Ownership of a trademark is typically determined by the parties contractual provisions. Often, the decision maker is faced with dueling presumptions: absent an agreement between the parties, the presumption of ownership favors the manufacturer, but where the distributor has obtained a federal registration of the trademark, the registration carries its own presumption. Moreover, both of these presumptions are rebuttable, and the contractual assignment of ownership is itself not alone determinative.

The Starting Point: Ownership of the Trademark is Largely Determined by Contractual Provisions
It is a well settled principle that the ownership of a trademark between a manufacturer and an exclusive distributor is largely determined by the parties’ agreement. Premiere Dental Products Co. v. Darby Dental Supply Company, 794 F.2d 850, 854 (3rd Cir. 1986). However, the parties’ agreement relative to the question of ownership is not dispositive. The ownership of the product’s goodwill must also be considered.

In Premiere Dental Products, the distributor brought suit against an importer of the product, seeking to enjoin importation. The importer attacked the distributor’s standing, arguing that the manufacturer, not the distributor, was the trademark’s owner. The contract between Premier and the manufacturer assigned all rights, title and interest to the trademark to the distributor. However, considerable limitations were placed on this assignment. For instance, the distributor granted back to the manufacturer the sole and exclusive right to manufacture the products. The manufacturer was to maintain the same quality of the goods it has previously manufactured. The distributor was to take no action with respect of the trademark or the registration which would in any way dilute or damage the goodwill of the trademark. In the event the manufacturer desired to have the trademark, the contract required that the distributor reassign the trademark to the manufacturer.

While the court recognized that the parties’ agreement assigning ownership to the distributor is an important factor in settling the question of ownership, it is not dispositive. Thus, the court looked beyond the written agreement and focused on which party owned the goodwill in the trademark.

Specifically, the public’s actual perception of which entity owns the trademark is a strong factor in determining ownership rights in a mark. For instance, it must be determined whether or not the public believes that the exclusive distributor is responsible for the product. It must also be determined whether or not the distributor obtained “a valuable reputation for himself and his wares by his care in the selection of his precautions as to transit and storage, or because his local character is such that the article acquires a value by his testimony to its genuineness.” Premier Dental Products, 794 F.2d at 854, quoting other sources.

Under these circumstances, the court recognized that while the manufacturer/distributor agreement limited the distributor’s rights over the trademark, the distributor nonetheless owned the rights to the trademark and could bring suit to enjoin the unauthorized importation. Premier was the party that controlled the nature and quality of the products on which the trademark appears and whom the public actually perceived as the owner of the trademark. More importantly, the distributor established that it was the exclusive domestic source of the products and the party that stood behind the quality of the product.

Factors that Must be Considered When There is No Agreement Between the Parties
In the absence of an agreement between the manufacturer and distributor, the manufacturer is presumed to be the owner of the trademark. Sengoku Works Ltd. v. RMC International, Ltd., 96 F.3d 1217 (9th Cir. 1996). The presumption in favor of the manufacturer is rebuttable; an exclusive distributor may acquire trademark rights superior to those of the manufacturer. In order to rebut the presumption of trademark ownership in favor of the manufacturer, courts consider various factors, including: 1) which party invented and first affixed the trademark on the product; 2) which party’s name appeared in connection with the trademark; 3) which party maintained the uniformity and quality of the product; 4) which party does the public identify the product; and 5) which party receives customer complaints.

In Sengoku Works Ltd, the manufacturer distributed the products that bore the trademark from 1982 to 1985. From 1985 to 1994, an exclusive distributorship agreement existed. Under the agreement, the distributor handled all of the marketing and advertising for the products and arranged for all of the retailer purchases of the products. Only the distributor’s name appeared on the product packaging and the distributor dealt with all of consumer complaints and returns. Moreover, the distributor acquired a federal registration in the mark and claimed the date of first use as 1985. Sengoku Works, Ltd., supra at 1220-22.

After several years of selling the manufacturer’s products, the distributor began to experience increasing quality problems with the products.

When the manufacturer did not take satisfactory steps to remedy the problems, the distributor entered into an agreement with another corporation to manufacture similar products under the trademark. The original manufacturer learned of the distributor’s new agreement and filed suit against the distributor for trademark infringement.

This case created a close question as to trademark ownership because some of the factors favored the manufacturer, while others favored the distributor. For instance, only the distributor’s name appeared on the product and packaging, and the distributor handled all customer complaints and returns. However, the manufacturer exercised control over the product quality and uniformity and first affixed the mark to the products.

In order to resolve this close question as to ownership, the court disregarded both presumptions (one favored each party) and focused instead on the date the mark was first used in commerce. In this instance, the manufacturer first affixed the mark to the products in 1982, at least two years prior to the exclusive distributorship agreement. The distributor did not receive a federal registration until 1992 and the claimed first use was not until 1985. Thus, affixation of the mark to the product was the factor that tipped the scale in favor of the manufacturer.

In Omega Nutrition U.S.A., Inc. v. Spectrum Marketing, Inc., 756 F.Supp. 435 (N.D. Ca 1991), the manufacturer entered into an oral distribution agreement whereby the distributor agreed to become the manufacturer’s exclusive distributor in the health food market for its product. The first shipment of the product was made by the manufacturer in September or October 1987. The labels affixed to the bottles of the product bore the disputed mark and identified the distributor of the product “under license to” manufacturer.

In September 1989, the business relationship between the manufacturer and distributor terminated. A dispute arose over which party owned the right to the trademark. The manufacturer claimed that it owned the rights to the mark, and that distributor’s manufacture and marketing of the product bearing the mark is trademark infringement. On the other hand, the distributor contended that it was the rightful owner of the trademark, and that the manufacturer’s continued use of the mark constituted trademark infringement. To determine which party owned the mark, the court engaged in balancing of the relevant factors.

The court noted that the distributor was issued a federal registration on August 7, 1990. Since federal registration is prima facie evidence of the registrant’s ownership of the mark, the burden of proof shifted to the manufacturer to rebut the presumption of the distributor’s ownership by a preponderance of the evidence. The manufacturer argued that it was the first to use the disputed mark because it shipped the products bearing the mark to the distributor for distribution and the distributor’s use of the mark inured to the benefit of the manufacturer by virtue of the fact that the distributor was essentially a licensee of the manufacturer.

The court rejected the manufacturer’s arguments and noted that it is a well-settled principle of trademark law that ownership of a mark is founded upon actual use of the mark in commerce, not mere creation of the mark. As between actual users of the mark in commerce, it is the party who first uses the mark that possesses the superior right.

In this instance, the court concluded that even if the manufacturer shipped the product to the distributor on September 18, 1987, the distributor would have then marketed and distributed the product, also making use of the mark. This left the parties in the same relative positions as to who used the mark first in commerce. Thus, the court had to determine which party possessed the superior right to the mark based on factors other than first use.

Applying the remaining factors, the court determined that the distributor owned the right to the mark and could enjoin the manufacturer’s use of the mark. Specifically, the court concluded that until the exclusive distributorship agreement was terminated, the mark was used solely in connection with the distributor’s name. In fact, the labels used during the parties’ business relationship prominently featured the distributor’s brand name and logo directly above the trademark, while the only mention of the manufacturer was in tiny print in the lower left hand corner of the label. Additionally, the distributor bore the brunt of the responsibility of maintaining the quality of the product. It was the distributor who demanded that the manufacturer correct product defects. Moreover, it was the distributor that customers complained about product defects.

Finally, the court found that the manufacturer’s contention that the distributor was the licensee of manufacturer was suspect. An exclusive distributor may acquire trademark rights superior to the manufacturer. A distributor’s use of a trademark only automatically inures to the benefit of manufacturer when it can be proven that the manufacturer is the original owner of the mark and the license to distribute the product includes the license to use the manufacturer’s mark. In this instance, the manufacturer could not prove that it was the original owner of the mark. Moreover, the court noted that placing the phrase “under license to” on the product label does not make it a license agreement. The phrase “under license to” was not intended to imply that the trademark itself was under license to the distributor. The phrase merely indicated an exclusive distributorship relationship. Thus, the court concluded that the presumption in favor of the manufacture as to ownership of the mark was rebutted by distributor’s federal registration and an application of the other factors in its favor.

The Factors are Applied in the Same Manner Even when First Use of the Mark is Outside the United States
In Imaf, S.P.A. v. J.C. Penney Company, Inc., 806 F.Supp. 449 (S.D.N.Y. 1992), an Italian knitwear manufacturer contracted with an American retailer to manufacture products for sale in the United States. The manufacturer created the trademark to be placed on the products.

However, the retailer sent specifications detailing the desired label and retained the right to make any changes to the product. The retailer had ultimate control over the quality of the products. Additionally, the retailer exclusively conducted the advertising for the sale of the products and was responsible for all returns and customer complaints. Moreover, there were no words on the label that would identify the products came from the manufacturer.

There was a dispute as to the quality of the products and the manufacturer brought suit against the retailer for trademark infringement. From the onset, the courts noted the presumption in favor of the manufacturer’s ownership of the mark. However, the court recognized that absent an agreement, an exclusive distributor may acquire trademark rights in the mark over the claimed ownership of the manufacturer. In this instance, the court concluded that the retailer approached the manufacturer with an order for the products. The retailer was the first to use the mark in the United States. The retailer had the last word as to the quality of the products. Moreover, the products were being sold at the retailer’s stores, where the retailer was backing the product with its reputation entirely. Applying these factors, the court held that the manufacturer did not have exclusive rights to the trademark and the retailer did not engage in trademark infringement.

Conclusion
While presumptions abound in disputes between exclusive distributors and manufacturers, courts tend to disregard them in determining ownership of trademarks, particularly where they appear to cancel each other out. Instead, courts look at other factors in determining which party is the mark’s owner.

About the Author(s)
David H. Levitt is a Partner at Hinshaw & Culbertson LLP law firm in Chicago where he is engaged in the practice of Corporate & Business Law, Health Care, Insurance Coverage, Insurance Litigation, Insurance Services, Intellectual Property, Litigation, Products Liability and Transportation.

Kourtney A. Mulcahy is a Partner at Hinshaw & Culbertson LLP law firm in Chicago where she focuses her practice in the area of intellectual property. She handles both transactional matters and litigation, including trademark and copyright law, unfair competition, trade secrets, licensing, and Internet-related matters.