consent to, the borrower’s grant of a
security interest to the lender in the
borrower’s rights under the distribution agreement and the Trademarked
2. Term: The supplier’s agreement that
the lender has the right to sell the
Trademarked Inventory after termination of the distribution agreement.
3. Territory: The supplier’s agreement
regarding the territory into which the
Trademarked Inventory may be sold.
4. Notice and Cure Right: The supplier’s
agreement to provide notice to the
lender of any default by the borrower
under, or termination by the supplier
of, the distribution agreement, and
the lender’s right to cure the default,
if the lender elects to do so.
5. Repurchase Right: The supplier’s
agreement to repurchase the Trademarked Inventory. The lender may
also want to specify the methodology
used to calculate the purchase price
and to obtain the supplier’s agreement to pay the purchase price directly to the lender without offset of any
amounts owing by the borrower to
Whether a lender can obtain the supplier’s agreement on all or some of these
points will depend on a number of factors, including the relative negotiating
power of the borrower and the supplier
as well as the potential costs and delays
associated with pursuing an agreement.
The lender should first examine the
borrower’s business to confirm whether
the borrower is merely a purchaser and
reseller of the Trademarked Inventory.
The lender should then review the distribution agreement to confirm whether
the agreement limits the borrower’s
right to sell the Trademarked Inventory
after termination, or grants the supplier
the right to repurchase the Trademarked
Inventory under circumstances that
undermine the loans that the lender
may have made against the value of the
Trademarked Inventory. If such limits or
adverse rights exist, the lender has the
option to pursue an agreement directly
with the supplier to address those concerns to the lender’s satisfaction. TSL
Anthony Cianciotti is vice president-legal
counsel at First Capital, an asset-based
lender providing secured credit facilities
to small and middle-market companies.
He provides legal support to underwriters,
credit officers and other business personnel
regarding deal structure, potential third-party creditor claims and collateral issues,
including issues arising with respect to
trademarked inventory. Prior to joining First
Capital, he was of counsel in the commercial
finance practice of Parker, Hudson, Rainer
& Dobbs LLP in Atlanta, Georgia. Cianciotti
received his J.D. from the University of Pennsylvania. He can be reached at acianciotti@
1. It is unclear whether a lender’s right
to sell the Trademarked Inventory
is derivative of the borrower’s right.
The most conservative approach for
the lender is to assume that its right
is derivative, and make a decision
regarding lending against such inventory accordingly.
2. 15 U.S.C. § 1401 et seq. (2006).
3. Bel Canto Design, Ltd. v. MSS HiFi,
Inc., 837 F. Supp. 2d 208, 222-23 (S.D.N. Y.
4. Sebastian Int’l, Inc. v. Longs Drug
Stores Corp., 53 F.3d 1073, 1074 (9th
Cir. 1995), cert. denied, 516 U.S. 914
5. Societe Des Produits Nestle, S. A. v.
Casa Helvetia, Inc., 982 F.2d 633, 638
(1st Cir. 1992).
6. See, e.g., Davidoff & CIE, SA v. PLD Int’l
Corp., 263 F.3d 1297, 1242 (11th Cir.
2001) (removal of batch code from
bottom of fragrance bottle created
a material difference where removal
left a small etching on bottle); John
Paul Mitchell Sys. v. Pete-N-Larry’s
Inc., 862 F. Supp. 1020, 1027 (W.D.N. Y.
1994) (removal of batch codes from
bottles constituted a material difference where removal left noticeable
marks on the bottles and erased
certain printed information). But
see Graham Webb Int’l Ltd. P’ship v.
Emporium Drug Mart, Inc., 916 F. Supp.
909, 916 (E.D. Ark. 1995) (removal of
batch codes from hair care products
did not constitute infringement
where bottle was not visibly altered).
7. Enesco Corp. v. Price/Costco Inc., 146
F.3d 1083, 1087 (9th Cir. 1998) (
repacking of porcelain figurines without
disclosing they had been repackaged
constituted trademark infringement);
Softman Products Co., LLC v. Adobe
Systems, Inc., 171 F.Supp. 2d 1075,
1093 (C.D. Cal. 2001) (repackaging of
Adobe-brand software in manner that
omitted registration card and invalidated software support constituted a
8. Italverde Trading, Inc. v. Four Bills
of Lading, 485 F. Supp. 2d 187, 210
(E.D.N. Y. 2007); McDonald’s Corp. v.
Shop at Home, Inc., 82 F. Supp. 2d 801,
812 (M.D. Tenn. 2000).
9. Bel Canto Design, 837 F. Supp. 2d at
221-222 (S.D.N. Y. 2011); Stormor, a Division of Fuqua Indus., Inc. v. Johnson,
587 F. Supp. 275, 280 (W.D. Mich. 1984).
10. See, e.g., Bill Blass, Ltd. v. SAZ Corp.,
751 F.2d 152 (3d Cir. 1984); Ryan v.
Volpone Stamp Company, 107 F. Supp.
2d 369 (S.D.N. Y. 2000).
11. See, e.g., Citizens of Humanity, LLC v.
Costco Wholesale Corp., 89 Cal. Rptr.
3d 455, 464-65 (Cal. App. 2009) (
manufacturer’s ability to preclude post-termination sales by distributor must be
based on contractual restrictions, not
trademark law), disapproved on other
grounds, Kwikset Corp. v. Superior Ct.
of Orange Cty., 120 Cal. Rptr. 3d 741