United States: Supreme Court’s Preclusion Ruling May Mean More District Court Trademark Cases

B&B Hardware, Inc. v. Hargis Industries, Inc., No. 13-352 (U.S. March 24, 2015)

Earlier this week, the United States Supreme Court issued its second substantive trademark ruling of its term, clarifying application of issue preclusion in trademark disputes before the Trademark Trial and Appeal Board ("TTAB") and federal district courts.  In a decision with far-reaching strategic implications for both trademark owners and practitioners, the Court held that TTAB rulings can preclude federal court actions where "likelihood of confusion" is at issue in both the TTAB and federal court, and where "usages adjudicated by the TTAB are materially the same as those before the district court."  The question now is whether trademark owners will take their chances with the TTAB and litigate there more thoroughly, or go straight to district court where they can avoid potentially unfavorable TTAB decisions that may preclude future trademark infringement actions.

In this case, B&B registered the trademark SEALTIGHT for metal fasteners, bolts screws and related hardware for use in the aerospace industry.  Hargis later attempted to register SEALTITE for metal screws for use in the manufacture of metal and post-frame buildings.  B&B opposed Hargis's trademark application, and the TTAB sided with B&B, rejecting Hargis's SEALTITE application and finding that SEALTITE is confusingly similar to SEALTIGHT.  B&B then sought to have the TTAB's ruling applied as collateral estoppel in a district court action where B&B had sued Hargis for trademark infringement.  The District Court, and later the Eighth Circuit, rejected application of collateral estoppel, but the Supreme Court reversed on Tuesday with a 7-2 opinion.

Writing for the majority, Justice Alito found that "so long as the other ordinary elements of issue preclusion are met" and the "usages adjudicated by the TTAB are materially the same," collateral estoppel would foreclose any subsequent federal court case.  That holding is limited:  not every TTAB decision will bar a court proceeding where the same trademarks are at issue.  Where there are materially different "usages" at issue or "if the TTAB does not consider the marketplace usage of the parties' marks" then the TTAB decision should "have no later preclusive effect in a suit where actual usage in the marketplace is the paramount issue."  Ultimately, the Court found that the TTAB's standards and those deployed in federal courts are "not fundamentally different" and therefore TTAB rulings may have preclusive effect if the factors used are the same.

Trademark owners and practitioners now face a dilemma: do they challenge confusingly similar trademarks before the TTAB or in federal court?  Junior users or parties who are considering making intent-to-use ("ITU") trademark filings at the United States Patent and Trademark Office ("USPTO") will also be faced with new strategic considerations as potential defendants.

Conventional thinking is that the TTAB is more plaintiff-friendly, while the district courts are more defendant-friendly.  An opposer might now choose to fully litigate the question of likelihood of confusion before the TTAB and then proceed directly to the federal court and argue issue preclusion to obtain an injunction.  In so doing, opposers before the TTAB will need to take use, advertising, and channels of trade into account, thereby dramatically increasing the costs.  This strategy puts pressure on opposition filers to submit as much evidence as possible with respect to marketplace usage and potential registrability.  Conversely, applicants in opposition proceedings may try to keep such marketplace evidence out of the TTAB, or even decide not to file a federal trademark application in the first place for fear of a negative TTAB decision.

The Supreme Court's decision, however, fails to acknowledge that parties may go straight to district court where motion practice, hearings, live testimony, judicial overview and potential jury involvement will allow them to more comprehensively manage a likelihood-of-confusion case.  Moreover, if the TTAB is no longer a place where disputes can be handled more cost-effectively and the decisions have near-certain preclusive effect, many parties may decide to take their chances in court and not risk an adverse decision at the TTAB.  Junior users may immediately take a likelihood of confusion case to court so as to control the proceedings and possibly engage a more "friendly" forum.

How expansively the Court's ruling will be interpreted with regard to cases outside the likelihood of confusion arena also remains unclear.  TTAB decisions covering issues such as priority, dilution, descriptiveness and other areas may also be found to have similar preclusive effect, and we will have to wait to see how district courts interpret the Supreme Court's holding and its application with respect to these issues.  Nevertheless, the decision in B&B v. Hargis puts more pressure on parties to weigh the benefits and risks of pursuing cases before the TTAB or an Article 3 court, and to potentially change their current enforcement strategies with respect to confusingly similar trademarks.  Parties will certainly be paying more attention in TTAB matters and might be running to the courthouse earlier and more often where "bet the brand" or "bet the company" trademark issues are at stake.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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