Trademark agreement held unenforceable by non-party

The Eighth Circuit has affirmed a lower court rejection of the argument that a trademark use agreement signed in 1969 created rights in a party not bound by the agreement. The appellate court held that there was no evidence that the drafters of the 1969 agreement had intended to create such rights.

In 1996 Pure Country, a North Carolina-based manufacturer of afghans and tapestries, began manufacturing and selling goods marked with SIGMA CHI, the trademark of a US college fraternity. Only after Sigma Chi's marketing agent approached Pure Country and represented that a licence agreement was necessary for continued use of the mark did Pure Country enter into such an agreement with the fraternity in 1998. Shortly thereafter, Pure Country, believing that a licence agreement was in fact not needed, terminated the agreement and continued to manufacture and sell goods emblazoned with the SIGMA CHI mark, despite repeated protests from the fraternity.

In a bold effort to secure its interests in licence-free manufacture and distribution of SIGMA CHI-branded merchandise, Pure Country filed a declaratory judgment suit against the fraternity in the US District Court for the Western District of Missouri. The suit alleged that Sigma Chi was barred by a 1969 trademark use agreement, which Sigma Chi had entered into with an unrelated party, from bringing a trademark infringement action against Pure Country.

Sigma Chi moved to dismiss Pure Country's claim on the grounds that Pure Country was not a party to the 1969 agreement.

The district court granted Sigma Chi's motion to dismiss.

On appeal, the US Court of Appeals for the Eighth Circuit affirmed, stating that Pure Country provided no evidence that the parties to the 1969 agreement had intended to create third-party rights.

Christine P James, Kilpatrick Stockton LLP, Atlanta