s ability to use its own trade marks or any similar marks by seeking to include the words ‘on or in relation to any product or otherwise whatsoever’. The relevant clauses are reproduced below:
Subject to clauses 3.5, 3.6, 3.7 and 3.8, Bega hereby grants to the Licensee, during the Term, the sole and exclusive:
(a) licence of the Trade Marks; and
(b) licence of any copyright owned by Bega or a Related Body Corporate of Bega in any Display Material,
in the Territory on or in relation to Products for sale in the Territory.
For the purpose of clause 3.1, ‘sole and exclusive licence’ means that during the Term Bega agrees, subject to clauses 3.5, 3.6, 3.7 and 3.8:
(a) not to grant to any other person (including any Related Body Corporate of Bega), the right to use the Trade Marks (or any trade mark which is similar to any Trade Mark) in the Territory; and
(b) not to use, or permit the use by any other person (including any Related Body Corporate of Bega) of, the Trade Marks (or any trade mark which is similar to any Trade Mark) in the Territory,
without the consent of the Licensee. The Licensee consents to Bega using the Trade Marks specified in Schedule 5 for the purposes set out in the Schedule.
The Court held that although Bega is precluded from using its Trade Marks on the “Products” (under clause 3.2), the definition of which was confined to “cheddar cheese products, string cheese products and butter”, it is free to promote the goodwill in the Bega brand by marketing other cheese varieties and products not listed in the TMLA under or by reference to its Trade Marks. However, as there was a 25-year term under the TMLA, which could be extended, the intention for Bega to develop and market other cheese varieties under or by reference to the Bega brand, was an objective known to the parties at the time of entering into the TMLA.
The Court held that the wording in the above clauses was clear and unambiguous, including the opening wording in clause 3.2, being in relation to the sole and exclusive licence outlined in clause 3.1. The Court held that clauses 3.1 and 3.2 were intended to be read together and that Bega’s restriction on use of its trade marks only relates to the Products as defined in the TMLA and not any products in general.
However, as outlined above, Fonterra was also seeking rectification of clause 3.2 to clarify the restriction on Bega’s rights to use its own trade marks under that clause to be extended to ‘any product or otherwise whatsoever’. Bega submitted that if clause 3.2 is rectified in this way, it is unenforceable as an unreasonable restraint of trade.
Given that there was no unilateral or common mistake, the Court would not rectify clause 3.2. Nonetheless, although not required to be considered by the Court, it held that clause 3.2 imposed a restraint of trade on Bega on the basis that it restricts Bega’s rights to use its own trade marks. A restraint of trade covenant is prima facie unlawful and void at common law, as contrary to public policy, unless it is shown to be reasonable. The Court concluded that based on the circumstances between the parties, the restriction imposed by clause 3.2 would have been valid and reasonable.
Bega sought to terminate the TMLA claiming that Fonterra has breached express and implied obligations under the TMLA and related agreements. These obligations relate to the quality of the Products, the marketing and promotion of the Products and certain implied terms in relation to “no hindrance of purpose” in relation to maintaining the goodwill of the trade marks and “no undue preference” given to Fonterra brands over Bega’s brands. These claims were not successful and the TMLA was not validly terminated, despite the various termination notices issued by Bega. This means that Fonterra has an ongoing licence to use the Trade Marks on natural and processed cheddar cheese, string cheese and butter, as canvassed under the definition of Products under the TMLA, whereas Bega would be entitled to use the Trade Marks on products outside of the scope of the licence, including on peanut butter.
Chevron Global Energy Inc v Ampol Australia Petroleum Pty Ltd  FCA 617
Chevron Global Energy Inc has licensed its CALTEX and related trade marks for use in relation to service stations in Australia since the early 1940s, via Chevron Intellectual Property LLC (Chevron), the owner of these trade marks. In 1995, the Chevron group merged its business in Australia with Ampol, with Ampol becoming the principal operating company in Australia. Chevron indirectly owned 50% of Ampol. As a result of this merger, Ampol rebranded the majority of its service stations to Chevron’s CALTEX brand. The remaining AMPOL-branded service stations were independently owned stations in the country.
In 2015, Chevron divested its 50% shareholding of Ampol. As a consequence, Chevron and Ampol entered into a trade mark licence agreement, which allowed Ampol to use the CALTEX and other trade marks owned by Chevron.
On 20 December 2019, Chevron gave notice to Ampol that it was terminating the agreement without cause, and which would be effective from 30 June 2020. Under the agreement as it then stood, this allowed Ampol to exclusively use the Chevron trade marks until 31 December 2021, and then non-exclusively use the Chevron trade marks between 1 January 2022 and 31 December 2022. At the time, Ampol had a network of about 1,900 CALTEX-branded service stations, of which it owned about 700.
Ampol had a trade-out period where it was allowed to continue using the CALTEX and associated trade marks until the end of 2022. In particular, clause 6.3 of the licence agreement provides that:
6.3 [Ampol] shall, or shall cause it sublicenses [sic] to, complete removing (or cause to remove) signage and/or any other element displaying the Trade Marks from the remaining branded Retail Outlet(s) during the Work-out Period so that removal of all signage and/or other elements displaying the Trade Marks is completed on or before the last day of the Work-out Period, and will keep [Chevron] reasonably informed of its plans and actions.
This case took place during the relevant work-out period on the basis that Chevron took issue with Ampol’s:
- use of a particular shade of red on the service station canopy fascia;
- use of CALTEX and AMPOL branding in conjunction with one another; and
- promotion and acceptance of the CALTEX Star Card by service stations that had already been rebranded to AMPOL.
With respect to the use of the particular shade of red, a number of different witnesses gave evidence on this issue. However, this issue was determined by reference to clauses 14.1 and 6.3 of the licence agreement. Both of these clauses required Ampol to remove any signage and/or elements bearing the licensed trade marks. The Court held that these clauses did not extend beyond the licensed trade marks to include the red canopy fascia. Therefore, Ampol was not in breach of these or any other clauses in the licence agreement as a result of its continued use of this colour on the service station canopy fascia.
In relation to the second and the third issues, Ampol had advertised through different means regarding the transition from the STARCARD (a Chevron trade mark) to the AMPOLCARD (an AMPOL trade mark). The Court held that this focuses on the transition and does not convey the representation that the respective parties’ marks have common ownership or any association, connection or affiliation between the two brands.
The Court also considered whether AMPOL’s use of Chevron’s CALTEX and STARCARD marks in conjunction with AMPOL’s AMPOL and AMPOLCARD marks constituted a breach of clauses 4.4, 10(b) and 14.4 of the licence agreement.
The Court held that use of the respective parties’ marks in conjunction with one another was not damaging to the value or distinctiveness of Chevron’s marks or an impairment of its rights (clauses 4.4 and 10(b) of the licence agreement). However, AMPOL’s advertising at AMPOL-branded service stations, included “StarCard accepted here” and “StarCard will be accepted at Ampol branded sites”. This is not a use of the respective parties’ marks in conjunction with one another “for the sole purpose of educating customers” under clause 14.4 of the licence agreement. Therefore, that use was not authorised under the licence agreement, and as the trade mark was used in relation to services for which it was registered, AMPOL was held to have infringed on Chevron’s trade mark rights.
Below are some key points from this article you should consider when entering into trade mark licences:
- trade mark licences may potentially be perpetual or be long term, given that registrations of the licensed marks may be renewed perpetually;
- consider the scope of the trade mark licence and what each party is allowed to or constrained from doing with respect to the licensed marks;
- do not only just consider the product and service offerings at the time of entering into the trade mark licence, always consider future potential offerings and plans for the business and include mechanisms to address any change;
- set out clearly when a party may terminate the licence; and
- consider and set out clearly what each party is obligated to do when the licence is terminated.