Whether your business is an SME or an Enterprise, Intellectual Property (IP) is equally as important as your business’ other tangible assets. Licencing your IP (trade marks, patents or copyright) is critical to your success and can likely make or break your business. For both the licensor and licensee, it’s then important to clearly define the scope of the licence, its term, and triggers for termination. Importantly, what happens if the agreement containing the IP licence is terminated before its expiration? Below, we explain the impact of the Pink Lady Case to IP licences in Australia.
The Pink Lady Case (Apple & Pear Australia Ltd v Pink Lady America LLC  VSC 617)
The Pink Lady case shines a light on the importance of trademarks and the lengths businesses will go to obtain and protect them. The Pink Lady case involved two apple and pear industry bodies fighting it out over the right to use the eponymous name ‘Pink Lady’.
Apple and Pear Australia Limited (APAL) is the peak industry body in Australia for sellers of apples and pears. APAL owns and maintains registered Pink Lady trademarks in over 70 countries worldwide, according to International Pink Lady Alliance Limited, with Mexico as one of the only countries holding out. APAL’s repeated attempts to register a trade mark in Mexico have disappeared like an apple orchard in the Sierra Nevada, posing vexing marketing problems for APAL.
Enter Pink Lady America LLC (PLA). PLA applied to register a Pink Lady trade mark in Chile. Sensing Chile might warm up to its continental neighbour and grant a trade mark, APAL entered into an Option Deed with PLA, granting APAL the option to acquire ownership of any Pink Lady trademarks granted. APAL gave PLA an exclusive, perpetual and royalty-free licence to use these trademarks regarding trade between Chile and North America.
Did the Licence to PLA Survive the Termination of the Option Deed?
If APAL acquired the trademarks, would the licence to PLA survive termination of the deed? PLA argued that when a contract is terminated for breach or a party repudiates the contract, only future obligations are discharged and accrued rights (such as the licence) apply. Conversely, APAL argued that a perpetual licence is not an accrued right (such as the right to payment) and is terminated when the underlying contract is terminated.
What Did the Court Decide?
Whether a right is accrued so that it survives termination of a contract is a matter of contract interpretation. In this case, the Option Deed stated that “this licence…will last in perpetuity subject only to the quality control provisions contained herein”.
Justice Croft held that the parties intended the licence continue (as it was perpetual) and only ‘control provisions’ could bring it to an end. Bingo, PLA had a licence to use the trade mark concerning trade between North America and Chile, which survived termination of the Deed.
The Pink Lady case best demonstrates the importance of having a well-drafted IP Licence Agreement, as APAL had to provide PLA with a licence to use its trade mark in trade between North America and Chile even though the underlying contract terminated.
IP is one of your business’ most valuable assets, and as you look to exploit it commercially, you should protect it with an appropriately drafted IP licencing agreement. Ensure that the scope of your licence is clear to save you from agreeing to something you didn’t intend to. Pay particular attention to the type of licence granted, the terms and how parties can terminate the licence.
If you have any questions or need assistance drafting you IP Licence, get in touch with our IP lawyers on 1300 544 755.