Yesterday the United States Supreme Court issued a landmark ruling in B&B Hardware, Inc. v. Hargis Industries, Inc. et al., case number 13-352, 575 U.S. ___ (2015), holding that likelihood of confusion determinations by the Trademark Trial and Appeal Board ("TTAB") may have preclusive effect in infringement litigation.1
In the subject case, Petitioner B&B, owner of the mark SEALTIGHT, had opposed Respondent Hargis' attempt to register the mark SEALTITE with the United States Patent and Trademark Office. While those opposition proceedings were pending before the TTAB, infringement litigation B&B had commenced in 2006 against Hargis also was pending in the United States District Court for the Eastern District of Arkansas. The TTAB rendered its decision first, issuing an August 28, 2007 opinion agreeing with B&B, finding a likelihood of confusion between the two marks and denying Hargis' attempt to register SEALTITE. Hargis did not appeal the TTAB decision. In 2010, three years after the TTAB's decision, a jury in the infringement action agreed with Hargis, finding no likelihood of confusion between the two marks. B&B Hardware, Inc. v. Hargis Industries, Inc., 736 F. Supp. 2d 1212, 1214 (E.D. Ark. 2010). Although B&B argued that collateral estoppel precluded Hargis from challenging the TTAB's determination that there was a likelihood of confusion between the two marks, the district court disagreed, id., and the Eighth Circuit Court of Appeals affirmed. B&B Hardware, Inc. v. Hargis Industries, Inc., 716 F.3d 1020, 1024 (8th Cir. 2013). Although the Eighth Circuit did not adopt the district court's reasoning – which rejected issue preclusion because the TTAB is not an Article III Court – it held that the TTAB decision regarding likelihood of confusion could not have preclusive effect in the infringement action because (1) the agency applied a different likelihood of confusion standard in assessing registration than a court applies in assessing infringement; (2) in applying that standard the TTAB placed too much emphasis on the "appearance and sound when spoken" of the two marks rather than on "the marketplace usage of the marks and products," which is "critical" to the question of infringement; and (3) the burden of persuasion was on Hargis in the TTAB proceeding, whereas the burden was on B&B in the infringement action. Id. at 1025-26.
The Supreme Court reversed the decision of the Eighth Circuit, holding that the doctrine of collateral estoppel (also referred to as issue preclusion), which is designed to preserve time and resources as well as prevent forum shopping, should apply to TTAB likelihood of confusion determinations so long as the "ordinary elements of issue preclusion are met." Slip Op. at 2.
The opinion begins by emphasizing what the Eighth Circuit "assumed" (id. at 1024): TTAB decisions – and indeed, decisions by any administrative agency acting in a judicial capacity – may have preclusive effect in litigation. Slip Op. at 8-9. The Court sidestepped any constitutional considerations by relying on prior precedent, including Parklane Hosiery Co. v. Shore, 439 U.S. 322, 337 (1937), to dispel the notion that a litigant's Seventh Amendment right to a jury trial in suits for trademark damages might prohibit application of administrative preclusion. However, the Seventh Amendment issue was not raised directly in the case at bar because Hargis apparently had failed to preserve or press the issue below – the Opinion specifically notes that "Hargis did not even list the Seventh Amendment as an authority in its appellee brief to the Eighth Circuit." Id. at 11. Therefore, the specific argument rejected by the Court was a statutory argument that the Lanham Act should be read narrowly to avoid a potential constitutional concern. Id.
The Court also found no "evident" reason suggesting Congress would carve TTAB decisions out of those agency determinations to which ordinary preclusion rules may apply, finding no support in either the text or structure of the Lanham Act. Slip Op. 12-13. Nor does it follow from the fact that TTAB decisions are reviewable by either a district court or the Federal Circuit that Congress therefore intended them not to have preclusive effect, the Court said in departing from Fifth Circuit precedent. Id. at 13. To the contrary, it is "ordinary preclusion law" that a party who does not challenge an adverse ruling may be bound by that ruling in later cases. Id. Moreover, because registration is "not a prerequisite to an infringement action" but "a separate proceeding to decide separate rights," issues decided in earlier court proceedings may be given preclusive effect in the TTAB's analysis. Id. at 14. Thus, issue preclusion "is not a one-way street." Id.
Finally, the Court considered whether there is some reason why TTAB registration decisions can never meet the "ordinary elements" necessary for the application of collateral estoppel. It found none and instead held that, despite being governed by different statutory provisions, the likelihood of confusion standard considered by the TTAB in a registration proceeding and the likelihood of confusion standard considered by the court in an infringement action are the same standard, citing the following three reasons: (1) the operative language is essentially the same, despite the fact that the word "likely" in the registration provision does not modify "to cause confusion, or to cause mistake, or to deceive"; (2) the Lanham Act's likelihood of confusion language has been used in registration proceedings since at least 1881; and (3) registration and infringement may be adjudicated at the same time. Slip Op. at 16-17. The Court, however, recognized that where a common law usage is not identified in the registration, the TTAB's likelihood of confusion decision will not have resolved the confusion issue with respect to these usages and issue preclusion may be inappropriate where there are material differences in the usages considered by the TTAB and those at issue in an infringement action. Id. at 17-18. But the TTAB's emphasis on certain of the factors, specifically the "appearance and sound" of the marks according to the Eighth Circuit, does not mean that the standard applied was different, simply that the court may have erred, which alone does not present grounds to refuse preclusive effect. Id. at 19. Nor do the TTAB's different procedures prevent application of collateral estoppel, the Court opined, because mere procedural differences do not compel a conclusion that the proceeding was "fundamentally poor, cursory, or unfair" – which is the correct inquiry in deciding whether to bar issue preclusion. Id. at 20. These different procedures, however, do not include different burdens of persuasion, which in both the registration opposition and infringement action rested on B&B. Id. at 20. Because the benefits of registration – and in particular the possibility of a mark achieving incontestability – are substantial, the stakes in TTAB proceedings are high enough to believe that the parties will "take the matter seriously." Id. at 21.
As a result of these findings, the Court reversed and remanded the case for determination of two issues: (1) whether the other ordinary elements of issue preclusion are met; and (2) whether the usages adjudicated by the TTAB are "materially" the same as those litigated in the infringement action.
The dissent, written by Justice Thomas and joined by Justice Scalia, noted that the presumption in favor of administrative preclusion relied upon by the majority was not announced until 1991 "in poorly supported dictum" and as a result would decline to apply that presumption to the Lanham Act, whose enactment preceded the pronouncement of the presumption, absent some reason to conclude Congress "implicitly authorized" TTAB decisions to have preclusive effect in Article III Courts. That indication lacking, the dissenters could not agree with the Court's holding, particularly given the "serious constitutional concerns" raised by allowing federal administrative agencies, which are part of the Executive Branch, to adjudicate an individual's right to adopt and exclusively use a trademark – a long-recognized private property right at common law.
The majority recognized that not all TTAB decisions will meet the elements necessary for the application of issue preclusion because the TTAB is not always deciding the same likelihood of confusion issue that is in dispute in an infringement action. Justice Ginsburg filed a separate concurrence emphasizing this point, and noting that preclusion will not apply in many cases because often a contested registration is decided by comparing marks in the abstract, rather than based on their marketplace usage. Nonetheless, the potential that parties may pre-adjudicate the likelihood of confusion issue in a TTAB opposition proceeding – which does not permit live testimony and will in many cases be resolved prior to an infringement action in federal court – now creates a strategic dilemma. Trademark owners and practitioners should consider carefully that the stakes before the TTAB have gone up considerably. It would be dangerous for either side to pursue a TTAB decision thinking one would get a second bite at the apple in a litigation later filed in district court. That may or may not be the case, and the uncertainty compels a well-conceived and fully mapped strategy before proceeding.
Read the Supreme Court's decision here.
Footnote
1. Proskauer's Trademark Group has followed and reported on this case from its inception. See: Supreme Court Told That TTAB Preclusion Raises Constitutional Concerns; Amici Weigh in with SCOTUS on Likelihood of Confusion Determinations by the Trademark Trial and Appeal Board; U.S. Supreme Court Will Decide What Preclusive Effect, If Any, Should Be Given to Likelihood of Confusion Findings by the Trademark Trial and Appeal Board; Solicitor General Supports Cert in Case on Preclusive Effect of TTAB Likelihood of Confusion Findings; Petition for Certiorari Filed Regarding Preclusive Effect of Likelihood of Confusion Findings by the Trademark Trial and Appeal Board; and Supreme Court Invites Solicitor General to Submit Views.
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