Implied terms in trade mark license upsets the apple cart
Apple & Pear Australia Ltd v Pink Lady America LLC
 VSC 617
Trade marks – assignment and licence back – option to take assignment – whether variations agreed by conduct – implied terms – whether implied term that licence extends to replacement versions of licensed marks – whether implied term that marks be re-assigned if licence is breached – relevance of post-contractual conduct
Apple & Pear Australia Ltd (referred to by its fitting acronym, APAL) is a non-profit body representing Australian apple and pear growers. APAL is the registered proprietor of the PINK LADY mark (for particular varieties of apples) in most parts of the world, but not in the US and Mexico (where the mark is registered to an unrelated company) or Chile. Pink Lady America LLC (PLA) is the exclusive licensee of the PINK LADY mark in the US and Mexico. Both APAL and PLA are members of the International Pink Lady Alliance (IPLA), a body that provides a forum in which stakeholders in the various territory-specific PINK LADY marks can discuss and agree upon brand management issues.
Chile enjoys a significant export market for the original “Cripps Pink” variety of apples, and potentially so for another variety falling under the PINK LADY banner, “Rosy Glow”. Prior to 2006, APAL had sought, unsuccessfully, to register the PINK LADY mark in Chile. In late 2006 and 2007, PLA also applied to register PINK LADY in Chile, under circumstances that evidently meant its applications were more likely to succeed. Discussions between APAL and PLA at the time were to the effect that APAL would not oppose those applications if PLA agreed to assign any marks issued as a result to APAL. In turn, PLA indicated that would only do so if it retained exclusive rights to exploit the marks so far as exports to North American territories were concerned.
APAL and PLA addressed their respective concerns by entering into an Option Deed, executed by the start of July 2007. Under the Option Deed, APAL was granted an option by PLA to have PLA assign to APAL certain trade marks and applications, the exercise of which was to be effected by APAL serving on PLA a signed “Option Notice” (Option). The Option was to be exercised within a period defined by reference to the first registration of the three marks the subject of the Option, or as agreed by the parties (Option Period). Clause 5.1 provided that “in the event that APAL exercises its Option rights”, PLA would be granted an exclusive, perpetual, royalty free licence (Licence) “to use” the marks with respect to all trade between Chile and North America (i.e. Canada, the US and Mexico) in Cripps Pink apple products (Products). The Option Deed also provided that variations could only be in writing, and contained an “entire agreement” clause.
In November 2007, the Chilean trade mark attorney assisting in the prosecution of the applications recommended that the assignments contemplated in the Option Deed take place before registration (that is, before the first of the two potential start dated for the Option Period). APAL and PLA’s solicitors entered into various discussions on the topic and regarding the withdrawal of trade mark oppositions that had been filed by APAL.
In December 2007, PLA’s solicitors noted in an email to APAL’s solicitors that the Products did not include “Essentially Derived Varieties” (EDVs), but presumably the parties had intended them to be included. APAL’s solicitors responded by indicating that APAL “was not averse” to amending the definition of Products along those lines, but wished to focus on effecting the trade mark assignments. By March 2008, a Deed of Variation had been drawn up that was designed to extend the definition of Products to include Rosy Glow apples and any other “Essentially Derived Varieties”. Correspondence between the parties at the time suggested that with the “successful conclusion” of the Deed of Variation, the documents to effect the assignment of the marks and withdrawal of APAL’s oppositions could be drawn up, but the Deed of Variation was never executed by the parties.
Notwithstanding, in April and May 2008 PLA assigned to APAL the Chilean trade mark applications and one trade mark that had become registered. APAL argued at trial that these assignments were not referable to the Option Deed, but instead were “merely indicative of PLA electing to assign the trademark [sic] applications for its own…commercial purposes outside the purview…of the Option Deed.” That suggestion was not supported by the contemporaneous correspondence between the parties or concessions made by APAL’s managing director, at the relevant time, under cross-examination. In rejecting APAL’s submission Justice Croft noted that it “flies in the face of the commercial realities” and leads to “manifest absurdity“. Nor was his Honour prepared to accept that PLA had assigned the marks on the “quit-claim” basis contemplated under clause 6.2 of the Option Deed, alternatively that PLA had abandoned its contractual rights under the Option Deed.
After the assignments, his Honour accepted PLA’s assertion that the parties conducted themselves as though the Option had been exercised and Licence granted, and as though the Deed of Variation was in effect. For example, between 2008 and 2011 the parties issued “Joint Export Licences” to exporters wishing to export Chilean Pink Lady apple varieties to APAL and PLA’s respective territories, and these included “Rosy Glow” as a permitted variety. Similarly, APAL issued licences between 2012 and 2014 that made reference to PLA having been licensed rights to “use certain trademarks” (although only in respect of the “Cripps Pink” variety). Further, both the joint and APAL’s separate export licences referred to PLA enjoying a trade mark licence from PLA. Of note, while post-contractual conduct is inadmissible as an aid to construction of a contract, it is admissible on the question of whether a contract was formed.
By 2011, the relationship between the parties had soured, and APAL took the position that the Licence had not been granted, nor did PLA have any rights in respect of the “Rosy Glow” variety or a “refreshed” version of the PINK LADY logo that had replaced the logo set out in the Option Deed. As a result, among other things, from 2012 APAL’s export licences only referred to PLA having rights in respect of the “Cripps Pink” variety and APAL began issuing separate export licences for the “Rosy Glow” variety without reference to PLA. APAL’s 2013 export licence further excluded Canada from PLA’s identified export territory (despite Canada having been defined as part of PLA’s territory under the Option Deed).
The proceedings were commenced to determine, in effect, the status and scope of the Option Deed and Licence. Despite a number of ostensible difficulties, PLA succeeded in its argument that the Option Deed and Deed of Variation were operative, extended to the current PINK LADY marks in use by the IPLA, and compelled re-assignment of the licensed marks as a result of APAL’s repudiation of the agreements.
PLA’s first obstacle was that neither the trigger for the commencement of the exercise period for the Option, nor the service of an Option Notice, had taken place when the assignments occurred. Justice Croft agreed with PLA, however, that by the parties’ conduct in the lead up to the assignments they had agreed to the Option being exercised other than in strict compliance with the terms of the Option Deed; parties are always free to agree by words or conduct to “transcend the provisions or requirements of an agreement between them at any time“. In a strict sense, APAL had made a counter offer, albeit one that varied only in terms of procedural matters; and upon acceptance by PLA this produced an agreement in accordance with the terms contemplated by the Option Deed.
The second difficulty was that by that date of the Option Deed, the particular “PINK LADY flowing heart with kangaroo” mark the subject of the applications was about to be superseded (as a result of a determination by the members of the IPLA) by uniform, non-country specific marks not mentioned in the Option Deed (but ones that nevertheless were similar to the licensed marks). As this was a circumstance known to the parties when the Option Deed was executed and clause 5.1 provided for a perpetual licence, his Honour concluded that that background “compels the conclusion that it was an implied term that the clause 5.1 Licence would subsist over any refreshed trademark [sic], whenever introduced” and that “the parties must have intended that the licence…include any such logo that became the mandated logo [by the IPLA] to be used internationally“.
The third problem was that the Deed of Variation was never executed, and hence the “Rosy Glow” variety not ostensibly within the scope of the Licence. Once again, however, His Honour rejected APAL’s submission that the joint licences issued before the parties’ relationship broke down were just “voluntary permissions” given by APAL to PLA; the parties’ post-contractual conduct made sense only if they treated the Deed of Variation as having been effected.
His Honour also held (and APAL’s witnesses largely accepted) that APAL’s conduct in purporting to shut PLA out of the Chilean export trade to Canada, and in the “Rosy Glow” variety generally, amounted to a fundamental breach of the Licence and a repudiation of the Option Deed. His Honour also found, however, that there was an implied term in the Option Deed that if the full benefit of the Licence was denied by APAL, it would be “obliged to re-assign” the trade marks to PLA. Such a term was said to satisfy the five criteria for the implication of terms in the present case. APAL’s acquisition of the trade mark applications – being secured only in consideration of the grant of a perpetual licence – was something that necessarily and fairly should be reversed if APAL were to later disavow the Licence.
The decision pertained to issues of liability only. PLA has sought a stay pending an application for special leave to appeal.