SCOTUS' Tale of Two Trademarks: How a Happy Ending to IP Litigation Often Depends on Early Strategy Before USPTO

intellectual propertyOn March 24, 2015, the U.S. Supreme Court issued two decisions: Omnicare, Inc. v. Laborers Dist. Council Constr. Industry Pension Fund, No. 13-435and, less the media darling, B&B Hardware, Inc. v. Hargis Industries, Inc., No. 13-352. B&B Hardware is the second trademark decision issued by the Court this term (the first being Hanna Financial, Inc. v. Hana Bank, No. 13-1211, which was issued in January and held that whether two trademarks may be tacked for purposes of determining priority is a question of fact for the jury), and is likely to alter the landscape of trademark infringement litigation. In a 7-2 decision in which Justice Alito delivered the majority opinion, the Court reversed and remanded the case to district court, finding that (1) agency decisions, generally, can ground issue preclusion; (2) the Lanham Act does not forbid issue preclusion; and (3) the same likelihood of confusion standard applies to both registration (before the Trademark Trial and Appeal Board) and infringement. The Court's recognition on the last point, regarding the standard for the likelihood of confusion analysis, is an important one, as it may change the role of the TTAB and the decisions it makes at the registration stage, how courts will weigh those registration analyses, and how litigants may want to strategize enforcement of their marks.

According to Justice Alito, "[t]he full story [of B&B and Hargis] could fill a long, unhappy book." B&B Hardware, slip op. at 6. Like many unhappy stories before it, it is about two (sort of) rivals, B&B Hardware, Inc. and Hargis Industries, Inc. B&B and Hargis both manufacture metal fasteners, albeit for use in different industries (aerospace and construction, respectively). In 1993, B&B federally registered the mark "SEALTIGHT" for use in connection with its metal fasteners. Later, Hargis attempted to register "SEALTITE" for use in connection with its metal fasteners. "The twists and turns in the SEALTIGHT versus SEALTITE controversy are a labyrinth." Id. Needless to say, however, B&B opposed registration of SEALTITE at every possible twist and turn. Indeed, B&B ultimately succeeded in blocking Hargis' registration of SEALTITE, convincing TTAB – the tribunal that hears challenges to registration applications pending before the USPTO – that SEALTITE's use was "likely to cause confusion," which is the critical inquiry in a registration challenge. Id. at 7. As the high court was careful to point out, Hargis did not seek judicial review of the TTAB's decision, "despite a right to do so." Id.

Shortly thereafter, concurrent trademark litigation between B&B and Hargis resulted in a jury finding no likelihood of confusion with respect to SEALTITE and returning a verdict in favor of Hargis. Both the district court and the U.S. Court of Appeals for the Eighth Circuit rejected B&B's arguments that the TTAB's decision on the issue of confusion had a preclusive effect in the district court litigation.

Generally, "issue preclusion" is triggered in accordance with the following rule (taken by the Supreme Court from the Restatement (Second) on Judgments):

"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."

Id. at 9. Of course, there are exceptions to this rule, such as when the "quality and extensiveness of the procedures followed" by the first tribunal are lacking. Id. Ultimately, though, the Eighth Circuit rejected B&B's issue preclusion argument because the TTAB uses "different factors" than the Eighth Circuit to evaluate likelihood of confusion; thus, the issues before the TTAB differed from the issues in the infringement litigation, according to the appellate court. Id. at 8. B&B filed a petition for certiorari, which was granted.

While it may be true that little joy can be derived from reading about this "unhappy" saga (even in abridged form), the Supreme Court has laid the groundwork for a triumphant final chapter for B&B. The Supreme Court rejected Hargis' argument that application of issue preclusion to TTAB decisions gives the TTAB – a juryless tribunal – too much power. Id. at 7, 14 (rejecting arguments that application of issue preclusion to TTAB decisions offended Article III and the Seventh Amendment to the U.S. Constitution; also rejecting argument because "[d]espite a right to do so, Hargis did not seek judicial review in either the Federal Circuit or District Court.").[1] While the Supreme Court declined to conclude that all agency decisions have a preclusive effect in later litigation, the Supreme Court concluded that they certainly can "[s]o long as the other ordinary elements of issue preclusion are met[.]" Id. at 22. When evaluating the ordinary issue preclusion elements, the Eighth Circuit got it wrong. Specifically, the Eighth Circuit was wrong to conclude that the issues before the TTAB were different than the issues before the district court because "the same likelihood-of-confusion standard applies to both registration and infringement." Id. at 15 (emphasis added). Although the two tribunals use different factors to assess likelihood of confusion, "the factors are not fundamentally different[.]" Id. at 16.

While this interpretation will serve to make many TTAB decisions on likelihood of confusion much more important if parallel civil litigation is pending, the Supreme Court warned that not all TTAB decisions will be binding. Specifically, because TTAB only evaluates likelihood of confusion based on the usage disclosed in the registration application, a TTAB decision on likelihood of confusion will have a preclusive effect only "when the usages adjudicated by TTAB are materially the same as those before the district court" (and, of course, when the ordinary elements of issue preclusion are also met). Id. at 17, 22. To evaluate usage in a registration challenge, "it is the mark as shown in the application and as used on the goods described in the application that must be considered, not the mark as actually used."  Id. at 17 (citing 3 McCarthy §20:15, at 20-45).

The Supreme Court remanded the case for further proceedings, directing the district court to apply the foregoing rule. Even though the saga is not quite complete, B&B is poised to win its most important battle to date if it convinces the court that the usages considered by the TTAB are "materially the same" as those before the district court.

Regardless, epic stories generally teach a lesson or two, whether they end happily or not. Perhaps the biggest takeaway from this tale is that it is never too early to start planning trademark litigation strategy. The benefits of federally registering a mark can be "substantial." Id. at 21. For many, the registration process is simple, but it is always important to plan for contingencies. Are competitors out there closely monitoring your business? If so, is a registration challenge from them likely? What is the plan if they do challenge-- will they keep the battle before TTAB or will they also sue for infringement in federal court? Filing a registration application, without having carefully considered next steps if a challenge ends badly, can haunt the registrant in the future. The same could be true for the hasty trademark registration opponent. An unfavorable TTAB determination could weigh heavily in future infringement litigation, depending on how usage is described in the underlying registration application. If a prior TTAB decision exists, the potential for issue preclusion must color all strategic analysis of infringement litigation, including settlement.


[1] Although TTAB proceedings are juryless, the Supreme Court pointed out that TTAB proceedings are in many ways "similar to civil litigation in federal court." Id. at 4. The proceedings are "largely governed" by the Federal Rules of Civil Procedure and Evidence. Id. The TTAB also allows discovery and depositions. Id. "The primary way in which TTAB proceedings differ from ordinary civil litigation is that proceedings before the Board are conducted in writing, and the Board's actions in a particular case are based upon the written record therein." Id. at 5 (internal quotation marks omitted).

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Jade Smarda |