IP Law Daily, TRADEMARK—E.D. Va.: Mexican manufacturer lost priority and abandoned EUCALIN mark for dietary supplements, (Apr 22, 2024)

By Brian Craig, J.D.

A Texas-based distributor maintained the quality and uniformity of the product while the Mexican dietary supplement drug manufacturer was banned for supporting narcotics trafficking.

Following a bench trial in a dispute over the mark EUCALIN for nutritional supplements, the federal district court in Virginia has concluded that Texas-based dietary supplement distributor Arsa Distributing has priority over a Mexican company, and that the Mexican-based manufacturer abandoned use of the mark. In the priority analysis, the court concluded that the Texas-based distributor maintained the quality and uniformity of the product while the Mexican drug manufacturer was banned for supporting narcotic trafficking. Additionally, the court found that the Mexican dietary supplement drug manufacturer abandoned use of the mark (Arsa Distributing, Inc. v. Salud Natural Mexicana SA de CV, April 16, 2024, Novak, D.).

From 1999-2008, pursuant to an unwritten contract, a Mexican-based drug company, Salud Natural Mexicana SA de CV (“Salud”), manufactured and supplied dietary supplements that Arsa Distributing (“Arsa”) distributed in the United States. Arsa, based in Texas, used the unregistered trademark EUCALIN for the products. In 2002 and again in 2006, Salud registered, then abandoned registration of, the trademark EUCALIN. In 2008, the U.S. Treasury Department’s Office of Foreign Asset Control designated Salud as a specially designated narcotics trafficker (SDNT). As a result of the SDNT designation, Salud was forbidden from conducting any commercial business in the United States, which included using the EUCALIN mark.

In 2011, Arsa registered the EUCALIN mark, but it was ultimately cancelled. In 2015, Salud was removed from the SDNT list. Salud then filed for registration of the mark EUCALIN. Arsa filed an opposition and the Trademark Trial and Appeal Board ruled for Salud, rejecting Arsa’s opposition on the ground that Salud had priority based on the 1999-2008 distribution agreement. The Board also ruled that Salud had not abandoned its mark because its nonuse was excusable given the SDNT designation. Arsa filed suit in the federal district court in Virginia. In November 2023, the district court held that a bench trial was needed to determine questions of priority and abandonment. During the trial, only one witness testified: Arsa’s president. Based on the evidence presented at trial, the parties’ stipulations, and the factual record before the Board, the court issued its decision.

Priority. The court concluded that the Texas-based distributor demonstrated priority of use in the EUCALIN mark. In determining ownership of trademark rights between a distributor in the United States and foreign manufacturer where there is no distribution agreement, courts have determined who ultimately owns the rights by coupling a presumption in favor of the manufacturer with a multi-factor analysis. The court considered the following factors: (1) which party invented and first affixed the mark onto the product; (2) which party’s name appeared with the trademark; (3) which party maintained the quality and uniformity of the product; and (4) with which party the public identified the product and to whom purchasers made complaints.

Here, the court found that the distributor rebutted the presumption in favor of the Mexican-based manufacturer. The court found that the first factor favors the Mexican manufacturer. The second factor is neutral. The third factor concerning the party which maintained the quality and uniformity of the product favors the distributor. Arsa took on the responsibility of standing behind the product’s quality and resolved concerns with the FDA. When the Mexican manufacturer was banned from doing business in the United States, Arsa was solely responsible for finding a new manufacturer who could produce the product in a high-quality and uniform manner.

The fourth factor—with which party the public identified the product and to whom purchasers made complaints—also favors the distributor. Arsa was the entity responsible for fielding and addressing concerns and, as a result, consumers, stores and government agencies in the United States understandably saw Arsa as the entity standing behind the product. Arsa also led advertising efforts. Arsa was the face of the company to the United States public and the distributor determined how and where people were exposed to the EUCALIN product. Although a presumption of ownership in favor of the manufacturer exists, the court found the evidence rebuts that presumption and instead leads to the conclusion that Arsa had priority in the EUCALIN mark in the United States.

Abandonment. The court also found that the Mexican company abandoned use of the EUCALIN mark. The distributor demonstrated by a preponderance of the evidence that the Mexican manufacturer, which has not been involved in any way in the sales of EUCALIN products in the United States since 2008, did not have an intent to resume using the mark in the reasonably foreseeable future during its period of nonuse. The court previously held that the SDNT status does not constitute excusable nonuse and that the Mexican manufacturer offered no other reason for the nonuse. Furthermore, Arsa did not abandon its rights to the mark from nonuse from 2018 to 2020.

The Case is No. 1:22-cv-1367.

Attorneys: Christine Lebron-Dykeman (McKee, Voorhees & Sease, PLC) for Arsa Distributing, Inc. Jeffrey Monroe Furr (Furr Law Firm) for Salud Natural Mexicana Sa de Cv.

Companies: Arsa Distributing, Inc.; Salud Natural Mexicana Sa de CV

Cases: Trademark VirginiaNews USPTO GCNNews