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Protecting Your Trade Mark Outside Australia – A Primer to the Madrid Protocol

Protecting Your Trade Mark Outside Australia – A Primer to the Madrid Protocol

In the modern globalised economy, it is increasingly important for Australian providers of products and services to protect their intellectual property (IP) not just locally, but also in other countries. This article considers how one form of IP, trade marks, can be protected internationally by Australian businesses.

Please note that this article provides an overview only. Intellectual property is a complex area. This article is not intended as a substitute for independent legal advice.

What are Trade Marks?

Trade marks are a means of identifying a unique product or service. It is often referred to as a brand.

Under Australian law, trade marks are defined as “a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by another person”.   A “sign” is broadly defined. It can include any of the following or combination of the following: “any letter, word, name, signature, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour, sound or scent”.

Having a registered trade mark provides to the holder with of the mark an exclusive right to sell products or services of a particular class using that mark. The owner may take protective action against competitors who attempt to sell products or services of that type using the same or similar mark.

While the holder of an unregistered trade mark has certain rights under common law and fair trading legislation in Australia, protecting goodwill associated with branding is much more difficult than if a trade mark had been registered. There is also the real risk that a competitor may attempt to register the mark themselves.

For these reasons, it is strongly recommended that goodwill generated by branding is protected by registration of trade marks not only in Australia but in each country where products are intended to be sold or services provided under.

In Australia, trade marks can be registered online through IP Australia.  Subject to the following, registration of trade marks outside Australia is required to be completed with the trade mark office in each separate country.

The Madrid Protocol

It is possible to apply to register a trade mark in other countries by applying directly to that country’s trade mark office. This can be an expensive and difficult process, and requires separate applications to each country in which protection is sought.

Fortunately, Australia is a party to the Madrid Protocol. This is an international agreement that provides for a streamlined process of obtaining international trade marks among the countries it covers. Currently, there are 104 members, including the United States, European Union (EU), Canada and New Zealand.  Registrations that nominate the EU will be effective in each of the EU’s member states.

A single application can cover multiple countries.

The Application Process

To use the Madrid Protocol, it is necessary to have first applied for a trade mark in Australia and to have received at least a filing number. An Application for International Registration can then be made through IP Australia, who will then send it to the World Intellectual Property Organisation (WIPO).

The application carries a fee, which varies depending on which countries are selected. WIPO provides a fee calculator which can advise the relevant fee ahead of time.

After receiving the application, WIPO will examine the application for technical compliance (in other words, that the form has been completed properly, and the fee has been paid). It will then forward the application to the trade mark offices of all the relevant countries. From that point, each country will separately assess the application as if it had been made directly to them.

Each country’s office has up to 12 or 18 months (depending on the country) to grant or refuse the trade mark. A country may issue a notice of intention to refuse, which will outline items that must be amended before the trade mark will be accepted.

Please note that the validity of any international trade marks made through the Madrid Protocol relies upon the continuing validity of your Australian trade mark.

Madrid Protocol trade marks must be renewed every 10 years.

Summary

The Madrid Protocol framework provides an efficient means of applying for trade mark protection in multiple countries at once.

If you require any assistance with the registration of trade marks in Australia or internationally please contact JHK Legal on 07 3859 4500 or [email protected]

Written by Matthew Paul, Solicitor

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Sale and Purchase of Business Restraints: How do they affect you?

When you enter into a sale and purchase of business agreement, the seller will usually be asked to agree to a restraint of trade for certain acts done in a certain area and a certain period of time. Usually, this will apply to both the entity selling the business as well as any key personnel (for example, the director of a company seller). The purpose is to give comfort to purchasers that there will be value in the business after the sale, but there must be a limit so that there is no unreasonable restriction on free competition in the market. So: what are the recent updates, and how can a restraint clause affect you?[1]

What are the main factors in a restraint?

In Australia, restraint of trade is governed by common law (that is – by cases in court) other than in New South Wales where there is specific legislation. In order for restraint clauses to be upheld by a court, the general rule is that the limitations must be “reasonably necessary” in order to protect the goodwill of the business being purchased.

There are usually two types of restraint in business sale agreements:

  1. Non-compete: that is – the seller (and/or its director) will not open a business or work for a business which is substantially the same as the business it is selling within a particular timeframe and in a particular area;
  2. Non-solicitation: that is – the seller (and/or its director) will not approach employees, clients or suppliers of the business it is selling.

There are three main features which are usually considered in respect of non-compete and non-solicitation restraints:

  1. Area: that is – how close to the business being sold the seller may open or be employed by a competing business. This can be as limited as 1 kilometre from the business premises, or as wide as all of Australasia;
  2. Time: that is – how long the seller may not open or be employed by a competing a business or solicit customers of the business being sold. This can be as limited as a few months, or as long as a few years;
  3. Acts: that is – what the seller is specifically restrained from doing.

Ultimately, area, act and time limitations are agreed as necessary between the parties, and their legitimacy is determined by the courts on the circumstances on a case by case basis.

Breaking up a restraint clause

If there is a section of a restraint clause which is found to be unenforceable by a court, the remainder of the clause may continue in force if the offending parts may reasonably be severed without altering the nature of the agreement.

This was considered in the Victorian case of Freedom Finance Accounting Pty Ltd v Goldstein [2017] VSC 179 (Freedom) where it was held that the offending sections of the clause could not be severed without altering the nature of the agreement, and therefore the restraint clause in its entirety was found to be unenforceable.

Employee after sale

A lot of the cases determined in Australia in the last 10 years have dealt with businesses that were sold where the director of the seller was retained as an employee by the purchaser for a period of time after the sale. Those cases have, in the majority and where the restraint was only contained in the business sale agreement, determined that the relevant rules to apply are the consideration of goodwill of the business (and the reasonableness relevant to that determination) rather than consideration related to employment and employees.[2]

What is reasonable to protect the goodwill of a business?

In Freedom, the Court considered what limitations on acts, area and time were “reasonable” in order to protect the goodwill of the business that was the subject of the sale. The restraint was against the director of the seller for accounting and non-accounting services for a period of three (3) years in an area of a 100km radius of the business. Two factors of note (outside of that mentioned above) in the court ultimately finding the clause was not reasonable were:

  1. The injunction under the restraint clause was sought in respect of taking particular clients, but no client list had been annexed to the business sale agreement when it was signed; and
  2. The inclusion of “non-accounting” services when the director had only ever provided accounting services was beyond what was necessary to protect the goodwill.

On the other hand, a period of four (4) years was found to be reasonable in the case of the sale of shares in an IT business where that restraint was for specific IT procurement and management services in Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460.

Further, an area of the whole of Western Australia with a period of ten (10) years (with some reservations) was found to be reasonable in Devil Dog Pty Ltd v Cook [2017] WASC 27 (Devil Dog).

Goodwill attribution

The value of the goodwill of the business being sold (as opposed to the plant and equipment or other assets) may affect what is considered reasonable in order to protect that goodwill by way of restraint clauses.

In Devil Dog, one of the reasons that such a lengthy period of time was considered reasonable for the purposes of an injunction restraining the former director of the seller from being employed by a competing business was that the sale price of the business attributed 90% of the value to goodwill. The court found this suggested there was customer loyalty to the business brand that would be affected by the former director operating in the same area as an employee of a competing business.

Cascading clauses

Finally, it has long been held that cascading restraint clauses may be valid and not contrary to public policy. Such a clause may look something like:

Restraint area:

  • Australia;
  • New South Wales;
  • Sydney

This allows a court to consider the reasonableness of “Australia” as an area for restraint, but if that is not considered reasonable, to move to consider New South Wales and so on. Because of the nature of such clauses, they may overcome the issue in Freedom and allow for an offending clause to be severed with

another in its place. Such a cascading clause existed in the case of Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 for example.

Ultimately, restraints in business sale agreements are acceptable where they are found to be reasonably necessary to protect the goodwill of the business being sold. If you have any questions about restraints that you think you require or are bound by, or any other questions about restraints, please contact JHK Legal

Written by Sarah Jones, Legal Practitioner Director

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[1] This article does not discuss employee restraints in any detail. If you have questions about employee or employment agreement restraints, please contact JHK Legal for legal advice.

[2] Freedom Finance Accounting Pty Ltd v Goldstein [2017] VSC 179.