The Franchise Memorandum

The United States Court of Appeals for the Third Circuit affirmed on alternative grounds the Western District of Pennsylvania's finding that a manufacturer owned a trademark used to distribute its products, but the court vacated and remanded the case as to damages. Covertech Fabricating, Inc. v. TVM Building Prods., Inc., 855 F.3d 163 (3d Cir. Apr. 18, 2017). Covertech manufactures insulation products under the umbrella of its rFOIL brand, which includes the products CONCRETE BARRIER (a registered trademark) and ULTRA (an unregistered trademark). Covertech entered into two agreements with TVM Building Products that designated TVM as the exclusive distributor of Covertech's rFOIL products and prohibited TVM from selling competitive products. After TVM sold comparable products manufactured by a competitor, Covertech terminated its relationship with TVM. Nonetheless, TVM continued to sell under the rFOIL brand names, and Covertech demanded that TVM cease using its trademarks. When TVM responded by registering the ULTRA trademark in its name, Covertech filed an adverse petition with the Patent and Trademark Office seeking registration of ULTRA in its own name and also filed suit against TVM. The district court determined that Covertech was the owner of the ULTRA trademark based on the "first use test," which determines ownership by asking which party first used the unregistered trademark in commerce.

On appeal, the Third Circuit held that although the "first use test" is generally proper for determining ownership of unregistered trademarks absent a contractual arrangement, the district court should have used a test that accounted for the realities of the manufacturer-distributor relationship. Under this alternative test, the manufacturer is the presumptive trademark owner unless the distributor rebuts that presumption using considerations such as which party invented the mark, which party first affixed the mark to goods and displayed its name on packaging, to which party did customers look as standing behind the goods, and which party paid for advertising and promotion. Applying this test, the appellate court still found in favor of Covertech. The court did, however, remand the case to determine a more accurate damages award relating to TVM's infringement of the rFOIL and CONCRETE BARRIER trademarks.