Sengoku Works Ltd. v. RMC Intern., Ltd., s. 95-55990

• Citation: 96 F.3d 1217
• Decision Date: 20 September 1996
• Docket Number: 95-56087,Nos. 95-55990,s. 95-55990
• Parties: , 96 Cal. Daily Op. Serv. 7048, 96 Daily Journal D.A.R. 11,557 SENGOKU WORKS LTD., a corporation, Plaintiff-counter-defendant Appellee-Cross-Appellant, v. RMC INTERNATIONAL, LTD., a corporation; Michael Resmo; Joseph Malaga, Defendants-counter-plaintiffs Appellants-Cross-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1217

96 F.3d 1217

40 U.S.P.Q.2d 1149, 96 Cal. Daily Op. Serv. 7048,

96 Daily Journal D.A.R. 11,557

SENGOKU WORKS LTD., a corporation Plaintiff-counter-defendant Appellee-Cross-Appellant, v. RMC INTERNATIONAL, LTD., a corporation; Michael Resmo Joseph Malaga, Defendants-counter-plaintiffs Appellants-Cross-Appellees.

Nos. 95-55990, 95-56087.

United States Court of Appeals Ninth Circuit.

Argued Aug. 7, 1996.

Decided Sept. 20, 1996.

Jan P. Weir, Poms, Smith, Lande & Rose, Los Angeles, California, for defendants-counter-plaintiffs-appellants-cross-appellees.

R. Joseph Trojan, Trojan Law Offices, Beverly Hills, California, for plaintiff-counter-defendant-appellee-cross-appellant.

Appeals from the United States District Court for the Central District of California, Edward Rafeedie, District Judge, Presiding. D.C. No. CV-94-03197-ER.

Before REINHARDT, HALL and LEAVY, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

RMC International Ltd., and its officers Michael Resmo and Joseph Malaga, appeal the district court's judgment, following a jury trial, in favor of Sengoku Works Ltd. for trademark and trade dress infringement under the Lanham Act, 15 U.S.C. §§ 1051-1127, and breach of contract under California law. RMC had served since 1985 as exclusive United States distributor of kerosene heaters manufactured by Sengoku, a Japanese corporation, and these charges arose in connection with RMC's decision to market kerosene heaters from another source.

In this opinion we address only the issue of ownership of the Keroheat trademark. All the other issues are disposed of in a separate unpublished disposition.

I

RMC is an importer of portable kerosene heaters. From 1985 to 1994, it imported and sold exclusively heaters manufactured by Sengoku, pursuant to yearly contracts signed by the parties. These contracts included exclusivity provisions, under which Sengoku appointed RMC its exclusive U.S. distributor, and RMC agreed to distribute only Sengoku-manufactured heaters. As part of this arrangement, Sengoku sold the heaters to an independent trading company, Zenith & Co., who then sold them to RMC. The RMC/Zenith/Sengoku heaters bore the trademark "Keroheat."

Under the agreement, RMC handled all of the marketing and advertising for the heaters, and arranged for all of the retailer purchases of the heaters. Only RMC's name appeared on the product and packaging, and RMC dealt with all consumer complaints and returns. RMC claims that in the early 1990s it began to experience increasing quality problems with the Sengoku heaters, and increasing customer complaints. When Sengoku did not take satisfactory steps to remedy the problems, in 1993 RMC began to negotiate with Wooshin, a Korean corporation, to manufacture and supply kerosene heaters to RMC.

RMC maintains that they had no valid contract with Sengoku for 1994. For the first quarter of 1994, RMC performed as it had for the previous nine years. But in late March Sengoku became aware that RMC was selling heaters to Sengoku's largest U.S. customer that were manufactured by Wooshin, and that bore the Keroheat trademark and closely resembled Sengoku's heaters. Sengoku filed suit against RMC for breaching the exclusivity provision of their contract, and for trademark and trade dress infringement.

Sengoku and RMC each claim ownership of the Keroheat trademark. From 1982 to 1985, prior to the Sengoku/RMC agreements, Sengoku heaters bearing the Keroheat mark were sold to a trading company called Imarflex, and were then sold in the U.S. by C.C.I., a company partially owned by Cort Clark. In 1985, Clark sued Imarflex for breach of contract and trademark infringement, claiming that he owned the Keroheat trademark. After the Sengoku/Imarflex/Clark deal ended, Clark then founded RMC, with Michael Resmo and Joseph Malaga. RMC began selling Sengoku heaters under the Keroheat mark in 1985, and obtained a federal registration of the mark. Clark left RMC in 1992, and now works for Sengoku.

In July 1994 the district court granted Sengoku a preliminary injunction to enjoin RMC from selling the Wooshin heater bearing the Keroheat mark. After a seven day jury trial, the jury found for Sengoku on all claims. The jury awarded Sengoku only $1.00 in damages on the trademark infringement claim. The district court then ordered the cancellation of RMC's federal trademark registration for Keroheat, and entered a permanent injunction barring RMC from using the mark. The district court also denied RMC's post-trial motions for judgment as a matter of law and for a new trial. This appeal followed.

II

Both parties agree that RMC did distribute heaters bearing the Keroheat trademark that were not manufactured by Sengoku. However, they both claim ownership of the Keroheat trademark, and this issue is central to the finding for Sengoku on trademark infringement.

Challenges to the sufficiency of the evidence and the denial of a motion for judgment notwithstanding the verdict are reviewed de novo to determine if the plaintiff's claims were supported by substantial evidence. Erickson v. Pierce County, 960 F.2d 801, 804 (9th Cir.), cert. denied, 506 U.S. 1035, 113 S.Ct. 815, 121 L.Ed.2d 687 (1992). Substantial evidence is such relevant evidence as reasonable minds might accept as adequate to support the jury's verdict. Murray v. Laborers Union Local No. 324, 55 F.3d 1445, 1452 (9th Cir.1995).

It is axiomatic in trademark law that the standard test of ownership is priority of use. To acquire ownership of a trademark it is not enough to have invented the mark first or even to have registered it first; the party claiming ownership must have been the first to actually use the mark in the sale of goods or services. See generally J. Thomas McCarthy, 2 McCarthy on Trademarks and Unfair Competition § 16.03 (3d ed.1996) (hereinafter McCarthy ). When proving ownership of a trademark, federal registration of the mark is prima facie evidence that the registrant is the owner of the mark. Lanham Act § 7(b), 15 U.S.C. § 1057(b); Lanham Act § 33(a), 15 U.S.C. § 1115(a). Therefore, the registrant is granted a presumption of ownership, dating to the filing date of the application for federal registration, and the challenger must overcome this presumption by a preponderance of the evidence. Vuitton et Fils S.A. v. J. Young Enterprises, 644 F.2d 769, 775-76 (9th Cir.1981); Rolley, Inc. v. Younghusband, 204 F.2d 209 (9th Cir.1953). However, the non-registrant can rebut this presumption by showing that the registrant had not established valid ownership rights in the mark at the time of registration--in other words, if the non-registrant can show that he used the mark in commerce first, then the registration may be invalidated.

Disputes over trademark ownership often arise when the mark is used on goods that are manufactured by one company, but are marketed by another pursuant to an exclusive distributorship agreement. These relationships usually arise in one of two factual situations: either (1) the manufacturer licenses the distributor to use a trademark owned by the manufacturer, or (2) the distributor owns its own mark, sometimes called a "private label," which it affixes to the manufacturer's product before delivery. In either case, the ownership of the mark turns on which party was the initial owner.

Unfortunately, not every distribution agreement fits clearly into one of these two categories. When disputes arise between a manufacturer and distributor, courts will look first to any agreement between the parties regarding trademark rights. Premier Dental Products v. Darby Dental Supply Co., 794 F.2d 850, 854 (3d Cir.), cert. denied, 479 U.S. 950, 107 S.Ct. 436, 93 L.Ed.2d 385 (1986). But in the absence of an agreement between the parties, the manufacturer is presumed to own the trademark. Energy Jet, Inc. v. Forex Corp., 589 F.Supp. 1110, 1116 (E.D.Mich.1984); Wrist-Rocket Mfg. Co. v. Saunders, 379 F.Supp. 902, 909 (D.Neb.1974) (" Wrist-Rocket I "), aff'd in part and rev'd in part on other grounds, 516 F.2d 846 (8th Cir.) (" Wrist-Rocket II "), cert. denied, 423 U.S. 870, 96 S.Ct. 134, 46 L.Ed.2d 100 (1975); Automated Productions Inc. v. FMB Maschinenbaugesellschaft MBH & Co., 36 U.S.P.Q.2d 1714, 1716, 1995 WL 459233 (N.D.Ill.1995). That presumption applies with equal force to cases involving foreign manufacturers. See, e.g., Energy Jet, 589 F.Supp. at 1116; Hank Thorp, Inc. v. Minilite, Inc., 474 F.Supp. 228, 236 (D.Del.1979). Although some courts have suggested that the presumption may be different in the case of foreign manufacturers, frequently the identical standard has in fact been applied, and we see no reason for doing otherwise.

The presumption in favor of the manufacturer is rebuttable, however, and a long-standing line of precedent holds that an exclusive distributor may acquire trademark rights superior to those of the manufacturer. See Menendez v. Holt, 128 U.S. 514, 9 S.Ct. 143, 32 L.Ed. 526 (1888); Omega Nutrition v. Spectrum Marketing, 756 F.Supp. 435, 438 (N.D.Cal.1991) (granting a preliminary injunction to the exclusive distributor against the manufacturer for trademark infringement)...