Full Federal Court Puts “Honest Concurrent Use” Under The Microscope

Ceramiche Caesar S.p.A. V Caesarstone Ltd [2020] FCAFC 124 is an appeal by Ceramiche Caesar, holder of the registered trademark CAESAR, against the primary judge’s decision to allow Caesarstone’s application for the trade mark CAESARSTONE on the basis of “honest concurrent use”. Citing, among other issues, flaws with the primary judge’s interpretation of the disclaimer in the goods specification, the Full Federal Court held that the primary judge had erred in finding such use of the trade mark.

The decision also included important discussion on the principle of “quality control” and what is considered “authorised use” of a trade mark.

While the case also involved two other appeals, all parties were in agreement that the result in the first proceeding would determine the outcome in the second, and almost entirely decide the result in the third. For this reason, discussion here focuses solely on the first proceeding.

Background

The appellant, Ceramiche Caesar, had manufactured ceramic tiles for indoor and outdoor flooring and wall cladding in Australia since 1988. On 23 November 2004, Ceramiche Caesar registered the CAESAR trade mark in class 19 in respect of “ceramic tiles for indoor and outdoor use”.

The respondent, Caesarstone, is a company based in Israel. Caesarstone manufactures and sells large quartz slabs which, since 1987, have been labelled on the underside with the mark “CAESARSTONE”.

These slabs were sold in Australia from 2003 by two distributors; Caesarstone’s licensee, Tessera Stones and Tiles Pty Ltd (Tessera) and Tessera’s sub-licensee, Carsilstone Pty Ltd (Carsilstone). In 2006 Caesarstone incorporated its own Australian subsidiary, Caesarstone Australia Pty Ltd (Caesarstone Australia).

Tessera and Carsilstone did not as a matter of course sell the slabs to individual customers in Australia, but to stonemasons who would then transform them into finished products, such as bench and countertops, vanities and surrounds, and splashbacks. These creations would then be on-sold to individual customers.

On 2 June 2005, Caesarstone applied to register the Caesarstone Goods Word Mark in class 19. The first item listed in the trade mark application was “tiles”, because Caesarstone was at the time considering expanding its business into this area. The description of good in the application was:

Tiles, panels for floors, floor coverings, wall cladding, flooring, and ceilings; nonmetallic covers for use with floors and parts thereof; profiles and floor skirting boards.

Disappointingly for Caesarstone, the delegate of the Registrar found that allowing an extension into tiles would result in a high likelihood of deception or confusion with the earlier registered CAESAR mark. The delegate thus rejected the application under Section 44(1) of the Trade Marks Act, noting not only that the CAESARSTONE mark was deceptively similar to the CAESAR device mark, but also that the goods themselves were closely related. The delegate further stated that neither the exception for “honest concurrent use” under Section 44(3)(a), nor “prior continuous use” under Section 44(3)(4) should apply.

Caesarstone then appealed the decision. To surmount the issue relating to closely related goods, the company amended its specification to explicitly exclude reference to tiles. Caesarstone’s specification thus became:

Panels for floors, floor coverings, wall cladding, ceilings; non-metallic covers for use with floors and parts thereof; profiles and floor skirting boards; none of the foregoing being in the nature of tiles.

While the primary judge maintained that the trade marks remained deceptively similar, he went on to find that there had in fact been “honest concurrent use” of the CAESARSTONE mark on floor panels and wall cladding. He further held that use of the CAESARSTONE mark by Caesarstone’s distributors was correctly construed as “authorised use” under the Trade Marks Act. Accordingly, he allowed registration of the CAESARSTONE mark.

Ceramiche Caesar then appealed the grant of registration, arguing that the judge had erred in his conclusion that:

1. There was honest use of the CAESARSTONE mark on the designated Class 19 goods
2. The prior use of the trade mark was authorised use under Caesarstone’s control.

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Honest concurrent use

For the Full Court, the interpretation of the “tiles” disclaimer in the description of the goods was central to the finding of whether or not there had been “honest concurrent use”.

Caesarstone argued that the exclusion of “tiles” from its specification was insignificant because it did not act to limit the goods outlined in the specification. To support this contention, Caesarstone relied on the primary judge’s finding that “the disclaimer did not ‘subtract all content from’ the words ‘panels for floors’ and ‘wall cladding’”.

On the other hand, Ceramiche Caesar contended that this disclaimer did effectively exclude tiles. This was because the primary judge had found that the goods to which the honest concurrent use finding applied were “floor panels and wall cladding in the nature of tiles”. For this reason, there could be no honest concurrent use of the mark in relation to the goods actually encompassed by the application

Their Honours agreed with the appellant, finding that:

As a matter of plain English, the words “none of the foregoing being in the nature of tiles” operate to limit the class 19 goods to include only panels for floors, floor coverings and wall claddings which are not in the nature of tiles. The primary judge’s conclusion that the tile disclaimer did not “subtract all content” from the words “[p]anels for floors, floor coverings, and wall cladding” which are not “in the nature of tiles” was a statement of the obvious. For example, the exclusion of tiles might allow for carpet or carpet panels. It is not a statement which supports the conclusion that the tile disclaimer was “ineffectual” in the sense contended for by the respondent.

Thus, the Full Court held that the primary judge had erred in his finding of honest concurrent use. This was because such use must be in respect of the goods specified in the application. In this case, tiles had been explicitly omitted from the specification, so they were not covered.

Authorised use

Given that the Full Court found that the primary judge had erred on the finding of honest concurrent use, the second consideration of whether Caesarstone’s use would have been considered “authorised use” was effectively immaterial. However, the judges did discuss the issue briefly in any case.

Under the Trade Marks Act, Section 8(1) states that a person is an authorised user “if the person uses the trade mark under the control of the owner of the trade mark”.

Section 8(3) further states that:

(3) If the owner of a trade mark exercises quality control over goods or services:

(a) dealt with or provided in the course of trade by another person; and

(b) in relation to which the trade mark is used;

the other person is taken, for the purposes of subsection (1), to use the trade mark in relation to the goods or services under the control of the owner.

The primary judge held that Caesarstone’s prior concurrent use was authorised use under Caesarstone’s control because Caesarstone:

(1) gave instructions regarding slab transport and storage to the Australian distributors;

(2) provided technical and marketing support services to the Australian distributors;

(3) sought to exercise quality control by ensuring that the Australian distributors provided fabrication and installation manuals to the stonemasons, and contributing to the content of these manuals.

However, in the appeal, the Full Court found that the evidence did not support this contention. They therefore held that the primary had judged erred in his finding of authorised use.

Their Honours stated that:

Authorised use requires the trade mark applicant to establish “control as a matter of substance”: Lodestar Anstalt v Campari America LLC [2016] FCAFC 92; (2016) 244 FCR 557 (Lodestar) at [97]. What constitutes control as a matter of substance is informed by the function of the trade mark, which is to indicate a connection in the course of trade with the registered owner – see PioneerKabushiki Kaisha v Registrar of Trade Marks [1977] HCA 56; (1977) 137 CLR 670 (Pioneer) at 683 per Aickin J”. 

The court also affirmed that “the critical enquiry is whether there was quality control with respect to the designated goods”.

In considering control as a matter of substance, the court found that Caesarstone did not in fact fulfill this requirement, because the control exercised by the company was not in relation to the designated goods. Rather, it was in relation to panels for floor and wall coverings. Further, the court also found that any quality control was not in relation to the labour of the stonemasons, who were the individuals responsible for fabricating the slabs into complete products, and therefore ultimately accountable for the quality of the designated goods. The full court held that:

not only did Caesarstone not have any contractual relationship with the stonemasons, but there was no evidence that Caesarstone ever inspected the stonemasons’ work or conducted any quality control regarding the final product.

In particular, the Full Court noted that

• Caesarstone’s storage and transport instructions only related to keeping the good free of damage. The instructions had no bearing on maintaining a level of quality.
• The installation and assembly instructions provided to the stonemasons were merely guidance in the form of technical information, which is not of itself a form of quality control.
• In Caesarstone’s distribution agreement with Tessera, there was no information relating to “quality control standards, brand guidelines, marketing approval mechanisms or rights of inspection of fabricated product”.

Key conclusions and takeaways

Ultimately, the appeals in each of the proceedings were allowed, and the primary judge’s orders were set aside. Caesarstone’s applications were rejected, and registration of the CAESARSTONE mark was cancelled.

The Full Court based this decision on the finding that the primary judge had erred in his conclusion that there had been “honest concurrent use” in relation to the goods encompassed by the amended application. Their Honours also found that Caesarstone’s use was not “authorised use” under Caesarstone’s control, and that the company did not in fact exercise quality control over the goods.

The decision has affirmed that disclaimers in goods specifications are to attract a plain English interpretation. It has also put applicants on notice, that if they are seeking to establish “honest concurrent use”, they must demonstrate such use is in relation to the particular goods outlined in the application.

The case is also a reminder that quality control is carried out as a matter of substance, not simply the provision of technical or other advice or guidance. If this is not established, use of the trade mark will not be considered “authorised use” in support of a claim to register.

Case Highlights

The Ceramiche Caesar v Caesarstone case is a critical reminder to business operators, highlighting several important issues to keep in mind in your day-to-day operations.

1. Drafting trade mark applications with precision, and in specific alignment with actual or intended use of the product or service

It is critical to ensure that your trade mark application is drafted with meticulous detail, and with precise relevance to the service or product, including the nature of that service or product. This can include intended services or products that hold sufficient evidence of justification at the time of application.

This is a difficult task that requires particular expertise and experience that a good trade mark attorney is able to deliver. Your trade mark attorney can cut through messy and time consuming “red tape”, and ask just the right questions at the time of brief to avoid unnecessary obstacles in the future.

2. Honest and concurrent use must be clear and continuous

To establish honest and concurrent use, the use must not have been ambiguous or intermittent. Evidence of use must be available, and both sufficient and relevant to establishing honest and concurrent use. It must be unequivocal in nature, and not capable of open interpretation resulting in vulnerabilities during periods of oppositions or disputes.

3. Authorised use and control requires a material connection between owner and licensee

Prudent businesses who take early action can avoid costly litigation down the track by ensuring their IP is free from vulnerabilities and not a liability.

For a trade mark to remain valid in relation to goods or services, where that trade mark is licensed to a licensee, the registered owner must prove that it has sufficient and actual control over the licensee or its use of the trade mark.

In Ceramiche Caesar v Caesarstone, although a ‘mixture’ of control was demonstrated, the court emphasised that the key inquiry is “whether there was quality control with respect to the designated goods themselves”. Instructions made by a licensor to a licensee concerning storage, inventory management, instructions concerning transportation, and the providing of manuals for fabrication, in this case, collectively did not suffice. A reminder to all entrepreneurs of the central importance of developing suitable business structures before entering into IP commercialisation that are reinforced by tightly drafted contractual agreements. Such agreements should be free from unequivocal terms of duties and roles, and be designed to align with the relevant IP legislation.

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