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Intellectual PropertyFeaturesLitigationLJN NewslettersThe Intellectual Property StrategistTrademarks

Manufacturers vs. Exclusive Distributors: Who Owns the Trademarks?

By Kyle-Beth Hilfer

The Third Circuit has adopted McCarthy's “ownership” test in determining whether a manufacturer or distributor owns a trademark in the absence of an express agreement between the parties. In Covertech Fabricating, Inc. v. TVM Building Products, Inc. et.al., No. 15-3893 (3d Cir. 2017), the court adopted McCarthy's test as the formal rule of the circuit, specifically replacing the “first use” test that typically decides trademark ownership disputes. The McCarthy test was first enumerated in Professor Thomas McCarthy's seminal treatise on trademark law. See, McCarthy on Trademarks & Unfair Competition (4th ed. 2017). The Covertech case may prove to be a “win” for manufacturers as opposed to exclusive distributors when ownership of trademarks is not specified in their contract.

When manufacturers contract with their distributors, they handle trademarks in one of three ways: 1) they assert ownership of all trademarks on the products; 2) they assign the trademarks to the distributors; or 3) they fail to address the issue in the contract. When the contract is silent and a dispute between the parties ensues, the courts have to determine the trademark's ownership. In the Covertech case, the Third Circuit held that the traditional “first use” test is an “imperfect fit” for a manufacturer/distributor relationship. Instead, it favored the McCarthy “ownership” test.

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