Issue Preclusion: B&B Hardware

Supreme Court Decision

The Supreme Court’s decision in B&B Hardware came after more than a decade of litigation between the parties. B&B, owner of the SEALTIGHT mark, filed oppositions in the U.S. Patent and Trademark Office (USPTO) against Hargis’s applications to register the mark SEALTITE. While the opposition proceedings were pending, B&B commenced litigation in federal district court. In its decision denying registration, which was issued before the infringement action went to trial, the TTAB found a likelihood of confusion between the two marks. Hargis did not appeal the TTAB decision. As seasoned practitioners know, Hargis could have appealed to the Federal Circuit or, in the alternative, could have appealed to the federal district court, entitling Hargis to de novo review.

The infringement action continued for three more years, at the conclusion of which a jury agreed with Hargis and found no likelihood of confusion between the two marks. B&B argued that Hargis should not have been able to contest likelihood of confusion on the grounds that the earlier TTAB decision on likelihood of confusion should have been afforded preclusive effect. The district court was not persuaded and let the case go to the jury. The Eighth Circuit Court of Appeals affirmed the district court’s decision, though it adopted different reasoning. The district court found that issue preclusion did not apply because the TTAB is not an Article III court. The Eighth Circuit held that the TTAB decision could not have preclusive effect because the agency had applied a different likelihood of confusion standard. Namely, the TTAB’s analysis relied heavily on the appearance and sound of the marks when spoken, and did not give enough weight to the use of the marks in the marketplace—a critical inquiry in determining the existence of trademark infringement.

The Supreme Court granted certiorari to clear up a split of authority among the circuits. Ultimately, the Supreme Court reversed the Eighth Circuit’s decision. Justice Alito, writing for the majority, first analyzed the issue of whether an agency decision could ever be the basis for preclusion. The Court held that issue preclusion is not limited to Article III courts and, in fact, presumptively applies to agency determinations. The Court also rejected Hargis’s statutory argument that the Lanham Act should be read narrowly as not authorizing preclusion, finding nothing in the text or structure of the Lanham Act to suggest that Congress did not intend for ordinary preclusion rules to apply to TTAB decisions.

Next, the Court examined whether there was a reason why TTAB registration decisions could never meet the “ordinary elements” necessary for the application of issue preclusion. 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 essentially the same.

The majority did, however, recognize that not all TTAB decisions satisfy the elements necessary for application of issue preclusion because the TTAB and the federal courts are not always deciding the same likelihood of confusion issue. The Court held that if the marks, goods, or channels of trade set forth in the application (or in the opposer’s registration) differ from what actually occurs in the marketplace, and if the TTAB analyzes only what is on paper, then issue preclusion does not apply because the TTAB is not deciding the same likelihood of confusion issue as the federal court. In her concurrence, Justice Ginsburg seized on this point, emphasizing the critical importance of marketplace conditions. She noted that “for a great many registration decisions issue preclusion will obviously not apply” because they are often made by comparing marks in the abstract, and not on the basis of their marketplace usage.²

The Court reversed and remanded the case for determination of two issues: (1) whether the other ordinary elements of issue preclusion were met, and (2) whether the usages adjudicated by the TTAB were “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 on by the majority was not announced until 1991 “in poorly supported dictum.”³ The dissenters would decline to apply any such 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. Because they found no such indication, the dissenters could not agree with the Court’s holding. In his dissent, Justice Thomas also noted that allowing executive branch agencies to adjudicate an individual’s right to adopt and exclusively use a trademark raised constitutional concerns.

Eighth Circuit Decision

On remand, the Eighth Circuit summarily vacated the district court’s judgment in favor of Hargis, holding simply that “the ordinary elements of issue preclusion have been met and the usages of the marks adjudicated before the TTAB were materially the same as the usages before the district court.”⁴ The court’s conclusory assertion that “the TTAB compared the marks in question in the marketplace context” is especially troubling.⁵ The decision made no attempt to reconcile the court’s prior finding that the TTAB effectively failed to consider marketplace conditions because it gave no weight to the fact that B&B and Hargis sell different types of fasteners and market their respective fasteners to vastly different industries and customers.

Trademark owners and practitioners who took heart in Justice Ginsburg’s concurrence and the seemingly narrow scope of the Supreme Court’s holding that issue preclusion can, but does not necessarily, apply to likelihood of confusion determinations by the TTAB in inter partes proceedings have cause for concern following this decision by the Eighth Circuit. If a TTAB decision “considers” marketplace conditions, even if that consideration is deeply flawed or does not in fact examine what is actually happening under marketplace conditions, a court might still find the elements of issue preclusion have been met. The Eighth Circuit’s decision highlights the danger an aggrieved party now faces if it fails to appeal to a district court seeking de novo review. Trademark practitioners now have to think long and hard before commencing a USPTO proceeding, or defending against one. If you lose on the issue of likelihood of confusion before the TTAB, there is a serious risk that you will have forfeited your right to your “day in court.”

Vacating TTAB Decisions: Houndstooth Mafia

It is clear that in the wake of B&B Hardware, trademark owners must be vigilant in exercising their right to appeal unfavorable TTAB decisions. Getting a TTAB decision vacated, however, may not be as easy as winning the district court infringement case. A recent case in the Northern District of Alabama, Board of Trustees of the University of Alabama v. Houndstooth Mafia Enterprises LLC,⁶ grapples with some of the issues surrounding when, and the circumstances under which, a federal court can require the TTAB to vacate a decision.

TTAB Decision

The history of this dispute began when Houndstooth Mafia Enterprises LLC filed an application to register the mark HOUNDSTOOTH MAFIA (and design). The Board of Trustees of the University of Alabama and Paul Bryant Jr., son of the legendary Alabama football coach Paul Bryant, (collectively, the University) opposed the application. Coach Bryant famously wore houndstooth-patterned fedoras on the sidelines during Alabama football games. The University asserted that the applicant’s mark was likely to cause consumer confusion and falsely suggest a connection with the University because of the University’s common law rights in a houndstooth pattern and a crimson and white color scheme, and its Alabama state registration for PAUL W. BRYANT MUSEUM (and design).

On July 23, 2013, the TTAB issued a precedential decision finding no likelihood of confusion.

Federal Court Filing

Following this decision, the University filed a de novo action in federal court in the Northern District of Alabama under 15 U.S.C. § 1071(b)(1). While the civil action was pending, the parties reached a settlement and submitted a motion for entry of a final consent judgment. The final consent judgment, which was signed by District Court Judge R. David Proctor on May 27, 2014, ordered: (1) that the clerk enter final judgment in favor of the University, (2) that the TTAB’s order be vacated, and (3) that once assignment of the mark to the University was properly recorded, the mark HOUNDSTOOTH MAFIA (and design) be registered.

With this order in hand, the University went back to the TTAB and filed a request to reopen, vacate, and dismiss without prejudice the previous TTAB opposition proceeding. The TTAB, however, refused to vacate its prior decision. The University then returned to federal court and filed a motion requesting the district court to exercise its authority under the All Writs Act to enforce the consent judgment.

At this point, the United States (on behalf of the USPTO) stepped in and submitted a statement of interest articulating its views on the University’s motion. In short, the United States took the position that because vacatur is equitable in nature, “the parties did not have the right to agree among themselves that the Board’s precedential decision should be vacated and a different judgment entered” absent judicial review of the TTAB’s factual and legal findings, a showing of exceptional circumstances, and a weighing of the public interest.⁷ Emphasizing that vacatur was not necessary to effectuate the court’s decision (the defendants assigned the rights in their mark to the University), the United States argued that the University failed to satisfy these requirements and therefore vacatur was inappropriate. Central to the United States’ analysis was the notion that the consent judgment was the result of a settlement between the parties and “the Court never adjudged the Plaintiffs’ claim that the TTAB decision was factually or legally wrong.”⁸

Then, during an August 2015 hearing, Judge Proctor stated on the record that he believed that the 2013 TTAB decision was wrong on the merits and that the consent judgment’s vacatur provision was based not only on the parties’ agreement but also on the court’s view of the case.⁹ The United States filed a supplemental statement reaffirming its position, even while noting the judge’s position that the vacatur provision reflected the court’s view of the merits of the TTAB decision. According to the United States, because the court was not presented with the full administrative record, it had no basis upon which to make a decision. The United States also filed a motion to intervene in the litigation.

The United States’ argument regarding the necessity of the administrative record for district court review seems to confuse the standards of § 1071(a) with those of § 1071(b). Under the statutory scheme, a party can appeal a decision of the TTAB directly to the Federal Circuit (pursuant to § 1071(a)(1)), or the party can commence a de novo civil action in a federal district court (pursuant to § 1071(b)(1)). Appeals to the Federal Circuit under § 1071(a) are taken “on the record” before the TTAB.¹⁰ Indeed, the statute explicitly requires the director to transmit the record to the Federal Circuit. By contrast, district court review is de novo.¹¹ Although the court must admit the record from the TTAB if any party moves for its admission, neither party is required to do so.¹² And regardless of whether the record is admitted, the parties have a right to submit further evidence, subject only to the constraints of the Federal Rules of Evidence and Civil Procedure.¹³

The United States also seems to ignore (or at least construe quite narrowly) the provision of § 1071(b) providing that a district court’s “adjudication shall authorize the Director to take any necessary action, upon compliance with the requirements of law.”¹⁴

The court’s statement that it did, at least to some degree, adjudicate the merits of the case appears to have shifted the question presented in the Houndstooth Mafia case in a very important way. Instead of determining whether a federal court can require the TTAB to vacate a decision on the basis of a consent judgment resulting from a private settlement between parties, the question would be whether a federal district court can require the TTAB to vacate a decision on the basis of an adjudication. The answer to that question should be an unequivocal yes.

The court might, however, decide the broader question of whether the court could require the TTAB to vacate a precedential decision even in the absence of an adjudication. If the court chooses to do this, it will need to assess how doctrines relating to settlement on appeal apply in the context of federal court review under § 1071(b). Can the court rely on precedent involving appellate court review of lower federal courts? Should it look only to federal court review of agency decisions? How does the unique statutory structure of the Lanham Act, and § 1071(b) in particular, affect the analysis? And how, if at all, does the entry of a consent judgment (as opposed to an adjudicated decision) affect the district court’s power under § 1071(b)?

At the time of publication, the University’s motion to enforce the consent judgment was fully briefed, but no decision had been issued. The decision is certainly one to watch as it is likely to inform the way district courts handle requests for vacatur of TTAB decisions on a going forward basis.

Getting into Federal Court

Given the potentially preclusive effect of TTAB decisions and the potential difficulties associated with getting an unfavorable TTAB decision vacated, practitioners and their clients might be tempted to jump ship to federal court as soon as a TTAB proceeding is initiated. But, at least where a plaintiff is seeking declaratory relief and makes no infringement allegations, this might not be an option until the TTAB proceeding has run its course. A recent litigation in the Eastern District of Louisiana illustrates this point.

Actual Controversy: SnoWizard

The SnoWizard litigation, much like the other disputes mentioned in this article, has a long and contentious history. From 2006 to 2013, SnoWizard was involved in litigation with Southern Snow Manufacturing Co. related to SnoWizard’s CAJUN RED HOT and WHITE CHOCOLATE & CHIPS marks for flavoring concentrate (SnoWizard I). After a trial, the jury determined that SnoWizard’s marks were valid and enforceable and that Southern Snow willfully infringed them. The Federal Circuit affirmed the district court judgment, and the Supreme Court denied Southern Snow’s petition for a writ of certiorari.¹⁵

In 2015, Snow Ball’s Chance (SBC), represented by the same attorney who defended Southern Snow in SnoWizard I, filed a petition in the TTAB to cancel SnoWizard’s CAJUN RED HOT and WHITE CHOCOLATE & CHIPS marks. In response, SnoWizard filed a complaint in federal court in the Eastern District of Louisiana seeking a declaration that its CAJUN RED HOT and WHITE CHOCOLATE & CHIPS marks are valid and enforceable and dismissal of the pending cancellation proceedings (SnoWizard II).¹⁶ SnoWizard sought to invoke the doctrine of res judicata, based on the SnoWizard I litigation, as a bar to SBC’s ability to attack the validity of SnoWizard’s marks. Notably, SnoWizard’s complaint did not include an infringement claim.

SBC filed a motion to dismiss the complaint asserting that the Declaratory Judgment Act did not supply SnoWizard with a cause of action. According to SBC, SnoWizard filed the federal court action “for the purpose of staying the TTAB cancellations . . . and of ultimately hijacking the TTAB cancellations by having the District Court render the decisions instead of the TTAB.”¹⁷ In response, SnoWizard argued that the petition for cancellation in the TTAB satisfied the actual controversy requirement of the Declaratory Judgment Act, the district court has original jurisdiction under the Lanham Act and ancillary jurisdiction to interpret and enforce its prior judgment, and there was no reason for the court to defer to the TTAB.

The district court sided with SBC and dismissed SnoWizard’s complaint. According to the court, because SnoWizard wasn’t seeking a declaration of the current validity of its marks, but a declaratory judgment that those marks “‘continue’ to be valid based on the doctrine of res judicata,” there was no live controversy.¹⁸ The court flatly rejected SnoWizard’s argument that filing a petition for cancellation in the TTAB creates a case or controversy. While the court is not incorrect that an inter partes TTAB proceeding alone does not create an “actual controversy”—most circuits follow this rule—query whether the extensive history of litigation between SnoWizard and the plaintiff’s “preferred supplier” created sufficient additional conduct for the court to find a justiciable controversy. The court also found ancillary jurisdiction lacking because the TTAB’s decision would not “effectively nullify” the district court’s previous judgment.¹⁹

The court’s overarching concern (articulated multiple times throughout the decision) seemed to be that SnoWizard was “trying to use th[e] Court to circumvent the TTAB proceedings.”²⁰ Practitioners need to be mindful of creating the impression with the federal court that they are trying to do an end-run around an administrative body that is already hearing the same issues. This case also serves as a reminder to practitioners that the federal courts are not always immediately open to trademark litigants. Where only registration, and not use, is at issue and infringement is not asserted, a prospective federal court litigant may have to wait for the TTAB proceeding to run its course before it gets its day in court.

Conclusion

The authors disagree with the Supreme Court’s decision in B&B Hardware. Quite simply, as any experienced trademark litigator knows, the analysis of the issue of likelihood of confusion in a TTAB proceeding does not replicate the far more extensive and thorough analysis done at the federal district court level after discovery, the presentation of evidence, and live testimony, including cross-examination and often survey evidence, regarding the use of marks in the marketplace. Actual real-life market conditions, including actual channels of trade, often have a significant impact in district court trademark cases. Conversely, where an applicant (or registrant) has not made any limitation on its product distribution (which is almost always the case), the TTAB under its own precedents must assume the channels of trade are identical. This is only one example illustrating the differences between TTAB proceedings and district court cases. There are many. Because of the various differences, it is the opinion of the authors, that TTAB determinations of likelihood of confusion should never be afforded a preclusive effect on later federal court proceedings. Also concerning is the fact that the Supreme Court’s decision seems to have emboldened the TTAB and prompted an effort on the part of the agency to expand the scope of its powers. As we have seen in this article, the impact of the B&B Hardware decision is far-reaching and real. We believe the trademark community should consider whether an amendment of the Lanham Act is needed to restore the TTAB/federal court dynamic to its status quo: TTAB decisions on likelihood of confusion should be entitled to “some weight,” but never preclusive effect.

Endnotes

1. 135 S. Ct. 1293 (2015).

2. Id. at 1310 (Ginsburg, J., concurring).

3. Id. at 1310 (Thomas, J., dissenting).

4. B&B Hardware, Inc. v. Hargis Indus., Inc., 800 F.3d 427, 427 (8th Cir. 2015).

5. Id.

6. No. 7:13-cv-01736 (N.D. Ala. filed Sept. 19, 2013).

7. Statement of Interest of the United States as to Plaintiff’s Motion to Enforce Consent Judgment at 2, Houndstooth Mafia, No. 7:13-cv-01736 (N.D. Ala. Aug. 14, 2015), ECF No. 20.

8. Id. at 5.

9. Supplemental Report and Additional Views of the United States as to Plaintiff’s Motion to Enforce Judgment at 4, Houndstooth Mafia, No. 7:13-cv-01736 (N.D. Ala. Aug. 20, 2015), ECF No. 27.

10. 15 U.S.C. § 1071(a)(4).

11. In a 2014 decision, the Fourth Circuit held that “where new evidence is submitted, de novo review of the entire record is required.” Swatch AG v. Beehive Wholesale, LLC, 739 F.3d 150, 156 (4th Cir. 2014). The level of deference a federal district court should give the below TTAB decision under § 1071(b) is, especially after B&B Hardware, unclear. For a pre-B&B Hardware discussion of this issue, see Jonathan S. Digby, Note, What’s the Deference?: Should Dickinson v. Zurko Apply in the Trademark Context?, 15 J. Intell. Prop. L. 173 (2007).

12. 15 U.S.C. § 1071(b)(3).

13. Id.; see also Swatch AG, 739 F.3d at 155–56 (describing the procedural features of § 1071(b)).

14. 15 U.S.C. § 1071(b)(1).

15. See S. Snow Mfg. Co. v. SnoWizard Holdings, Inc., 567 F. App’x 945 (Fed. Cir. 2014); S. Snow Mfg. Co. v. SnoWizard, Inc., 135 S. Ct. 1439 (2015).

16. SnoWizard, Inc. v. Snow Ball’s Chance, Ltd. (SnoWizard II), No. 2:15-cv-01002 (E.D. La. filed Apr. 1, 2015).

17. Memorandum in Support of Motion to Dismiss and Strike Under Rule 12 at 1, SnoWizard II, No. 2:15-cv-01002 (E.D. La. May 20, 2015), ECF No. 8.

18. Order at 24, SnoWizard II, No. 2:15-cv-01002 (E.D. La. Sept. 25, 2015), ECF No. 21.

19. The court’s discussion regarding ancillary jurisdiction relies almost exclusively on the notion that a cancellation based on changed circumstances would not nullify the court’s previous judgment. It is worth noting that in its petition for cancellation, SBC makes no mention of changed circumstances and cites extensively to the previous litigations between SnoWizard and Southern Snow.

20. Order, supra note 18, at 24.