The ever-expanding role of intellectual property (IP) rights in safeguarding and enhancing the value of a modern business necessitates that IP-dependent corporates invest in proper IP governance.
Increasingly, it is becoming essential that corporates have specific protocols in place for the governance of their IP rights (including their brands), and ensure they are used, monitored, measured for risks and concerns, valued and reported to management and the board of directors.
Brands are often the lifeblood of an organisation and underpin its value to customers. Proper protection and vigilant monitoring of any use by competitors is key to ensuring that a brand’s value is maintained and enhanced. Without proper governance – which refers to the entirety of structures, rules and processes by which an entity is controlled and managed, including corporate, environmental and social governance as well as IP management – a company risks losing significant value in its brand assets.
Good brand governance includes having proper systems in place to ensure that existing brands are protected (for example, by seeking trade mark registration in key jurisdictions where possible), ensuring that new brands will not infringe competitors’ rights and ensuring that competitors are not infringing your rights. (In the latter case, enforcement processes must also be in place to inform decision-making on what action should be adopted).
It also includes having systems in place for ‘dealing’ with marks, such as:
- licensing – which might occur when a brand is to be used in another jurisdiction by a third party;
- assignment – which might occur when part of a business is being sold; and
- co-existence arrangements – which might occur where your brand co-exists in the market with another similar brand but in respect of very different good and/or services.
In the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry final report, Commissioner Hayne reminded us that: “It is rightly said that the ‘tone’ of an entity is and must be set at the top but that tone must be echoed from the bottom and reinforced at every level of the entity’s management and supervision.”
While proper board governance is essential to protecting the value of a brand, it is also important that the whole of an organisation has systems – at both the executive and ground level – and a general appreciation of the factors which contribute to the value of and proper treatment of a brand. Accordingly, when ‘dealing’ with a brand, proper checks and balances need to be negotiated and included in agreements to take account of various potential scenarios. These agreements will often be negotiated by managers within a company’s organisation who in turn then report to senior management who then report to the board. Like all good practices, good brand risk management and governance should exist at these three points as well. Regular monitoring ensures any concerns or risks are promptly reported to management and, if necessary, elevated to the board so they may be attended to as soon as possible and dangers averted in that process.
When licensing a brand, it is important that a company’s key negotiating personnel ensure proper terms are in place that enable it to oversee and manage the way in which the mark is being used and the quality of the goods and/or services being supplied by a third party. It is also essential that arrangements are negotiated that anticipate a breach of a term of the agreement or for when the agreement comes to an end or is terminated. In such circumstances, there will often need, for example, to be a ‘phase out’ period. If agreements are not negotiated with an eye to when they may go wrong, there can be unanticipated and costly consequences.
One of the many recent cases to illustrate some of the issues that may arise when licensing a brand is the Federal Court of Australia’s decision in Chevron Global Energy Inc v Ampol Australia Petroleum Pty Ltd  FCA 617. The applicant (Chevron) and the respondent (Ampol) were competing businesses, each operating retail service stations before they merged in 1995. From then onwards, Ampol rebranded all but ten of its service stations to the Caltex brand under which Chevron had been operating. As a consequence of a divestment in 2015, Chevron and Ampol entered into a Trade Mark Licence Agreement (TMLA), which licensed Ampol to use the CALTEX mark and other related marks (licensed marks). The dispute arose after Chevron terminated the TMLA and took issue with Ampol’s conduct during the 30-month ‘work-out’ (phase out) period for the transition of its service stations from the Caltex brand to Ampol brand.
Chevron’s claims against Ampol for breaches of the TMLA, trade mark infringement and contraventions of the Australian Consumer Law were mostly unsuccessful. The TMLA required Ampol to remove ‘signage and/or [any] element bearing [or displaying]’ any of the licensed marks, however the Court found that this did not apply to Ampol’s use of red coloured canopy fascia as part of its re-branded Ampol service stations. The wording of the agreement was silent on the issue of colour schemes (or other trade indicia). Accordingly, reading into the TMLA, a license to use of the ‘Caltex Red’ colour was ‘at odds with commercial sense’ and, more importantly, ‘if such an uncommercial and unlikely outcome had been intended, it would surely have been made clear’.
In addition, the Court did not consider Ampol’s use of the licensed marks (CALTEX and STARCARD) in conjunction with the AMPOL and AMPOL CARD marks during the phase out period to be in breach of the TMLA. The exceptions were a banner that said ‘StarCard accepted here’ and advertising which said ‘StarCard will be accepted at Ampol branded sites’, as such use was commercial, not educative. Again, the wording of the TMLA was the decisive factor and, in that case, the only permitted conjunctive use contemplated by the parties was ‘for the sole purpose of educating customers that [Ampol] is transitioning away from [the licensed marks]’.
For publically listed IP licencing companies, including companies that deal with innovative technologies or companies that are IP-dependent, the stakes may be even higher, with mismanagement of IP assets potentially resulting in shareholder activism as seen in the US. Examples include:
- Tessera Technologies, Inc. – In 2013, one of the major shareholders of Tessera (an IP licensing company) wrote to fellow shareholders pushing for the election of a new board and CEO as the firm had failed to contain costs and successfully license its extensive patent and technology holdings. According to Forbes, ‘the result in only one year was a dramatic turnaround that saw Tessera’s stock double in value and its earnings grow from a $151 million loss in 2013 to a $175 million gain in 2014.’
- AOL – In 2012, one of the major shareholders web portal / online service provider AOL pushed for replacement of five board members because, among other reasons, AOL ‘owns a robust portfolio of extremely valuable and foundational intellectual property that has gone unrecognized and underutilized.’
In order to avoid unnecessary financial consequences, companies should adopt a forward-thinking approach to protecting IP rights (including their brands) and take steps to exercise good brand governance – that is:
- consider all brand assets – a common pitfall is to consider a name or logo as the primary brand element and overlook other relevant aspects of the brand (such as any slogans, product shape, trade dress or colours);
- envisage the brand across all channels, including online and offline (e.g. store signage, packaging, advertisements and third-party websites); and
- ensure that all necessary perspectives are considered by involving the internal marketing, legal and managerial teams in any brand strategy.
This article is part of our publication Continuity Beyond Crises: Staying ahead of risk in an evolving legal landscape. Read more here.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.