New opinion — Third Circuit clarifies test for manufacturer-distributor patent disputes, despite the appellant’s waiver

Covertech Fabricating v. TVM Building Prods. — patent — partial affirmance — Krause

The Third Circuit today affirmed on alternative grounds a district court ruling in favor of the manufacturer in a trademark dispute, but it vacated the lower court’s damages calculation. The opinion’s introduction:

Too often the silence of contracting parties must be
filled by the voice of the courts. Such is the case here, where
we are called upon to resolve a trademark dispute in which no
written contract designates ownership, and, in the process, to
clarify the paradigm through which common law ownership
of an unregistered trademark is determined when the initial
sale of goods bearing the mark is between a manufacturer and
its exclusive distributor. The District Court in this case
awarded ownership to the manufacturer, but did so on the
basis of the first use test, and found the distributor liable for infringement and fraud before rejecting its defense of
acquiescence and awarding damages under the Lanham Act.
Because the District Court failed to recognize and apply the
rebuttable presumption of manufacturer ownership that we
conclude pertains where priority of ownership is not
otherwise established, and because the District Court
incorrectly relied on gross sales unadjusted to reflect sales of
infringing products to calculate damages, we will affirm on
alternative grounds as to ownership, will affirm as to fraud
and acquiescence, and will vacate and remand as to damages.

Beyond the merits holdings, the opinion also features notable appellate procedure rulings. The court held that the first-use test did not apply to manufacturer-distributor trademark disputes, but the losing party below never made that argument in district court nor even in its opening brief on appeal. Instead, the Third Circuit itself directed the parties to brief the issue. The court noted the manufacturer’s waiver, but said “it is necessary and appropriate for us to take up the question of the proper legal test because it is a purely legal question, the resolution of which is in the public interest” (citation omitted).

The court also opted to apply the correct six-factor test on appeal, instead of remanding to give the district court the first crack. It noted that application of the factors was “fully briefed, the parties have confirmed that they would not add to the record on remand, and our application of the test may provide helpful guidance to district courts.”

Joining Krause were Jordan and Vanaskie. Arguing counsel were Brian Shaffer of Morgan Lewis for the appellee distributor and J. Michael Baggett of McCann Garland for the appellant manufacturer.

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