United States: Supreme Court: Trademark Trial And Appeal Board Decisions On Likelihood Of Confusion Can Have Preclusive Effect In Subsequent Federal Court Litigation

B & B Hardware v. Hargis Ind.,135 S. Ct. 1293 (2015)

The U.S. Supreme Court recently held in B&B Hardware, Inc. v. Hargis Industries, Inc., that a decision of the Trademark Trial and Appeal Board of the U.S. Patent and Trademark Office ("T.T.A.B.") on the issue of likelihood of confusion may preclude a federal court from reaching a contrary conclusion on the issue in a subsequent infringement action. But the key word in the previous sentence is may—not must—and the Supreme Court went out of its way to explain that "for a great many registration decisions" from the T.T.A.B., "issue preclusion obviously will not apply."

It must be initially noted that, before the Supreme Court's decision, a few U.S. federal appellate courts had recognized that in certain circumstances a decision by the T.T.A.B. could have preclusive effect in later federal court litigation (while a few other U.S. federal appellate courts had held that there could be no such preclusive effect). Viewed in this light, the Supreme Court's holding changes little other than taking the rule already applied in some U.S. federal appellate courts and making it a nationwide rule.

But it will be interesting in the coming months to see how federal courts and the T.T.A.B. apply the Supreme Court's holding.

The Facts and Procedural History of the Case

The facts of the case as relevant here are relatively straightforward. The plaintiff, B&B Hardware ("B&B"), has since 1993 owned a federal registration for the mark SEALTIGHT for metal fasteners used in the aerospace industry. Meanwhile, the defendant, Hargis Industries ("Hargis"), uses the mark SEALTITE for metal fasteners in the construction industry, and in 2002 applied for federal registration of SEALTITE. B&B opposed registration of SEALTITE before the T.T.A.B., arguing that it was confusingly similar to SEALTIGHT. After the parties engaged in discovery and trial, the T.T.A.B. concluded that SEALTITE was confusingly similar to SEALTIGHT and could not be registered. Hargis did not exercise its statutory right to appeal the T.T.A.B.'s decision to the U.S. Court of Appeals for the Federal Circuit or a federal district court.

B&B also sued Hargis for infringement in federal district court, claiming that Hargis' use of SEALTITE infringed B&B's rights in SEALTIGHT. In light of the T.T.A.B.'s finding of a likelihood of confusion, B&B argued to the district court that the T.T.A.B.'s decision precluded Hargis from arguing in the district court that there was no likelihood of confusion between the marks. The district court, however, refused to give preclusive effect to the T.T.A.B.'s determination. Ultimately, a jury sided with Hargis, finding no likelihood of confusion between the marks. B&B appealed to the U.S. Court of Appeals for the Eighth Circuit, arguing that the district court should have given preclusive effect to the T.T.A.B.'s likelihood of confusion decision. But the Eighth Circuit affirmed, holding that because the T.T.A.B. looks to different factors than do federal courts in making likelihood of confusion determinations, a federal court should never give preclusive effect to a T.T.A.B. decision on the likelihood of confusion issue. The Supreme Court accepted review of the case and reversed the Eighth Circuit.

The Supreme Court's Decision

In short, the Supreme Court rejected the Eighth Circuit's per se rule that T.T.A.B. decisions can never be entitled to preclusive effect in federal court, holding instead that, in some cases, the T.T.A.B.'s decision may be entitled to preclusive effect. The Supreme Court's ruling can be summarized in the following sentence from the opinion: "So 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." 135 S. Ct. at 1310.

The "ordinary elements" of issue preclusion are set forth in the Restatement (Second) of Judgments, which states: "When an issue of fact or law is actually litigated and determined by a valid and final judgment, and 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 Supreme Court rejected the argument that issue preclusion should never apply because the procedures used by the T.T.A.B. were different from the procedure used in federal courts (e.g., the T.T.A.B. does not allow for testimony by live witnesses). The Supreme Court noted that proceedings before the T.T.A.B. are governed largely by the Federal Rules of Civil Procedure and the Federal Rules of Evidence and, thus, there is "no categorical reason to doubt the quality, extensiveness or fairness" of the T.T.A.B.'s procedures. 135 S. Ct. at 1309.

Turning to the crux of the case, the Eighth Circuit's primary basis for rejecting issue preclusion for T.T.A.B. decisions was its belief that the T.T.A.B.'s legal analysis of the issue of likelihood of confusion for purposes of deciding registration is different from the analysis in federal court for infringement. Thus, according to the Eighth Circuit, the issue of likelihood of confusion for infringement purposes is never "actually litigated and determined" by the T.T.A.B. The Supreme Court rejected this notion.

First, the Supreme Court held that the text of the U.S. Trademark (Lanham) Act provides the same statutory standard to be applied by the T.T.A.B. and the federal courts, namely "the likelihood of confusion standard," and that this standard was not "fundamentally different" between the T.T.A.B. and the federal courts, notwithstanding the fact that some of the specific nuances of the standard differ between the tribunals. 135 S. Ct. at 1307.

Second, the Supreme Court analyzed whether, in reality, the TTAB actually applies the same likelihood of confusion standard since the T.T.A.B. "typically analyzes the marks, goods and channels of trade only as set forth in the application and the opposer's registration, regardless of whether the actual usage of the marks by the parties differs." 135 S. Ct. at 1307. This was a closely watched facet of the case, as it is well established that the T.T.A.B. does not typically look to the real-world use of the marks made by the parties (particularly the use made by the defendant), while marketplace conditions are critical to the likelihood of confusion analysis of district courts in infringement actions. The Supreme Court acknowledged this difference, stating that "unlike in infringement litigation," the T.T.A.B.'s "determination that a likelihood of confusion does or does not exist will not resolve the confusion issue with respect to non-disclosed usages"—i.e., real-world usages not listed in the application and registration. But the Supreme Court held that this difference did not require a per se rule that T.T.A.B. decisions can never be entitled to issue preclusion. Id. at 1308. Rather, the Court explained that this difference was just "a reason not to apply issue preclusion in some or even many cases." Id. The Court then went on to announce what many view as the key passage from the opinion and the rule for district courts to apply going forward:

Id. (emphasis added).

Given the above rule, as well as the T.T.A.B.'s repeated statements in precedential cases that it does not look to real-world usage of the parties' marks in making registration decisions, the Supreme Court readily explained that "for a great many registration decisions issue preclusion obviously will not apply because the ordinary elements will not be met." 135 S. Ct. at 1306.

The Future of T.T.A.B. and Federal Court Proceedings After B&B Hardware

Going forward, the key to whether a T.T.A.B. decision will have preclusive effect in subsequent federal court litigation will come down to a district court judge's determination of whether the T.T.A.B. considered any marketplace usage of the parties' marks and, if it did, if those usages are "materially the same" as the usages at issue in the infringement action. The Court provided little guidance as to which usages are "materially" the same and which are not, but it did provide some helpful hints.

First, the Court explained that "trivial variations" in the parties' marks between the T.T.A.B. and federal court would not be sufficient to avoid preclusion—specifically, a party cannot add "descriptive or non-distinctive elements" to its mark to avoid preclusive effect of a T.T.A.B. decision. Second, since the Supreme Court made clear that "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," it appears that most, if not all, decisions by the T.T.A.B. concerning intent-to-use applications or applications based on foreign registrations for marks that are not yet in use in the U.S. will not have preclusive effect, since neither of these types of applications involve any use by the defendant in the U.S. for the T.T.A.B. to examine.

But with the exception of these few clear principles discussed above, the impact of the decision on cases where there is real-world usage of the mark by the defendant will not be known until federal courts and the T.T.A.B. start to apply the decision.

As to the T.T.A.B., we will have to wait and see if, in light of the Supreme Court's implicit approval of the T.T.A.B.'s procedures and likelihood of confusion analysis, the T.T.A.B. will begin to consider marketplace usage of the defendant's mark as part of its analysis. Moreover, litigants who are unhappy with the T.T.A.B.'s decisions likely will be more inclined to appeal the decisions to the U.S. Court of Appeals for the Federal Circuit or a federal district court.

As to the federal courts, an additional legal step will be added in almost every federal court case (both currently-pending and newly-filed cases) in which the parties have previously litigated a T.T.A.B. proceeding to conclusion. Specifically, the party that prevailed in the T.T.A.B. will no doubt want to argue to the district court that issue preclusion should apply because the "usages adjudicated by the TTAB are materially the same" as the ones before the district court. The losing party before the T.T.A.B. will obviously argue against such preclusion, arguing that the usages analyzed the T.T.A.B. are not materially the same as the ones before the district court. It will be interesting to see how district courts begin to grapple with these arguments in the coming months and, specifically, whether courts heed the warning of the Supreme Court that "a great many" of the T.T.A.B.'s decisions will not be entitled to preclusive effect.

Finally, it would seem that the Court's decision will have the most impact on the strategies and actions of defendants/applicants in T.T.A.B. proceedings and their counsel. Specifically, because of the analyses used by the T.T.A.B. for likelihood of confusion—i.e., not reviewing real-world usages and acceptance of likelihood of confusion surveys that do not employ real-world situations—it is often easier to prove likelihood of confusion in the T.T.A.B. than it is in federal courts (as the conflicting results of the T.T.A.B. and district court proceedings in B&B Hardware demonstrate). Accordingly, defendants in T.T.A.B. proceedings may wish to try to expand the scope of the proceeding, including by introducing evidence of real-world usages of the parties' marks. Or, as a more drastic measure in higher-stakes proceedings, defendants in T.T.A.B. proceedings may be more inclined to file declaratory judgment actions of non-infringement in federal court in response to the filing of a T.T.A.B. proceeding and ask the T.T.A.B. to suspend the proceeding while the federal court case proceeds (something the T.T.A.B. routinely does).

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