On April 18, 2017, the Third Circuit held that the McCarthy Test should be applied in trademark disputes between distributors and manufacturers when there is no written contract. Covertech Fabricating, Inc. v. TVM Bldg. Prod., Inc., 855 F.3d 163 (3d Cir. 2017). Plaintiff Covertech Fabricating, Inc., headquartered in Canada, manufactures protective packaging and reflective insulation. In 1998, Plaintiff entered into an informal agreement with Defendant TVM Building Products, Inc. which designated Defendant as the exclusive marketer and distributor of Plaintiff’s rFOIL insulation products in the United States. After disputes regarding payment and Defendant’s purchase of competitor insulation products, Plaintiff terminated its informal agreement with Defendant and trademarked the rFOIL product in Canada. In response, Defendant petitioned to register rFOIL as a trademark in the United States. Plaintiff sued Defendant to assert its ownership over the trademark. The lower court granted Plaintiff’s claims. The Third Circuit affirmed the decision but found that the lower court’s use of the first use test was legal error.
The Third Circuit held that the McCarthy Test should be applied in distributor-manufacturer disputes rather than the First Use Test due to the unique attributes of a relationship between an exclusive and noncompetitive distributor and manufacturer. The First Use Test is generally appropriate for unregistered trademark disputes as it favors the entity that used the trademark first thus rewarding the party with actual and continuous use of the mark. The Third Circuit held that the McCarthy test is more appropriate under these circumstances because it would unjustly benefit the distributor in the majority of cases simply due to the distributor making the first sale of the goods solely at the manufacturer’s request. The McCarthy tests states that “the manufacturer is the presumptive trademark owner unless the distributor rebuts that presumption using a multi-factor balancing test.” The factors of the balancing test are:
(1) which party invented or created the mark”; (2) which party first affixed the mark to goods sold; (3) which party’s name appeared on packaging and promotional materials in conjunction with the mark; (4) which party exercised control over the nature and quality of goods on which the mark appeared; (5) to which party did customers look as standing behind the goods, e.g., which party received complaints for defects and made appropriate replacement or refund; and (6) which party paid for advertising and promotion of the trademarked product.
The Third Circuit ruled that Plaintiff was the proper owner of the trademark given a balancing of the McCarthy factors. Even though the balancing clearly favored Plaintiff in this case, the Court asserted that ownership generally goes to the manufacturer if the factors are equal given the presumption of ownership for the manufacturer. The Court also dismissed Defendant’s challenges regarding Plaintiff’s successful fraud and acquiescence claims.