Like (garnet) sand through the hour glass – licensing your brand
When you licence any third party to use your brand in relation to your product, it is important to clearly document the parameters of the licence. For example, if the licensee sells your product to one of its related companies, do the branding obligations apply? Do the branding requirements apply to all forms of your product? If the licensee modifies your product, what branding obligations apply? Mason Sier Turnbull can help you to clearly outline obligations such as these in any licence agreement.
GMA Garnet Pty Ltd v Barton International Inc
Alluvial garnet (“garnet”) is a sand-like substance used as an industrial abrasive. Australia produces half of the world’s supply of garnet, including through the Western Australian mines operated by the Garnet group of companies (the “Garnet Group”). Through a complex, historical (and extremely acrimonious) relationship, the Garnet Group entered into an agreement with the USA-based Barton International Inc (“Barton) to supply Barton with garnet in loose bulk or packaged form (the “Garnet Product”) for distribution in the USA and Canada.
An important clause included in the agreement related to the branding of the Garnet Product, and essentially outlined:
- All garnet purchased … and distributed or sold by Barton which is 100% Garnet Product must be branded by Barton with the Garnet Group brand (which may co-exist with Barton’s branding provided the prominence of the Garnet Group brand is not less than a stipulated form);
- Barton has a non-exclusive licence to use the Garnet Group brand on the Garnet Product for this purpose; and
- Barton must only use the Garnet Group brand on, or in connection with, the distribution or sale of any garnet which is 100% Garnet Product.
Subsequent to signing the agreement, the Garnet Group became concerned that Barton was not branding the Garnet Product in accordance with the agreement and commenced legal proceedings to clarify the branding clause (amongst other things). The decision highlights branding parameters you should consider for your licence agreement.
If your licensee sells your product to one of their related companies, do the branding obligations apply?
Irrespective of whether Barton was selling the 100% Garnet Product to a related company or an independent third party, Barton was required to brand the 100% Garnet Product in the manner outlined in the agreement.
Barton had argued that, at the time the agreement was made, the parties knew that Barton’s practice was to sell the product to its subsidiary for sale to ultimate customers and therefore it did not need to brand the 100% Garnet Product in the manner required. This position was not followed by the Court.
Do the branding requirements apply to all forms of your product?
If Barton sold 100% Garnet Product in loose bulk form, it was obligated to package the loose garnet for it could be correctly branded.
As the loose form of the 100% Garnet Product was not packaged by the Garnet Group, Barton was able to purchase the product at a considerably cheaper rate. Barton had argued it had no obligation to package the loose (100%) form before on-selling. This position was not followed by the Court.
If the licensee modifies your product, what branding obligations apply?
Barton was not prevented from blending the Garnet Product with other garnet. Barton was free of any obligation to brand the Garnet Product if it sold blended Garnet Product, rather than 100% Garnet Product.
The Garnet Group had argued that the concessional rate it charged Barton for the Garnet Product was related to Barton’s obligation to promote distribution of the 100% Garnet Product in North America and, as such, Barton was not able to blend the Garnet Product with garnet supplied by third parties. This position was not followed by the Court.
Although this decision involved a unique (and extremely acrimonious) relationship, it nonetheless highlights the need to clearly document the licence you grant any third party to use your brand, and avoid the relationship ‘falling like (garnet) sands through the hourglass’.
For further information please contact one of our Intellectual Property lawyers.
Author: Noelene Treloar