Out of the lion’s den – High Court clarifies trademark use

The recent High Court decision in E&J Gallo Winery v Lion Nathan Australia Pty Limited ([2010] HCA 15) has come as a relief to many international trademark owners who may have been questioning whether the use of their trademarks in Australia would be sufficient to overcome a potential non-use action. The High Court upheld an appeal by E&J Gallo Winery, from a decision of the Full Federal Court, against the removal of its mark from the Trademarks Register for non-use.

Background
E&J Gallo is a company incorporated in the United States and is the second-largest wine-producing company in the world. In early 2005 E&J Gallo acquired the share capital in a US company trading under the name Barefoot Cellars, and in doing so acquired the Australian trademark registration for BAREFOOT in respect of wines. Although BAREFOOT was a highly successful brand in the United States, only a limited quantity of the BAREFOOT wine had been sold in Australia, via a German distributor, in the non-use period from 2004 to 2007 (by a wine wholesaler in Melbourne).

After conducting some preliminary investigations into the Australian activities of E&J Gallo, in May 2007 Lion Nathan Australia Pty Ltd filed for removal of the BAREFOOT trademark registration on the ground of non-use over a three-year period from 2004 to 2007. In response to the removal action, and on discovery of Lion Nathan’s own trademark applications incorporating the term 'barefoot', E&J Gallo initiated proceedings against Lion Nathan for trademark infringement.

The Federal Court decision in relation to the non-use proceedings, which was upheld by the Full Federal Court, was that the incidental sales of BAREFOOT wine did not amount to use of the trademark by E&J Gallo or its predecessor in title in Australia. The Full Court found that for trademark use to occur in Australia, there must be a conscious resolve on the part of the person alleging ownership of future use in Australia. As this criterion was not found to have been met by E&J Gallo, it was held that the mark should be removed from the Trademarks Register for non-use. However, it was on this aspect of the Full Court decision that E&J Gallo appealed to the High Court.

High Court decision
The issue to be determined by the High Court was whether incidental use of an Australian trademark, through Australian sales by an unauthorised party of goods bearing the mark, constituted trademark use by the trademark owner, even though the use of the trademark had occurred without its knowledge.

In determining this issue, the High Court held that in order for E&J Gallo to establish use of its mark during the non-use period, it was not necessary to demonstrate that the goods bearing the mark had been knowingly projected into the Australian market by the registered owner. In reaching this conclusion, the High Court gave weight to the accepted propositions that:

• A trademark is “used” if it is employed as a badge of origin indicating a connection between goods and the registered owner.
• Use of a trademark is to be determined objectively without reference to the subjective trading intentions of the user.
• Goods remain “in the course of trade” until they are acquired for consumption.

In view of these propositions, and the particular circumstances of the case, the High Court found that E&J Gallo had demonstrated sufficient use of the mark in Australia to rebut the non-use application by Lion Nathan, and stated that:

“The capacity of a trade mark to distinguish a registered owner's goods from those of others, as required by s 17, does not depend on whether the owner knowingly projects the goods into the Australian market. It depends on the goods being in the course of trade in Australia. Each occasion of trade in Australia, whilst goods sold under the trade mark remain in the course of trade, is a use for the purposes of the Trade Marks Act. A registered owner who has a registered trade mark under the provisions of the Trade Marks Act can be taken, in general terms, to have an intention to use that trade mark on goods in Australia. It is commonplace of contemporary international trade that prior to consumption goods may be in the course of trade across national boundaries.

An overseas manufacturer who has registered a trade mark in Australia and who himself (or through an authorised user) places the trade mark on goods which are then sold to a trader overseas can be said to be a user of the trade mark when those same goods, to which the trade mark is affixed, are in the course of trade, that is, are offered for sale and sold in Australia. This is because the trade mark remains the trade mark of the registered owner (through an authorised user if there is one) whilst the goods are in the course of trade before they are bought for consumption.”

Although the US wine, bearing the BAREFOOT trademark, was sold to a German distributor which subsequently re-sold the wine to an Australian wholesaler, the wine itself remained “in the course of trade”, and the BAREFOOT trademark was in use until such time as the wine was bought for consumption by Australian consumers.

The consequence of this decision is that E&J Gallo’s BAREFOOT trademark remains on the Trademarks Register, while Lion Nathan can no longer sell its beer under the Barefoot Radler name.

Going forward
Foreign trademark owners will draw reassurance from the High Court decision and, in particular, the notion that use of a mark in Australia does not require a conscious intention by the trademark owner to project its goods into the market, provided that the goods remain in the course of trade. Apart from the non-use consideration, it may also be the case that foreign trademark applicants can now rely on evidence of incidental or inadvertent use of their trademark when seeking registration of their Australian trademark.