Introduction
The U.S. Supreme Court's opinion in B & B Hardware
Inc. v. Hargis Indus., No. 13–352, 2015 WL 1291915 (U.S.
March 24, 2015), is already generating a significant amount of
commentary, in large part because of the perception that the
decision changes the landscape for trademark law. The consensus
appears to be that trademark owners must significantly reevaluate
how they handle TTAB matters. In fact, however, the actual holding
of the case breaks little new ground except in the Fifth, Eleventh,
and District of Columbia Circuits, is consistent with the rules
applied by several other regional circuit courts for many years,
and, while in the short term may create some apprehension, in the
long run will have little impact on litigants who recognize the
potential advantages and risks of the opinion and act
accordingly.
B & B Hardware: The Litigation
The primary question before the Supreme Court was what
preclusive effect should be given to a finding by the TTAB after an
inter partes proceeding. Some argued for the now-defunct
bright-line rule applied by the Fifth, Eleventh, and D.C. Circuits
that issue-preclusion principles should never apply to the
Board's decisions. See Aktieselskabet AF 21. Nov. 2001 v.
Fame Jeans Inc., 525 F.3d 8, 12-13 (D.C. Cir. 2008);
Freedom Sav. & Loan Ass'n v. Way, 757 F.2d 1176,
1180-81 (11th Cir. 1985); Am. Heritage Life Ins. Co. v.
Heritage Life Ins. Co., 484 F.2d 3, 9-10 (5th Cir. 1974).
Nevertheless, this bright-line rule had not been followed by a
number of other circuits, which had recognized there are some
circumstances under which issue preclusion is appropriate. For
example, the Second Circuit held in one pre-B & B
Hardware opinion that a TTAB determination of likelihood of
confusion could have preclusive effect if the Board looked at the
same marketplace factors as those taken into account by a district
court. See Levy v. Kosher Overseers Ass'n,
104 F.3d 38, 42 (2d Cir. 1997). The Third Circuit took a different,
but not necessarily inconsistent, approach: Under its pre-B
& B Hardware case law, issue preclusion was appropriate if
the parties had "vigorously litigated" the same issue in
a prior proceeding before the TTAB and the requirements for issue
preclusion otherwise were met. See Jean Alexander Cosmetics,
Inc. v. L'Oreal USA, Inc., 458 F.3d 244, 249 (3d Cir.
2006); cf. EZ Loader Boat Trailers, Inc. v. Cox Trailers,
Inc., 746 F.2d 375, 377-78 (7th Cir. 1984) (holding Board
determinations entitled to preclusive effect when affirmed by
Federal Circuit); Flavor Corp. of Am. v. Kemin Indus., 493
F.2d 275, 281 (8th Cir. 1974) (holding Board determinations
entitled to preclusive effect when affirmed by Court of Customs and
Patent Appeals). In light of this preexisting case law at least
generally consistent with the Supreme Court's holding, the
sharp response to that holding is surprising.
The actual holding of B & B Hardware is that TTAB decisions may have a preclusive effect in federal trademark litigation "so long as the other ordinary elements of issue preclusion are met." 2015 WL 1291915, at *14. In the Eighth Circuit, those elements include the following:
(1) the party sought to be precluded in the second suit must have been a party, or in privity with a party, to the original lawsuit;
(2) the issue sought to be precluded must have been the same as the issue involved in the prior action;
(3) the issue sought to be precluded must have been actually litigated in the prior action;
(4) the issue sought to be precluded must have been determined by a valid and final judgment; and
(5) the determination in the prior action must have been essential to the prior judgment.
(These factors are consistent with (although not necessarily identical to) with those applied in other circuits.) Because the test for issue preclusion will not always be satisfied, the Court's holding is far from a per se ruling finding that TTAB decisions always have preclusive effect, and indeed, the Court's opinion acknowledges that preclusion may not be appropriate under certain circumstances.
The sharp response to the decision flows from the Supreme
Court's rejection of the argument that the processes followed
by the TTAB necessarily prevents the TTAB's disposition of
questions before it from satisfying the standard prerequisites for
issue preclusion. It is true that in most instances the TTAB does
not consider the realities of the marketplace when evaluating the
likelihood of confusion between marks and instead limits its review
to the goods and services listed in the application or registration
at issue and the normal trade channels and customers for those
items. It is unfortunate that the Court's opinion failed to
recognize that the TTAB decision at issue in B & B
Hardware does appear to rest on a full consideration of
the marketplace. Indeed, that consideration was so nuanced the TTAB
concluded that there was a likelihood of affiliation or sponsorship
confusion, even if there was no likelihood of confusion with
respect to source. It would have been helpful if Justice
Alito's opinion for the Court had acknowledged that the TTAB
decision at issue might well merit preclusive effect because of the
unusual breadth of its analysis. Instead, the Court's opinion
addressed the issue in more general terms: "[I]f 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.'" B & B Hardware, 2015 WL 1291915, at
*11 (quoting 6 J. Thomas McCarthy, McCarthy on Trademarks and
Unfair Competition § 32:101 (4th ed. 2014)).
There is another reason why the decision has promoted such strong
criticism. The Court glossed over another part of the case that
undoubtedly was at the heart of the dispute. While the opinion
notes that the underlying dispute had been going on for more than
20 years, it picks up the tale only when B & B Hardware opposed
Hargis's efforts to register its mark. What neither the Court
nor the concurring or dissenting opinions bring out is that the
parties' dispute began when B & B Hardware brought an
infringement action against Hargis, which ended in a jury finding
that B & B Hardware's mark was invalid because it was
descriptive and lacked secondary meaning. The case was dismissed,
and that disposition was affirmed by the Eighth Circuit.
Inexplicably, Hargis did not counterclaim for the cancellation of B
& B Hardware's registration in that earlier infringement
litigation. When Hargis finally did pursue the cancellation of B
& B Hardware's registration, the TTAB held that
cancellation was not available because the registration had passed
its fifth anniversary. Therefore, when B & B Hardware opposed
Hargis's application at the time the application was finally
published more than 10 years after its filing, it resulted in a
decision in which the TTAB noted this was an unusual case where B
& B Hardware might not be able to enjoin Hargis but could block
it from receiving an registration. It is therefore understandable
why both the district court and the Eighth Circuit were so intent
to not give preclusive effect to the TTAB decision at issue,
especially after a second jury found there was no likelihood of
confusion between the parties' marks. As the Supreme Court
ultimately did, the Eighth Circuit held that issue preclusion
should apply to TTAB decisions if the usual criteria are satisfied.
To avoid an application of issue-preclusion principles in the case
before it, however, the Eighth Circuit grounded its decision on the
different legal standards applied by the TTAB in deciding
likelihood of confusion.
Whatever differences there may be in the multifactored tests for
likelihood of confusion applied by the TTAB and the regional
circuit courts, it is difficult to argue that those differences
necessarily bar issue preclusion if a likelihood-of-confusion
determination by the Board is relitigated later in a regional
circuit. Indeed, courts routinely have rejected the argument that,
merely because the issue of likely confusion has been decided under
one circuit's multifactored test, it is not binding in a
subsequent case between the same parties merely because the second
case is filed in another circuit. The reason for this outcome
should be apparent: If the rule was otherwise, a losing plaintiff
in an infringement action in the District of Massachusetts under
First Circuit law could avail itself of Second Circuit law by
refiling its case the following day in the Southern District of New
York; if that second case resulted in another finding of
noninfringement, the plaintiff could then cross the Hudson River
and pursue a third action in the District of New Jersey under Third
Circuit law. See generally Ga.-Pac. Consumer Prods. LP
v. Four-U-Packaging, Inc., 701 F.3d 1093, 1011 (6th Cir.
2012). These considerations explain why the Supreme Court pointed
out repeatedly that issue preclusion cannot be ignored solely
because it gives effect to the wrong result. See B
& B Hardware, 2015 WL 1291915, at *12. A party victimized
by a poor result can take advantage of the appellate process, but
the doctrine of preclusion should apply even when the underlying
result seems wrong.
That some practitioners historically have given the significance of
TTAB determinations short shrift is even more surprising in light
of the rule followed by several circuits that, even if issue
preclusion is not appropriate, a TTAB finding is entitled to at
least some degree of deference as a matter of administrative law if
that finding is relitigated on appeal. A party dissatisfied with
the outcome of a Board proceeding can appeal either to the Federal
Circuit or to a federal district court. There is a wide difference
of opinion among the lower courts on the nature of the proper
standard of review in such an appeal and the deference to be given
to the TTAB's conclusions. Some (but not necessarily all)
opinions from the Second, Third, Fifth, Sixth, Ninth, Eleventh, and
D.C. Circuits have held that a TTAB determination should not be
overturned in the absence of evidence to the contrary
"carrying thorough conviction." See Material Supply
Intern., Inc. v. Sunmatch Indus., 146 F.3d 983, 990 (D.C. Cir.
1998); Goya Foods, Inc. v. Tropicana Prods., Inc., 846
F.2d 848, 852-53 (2d Cir. 1988); Freedom Sav. & Loan
Ass'n v. Way, 757 F.2d 1176, 1181 (11th Cir. 1985);
Wells Fargo & Co. v. Stagecoach Props., Inc., 685 F.2d
302, 306 (9th Cir. 1982); Am. Heritage Life Ins. Co. v.
Heritage Life Ins. Co., 484 F.2d 3, 10 (5th Cir. 1974);
Century Distilling Co. v. Cont'l Distilling Co., 106
F.2d 486, 489 (3d Cir. 1939); Nieman v. Plough Chem. Co.,
22 F.2d 73, 75 n.4 (6th Cir. 1927). (The thorough conviction
standard historically has been applied more often in patent, rather
than in trademark, cases, but precisely what constitutes evidence
of thorough conviction has largely gone unexplained by courts in
both contexts.) Moreover, although the Seventh Circuit and the
Federal Circuit have departed from their earlier adherence to this
standard, those courts have done so in favor of the rule under the
Administrative Procedure Act that agency determinations should be
upheld if they are supported by substantial evidence. See CAE,
Inc. v. Clean Air Eng'g, Inc., 267 F.3d 660, 674-76 (7th
Cir. 2001); On–Line Careline, Inc. v. Am. Online,
Inc., 229 F.3d 1080, 1085 (Fed. Cir. 2000). In contrast, the
Fourth Circuit has held that no deference is warranted if either
party introduces new evidence or testimony. See Swatch AG v.
Beehive Wholesale, LLC, 739 F.3d 150, 156 (4th Cir. 2014). The
second question in the cert. petition in B & B
Hardware accepted by the Supreme Court addressed this issue, but
the Court's opinion on the merits ignored that question. As a
consequence, in the context of a direct appeal of a TTAB decision,
the lower federal courts are apparently free to continue applying
whatever standard they used prior to the Court's opinion.
Strategic Considerations Arising from the Supreme
Court's Opinion
Whether they were fully aware of their ability to do so,
prevailing parties in many jurisdictions have always been able to
take advantage of their victories in later litigation.
Nevertheless, in light of the Supreme Court's confirmation of
that ability, potential or actual litigants before the Board may
wish to consider the following points:
- The Court's holding favors senior users where the
likelihood-of-confusion inquiry is concerned. Because of the
different methodology followed by the TTAB, which includes the
acceptance of survey stimuli in the form of marks typed out on
white cards, it is often easier to prove likely confusion before
that tribunal than before a federal district court.
- If immediate injunctive relief is not necessary or if the
availability of that remedy is in question, a senior user might
rationally choose to pursue relief only before the Board and not do
anything creating an actionable case and controversy that might
support a declaratory judgment action for noninfringement. Assuming
the senior user prevails before the Board, its victory might well
give it an insurmountable advantage if it later resorts to an
infringement action for injunctive and monetary relief.
- If a Board proceeding turning on the issue of likely confusion
is going badly for a plaintiff, the plaintiff should consider
filing an infringement action and requesting the Board to suspend
the action before it. (Of course, it is possible that the Board may
be less inclined to grant motions to suspend, particularly later in
proceedings, with its decisions now perceived as meriting greater
deference from federal courts.
- Particularly if the nature of the goods or services at issue
means that a Board determination will appear to turn on a
"real world" assessment of likelihood of confusion,
potential defendants defending against allegations of likely
confusion now have an incentive to get those disputes before
federal district courts, which take real-world considerations into
account in the liability inquiry and which more closely manage
their dockets.
- Defendants may find the additional discovery and the differing survey formats available in federal court to be additional factors weighing in favor of that forum.
In addition to these issues, one strategic consideration stands
out: Of the issues that might be resolved by a Board opinion, a
determination of the confusing similarity between two marks is the
one least likely to be given preclusive effect in later litigation.
Instead, the Board's findings on all other issues within its
jurisdiction, such as priority of rights, distinctiveness,
functionality, and abandonment may be far more difficult to escape.
This is because, in contrast to the Board's treatment of the
likelihood-of-confusion inquiry and as noted by Justice
Ginsburg's concurring opinion in B & B Hardware,
the Board applies the same test and reviews the same types of
evidence as courts do when addressing these inquiries. Any party
engaged in litigation before the Board on issues other than likely
confusion should evaluate its chances of success on a running basis
and position itself for a possible district court action if those
chances appear to be diminishing and if the greater availability of
discovery might help produce a different result.
Finally, an actual or potential losing party before the Board
should consider the possibility that, even if issue preclusion does
not apply, courts otherwise inclined to defer to the Board's
resolution of particular questions might do so more frequently
after the Supreme Court's failure, deliberate or otherwise, to
answer the second question presented in B & B
Hardware. Courts may also be swayed by the Court's apparent
vote of confidence in the Board's abilities to decide these
disputes. Astute parties will also recognize that the
still-intact split in the circuits provides an ongoing opportunity
for forum shopping in addition to the strategic question of when
litigation before the Board is advisable.
The Court's decision in B & B Hardware may not
have broken any new ground in many jurisdictions, but it will
certainly prompt potential litigants before the Board to evaluate
their strategic options more carefully. While predictions that the
cost of all TTAB proceedings will sharply increase as a result of
the decision are more likely to be hyperbole than accurate
predictions of the future, certain proceedings could become more
involved and complex (and therefore more costly), and the
opportunities for strategic counseling almost certainly will go
up.
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