Is the presence of overseas trademarks on the shelves enough to constitute use?

The recent Federal Court decision in E&J Gallo Winery v Lion Nathan ([2008] FCA 934) came as a shock to many international trademark owners and has led them to question whether the use of their trademarks in Australia would be sufficient to overcome a potential non-use action. The Federal Court held that Lion Nathan had succeeded both in its defence to an infringement action and in its counterclaim to have E&J Gallo Winery’s trademark removed from the Trademarks Register for non-use.

Under the non-use provisions of the Trademarks Act 1990 (Cth), a party can apply to have a trademark removed from the register if it has not been used in good faith for a period of three years, but not before such time as the trademark has been registered for a period of at least five years. When establishing the use of a trademark, only use by the trademark owner or its authorised user in Australia is considered relevant.

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 in the non-use period from 2004 to 2007 (by a wine wholesaler in Melbourne).

During 2006 and 2007 Lion Nathan developed a new carbon-neutral beer with a lemon flavour that was less bitter than traditional beer, and in February 2007 it conceived the new product name BAREFOOT RADLER. The term ‘radler’ is German for ‘cyclist’ and more commonly describes a Bavarian-style beer flavoured with a mixture of lemon and lime. After conducting some preliminary investigations into the Australian activities of E&J Gallo, in May 2007 Lion Nathan 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 upon the discovery of Lion Nathan’s own trademark applications incorporating the term BAREFOOT, E&J Gallo initiated proceedings against Lion Nathan for trademark infringement. Lion Nathan then brought its removal action to the Federal Court by way of a cross-claim to the infringement proceedings; both issues were heard together in April 2008.

Although some BAREFOOT wine had been sold in Australia during the non-use period from 2004 to 2007, neither E&J Gallo nor the prior owner of the BAREFOOT mark had exported the wine directly to Australia until some time after this non-use period. It was discovered that the wine sold in Australia during the non-use period had originally been exported from the United States to Germany and had eventually made its way to a wine wholesaler in Melbourne.

In reaching a decision on the issue, Justice Flick gave considerable weight to Estex Clothing Manufacturers Pty Ltd v Ellis and Goldstein Ltd ([1967] 116 CLR 254 at 271), where it was held that an overseas manufacturer uses a trademark in Australia if it ‘projects’ its goods into the course of trade in Australia. It was held that neither E&J Gallo nor its predecessor in title was in any way involved with the export of the BAREFOOT wine to Australia and therefore could not possibly have exercised control over sales of the wine in Australia. This was the court’s rationale for rejecting the argument that the Melbourne wholesaler was an authorised user of the trademark. E&J Gallo's failure to ‘project’ the BAREFOOT wine into Australia meant that sales by the Melbourne wholesaler could not considered as being use of the trademark in Australia.

Has the law changed?
In addition to the finding on the issue of non-use, Flick held that beer and wine were not goods of the same description, and therefore infringement of E&J Gallo’s BAREFOOT trademark could not have been made out in any event. The requirement for an overseas trademark owner to ‘project’ its goods into Australia is a somewhat foreign concept to most trademark practitioners, many of which will be eagerly awaiting clarification of the decision when the matter returns on appeal in the coming months.

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