Adverse findings in trademark registration opposition and cancellation proceedings in the United States Patent and Trademark Office (PTO) may come back to bite the parties to these relatively inexpensive administrative proceedings in subsequent trademark infringement litigation. That is the upshot of the United States Supreme Court’s holding in B&B Hardware, Inc. v. Hargis Industries, Inc., decided on March 24, 2015. Justice Alito’s majority opinion held that determinations by the Trademark Trial and Appeal Board (TTAB) as to whether there is a likelihood of confusion between competing trademarks may have a preclusive effect in trademark infringement actions in federal district courts, provided that the requirements for issue preclusion are otherwise met. Justice Ginsburg concurred, and Justices Thomas and Scalia dissented.

The case involved a long-running dispute between B&B, a maker of self-sealing metal fasteners with captive o-rings for the aerospace industry, and Hargis, which makes self-piercing and self-drilling metal fasteners for the construction of metal and post-frame buildings. B&B registered SEALTIGHT in 1993, and Hargis applied to register SEALTITE in 1996. In 2002, after finding no basis for the SEALTITE application not to proceed to registration, the PTO published SEALTITE in the Official Gazette, which prompted B&B to file an opposition proceeding in the TTAB. A trademark opposition proceeding is a form of administrative appeal instituted by an intervening third party—conducted on a subsequently developed and litigated record—of the decision of the PTO’s trademark examiner of the application in question. Parties to these inter partes disputes conduct discovery in accordance with the Federal Rules of Civil Procedure and present their evidence in writing for decision by the TTAB. The TTAB’s decision as to whether the mark may be registered may be appealed to the Federal Circuit, or a party to that decision may file an action in district court, where the judge resolves registration de novo. Under either path of review, the matter may ultimately be reviewed by the Supreme Court with its permission, as happened here.

The TTAB ruled in favor of B&B, which had argued that SEALTITE was confusingly similar to SEALTIGHT, since both companies have an online presence, a large distributor sells both companies’ products, and consumers sometimes call the wrong company to place orders. Hargis argued in response that the companies sell different products to different customers through different channels of trade. Applying the likelihood of confusion factors set forth in In re E. I. DuPont DeNemours & Co., the TTAB found that there was a likelihood of confusion and that SEALTITE could not be registered, a ruling that Hargis did not seek to have reviewed by the Federal Circuit or a district court.

In the meantime, B&B had sued Hargis for trademark infringement in district court, but before the court ruled, the TTAB decided in favor of B&B. B&B then argued that Hargis could not contest likelihood of confusion in the district court action because of the preclusive effect of the TTAB decision. The district court disagreed on the grounds that the TTAB is not an Article III court, and the jury found in favor of Hargis, finding no likelihood of confusion. On appeal, the Eighth Circuit accepted, for the sake of argument, that agency decisions can result in issue preclusion, but affirmed on other grounds—namely because the TTAB used a slightly different analysis for likelihood of confusion, because the TTAB overemphasized the appearance and sound of the two marks, and because Hargis bore the burden of persuasion before the TTAB, while B&B bore it before the district court. One Eighth Circuit judge presciently dissented on the basis that issue preclusion should apply.

In a decision that departs significantly from established precedent that has guided trademark prosecutors and litigators for decades (and which may have implications for other decisions of the PTO and decisions of other administrative agencies), the Supreme Court decided that TTAB agency decisions may ground issue preclusion, provided that the other ordinary elements of issue preclusion are met. Citing the Restatement (Second) of Judgments, the Supreme Court applied the general rule, known as issue preclusion, 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.” Significantly, the Supreme Court proceeded to rule that issue preclusion is not limited to situations in which the same issue is before two courts, but rather may also apply where a single issue is before a court and an administrative agency. This will require case-by-case, fact-specific analysis, but the prospect that issue preclusion may occur will significantly affect the strategy of both trademark owners (as to registration and litigation decisions), and opponents of prospective and already-issued trademark registrations (as to opposition and cancellation decisions, respectively).

Under prior case law, trademark infringement litigants in federal district courts were only able to argue that the TTAB’s determinations on the issue of likelihood of confusion were persuasive, worthy of respectful consideration, entitled to great or substantial weight, or due proper deference, depending on the case law in the circuit in which the district court sat. Under B&B Hardware, however, trademark owners will need to pay much closer attention to TTAB decisions, given that they may have preclusive effect. The conventional thinking among trademark practitioners has long been that TTAB decisions govern registrability (and the benefits attendant thereto, such as constructive notice, prima facie evidence of validity, ownership and the exclusive right to use the mark in commerce on or in connection with the goods or services specified in the registration, and incontestability), but that infringement claims are to be resolved by Article III district court judges and the juries impaneled before them. This has proven to be a very efficient system, as TTAB proceedings are typically far less expensive than district court trademark infringement litigation. As a consequence, parties may engage in less expensive battles about registrability before the TTAB and reserve litigation only for those battles that were worth the very expensive candle of federal district court infringement trials. Under B&B Hardware, there is a very real prospect that what were previously thought to be less weighty (due to the safety valve of district court review) and less expensive PTO/TTAB proceedings may determine the likelihood of confusion issue that is at the heart of every infringement action, such that the district court’s or the jury’s later determination will be a nullity, as was the case inB&B Hardware. It is hard to see how this will not raise the economic cost of trademark protection or increase the number of inter partesproceedings, notwithstanding the Supreme Court’s admonition that its ruling is narrow.

That the Supreme Court’s decision in B&B Hardware threatens the long-understood distinction between judicial decisions rendered by Article III judges (and the attendant right to trial by jury) and administrative agency decisions rendered by executive branch appointees is at the core of the dissent by Justices Thomas and Scalia. Their dissent appropriately speaks to the tradition of trademark practitioners’ understanding that the province of the PTO and TTAB is registrability, not the determination of trademark infringement or unfair competition actions. But B&B Hardware is now the law of the land. Accordingly, trademark owners and practitioners must plan and act to avoid—or exploit—the potential preclusive effect of TTAB decisions.