On March 24, 2015, the Supreme Court issued its opinion reversing the Eighth Circuit and holding that, in some narrow circumstances, a Trademark Trial & Appeal proceeding can have preclusive effects on federal district court litigation.

In December, the Supreme Court heard oral arguments for B&B Hardware vs. Hargis, an appeal from an Eighth Circuit ruling that the District of Arkansas was not precluded from hearing a likelihood of confusion claim already decided by the Trademark Trial & Appeal Board.

Background

The Petitioner, B&B Hardware, used and owned a federal registration in the mark SEALTIGHT for fasteners in the aerospace industry. The Respondent, Hargis Industries, sold self-sealing fasteners under the mark SEALTITE in the construction industry. The two parties had been involved in trademark litigation for the last 15 years over these two marks.  In 2003, the USPTO published Hargis’s SEALTITE mark for opposition and B&B opposed based on its SEALTIGHT registration. The TTAB found that Hargis’s SEALTITE mark was confusingly similar to B&B’s SEALTIGHT mark and sustained B&B’s opposition.

In 2006, B&B sued Hargis for trademark infringement. The district court held that the TTAB’s finding of a likelihood of confusion did not have preclusive effects in district court and refused to allow the TTAB’s findings into evidence. A jury then found Hargis not liable for trademark infringement. The Eighth Circuit affirmed the district court’s finding that the TTAB’s decision did not have a preclusive effect on the district court.

Decision

In a 7-2 decision, the Supreme Court reversed the Eighth Circuit and remanded.

First, it broadly considered whether agency decisions like those of the USPTO’s administrative courts can ever be grounds for issue preclusion. The Court stated that “where a single issue is before a court and an administrative agency, preclusion…often applies.” The Court argued that “[t]he idea is straightforward: once a court has decided an issue, it is forever settled as between the parties” thereby promoting judicial efficiency. It acknowledged, however, that issue preclusion can be difficult to apply in some situations.

The Court proceeded to analyze whether a TTAB decision can ever meet the “ordinary elements” of issue preclusion, e.g. those elements set out in §27 of the Restatement (Second) of Judgments. According to the Restatement, issue preclusion should apply:

“When (1) an issue of fact or law is (2) actually litigated and determined by (3) a valid and final judgment, and (4) the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.”

 The Court found that the TTAB proceeding in this case did meet these requirements, primarily because “likelihood of confusion for purposes of registration is the same standard as likelihood of confusion for purposes of infringement” The Court based this holding on three facts: (1) the operative language for both analyses were the same, (2) the factors used by Congress to craft the Lanham Act had been in used since at least 1881 and (3) district courts can cancel registrations during infringement litigation and can adjudicate infringement in TTAB appeals. If the likelihood of confusion analyses were different, the Court argued, then a district court would be in no position to analysis infringement and registration issues at the same time.

The Court rejected Hargis’ argument that, because the TTAB usually relies on a party’s federal trademark registration and not on common-law rights, issue preclusion cannot exist. The Court stated that this argument “mistakes a reason not to apply issue preclusion in some or even many cases as a reason never to apply issue preclusion.” Here, the Court summarizes the main holding from this decision: if a mark owner uses its mark in ways that are materially the same as the usages included in its registration application, then the TTAB is deciding the same likelihood-of-confusion issue as a district court in infringement litigation and issue preclusion applies. “Thus, if 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.’”

The Court also rejected the idea that issue preclusion should not apply because the stakes are lower in TTAB proceedings compared to district court litigation. While the TTAB does not have the power to enjoin use of a trademark, it does have the power to deny federal registration. The Court held that a “registration is significant” and confers several important rights and benefits to the registrant, including prima facie evidence of the marks validity and constructive notice of its rights. The Court held that in a TTAB proceeding, “there is good reason to think that both sides will take the matter seriously.”

Analysis

Overall, the Supreme Court’s decision in this case is limited. As Justice Ginsberg stated in her concurring opinion, “contested registrations are often decided upon ‘a comparison of the marks in the abstract and apart from their marketplace usage.’” Those opinions would not be preclusive on a federal court analyzing the actual usage of both marks in the marketplace. The Court’s vague opinion, however, opens to door to a wide interpretation of what is or is not a “material” difference between the usage of a mark and the goods and services found on a mark’s trademark registration.

This opinion also effects the legal strategy behind filing trademark oppositions. If a TTAB decision can have preclusive effects on litigation, then a company may decide to immediately file a federal lawsuit for infringement instead of going through the TTAB to avoid the limited in-person hearings and other procedural hurtles of the TTAB.  Alternatively, a party may decide to push for a TTAB decision that fits this narrow holding in order to prevent the other party from re-litigating the issue again in a federal case. Could this escalate the cost of a TTAB proceeding with, for example, increased use of expensive consumer surveys by parties attempting to obtain a “preclusive” opinion from the TTAB? How will the courts decide whether the parties’ actual use in the marketplace was “materially different” from that considering in a TTAB proceeding? It’s these questions (and more) that remain after this decision and will likely create contentious issues moving forward as litigants, and courts, attempt to interprete whether a TTAB decision is preclusive.