Property, intangible

a blog about ownership of intellectual property rights and its licensing

When Are You a “Distributor”?

There’s a presumption in manufacturer-distributor cases that the manufacturer owns the mark. Is the presumption deserved? What is fundamentally different between a manufacturer-distributor relationship and one where a company contracts for the manufacture of its product (an OEM relationship), when there isn’t the same presumption? Does it fall into one category or the other just depending on how you wrote your agreement?

In Country Fare LLC v. Lucerne Farms, Country Fare and Lucerne Farms entered into an agreement where Country Fare was characterized as distributor/seller of lawn and garden products and Lucerne Farms characterized as a manufacturer/supplier of bagged products. Country Fare had a formula for a proprietary mulch composition of hay and straw and Lucerne Farms had the capacity to manufacture it, so they entered into an agreement where Lucerne Farms would manufacture, bag and ship “Mainely Mulch” mulch according to Country Fare’s specifications.  Country Fare supplied the bags, paid for the plates for printing the bags, and kept possession of the plates. Country Fare’s name was prominently on the front of the bag and Lucerne’s on the back as manufacturer.

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The Agreement had this language:

and the Agreement said that Lucerne Farms manufactured exclusively for Country Fare.

All complaints about the product were directed to Country Fare and in one case Lucerne Farms said “Maine Mulch is a Country Fare product and therefore we are prohibited to do anything in the way of advertising, selling, etc. all must be done through Country Fare . . . ” Finally, the court found that, despite Lucerne Farms’ claim to the contrary, Country Fare conceived of the name “Mainely Mulch.”

Then the break-up. In anticipation, Lucerne Farms filed an application to register the “Mainely Mulch” mark. The specimen, though, was missing the Country Fare name:

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The trademark attorney, testifying by affidavit, explained “Information relating to LF’s distributor of the Mainely Mulch product does not appear on the specimen because it is not germane to the application.”  The specimen for the later Section 8 declaration was of only the top of the bag, again omitting the Country Fare reference.

After the break-up, Country Fare turned to a Canadian manufacturer. Lucerne Farms filed its trademark registration with Customs and successfully excluded the Country Fare goods from the United States.  Lawsuit filed.

The facts here are so heavily one-sided the manufacturer-distributor presumption was easily overcome. Lucerne Farms was enjoined from interfering with Country Fare’s use of the Mainely Mulch mark and was ordered to give Customs its consent for the release and importation of Country Fare’s Mainely Mulch.

Because the trademark registration was incontestable Country Fare had to show fraud to get rid of it, also easily done:

[T]he Court finds that the Plaintiff has clearly met its burden of persuasion of its likelihood of presenting clear and convincing evidence that the Defendant secured a trademark to the “Mainely Mulch” mark through fraud . . . . Country Fare’s rightful claim to the trademark would have been apparent and clear to Lucerne at the time it filed its application with the Trademark Office, particularly as Country Fare’s ownership of the mark was clearly delineated in the parties’ 1999 agreement, established through the nature of the parties’ respective relationships with the product, and reflected by the designs that appeared on the bag itself which identified Mainely Mulch as a Country Fare product. The Court therefore concludes that Country Fare has proved by clear and convincing evidence that Lucerne’s submissions to the Trademark Office were not made in good faith and were not a result of an honest misunderstanding particularly as Lucerne provided specimen’s that actively concealed any and all identifying information relating to the Plaintiff even though Lucerne asserted that the specimens reflected a mark that Lucerne had used in commerce for five consecutive years prior to the filing.
The trademark attorney’s affidavit as to everyone’s good intentions was no help:

The Court therefore is not dissuaded from its conclusion that the Plaintiff has demonstrated a likelihood of success, as the Defendant has not credibly disrupted evidence that Lucerne, as an entity, had clear knowledge of the Plaintiff’s right to the mark and therefore made a material misrepresentation when it instructed its trademark attorney to file for the mark even if Haley himself was unaware of the falsity. As noted, knowledge of the filing’s falsity is evinced by the fact that a specimen of the Mainely Mulch package was presented to the Trademark Office in a manner that strategically omitted all references to Country Fare that existed on the bag that was actually used in commerce by Country Fare prior to, and at the time of the Defendant’s application. Further, Lucerne misrepresented that the altered bag had been used by it in commerce when in fact it had not been.

So what exactly made this a manufacturer-distributor relationship rather than a contract manufacturing relationship? Country Fare did everything – formulated the product, thought up the trademark, designed the bag, controlled how many bags Lucerne Farms had, did all the marketing for the product, and handled all complaints.  Country Fare had to meet a quota, but the court found that was based on Lucerne’s need to utilize manufacturing capacity, not anything having to do with ownership of the mark. I think the only reason this could be considered a manufacturer-distributor relationship is because the parties characterized it that way themselves. Lesson learned.

Country Fare LLC v. Lucerne Farms, No. 3:11cv722 (D. Conn. June 7, 2011).

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