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Covertech Fabricating, Inc. v. TVM Building Products, Inc.

United States Court of Appeals, Third Circuit

April 18, 2017

TVM BUILDING PRODUCTS, INC.; TVM CANADA, INC. TVM Building Products, Inc., Appellant

          Argued: September 21, 2016

          On Appeal from the United States District Court for the Western District of Pennsylvania (W.D. Pa. No. 3-13-cv-00150) Honorable Kim R. Gibson, District Judge

          Brian W. Shaffer, Esq. [ARGUED] Andrew C. Whitney, Esq. Morgan Lewis & Bockius Attorney for Plaintiff-Appellee

          J. Michael Baggett, Esq. [ARGUED] McCann Garland Ridal & Burke Attorney for Defendant-Appellant

          Before: JORDAN, VANASKIE, and KRAUSE, Circuit Judges


          KRAUSE, Circuit Judge.

         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.

         I. Factual Background and Procedural History

         Covertech Fabricating, Inc. is a manufacturer of protective packaging and reflective insulation located in Toronto, Canada. Since 1998, it has sold numerous reflective insulation products under the umbrella of its lucrative rFOIL brand-a United States trademark that has been registered in Covertech's name since 2001. The rFOIL brand comprises the following products: ULTRA NT RADIANT BARRIER ("ULTRA"), NT RADIANT BARRIER, CONCRETE BARRIER FOIL, CONCRETE UNDERPAD, and ULTRA CONCRETE UNDERPAD. CONCRETE BARRIER, like the umbrella rFOIL brand, is a registered United States trademark.

         TVM Building Products, Inc. is a distributor of specialty building materials operating out of Johnstown, Pennsylvania. In 1998, the President of TVM, Michael Boulding, and the owner and President of Covertech, Furio Orologio, entered into a verbal agreement (the "exclusive distribution agreement"), which designated TVM as the exclusive marketer and distributor of Covertech's rFOIL insulation products in the United States. Under the terms of the exclusive distribution agreement, Covertech sold its rFOIL products directly to TVM for resale to customers in the United States at a markup; in turn, TVM refrained from selling competitor products in the United States. TVM held exclusive responsibility for customer service and marketing of Covertech products in the United States, and while Covertech reviewed and approved advertising materials designed by TVM, it otherwise played no role in marketing, sales, or customer service.

         In October 2007, Covertech terminated the exclusive distribution agreement, both because TVM was consistently struggling to remit timely payment and because Covertech discovered TVM had been purchasing comparable product from another manufacturer, Reflectix, and passing off some of its merchandise as Covertech's. At the time, TVM assured Covertech that its labeling indiscretions were isolated incidents caused by errors in filling its orders. In late 2007 or early 2008, the parties entered a new agreement (the "private label agreement") pursuant to which Covertech manufactured products for TVM to sell under its own TVM brand name, and Covertech also continued to sell certain rFOIL products to TVM for resale to customers using Covertech's product names. Under this agreement, TVM represented that it would refrain from buying products from Covertech's competitors.

         Despite TVM's promise, it purchased over $2.2 million in reflective insulation products from Reflectix between 2006 and 2009, and in 2009 it began to purchase comparable goods from another competitor, Soprema. In late 2010 or early 2011, shortly after Covertech learned of TVM's illicit purchases, the parties terminated their relationship entirely, including the private label agreement, and Covertech proceeded to sell its own products directly in the United States.

         Nonetheless, TVM, without authorization from or consultation with Covertech, continued to market its reflective insulation products using the rFOIL brand names. For example, in 2011, TVM advertised using the CONCRETE BARRIER, CONCRETE UNDERPAD, and ULTRA CONCRETE UNDERPAD brands in its own product catalog, and between 2009 and 2013, TVM marketed non-Covertech products on its website using the rFOIL, CONCRETE BARRIER, CONCRETE UNDERPAD, and ULTRA CONCRETE UNDERPAD labels. At no point did Covertech give TVM permission to sell merchandise using these product names, and on multiple occasions when Covertech was alerted to particular instances of such unauthorized sales during this period, Covertech confronted TVM in phone calls and demanded that it discontinue this practice.

         Over the years that Covertech engaged TVM as its distributor and made efforts, short of court action, to persuade TVM to stop using rFOIL brand names in its advertising, Covertech also took steps to protect its ownership of the mark in Canada and the United States. Specifically, in 2009, Covertech filed a petition to register ULTRA as a trademark with the Canadian Intellectual Property Office ("CIPO"), which registered the mark in 2010. The next year, although Covertech had informed TVM of its registration in Canada, TVM-without notice to or permission from Covertech- petitioned the United States Patent and Trademark Office ("PTO") to register ULTRA as a trademark in its name. Once it learned that the PTO granted that petition, Covertech filed an adverse petition with the PTO seeking registration of ULTRA in its own name and filed the lawsuit in federal court against TVM that gives rise to this appeal.[1]

         After a one-week bench trial, the District Court granted judgment in favor of Covertech on all claims and, as relevant to this appeal, calculated TVM's ill-gained profits of $4, 054, 319 and alternative statutory damages of $4 million for TVM's infringement of the rFOIL and CONCRETE BARRIER marks. See 15 U.S.C. § 1117(a), (c). Because Covertech elected to receive the profit calculation, judgment in its favor was awarded in that amount for the infringement of those marks. The District Court subsequently denied TVM's omnibus motion for amended and additional findings, altered and amended judgment, and a new trial, and awarded Covertech attorneys' fees and expenses. This appeal followed.

         II. Jurisdiction and Standard of Review

         The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331, 1332, and 1367, and we have jurisdiction pursuant to 28 U.S.C. § 1291.[2] We review a district court's factual findings following a bench trial for clear error, affording "due regard to the trial court's opportunity to judge the witnesses' credibility." Post v. St. Paul Travelers Ins. Co., 691 F.3d 500, 514-15 (3d Cir. 2012) (quoting Fed.R.Civ.P. 52(a)(6)); see also United States v. Mallory, 765 F.3d 373, 381-82 (3d Cir. 2014). In contrast, we review conclusions of law, including "choice and interpretation of legal precepts, " de novo, Post, 691 F.3d at 515, and an award of profits under the Lanham Act for abuse of discretion, see Banjo Buddies, Inc. v. Renosky, 399 F.3d 168, 173 (3d Cir. 2005).

         III. Discussion

         TVM raises four issues on appeal. First, it contends that the District Court erred in determining that Covertech, not TVM, is the owner of the ULTRA trademark. Second, TVM challenges the District Court's holding that TVM committed fraud on the PTO in applying to register the ULTRA trademark in its name. Third, TVM asserts that the District Court erred in rejecting TVM's affirmative defenses of acquiescence and laches. Finally, TVM argues that the District Court abused its discretion in awarding $4, 054, 319 in damages to Covertech for TVM's infringement of the CONCRETE BARRIER and rFOIL marks. We address these issues in turn.

         A. ...

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