Note: This blog post is part of a series that reviews and discusses a number of significant trademark-related decisions handed down in 2015, including two from the U.S. Supreme Court and several from the U.S. Court of Appeals for the Federal Circuit and other Circuit Courts. Going forward, these rulings will impact how parties protect their trademark assets, including in particular the strategies that parties will need to employ to maximize their likelihood of success in litigation. To follow the entire blog series, click here. For more information, contact Kevin O'Shea.
1. Background
In B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S.Ct. 1293 (2015), the owner of the "SEALTIGHT" trademark sued the owner of the "SEALTITE" mark for trademark infringement and related claims. The parties engaged in a "labyrinthine" struggle spanning almost 20 years that included infringement litigation in which two separate juries entered verdicts and appeals were taken three times to the Eighth Circuit, as well as Opposition proceedings before the Trademark Trial and Appeal Board ("TTAB"). Id. at 1301. "The full story could fill a long, unhappy book." Id.
B & B began using the SEALTIGHT trademark in 1990 in connection with fasteners used in the aerospace industry. Id. at 1301. B & B filed an application to register the mark that same year, and received a registration on October 12, 1993. In the interim, during 1992, Hargis began selling a line of self-drilling and self-tapping screws used in the building industry, using the SEALTITE mark, and in 1996 applied to register the mark. B & B filed an Opposition in the TTAB, arguing that Hargis' mark was confusingly similar to B & B's registered mark. Id. at 1301. As the Supreme Court noted, despite the differences between the aerospace and construction industries, "both aerospace and construction engineers prefer fasteners that seal things tightly. Accordingly, both B & B and Hargis want their wares associated with tight seals." Id. B & B's Opposition spawned
The TTAB ultimately ruled that Hargis' SEALTITE mark could not be registered due to the likelihood of confusion with B & B's registered SEALTIGHT trademark. Id. at 1301-02. The TTAB based its decision on a review of the DuPont factors, of which the TTAB found "similarities of the marks" and "similarity of the goods" to be the most critical factors in its analysis of the parties' competing marks. Id. at 1302. Hargis did not appeal the ruling to either a district court or the U.S. Court of Appeals for the Federal Circuit.
While the Opposition was pending before the TTAB, B & B had sued Hargis for trademark infringement. Id. The TTAB issued its likelihood of confusion ruling before the district court addressed the issue, and B & B argued that the TTAB's ruling precluded Hargis from contesting likelihood of confusion in the district court. Id. The district court rejected B & B's argument, reasoning that the TTAB is not an Article III court, and allowed the issue to be decided by a jury. Id. The jury found in Hargis' favor, concluding that there was no likelihood of confusion. Id.
B & B appealed to the Eighth Circuit. Id. The Eighth Circuit accepted that an agency ruling can form the basis for issue preclusion but, nevertheless, affirmed the jury's decision for three reasons: (i) the TTAB uses different factors than the Eighth Circuit for evaluating likelihood of confusion; (ii) the TTAB, according to the Eighth Circuit, placed too much emphasis on the appearance and sound of the parties' competing marks; and (iii) Hargis bore the burden of proof before the TTAB, whereas B & B bore the burden of proof in the district court litigation. Id.
The Supreme Court reversed in a 7-2 decision.1 First, the Court easily confirmed that an agency decision can form the basis for issue preclusion, rejecting all of Hargis' arguments that construing the Lanham Act to allow preclusive effect of a TTAB ruling would be unconstitutional. Id. at 1302-05. Next, the Court dismissed Hargis' arguments that TTAB decisions in particular should not be granted preclusive effect, finding that nothing in the Lanham Act's text or structure indicates any intention by Congress to exclude TTAB decisions from having issue preclusive effect. Id. at 1305-06. Finally, the Court confirmed that likelihood of confusion is the same for registration as it is for infringement and, therefore, the Court held that there is no reason why the TTAB's decision regarding a mark's registrability should not be granted preclusive effect. Id. at 1306-10. Accordingly, the Court announced the following rule:
So long as the other ordinary elements of issue preclusion2] are met, when the usages adjudicated by the TTAB are materially the same as those before the district court, issue preclusion should apply.
Id. at 1310 (emphasis added).
2. Strategic Issues Arising From B & B Hardware
The Court recognized that "for a great many registration decisions [issued by the TTAB] issue preclusion obviously will not apply." Id. at 1306. As Justice Ginsburg explained in her concurring opinion, "[t]his is so because contested registrations are often decided upon 'a comparison of the marks in the abstract and apart from their marketplace usage.'" Id. at 1310 (quoting 6 J. McCarthy, Trademarks and Unfair Competition § 32.101, p. 32-247 (4th ed. 2014)). "When the registration proceeding is of that character, 'there will be no [preclusion] of the likel[ihood] of confusion issues ... in a later infringement suit'" because in an infringement suit the district court will consider how the parties' respective marks are used and perceived in the marketplace. Id. (amendments in original; quoting McCarthy § 32.101, p. 32-247).
However, the closer that a registrant's use of its mark in the marketplace is to the usage recited in its application, the more likely that a TTAB ruling will have preclusive effect in later district court litigation between the parties. As the Court noted, "[i]f 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." Id. at 1308.
With the foregoing in mind, any party involved in an inter partes proceeding before the TTAB – i.e., a Cancellation or Opposition – should consider whether it would be beneficial to link how it, or its opponent, uses a mark in the marketplace and how the mark is described in the application or registration. By doing so throughout the pleadings, a party may increase the likelihood that the TTAB's decision will have preclusive effect in district court litigation. Of course, this works in both directions – the TTAB may reject the party's arguments, leaving the party wishing that it had followed the opposite strategic path and distinguished the mark's usage in the application from its marketplace usage in order to avoid issue preclusion. Thus, parties and their counsel need to give careful consideration to these issues.
Cost will likely play a significant part in such strategic analyses. On the one hand, Cancellations and Oppositions are significantly less expensive than district court litigation, and the TTAB's decision may be appealed. On the other hand, administrative procedures such as Cancellations and Oppositions are not tried to a jury, whereas fact issues in district court litigation may be presented to a jury (if not decided by the district court in summary judgment). Moreover, district court litigation may allow for damages, whereas the successful outcome of a Cancellation or Opposition is that the challenged mark is removed from the Principal Register, which the district court can also order.
Finally, the issue of whether a district court would stay litigation pending the outcome of a Cancellation or Opposition should be considered. As an initial matter, it is rare that a district court will stay litigation pending a decision from the TTAB. There are several reasons for this reluctance, including: (i) neither a Cancellation nor an Opposition will resolve issues of common law trademark rights – these proceedings only address whether the mark at issue should remain (or be placed upon) the Principal Register; and (ii) the accused infringer can file a counterclaim seeking cancellation of the mark at issue, so that the district court can address the issue within the context of the pending litigation, rather than shelving an active litigation. However, B & B Hardware may provide ammunition for a party seeking to stay district court litigation, particularly when, as discussed above, it can be shown that the TTAB proceeding will have preclusive effect because the usage of the mark in the marketplace (i.e., the district court's concern) is similar, or preferably identical, to the usage of the mark as described in the registration (i.e., the TTAB's concern). The more that it can be shown that these usages collapse into the same thing, the more likely it is that a district court will be willing to stay litigation.
Staying litigation will likely remain the exception rather than the rule because the TTAB is very quick to stay an action when related litigation is pending. See 37 C.F.R. § 2.117. Nevertheless, if the TTAB proceeding is initiated before the district court litigation, an accused infringer may have a better chance of staying later-filed litigation in view of B & B Hardware. Therefore, when a party receives a cease-and-desist letter alleging trademark infringement, it should consider whether to preemptively file in the TTAB to increase the likelihood of staying later-filed litigation. In view of this potential strategy, parties enforcing their trademark rights need to consider whether to file a lawsuit before serving a cease-and-desist letter, perhaps including a copy of the complaint without formally serving it, to avoid a preemptive TTAB filing.
It is clear that B & B Hardware has changed the strategic landscape of trademark enforcement and litigation. As with many Supreme Court cases, B & B Hardware contains language and arguments that benefit both parties. The extent to which this case has a significant impact on how parties enforce their trademark rights and defend against allegations of infringement remains to be seen. However, parties facing these issues must consider the strategic implications of B & B Hardware as set forth above, as well as related caselaw as it develops, before deciding how to proceed.
Footnotes
1 Justices Scalia and Thomas dissented. B & B Hardware, 135 S.Ct. at 1310-18.
2 The Court explained that, "subject to certain well-known exceptions, the general rule is that '[w]hen 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." Id. at 1303 (citing Restatement (Second) of Judgments § 27, p. 250 (1980)).
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