Generally, when two different entities both claim to own an unregistered trademark, courts will employ what is known as the “first-use” test to determine ownership. The first-use test is based on the common property maxim: “first in time, first in right,” and awards the mark to the entity to first use the mark in commerce.
This test doesn’t fit every scenario, however, especially when the parties claiming to own the mark worked together to bring the goods or services to market, such as in a manufacturer-distributor relationship.
When a manufacturer and distributer dispute who owns the mark, the courts will first ask whether the parties had a contract addressing trademark ownership. If so, then typically the contract controls. Courts will only disregard the contract and award ownership of a mark to the other party if there is a considerable amount of evidence that customers identify the mark with that other party. After all, trademark rights are inherently connected to consumer perception.
What happens if the manufacturer and distributor don’t have a contract? A Trademark Trial and Appeal Board presumption is gaining traction in the federal courts. The presumption is that the manufacturer owns the mark. Of course this is only a presumption. The distributor can rebut it if it can show through a multi-factor test that based on the parties’ use of the mark in practice, the distributor is actually the owner. Here are the factors:
- Which party invented or created the mark;
- Which party first affixed the mark to goods sold;
- Which party’s name appeared on packaging and promotional materials in conjunction with the mark;
- Which party exercised control over the nature and quality of goods on which the mark appeared;
- To which party did customers look as standing behind the goods. In other words, which party received complaints for defects and made appropriate replacement or refund; and
- Which party paid for advertising and promotion of the trademarked property.
The manufacturer presumption and the multi-factor rebuttal test were recently adopted by the Third Circuit in Covertech Fabricating, Inc. v. TVM Building Products, Inc.
Covertech, a Canadian manufacturer of protective packaging and insulation, sold products under its umbrella trademark rFOIL. TVM, a U.S. distributor entered into an oral agreement with Covertech to be the exclusive distributor and marketer of Covertech’s rFOIL products.
The agreement fell apart, however, when Covertech discovered that TVM sold non-Covertech products under the rFOIL brand name.
Covertech, in an effort to protect its marks, later registered the mark ULTRA (which was used on one of its rFOIL products) in Canada. TVM, with knowledge of Covertech’s Canadian registration, then sought to register the ULTRA mark with the U.S. Patent and Trademark Office. Covertech opposed the registration and filed suit in federal court.
In deciding who owned the ULTRA mark, the District Court applied the first-use test and found that Covertech was the owner. On appeal, the Third Circuit said that rather than using the first-use test, the court should have applied the presumption and multi-factor test stated above.
Applying those factors, the Court held that the first, second, fourth, and fifth factors favored Covertech because Covertech developed and used the ULTRA mark; the labeling of the mark was handled by Covertech; Covertech exercised control over the products by manufacturing them; and Covertech bore responsibility for warranties.
The Court concluded that the third factor was neutral because both Covertech and TVM had displayed their logos in connection with the ULTRA mark, and the sixth factor favored TVM because it was responsible for advertising and promoting the products in the U.S.
After weighing the factors, the Court held that Covertech was indeed the initial owner of the ULTRA mark.
It’s important to note that a distributor does not need to prove that all of the factors lean in its favor. A court will consider how many of the factors are in favor of the distributor and give different weight to each of those factors based on the facts of the case. If the factors are apportioned equally between the distributor and manufacturer, then the presumption in favor of the manufacturer has not been rebutted—in other words, a tie goes to the manufacturer.
Although the Fourth Circuit has yet to rule on this presumption, the Eastern District of Virginia applied a similar test in Product Source International, LLC v. Nahshin. Rather than apply the six factors listed above, the court, relying on a California case, narrowed the factors to four: 1. Which party invented and first affixed the mark onto the product; 2. Which party’s name appeared with the trademark; 3. Which party maintained the quality and uniformity of the product; and 4. With which party did the public identified the product.
The tests are similar and serve the same purpose, that is, to determine the initial owner of the mark. Once initial ownership has been established, the test should not be used again at a later time to argue that ownership has changed.
If you have concerns about trademark ownership, Astrachan Gunst Thomas can help. Contact Jim Astrachan at 410-783-3550 (jastrachan@agtlawyers.com) or Julia Bartels at 410-783-3533 (jbartels@agtlawyers.com).
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