On March 24, 2015, the United States Supreme Court released its
long-awaited decision in B&B Hardware v. Hargis
Industries, 13-352 (U.S. Mar. 24, 2015), holding that the
Trademark Trial and Appeal Board (TTAB) findings of mark similarity
can be preclusive in later federal proceedings as long as "the
ordinary elements of issue preclusion are met." Slip op. at 2.
This ruling stands in direct opposition to the majority of recent
federal precedent, and will dramatically increase the import of
TTAB rulings in the coming years. In other words, the TTAB just got
a bit of a promotion.
Case Background
This case initially arose when Hargis Industries applied to
register the trademark "SEALTITE" in the construction
industry in 1996. B&B Hardware opposed this application and
simultaneously filed a Lanham Act trademark infringement lawsuit,
asserting that B&B had previously registered the trademark
"SEALTIGHT" in 1993 for its fastener product in the
aerospace industry. While B&B's federal suit was pending
the TTAB determined that Hargis's proposed mark was confusingly
similar to B&B's mark and denied Hargis's trademark
application. As a result, B&B argued in its district court
proceeding that the TTAB's finding of mark similarity was
entitled to preclusive effect in the court. Unpersuaded, the
district court refused to admit the TTAB's holding into
evidence, stating that no deference should be accorded to the
findings of a non-Article III court. The jury then held in favor of
Hargis. Later, in upholding this decision, the U.S. Court of
Appeals for the Eighth Circuit found that because the TTAB uses a
slightly different "likelihood of confusion" standard,
each court inevitably decides different factual questions and,
thus, that TTAB's findings could never preclude
federal courts.
Supreme Court Holding
The Supreme Court summarily reversed these holdings, finding that
"[s]o long as the other ordinary elements of issue preclusion
are met, when the usages adjudicated by the TTAB are materially the
same as those before a district court, issue preclusion should
apply." Slip op. at 2. In fact, these "ordinary elements
of issue preclusion" are present "[w]hen [the
same] issue of fact or law is actually litigated and
determined by a valid and final judgment, and the
determination is essential to the judgment,..."
RESTATEMENT (SECOND) OF JUDGMENTS §27 (emphasis added). As
such, while the Court's ruling does give the TTAB preclusive
power regardless of its procedural variations from federal court,
it only does so where, among other things, the issues and usages
analyzed in each proceeding are "materially the
same."
Specifically, the Court began its analysis by noting, in contrast
with the district court's analysis, that non-Article III bodies
have long been found to create preclusive rulings. Indeed, the
Court cited its decision in Astoria Fed. Sav. & Loan Assn.
v. Solimino, 501 U.S. 104 (1991), in which it held that where
agencies are authorized by Congress to settle disputes,
"courts may take it as a given that Congress has legislated
with the expectation that [issue preclusion] will apply except when
a statutory purpose to the contrary is evident." Slip op. at 9
(quoting Astoria, 501 U.S. at 108). As agencies are
provided this power, and as the Lanham Act contains no such
"statutory purpose to the contrary," the Court concluded
that there is no reason why the TTAB should not be afforded a
similar level of deference. It should be noted, however, that
Justices Thomas and Scalia dissented on the use of this case,
asserting that the Astoria presumption cannot be applied
to the Lanham Act, as the Act both predates Astoria and
does not otherwise indicate congressional intent that agency
decisions carry preclusive weight.
After establishing the Board's ability to issue preclusive
rulings, the Court moved on to distinguish the asserted legal,
procedural, and evidentiary differences between TTAB and federal
court proceedings from those that might actually prevent issue
preclusion. In doing so, the Court first rejected Hargis's
argument that the marginally different legal standard applied to
TTAB disputes justifies a lack of issue preclusion in federal
court. In contrast, the Court found that each court uses
"essentially the same" likelihood of confusion test, and
that any variations between the tests are merely textual. Slip op.
at 15-18. Further, the Court rejected Hargis's argument that
preclusion is inappropriate because the TTAB analyzes marks as used
in their registration or applications, whereas federal courts look
to their actual marketplace use. Instead, the Court found that as
long as the issue to be analyzed is "materially the
same," or in other words, involves the same mark used in the
same context, preclusion is appropriate. Finally, the specific
procedures and "lower stakes" that characterize the TTAB
similarly did not prevent preclusion, as the Court found no reason
to doubt the quality and fairness of the Board's proceedings
and had no reason to believe that all TTAB proceedings
would involve lower stakes than would federal court.
The Court was, however, careful to limit the above ruling by noting
that the issue preclusion standard referenced in this holding is a
narrow one, and that a "great many" cases would likely
not satisfy it. In other words, while TTAB rulings may indeed have
preclusive effect in this instance, issue similarity is far from
guaranteed under the Court's strict issue preclusion standard.
Specifically on this point, the Court cautioned that "if the
TTAB has not decided the same issue as that before the
district court, there is no reason why any deference would be
warranted." Slip op. at 19 (emphasis added). It is worth
noting, however, that the Court did not further explain what issues
qualify as "the same" or "materially the same,"
and as such, this vague definition may well become a subject of
contention in the coming years. The Court further narrowed its
holding by explaining that if a "compelling showing of
unfairness" at the TTAB is made, or if the proceeding is not
"actually litigated," the Board's holding cannot be
preclusive in later proceedings. Accordingly, parties showing that
important evidence was excluded in the TTAB, that critical oral
testimony was not allowed, or that the matter was never
"actually litigated" because of a default judgment may be
able to circumvent an otherwise preclusive TTAB holding.
Practical Impacts of B&B
Hardware
The newfound significance this ruling attaches to TTAB rulings will
likely have long-ranging effects on trademark professionals in
transactional and litigation practices alike, and may generally
shape decision-making in quasi-judicial proceedings. However, in
understanding this holding it is important that parties also remain
cognizant of the limitations inherent in its construction.
First, this holding will have broad implications for parties whose
applications or registrations are challenged at the TTAB. Indeed,
parties to TTAB proceedings should factor B&B Hardware
into their TTAB litigation and settlement strategy, and not treat
TTAB decisions as merely affecting the state of the USPTO
Register.
Second, this ruling may undercut the TTAB's reputation as a
streamlined and cost-effective trademark dispute venue. Whereas
parties could previously resolve trademark disputes quickly and
inexpensively through the TTAB, parties who receive an unfavorable
TTAB ruling after B&B Hardware will essentially be
required to spend additional time and money to appeal the decision,
as they may otherwise risk it becoming a preclusive "final
judgment" on the issue. Indeed, the Court warns litigants of
this exact point, stating that litigants should seek immediate
review of a TTAB decision they believe to be in error, as
"[t]he fact that the TTAB may have erred . . . does not
prevent preclusion." Slip op. at 19. While this added cost may
well make some litigants less eager to bring TTAB proceedings in
the future, it may also give litigants with successful claims
"more bang for their buck" by enabling them to avoid
relitigating a key issue in district court.
Aside from its effects in the trademark world, it is important to
note that B&B Hardware's ruling may signal a sea
change in how courts deal with quasi-judicial bodies more
generally. Significantly, patent entities like the Patent Trial and
Appeal Board (PTAB) may be similarly found to create preclusive
holdings through inter partes and post grant review
proceedings. Further, the fact that issue preclusion lies for
singular issues of fact or law suggests that this ruling could be
particularly important for rulings on claim construction, level of
skill in the art, and prior art determinations.
However, even with the aforementioned implications it is important
not to overstate the applicability of this ruling. As the Court was
careful to narrow its holding only to instances where
"ordinary elements of preclusion" are met, litigants
should be cognizant that only a narrow set of issues will actually
be precluded in federal court, and thus should think carefully
about how parties present issues in TTAB proceedings. For instance,
the Court explicitly notes that where "the TTAB does not
consider the marketplace usage of the parties' marks, the
TTAB's decision should 'have no later preclusive effect in
a suit where actual usage in the marketplace is the paramount
issue.'" Slip op. at 18 (quoting 6 McCarthy §32:101,
at 32–246). Additionally, it is important to note that the
factual background of this case sets it apart from most federal
court trademark proceedings, and as such may further narrow the
application of this holding. Specifically, litigants should be
aware of how this holding may apply to federal district court cases
filed non-simultaneously with TTAB proceedings, or even filed after
a TTAB holding has been appealed.
In sum, the ruling in B&B Hardware represents a clear
departure from previous law in the weight it bestows on final TTAB
judgments, and will undoubtedly affect both the litigation and
transactional strategies of parties preserving trademark, patent,
or other legal rights through quasi-judicial decision-making
bodies. These qualities, along with this ruling's carefully
delineated limitations and novel factual background, lead the
authors to conclude that B&B Hardware will generate no
shortage of interesting legal questions in the coming years.