B&B Hardware – District Courts Consider Impact on Both Trademark and Patent Litigation

Tuesday, December 01, 2015

In B&B Hardware v. Hargis Industries, the Supreme Court held that, under some circumstances, determinations by the USPTO Trademark Trial and Appeal Board could have preclusive effect in subsequent federal court litigation involving the identical issue. The possibility of a preclusive effect raises strategic concerns in both trademark and patent matters, since the Court’s reasoning potentially applies equally to Patent Trial and Appeal Board determinations. Recently, two district courts addressed the practical impact of B&B Hardware and collateral estoppel in trademark and patent infringement litigation.

Practice Points

  • In B&B Hardware, the Supreme Court held that a TTAB determination could have preclusive effect in subsequent federal court litigation if both proceedings involved substantially the same issue.
  • The Supreme Court noted that, in many situations, differences between administrative and federal court proceedings will prevent preclusive effect.
  • In Ashe v. PNC Financial Services Group, Inc., the United States District Court for the District of Maryland applied B&B Hardware to hold that a TTAB ruling on priority of trademark use precluded litigation of the issue in a subsequent trademark infringement action.
  • In Contentguard Holdings, Inc. v. Amazon.com, Inc., the United States District Court for Eastern District of Texas ruled that differences between the claim construction standards used in USPTO AIA post grant proceedings and in federal court litigation prevented a PTAB final determination from having preclusive effect in a subsequent patent infringement action.

Background

The issue of likelihood of confusion frequently arises in both trademark registration and infringement contexts. When an applicant files a trademark application and a third party opposes the application, the United States Patent and Trademark Office’s Trademark Trial and Appeal Board (“TTAB”) must determine whether a likelihood of confusion exists between the marks. The end result is that the applicant’s mark is either allowed to proceed or refused registration. Similarly, a district court may be called upon to decide these same issues when a trademark owner sues in federal court for trademark infringement. Unlike the result of the TTAB decision, however, if a district court decides that a likelihood of confusion exists between the marks, the consequences may include damages and an injunction.

In B&B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015), the issue of likelihood of confusion was decided by the TTAB and subsequently by a district court with opposite outcomes. Facing the question whether the TTAB’s earlier decision on the issue of likelihood of confusion should have been binding on the district court, the Supreme Court held that decisions by the TTAB may be binding on a federal district court considering the same or similar issue. Applying the Restatement (Second) of Judgments § 27, the Court noted that “subject to certain well-known exceptions, the general rule is that 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.” 135 S. Ct. at 1303 (quotation omitted). The Court recognized, however, that “use” of a mark as described in an application or registration can be materially different from how the mark is actually used in the marketplace, which may have a deciding impact on the likelihood of confusion determination. Because the TTAB may not always consider actual marketplace usage, the Court found that “for a great many registration decisions issue preclusion obviously will not apply.” Id. at 1306.

Practical Implications for Trademark Practice

Most matters before the TTAB are cancellation or opposition proceedings, such as was the case in B&B Hardware. Grounds for these actions include claims of priority, likelihood of confusion, descriptiveness, genericness, or abandonment, among others. The decision in B&B Hardware means that, under certain circumstances, a party that received an unfavorable outcome before the TTAB may be bound to the TTAB’s decision in a subsequent matter before the federal courts. For example, if the parties to a TTAB opposition decision later litigate the same issue before a court, the winning party will smartly argue that B&B Hardware demands that the losing party is bound by the prior decision of the TTAB.

Of course, B&B Hardware makes clear that the determination whether issue preclusion applies will be assessed by district courts on a case-by-case basis. The analysis is necessarily fact-intensive, so the application of issue preclusion will likely be thoroughly contested in many cases. The implications of B&B Hardware will become clearer as courts are called upon to apply the decision to trademark disputes.

Recently, the first trademark infringement case to apply the principles set forth in B&B Hardware was decided by the United States District Court for the District of Maryland, which granted a motion to dismiss a complaint for trademark infringement on the grounds of collateral estoppel. Ashe v. PNC Financial Services Group, Inc., No. PWG-15-144, 2015 WL 7252190 (D. Md. Nov. 17, 2015). In Ashe, both parties filed federal trademark applications for the mark “SPENDOLOGY.” PNC filed an opposition with the TTAB against Ashe’s application, and Ashe and PNC filed cross-motions for summary judgment on the basis of priority. The TTAB found that PNC clearly established prior use of the mark, so Ashe’s application to register the “SPENDOLOGY” trademark was refused. Subsequently, Ashe filed a trademark infringement action against PNC in the district of Maryland. The district court found that the TTAB’s determination of priority of use in the opposition proceeding was the same as the determination of priority in an infringement action. The decision was careful to distinguish this issue from that of likelihood of confusion, which the Supreme Court addressed in B&B Hardware, noting that the parties’ “marketplace usage” of the mark was inapplicable to the determination of priority. Moreover, as the issue of priority was resolved in the TTAB proceeding, the issue was “critical and necessary” to the TTAB judgment, the judgment was final, and Ashe had a full and fair opportunity to litigate the issue before the TTAB. Thus, the requirements for issue preclusion were satisfied. PNC’s priority was established before the TTAB, and therefore Ashe’s claim before the court was barred.

Until a more substantial body of case law develops, clients should view the Supreme Court’s decision in B&B Hardware as unambiguously raising the stakes for final TTAB determinations. Indeed, the Ashe case confirms that principles established in B&B Hardware may be applied to issues beyond likelihood of confusion. In deciding whether to litigate to a final decision in a TTAB proceeding, B&B Hardware should cause all parties to carefully assess their strategy. Since determinations by the TTAB may be binding in later cases, parties may decide to expend greater resources to assure a favorable result. Therefore, a party may opt to invest in a survey or other expert testimony or to pursue more extensive discovery earlier in an opposition or cancellation proceeding. Alternatively, it may be more beneficial to withdraw from proceedings or try to shift to federal district court. As a result, clients should carefully weigh the strategic importance of pursuing a matter before the TTAB against the now-elevated risks of obtaining that board’s final decision.

Potential Impact on Patent Practice

Although B&B Hardware did not specifically mention AIA inter partes review or post grant review proceedings, the parallels between TTAB opposition proceedings at issue in that case and administrative proceedings before the Patent Trial and Appeal Board (“PTAB”) suggest that preclusion could be hotly contested in future cases. Numerous issues in dispute during in AIA proceedings parallel issues likely to arise is subsequent district court infringement and declaratory judgment actions, including claim construction, novelty, and obviousness.

In Contentguard Holdings, Inc. v. Amazon.com, Inc., No. 2:13-CV-1112-JRG, 2015 WL 5996363 (E.D. Tex. Oct. 14, 2015), the United States District Court for Eastern District of Texas found that not only did B&B Hardware not establish a per se rule of exclusion in trademark disputes, “it is far from clear [whether] the Supreme Court intended for its narrow holding in B&B Hardware to per se extend to patent proceedings.” Id. at *1. The court noted that the decision in B&B Hardware hinged on the fact that the TTAB and district courts apply the same likelihood of confusion standard in both registration and infringement contexts. In contrast, the PTAB and district courts use different standards for claim construction. While PTAB proceedings feature detailed inter partes procedures comparable to those available in federal court actions, the applicable standard for construing disputed claims is different. The PTAB applies the same “broadest reasonable interpretation” standard that applies to all USPTO proceedings, rather than the more restrictive district court standard “ordinary and customary” construction. See In re Cuozzo Speed Techs., LLC, 778 F.3d 1271 (Fed. Cir. 2015). Therefore, the district court held that because the claim construction standards are different between the district court and the PTAB, B&B Hardware did not apply to create a preclusive effect.

As in the trademark context, the full impact of B&B Hardware in patent litigation will become clear only after other courts apply the decision to serial PTAB and district court proceedings. Ultimately, it is unclear whether the different claim construction standards applied will prove substantial enough to prevent issue preclusion in later district court patent infringement actions.