Supreme Court holds that issue preclusion may apply to TTAB decisions

In a seven-to-two decision authored by Justice Alito, the Supreme Court held on March 24 2015 that issue preclusion may apply to Trademark Trial and Appeal Board (TTAB) decisions. The case, B&B Hardware, Inc v Hargis Industries, Inc (No 13-352, 2015 WL 1291915, at 1), sought to determine:

• whether the TTAB’s finding of a likelihood of confusion precluded Hargis from re-litigating that issue in infringement litigation in which likelihood of confusion was an element; and
• whether, if issue preclusion did not apply, the district court was obliged to defer to the TTAB’s finding of a likelihood of confusion absent strong evidence to rebut it (petition for writ of certiorai at i, B&B Hardware (No 13-352)).

Petitioner B&B Hardware and respondent Hargis both manufacture sealing fasteners (B&B Hardware, Inc v Hargis Indus, Inc, 569 F 3d 383, 385 (8th Cir 2009), cert granted, 82 USLW 3195 (US July 1 2014) (No 13-352)). B&B owns the trademark registration for the mark SEALTIGHT. Hargis used and sought to register the mark SEALTITE. B&B filed an opposition to Hargis’s application with the TTAB and also filed an initial infringement action in the district court (separate from the infringement action currently pending before the Supreme Court – petition for writ of certiorai at 5, B&B Hardware (no 13-352)). The initial infringement action resulted in judgment for Hargis, but the district court did not decide the issue of likelihood of confusion. Instead, it based its decision on a finding that B&B’s mark was merely descriptive.

During discovery in the opposition proceeding, which was suspended during the initial infringement action, Hargis admitted that there had been incidents of actual customer confusion between its SEALTIGHT fasteners and B&B’s SEALTITE fasteners. B&B then commenced the current infringement action. The TTAB action proceeded and the TTAB sustained B&B’s opposition and denied Hargis’s registration of the SEALTITE mark, concluding that the marks were “substantially identical” and “used on closely related products” and thus likely to cause confusion.

In the infringement action, both the district court and the Eighth Circuit refused to accord a preclusive effect to the TTAB’s decision on likelihood of confusion (B&B Hardware, Inc v Hargis Indus, Inc, 716 F 3d 1020, 1026 (8th Cir 2013); B&B Hardware, Inc v Hargis Indus, Inc, 736 F Supp 2d 1212, 1217 (ED Ark 2010)). At the district court, B&B tried unsuccessfully to obtain summary judgment of likelihood of confusion and to have the TTAB decision introduced into evidence (B&B Hardware, 736 F Supp 2d at 1217). The jury found no infringement. On appeal, the Eighth Circuit panel majority affirmed, refusing to apply issue preclusion because “the same likelihood-of-confusion issues were not decided by the TTAB as those brought in the action before the district court” (B&B Hardware, 716 F 3d at 1024).

B&B filed a petition for a writ of certiorari on September 18 2013, which the Supreme Court granted on July 1 2014 (SCOTUSblog, B&B Hardware, Inc v Hargis Industries, Inc, www.scotusblog.com/case-files/cases/bb-hardware-inc-v-hargis-industries-inc/). The Supreme Court heard oral arguments on December 2 2014.

Supreme Court decision

On March 24 2015 the Supreme Court held that an agency decision, such as that of the TTAB, may be grounds for issue preclusion (B&B Hardware, 2015 WL 1291915, at 1). As an initial matter, the court found nothing in the Lanham Act that would forbid issue preclusion. It also noted that: “What matters here is that registration is not a prerequisite to an infringement action. Rather, it is a separate proceeding to decide separate rights. Neither is issue preclusion a one-way street. When a district court, as part of its judgment, decides an issue that overlaps with part of the TTAB’s analysis, the TTAB gives preclusive effect to the court’s judgment.”

In addition, the court rejected arguments that issue preclusion should never be available because the TTAB applies different factors in accessing likelihood of confusion and TTAB proceedings are procedurally different from court proceedings. Specifically, the court found that the standards for likelihood of confusion for the purposes of infringement and registration are the same, noting that the operative language is essentially the same, that the likelihood of confusion language in the Lanham Act has been used since at least 1881, and that district courts can already cancel registrations during infringement suits and adjudicate infringement in suits seeking de novo review of TTAB registration decisions. Finally, the court rejected the argument that the stakes are lower in TTAB proceedings than in court actions, noting the benefits of registration.

Ultimately, the court held 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 the district court, issue preclusion should apply”; but noted that “for a great many registration decisions issue preclusion obviously will not apply because the ordinary elements will not be met”. Justice Ginsburg concurred, stating that there should be no issue preclusion when “contested registrations are… decided upon ‘a comparison of the marks in the abstract and apart from their marketplace usage’” (id at 13 (quoting 6 J McCarthy, Trademarks and Unfair Competition §32:101, p. 32–247 (4th ed 2014)).

Implications

While the Supreme Court’s decision is relatively narrow, it will likely affect how attorneys advise their clients.

TTAB proceedings should now be treated with the same seriousness as district court infringement actions. TTAB proceedings are generally a less costly alternative to trademark litigation. Although TTAB proceedings follow a similar schedule as civil trademark litigation, less evidence is needed and there is no requirement for live appearances or a jury, thus keeping costs down. However, since the Supreme Court has found that a TTAB decision may have a preclusive effect in district courts, clients will likely spend more time and money on TTAB proceedings, thus reducing the cost savings. On the other hand, parties may be more likely to settle TTAB proceedings before a decision issues, thus saving time and money.

Because the TTAB holding on likelihood of confusion is not binding in the same way as a district court infringement proceeding, an applicant that lost an opposition (or a rights holder that loses a cancellation proceeding) on likelihood of confusion grounds previously had a chance to reargue the issue in district court. Thus, the junior user was prevented only from registering the mark, not from actual use of the mark. In view of the Supreme Court’s decision, a losing applicant will not have the chance to argue against likelihood of confusion in any pending infringement litigation and thus could be prevented from using the mark simply based on the TTAB opinion. As noted in Ginsburg’s concurrence, TTAB proceedings are often decided by comparing the marks in the abstract, not as they are actually used in commerce. As long as district courts do not apply issue preclusion in this situation, applicants will have the chance to argue against likelihood of confusion in future infringement suits.

After the TTAB issues a decision, parties have the opportunity for de novo review in district court. This is an expensive proposition that clients may have forgone in the past. However, in view of this decision, clients may be more likely to seek a de novo review of TTAB decisions in district court, again increasing the expenses and time spent.

Practitioners should also advise clients to consider whether filing a TTAB proceeding is worth the risk of potential issue preclusion. For example, if the adverse party’s mark is already being used on similar goods, it may make sense to skip a TTAB proceeding altogether and concentrate efforts on an infringement action. If a client still wishes to file a TTAB proceeding in addition to an infringement action, practitioners should advise filing an infringement action before the TTAB decides on likelihood of confusion and moving to suspend the TTAB action. The caveat is that parties with intent to use marks cannot file infringement actions. Thus, the only option at the time may be to file a TTAB action, knowing that the decision may prevent them from filing an infringement action in the future.

In summary, in light of the Supreme Court’s decision, trademark practitioners should advise clients to treat TTAB proceedings with the same seriousness as federal court proceedings, to request de novo review of TTAB decisions and to consider whether to file an infringement proceeding instead of a TTAB proceeding. However, practitioners will need to review how district courts actually apply this decision in order to determine the best ways to counsel their clients.

Finally, the impact of this decision may affect not only rights holders and applicants, but also those dealing with patents. In patent cases, the Patent Trial and Appeal Board (PTAB) acts in a manner similar to the TTAB, now including deciding inter partes review, post-grant review and covered business method review proceedings (35 USC §§311-319; id §§321-329; America Invents Act §18). While the America Invents Act provides explicit estoppel provisions with respect to patent challengers, these provisions do not apply to patentees (see America Invents Act §6; 35 USC §315(e)(2); id §325(e)(2)). Thus, practitioners who also have patent clients should pay close attention to how and whether district courts and litigants address this decision.