Trade mark owners beware

In brief

The Federal Court has made it clear that when trade mark applications are filed in the incorrect name, the defect is fatal. Accordingly, it is vital that trade mark owners ensure that valid rights have been secured. Managing Associate Mark Williams reports. 

Background

Correctly identifying the owner of a trade mark is critical in securing valid and enforceable rights. For some years, there has been debate in Australia regarding the ability to correct, and timing for correcting, a trade mark applicant.

The debate ended with the decision in Pham Global Pty Ltd v Insight Clinical Imaging Pty Ltd [2017] FCAFC 83, which makes it clear that when trade mark applications are filed in the incorrect name (even if the applicant is a related party or part of the same corporate structure), the defect is fatal, and cannot be remedied by assignment or amendment.

The confusion

Since the introduction of the Trade Marks Act 1995 (Cth) (the TMA), a number of court decisions have led to great confusion and uncertainty in relation to trade mark ownership, and, in particular, the time at which ownership is tested.¹  

The cases should be considered in the context of section 27(1) of the TMA, which states:

27(1) A person may apply for the registration of a trade mark in respect of goods and/or services if:

Mobileworld Communications Pty Ltd v Q & Q Global Enterprise

In August 1999, Mobileworld (selling mobile phones under the name 'Crazy John's') filed an application for a composite trade mark. In November 1999, it was realised that Crazy John Pty Ltd (a related company) should have made the application and Crazy John Pty Ltd notified the Trade Marks Office. In December 1999, the applicant of the trade mark application was amended by IP Australia, under s65, to Crazy John Pty Ltd.

Mobileworld sought injunctions and damages, alleging trade mark infringement against Q & Q, which also traded in mobile phones, under the name 'Crazy Ron's' (two doors down from Mobileworld's premises). Q & Q cross-claimed, seeking cancellation of the relevant trade mark registration under s88, on the basis that Crazy John Pty Ltd was not the owner of the trade mark, so its prosecution of the application after the notification of the 'mistake' in November 1999 did not fulfil the s27 requirements.

Under s88, a party may seek cancellation of a trade mark registration on any of the grounds on which the application may have been opposed. Q & Q sought cancellation on the basis of s58:

58 Applicant not the owner of trade mark

The registration of a trade mark may be opposed on the ground that the applicant is not the owner of the trade mark.

In considering ownership, Justice Allsop relied on the definition of 'applicant' in s6 (applicant, in relation to an application, means the person in whose name the application is for the time being proceeding. (emphasis added)) to determine that the time to judge the satisfaction of s27(1)(a) is during the application. His Honour found that, while the application was filed erroneously in Mobileworld's name, Crazy John Pty Ltd was a person who claimed to be the owner while the application was proceeding and at the time of registration – Mobileworld claimed to be the owner before then, but withdrew that claim. Accordingly, while determining there had been trade mark infringement, Justice Allsop dismissed the cross-claim for cancellation, on the basis that Crazy John Pty Ltd claimed to be the owner during the registration process – it was the applicant, and s27(1)(a) was satisfied.

Crazy Ron's Communications Pty Ltd v Mobileworld Communications Pty Limited

This case appealed the above decision, and the finding of trade mark infringement was reversed. The decision on the cross-claim for cancellation was also reversed, on the basis it was a conscious decision to file a trade mark application in Mobileworld's name. Accordingly, the amendment under s65 to, in effect, substitute one entity for another as the applicant, was contrary to s62 of the TMA, and so was a basis for cancellation of the registration.

However, most relevantly, the court agreed with Justice Allsop's findings in relation to s58, noting that:

…it is tolerably clear that, while the application was still on foot and at the time of grant, Crazy John Pty Ltd claimed to be, and was, the owner of the 1999 mark……The grounds of invalidity referred to in ss 58 and 59 are not made out. 

Global Brand Marketing Inc. v YD Pty Ltd

This was another action for trade mark infringement, with a cross-claim for cancellation on the basis that Global Brand was not the owner of the trade mark.

Global Brand created footwear designs to be sold under the DIESEL brand under a licence agreement with Diesel. The relevant trade mark applications were filed in Global Brand's name, and then, while the applications were still pending, Global Brand assigned them to Diesel. YD alleged Global Brand's registrations were invalid, because at the time of filing, Diesel, not Global Brand, was the owner of the trade marks in Australia.

In dismissing the cross-claim, Justice Sundberg followed the Crazy Ron's decision, as the date at which validity of registration was to be tested had been squarely raised in that case. Accordingly, His Honour found that, as a result of the assignment, Diesel had become the applicant while the application was still on foot. It followed that, as Diesel was the applicant for registration, 'as the person in whose name the application is for the time being proceeding', it had become the applicant. Therefore, the cross-claim was dismissed.

Food Channel Network Pty Ltd v Television Food Network GP

In this case, which stemmed from an opposition proceeding before the Trade Marks Office, Television Food Network (TFN) alleged Food Channel Network (the network) was not the owner of the trade mark under s58. The ownership issues arose because the trade mark application was filed in the name of The Food Channel Pty Ltd (the channel), and then subsequently assigned to the network. The evidence demonstrated that Mr Paul Lawrence controlled both the network and channel entities, but was otherwise very confusing as to the relationship between the parties, and which entity had, in fact, used the trade mark in question. At first instance, Justice Collier considered the confusion about ownership fatal to the trade mark application. Her Honour said:

I do not accept that the Act sanctions a position such that a person who is not the owner of a trade mark can nonetheless apply for registration of a trade mark (and may thus be opposed under s 58), but the application itself is somehow subsequently validated by later identification of the owner and that owner being assigned the application by the trade mark applicant. In circumstances where the position of ownership is so confused that the owner of the trade mark cannot be identified at the filing date (or indeed throughout the application process as appears to be the case here as a result of the conflicting evidence as to ownership), the application may be opposed pursuant to s 58 of the Act.

Unfortunately, on appeal the Full Federal Court found that, on the facts, it was unclear which entity was the first user and, therefore, the onus was on TFN to demonstrate there was a prior user of the mark, which defeated the network’s claim to ownership. The court decided that, as TFN had not met that onus, it must overturn the primary judge's finding that the network was not the owner of the trade mark.

Notwithstanding the aforementioned decisions, our views of sections 27 and 58 have meant that whenever faced with the question of whether an application has been validly filed (for example, when a licensee has filed an application for the licensor's mark), it has been our strong recommendation that our client re-file the application in the correct name to remove any doubt as to its validity.

The Full Federal Court's Insight into trade mark ownership

The decision in Pham Global Pty Ltd v Insight Clinical Imaging Pty Ltd [2017] FCAFC 83 has, we believe, once and for all clarified the ability to remedy a defective trade mark application.

Pham Global Pty Ltd had a number of interesting aspects, including those relating to the substantial identity of trade marks, and the geographic scope of reputation and its effect on claims of misleading and deceptive conduct or passing off. However, we will focus solely on the s27(1)ownership issues.

As with Crazy Ron's and Global Brand, the case revolved around a claim of trade mark infringement (and breach of the Australian Consumer Law and passing off), and a cross-claim for cancellation, on the basis that Mr Pham was not the owner of the trade mark. He was the sole director of Insight Radiology Pty Ltd, which conducted a medical imaging business. He applied for registration of the relevant trade mark in December 2011. As such, under (27(1)(a) of the TMA, he claimed to be the owner of the mark; and a person who, relevantly, intended to authorise Insight Radiology Pty Ltd to use the trade mark in relation to its radiological services (27(1)(b)(ii)). After the application had been accepted and during the period for opposition, Mr Pham, on 1 July 2013, executed an Assignment of Trade Mark in the following terms:

The evidence showed the trade mark was not used by either Insight Radiology or Mr Pham before his application for registration. Furthermore, the evidence clearly showed that the mark was designed for, and used by, the company for its business purposes. In oral evidence, Mr Pham argued that he made the application intending to use the mark himself, by licensing it for use by Insight Radiology. The evidence didn't explain why he applied for registration in his, and not the company’s, name. The court also questioned whether the filing of the application in his own name constituted a breach of the duties he owed to the company as its director, given the mark was designed for the company, not for Mr Pham personally.

At first instance, Justice Davies held that, while Mr Pham did not meet 27(1)(a)'s requirements, Insight Radiology Pty Ltd (which, by reason of the assignment recorded while the application was still pending, had become the applicant of the application) did. Regardless of the judge's view on s27(1)(a), this was a surprising result, because it was unclear how, having held that Mr Pham was not the owner of the trade mark, he could purport to make a valid assignment of the trade mark to Insight Radiology Pty Ltd.

On appeal, the Full Court upheld Insight Clinical Imaging Pty Ltd's notice of contention concerning Justice Davies decision on the issue of ownership (ss27(1)(a) and 58).

In a decision that greatly clarifies the Australian position, Justices Greenwood, Jagot and Beach made the following salient comments:

• 'First, we do not accept that Crazy Ron's at [128] was anything but obiter dicta. The Full Court had determined that the appeal must be allowed on the basis that the purported amendment of the application to substitute the name of the owner as the applicant was not authorised by the Act. The statement at [128] apparently endorsing the reasoning in Mobileworld was not necessary to the result and orders.'
• 'Second, Mobileworld and Global Brand do not refer to all relevant provisions of the 1995 Act and authorities. Mobileworld and Global Brand appear to be based both on the fact that the 1995 Act introduced a definition of “applicant” in s 6(1) which means, in relation to an application, “the person in whose name the application is for the time being proceeding” and the use of the present tense “is” in s 58 (“The registration of a trade mark may be opposed on the ground that the applicant is not the owner of the trade mark”). Taken in isolation, these matters support the conclusion that the ground in s 58 is to be determined at the time the opposition is decided. But in our opinion, when the scheme of the 1995 Act is considered as a whole and in the context of established common law principles relating to trade marks, a different conclusion is necessary. Accordingly, the obiter dicta in Crazy Ron’s and the reasoning in Mobileworld and in Global Brand are incorrect.' (emphasis added).

Noting that the decisions in Crazy Ron's, Mobileworld and Global Brand hinged largely on the courts' view on the definition of applicant in s6, the court noted that, under the TMA (and unlike the predecessor 1905 and 1955 Acts), it is possible for pending applications to be assigned. In those circumstances, the court explained that the current scheme requires a definition of applicant that is 'ambulatory in its operation'. It also explained that the introduction of the definition of applicant as the person in whose name for the time being the application is proceeding was necessary to enable the assignment provisions in ss 106-111 to operate regarding the assignment of trade marks the subject of a pending application:

… it would be surprising if more than a century of law to the effect that an applicant for a trade mark must own the mark were to be swept away by a side wind because of the introduction of provisions which are explicable by the more limited object of permitting the assignment of trade marks the subject of a pending application.

Pleasingly, the decision supported the view of the primary judge in the Food Channel case, and confirmed the following principles of trade mark ownership:

• The basis for a claim to proprietorship in a trade mark so far unused has been found in the combined effect of authorship of the mark, the intention to use it upon, or in connection with, the goods and applying for registration.
• The TMA provides for the registration of ownership, not ownership by registration.
• The scheme of the TMA is that the person claiming to be the owner is permitted to file an application under s27(1). Such a person may claim to be the owner as at the date of the application either by reason of authorship and prior use, or by reason of authorship, filing the application and an intention to use.
• In the context of the TMA, where the capacity to file an application depends on a claim of ownership (s27(1)(a)) and use or intention to use (s27(1)(b)), the ground of opposition (or cancellation) should be construed as applying at the time the application is made.
• If the claim is not justified at the time of filing the application, ss 58 and/or 59 are available grounds of opposition (and cancellation). Moreover, if the applicant is not the owner of the trade mark at the time of filing, the assignment provisions in ss 106–111 do not assist, because they authorise the assignment of the mark and thus pre-suppose, consistent with established principle, that the applicant owns the mark.

The court also commented on the concept of the constructive trust argument. In the past, when a trade mark application was filed by the incorrect party (such as a distributor), some trade mark owners (and practitioners) sought to rely on the argument that the trade mark application had been filed on trust for the true trade mark owner. However, the court raised concerns about this concept. First, it noted a trust can't cure the fact that the person who made the application did not own the mark. Second, it said that if a trust did exist, it would be a trust over the application, as distinct from the actual trade mark, and observed that it was not apparent how such a trust could assist in avoiding the effect of the statutory provisions.

IP Australia Practice

It will be very interesting to see how, or if, IP Australia changes its practices in relation to allowing applications for amendment or assignment to 'correct' defects in trade mark applications. IP Australia has previously relied on the High Court case of R v Commissioner of Patents [1939] HCA 7 as authority to allow IP Australia to make enquiries to correctly identify the 'true' application of an application even where the application has not been filed in the name of a person with a legal personality.

The High Court case dealt with the ability of the Patent Office to correct an anomaly in the name of a party in a patent opposition case such as to avoid the opposition being dismissed on a technicality. It was deemend that the Commissioner of Patents was entitled to amend the Notice of Opposition under Regulation 147 of the Patent Regulations (Statutory Rules 1912), which provided:

Any document, for the amending of which no special provision is made by the Act, may be amended, and any irregularity in procedure, which in the opinion of the Commissioner may be obviated without detriment to the interest of any person, may be corrected, if and on such terms, as the Commissioner thinks fit.

However, in our view, section 27 is the provision in the TMA which deals with this very issue.

Section 27(2) of the TMA states:

2. The application must:
   1. be in accordance with the regulations; and
   2. be filed, together with any prescribed document, in accordance with the regulations; and
   3. be made by a person or persons having a legal personality. 

The Trade Marks Amendment Bill 2006 (Cth) (the Bill) amended s27. Senator Eric Abetz, in the Bill's second reading speech, indicated the amendments were because of an extensive Federal Government review of trade marks legislation since its introduction 10 years earlier. The amendments were based on three issues papers, prepared with the assistance of comments from industry professionals, representatives and small businesses.

The second reading speech emphasises that the amendments attempt to 'clarify parts of the Trade Marks Act that have confused trade mark owners in the past. By clarifying these requirements, it will make it easier for people to apply for a trade mark'.

The explanatory memorandum to the 2006 amendments notes 'a trade mark is a valuable property right and it is important that the owner is properly recorded'. It explains that the amendments were introduced due to substantial confusion about who can own a trade mark; in particular, in relation to trusts and business names.

Section 6 of the TMA defines a person as a body of persons, whether incorporated or not. The explanatory memorandum points out that trusts and business names are not traditionally capable of owning property, because such entities lack legal personality.

The explanatory memorandum sets out Parliament's intention:

This will make it clear that trusts, business names or any other entity that does not have legal personality cannot apply for a trade mark.

This is a clear statement of intention that s27(2)(c) was inserted for the purpose of clarifying which entities are capable of owning trade marks. The legal position is therefore that entities lacking in legal personality will be excluded from ownership.

Notwithstanding the above, as at the date of writing this Focus, Part 10.1 of the Trade Mark Examiner's Manual still provides the following 'guidance' to prospective trade mark applicants regarding formality requirements:

Applications lodged in the name of trusts, business names, trading styles, unincorporated associations, clubs, partnerships or societies will not be allowed since these entities do not have legal personality.

which is then followed in Part 1.1 by:

If the application has been applied for in a name that clearly does not have legal personality (e.g. a business name) it may be possible for the owner to request an amendment (rather than an assignment) to replace the name with one that does have legal personality (e.g. the name of the owner behind the business name).

This demonstrates that, notwithstanding an application may be filed that's not in accordance with s27(2), IP Australia is willing to allow an amendment to remedy the defect. After the Insight decision, it's clear that such a defect in an application can't be remedied.

This issue is slightly different from the fact scenario in the Insight decision, where the original applicant was a natural person (Mr Pham) and the assignee was a legal entity (Insight Radiology Pty Ltd). However, the issue of the original applicant not being entitled to claim to be the owner of the trade mark at the time of making the application remains.

What does the Insight case mean for trade mark owners?

The impact of the Insight decision may be profound for trade mark owners who have registered trade marks, but there is some question whether the entity in whose name the application was filed was the owner of the trade mark at that time. Although the trade mark may currently be registered, when it comes time to enforce those rights against an infringing third party, it's possible the registration could be deemed invalid if the entity that filed the original application was not entitled to claim to be the owner under s27.

This issue will most likely be relevant where different entities within a corporate structure have filed trade mark applications – eg where some have been filed in the name of the parent company and some filed in the name of a subsidiary company. Understanding whether the applications were filed in the correct name will be critical in determining whether the resulting registration is validly registered.

However, the issue of correctly identifying the owner of a trade mark can arise in various circumstances. For example, in John Favaro & John Housden v Michael Spiby [2016] ATMO 122, former members of 1990s band 'The Badloves' battled it out in a trade mark opposition case about whether Michael Spiby, the band's former lead singer, was entitled to claim to be the owner of the trade mark BADLOVES regarding live band performances in class 41. Despite evidence suggesting that Mr Spiby had coined the name THE BADLOVES, Hearing Officer Thompson noted that being the person who first thought of a trade mark is not sufficient to establish ownership. Following the principles outlined earlier, he explained that ownership of a trade mark arises through the combined effects of authorship of the sign as and for a trade mark and use as a trade mark.

Having regard to all the evidence, Mr Thompson concluded that the owner of the BADLOVES trade mark was either the partnership of Messrs Spiby, Favaro and Housden or, alternatively, that the individuals Messrs Spiby, Favaro and Housden jointly owned the trade mark. In any event, Mr Spiby was not himself the owner of the trade mark, and so the opposition under s58 was successful.

What steps should trade mark owners take?

It is important all trade mark owners conduct a critical analysis of their trade mark portfolios, to determine whether there are any registered rights that are potentially vulnerable to challenge on the basis of ownership.

In making this assessment, the critical issue is whether the entity in whose name the trade mark application was filed was entitled to claim to be the owner of the trade mark in Australia at the date the application was filed. Relevant questions will include whether the entity could claim this:

• due to authorship and prior use; or
• by reason of authorship, filing the application and an intention to use.

It will also be important to consider whether the use (or intention to use) was (or would be) under the control of another entity. That is, if the subsidiary company coined the trade mark, and maintained all control over the use of the trade mark, it would be entirely appropriate for the subsidiary company to claim to be the owner. However, if the trade mark were coined by the parent company and used by the subsidiary company under the financial or quality control of the parent company, such use would accrue to the parent company so that it, and not the subsidiary company, would be the valid applicant under s27.

Determining the true owner of a trade mark in complicated corporate structures can be difficult, and will always be fact-dependent. If you're in doubt, Allens can help with reviewing your portfolio to identify any potentially vulnerable registrations.

If vulnerable registrations are identified, the prudent next step is to immediately re-file the applications in the correct owner's name. While this may result in unplanned costs, the cost of re-filing and prosecuting new applications may well be significantly less than the cost of attempting to enforce your rights against an infringing third party, only to find that your registration is, in fact, invalid.