Australia: Licensors´ Obligation Not To Frustrate Licensees´ Use Of Trade Mark

Last Updated: 10 December 2008
Article by Michelle Cooper and Sean McManis

JLCS Pty Ltd v Squires Loft City Steakhouse Pty Ltd

In JLCS Pty Ltd v Squires Loft City Steakhouse Pty Ltd ([2008] FCA 867, June 12 2008), the Federal Court of Australia considered two main issues. The first was the effect, if any, of a change in ownership of a restaurant to a licence to operate the restaurant under the name Squire's Loft. The second was what were the obligations, if any, of the licensors with respect to the licensees' use of the name Squire's Loft.


In an earlier matter before the Federal Court, a declaration was made that the operators of a restaurant, who at the time were also the owners of the restaurant, were entitled to operate the restaurant under the name Squire's Loft. The basis for this entitlement was found to be an unconditional licence formed from informal discussions between the parties.

Subsequently, there was a change in the ownership of the restaurant but there was no change in its operation and day to day management. The Court was asked to determine whether the change in ownership affected the licence to use the trade mark.

The declared trade mark licence

The Court determined that the change in the restaurant's ownership had no effect on the trade mark licence, for three main reasons. Firstly, the declaration made no mention of the ownership of the restaurant. Secondly, the declaration recorded a right to "operate" the restaurant and was not concerned with the ownership of the restaurant. Thirdly, the licence had been found to be unconditional.

Although it is within the Court's power to amend a declaration to give effect to the intention of a judge or to record accurately what a judge had decided, there was no evidence that the judge in the earlier matter had determined the licence was subject to a condition relating to ownership. It was not within the Court's power to alter from unconditional to conditional a licence that had been settled in another matter.

The operation of a restaurant was held to be something different from the ownership of a restaurant and the declared right of the operators to use the trade mark Squire's Loft was not in any way dependent on them being owners of the restaurant.

The obligations of the licensors

After confirming the continuation of the trade mark licence, the Court turned to a cross claim made by the licensees against the licensors' grant of a licence to a third party to operate a restaurant under the name Squire's Loft City Grill Room within 500 metres of the Squire's Loft restaurant operated by the licensees.

The Court found that the licensees had a reputation in the name Squire's Loft and that there was a real likelihood of confusion, and evidence of actual confusion, with the two restaurants operating in such close proximity to each other and using substantially the same name.

The Court found that the licensors had an obligation not to interfere with the licensees' enjoyment of their trade mark licence on the following two bases.

Non derogation from grant

The judge's preferred basis for relief was based on the principle that a grantor must not derogate from his grant, a principle which is an independent rule of law. It is most usually applied in relation to interests in land, but is not confined to dealings in land. It essentially provides that one must not seek to take away with one hand what one has given with the other.

The Court found the licensees should be permitted to use the trade mark Squire's Loft without undue interference. This imposed an obligation on the licensors not to use, or permit the use of, the Squire's Loft name in a location so proximate to the licensees' restaurant that it would result in a significant adverse effect of the goodwill of the restaurant. A proximity less than 500 metres was too close.

Implied term in trade mark licence

In the alternative, on the basis that the licence was informal and obviously incomplete, the Court found it necessary for the reasonable or effective operation of the licence that there be an implied term that the licensors were prohibited from using, authorising, or permitting any other entity to use the name Squire's Loft in relation to a restaurant in such close proximity to the licensees' restaurant that it would prevent, hinder or impede their enjoyment of the full benefit and advantage conferred by the trade mark licence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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