In a monumental decision, today the United States Supreme Court ruled that Trademark Trial and Appeal Board (“TTAB”) decisions carry preclusive effect in subsequent federal district court decisions so long as the ordinary elements of issue preclusion are met. The ruling implicates that, where use is the “paramount” issue in a court case, a TTAB decision that at least peripherally contemplates marketplace use will have preclusive effect. Moreover, the Court’s ruling expands the significance of TTAB proceedings, and likely will raise the costs of such administrative proceedings as a whole. At the same time, the decision will likely result in judicial economies of scale – taking away the “2 bites at the apple” approach utilized in many trademark disputes.
Background Facts and Procedural History
The Court’s decision of B&B Hardware, Inc. v. Hargis Indus., Inc., 575 U.S. ___, No. 13-352 (2015), marks the most recent stage of an eighteen-year trademark dispute between B&B Hardware, Inc. (“B&B”) and Hargis Industries, Inc. (“Hargis”). As the Court noted, the facts “could fill a long, unhappy book,” but an understanding of the procedural history certainly helps to make sense of the Court’s decision.
B&B applied to register the mark SEALTIGHT for fasteners, and more specifically self-sealing ones for use in the aerospace industry. Hargis subsequently applied to register the mark SEALTITE for fasteners, and more specifically self-piercing and self-drilling screws for use in building construction. The parties’ legal feud then began. B&B sued Hargis for trademark infringement. The jury ruled against B&B on the ground that it lacked a distinctive and enforceable trademark.
B&B next took the battle to the TTAB, by opposing Hargis’s trademark application before the TTAB. Ultimately, the TTAB ruled that Hargis could not register SEALTITE because the mark was too similar to B&B’s SEALTIGHT mark. The jury next issued its decision in the court proceeding, finding that the marks were not confusingly similar. B&B sought judgment in its favor despite the verdict, arguing that the TTAB decision precluded the court’s litigation on the issue. The district court disagreed.
The Eighth Circuit affirmed in relevant part, refusing to give preclusive effect to the TTAB decision and declining to instruct the lower court to give deference to the TTAB’s decision. The appellate court reasoned that the likelihood of confusion issues decided by the TTAB were not the same as those presented to the district court, particularly as to the weight afforded the evidence of actual use.
The Court’s Decision
The Supreme Court overruled the Eighth Circuit in a 7-2 decision authored by Justice Samuel Alito, ruling that decisions by the TTAB can have a preclusive effect on district courts as long as the “ordinary elements of issue preclusion” are met. As discussed below, the Court addressed three related questions to reach its ultimate conclusion.
Administrative Decisions Can Bind Courts
The Court first answered whether an administrative decision can ever have a preclusive effect on an Article III court, holding that it can. As noted by the Court, issue preclusion is appropriate “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 … whether on the same or a different claim.” The Court held that if Congress grants an agency the power to adjudicate a category of disputes without a clear intention against issue preclusion, the agency’s decisions can bind district courts.
The constitutionality of such a holding under Article III has never been addressed by the Court, and Justice Alito expressly reserved that question for a later day.
The Lanham Act Does Not Forbid Issue Preclusion
Next, the Court searched for but found no clear reason that Congress – in creating the Lanham Act (the federal trademark statute) – would not want TTAB decisions to carry preclusive effect. According to Justice Alito, the text and form of the Lanham Act do not forbid the application of issue preclusion. The Court reasoned that if a party had to extinguish its rights with the TTAB before bringing an infringement suit, TTAB proceedings may devolve into a formality and issue preclusion thus would not be appropriate. Contrastingly, the registration process is not a streamlined agency formality in the Court’s eyes, but instead is a robust procedure subject to de novo review by district courts. As a result, Congress did not expressly intend issue preclusion to not apply to TTAB decisions.
TTAB Decisions Can Carry Preclusive Effect on Courts
The Court then addressed whether there is a reason that no TTAB decision could ever meet the ordinary elements of issue preclusion. Although not every registration decision will deserve preclusive effect, the Court concluded that it is possible that some will, and that this is the more important point.
A critical inquiry for issue preclusion is whether the two tribunals address the same issue. In other words, are the likelihood of confusion standards for registration and infringement the same? The Court’s answer is yes. As one justification, the language of the registration and infringement provisions of the Lanham Act “is essentially the same,” each using “likely to cause confusion” with inconsequential spacing variations. Additionally, district court judges apply a single likelihood of confusion standard when adjudicating infringement and registration disputes in the same proceedings. Issue preclusion thus can apply to TTAB decisions when the mark owner makes actual use of its mark in materially the same way as listed in the registration application. On the other hand, if the mark owner makes a materially different use of the mark than that applied for, the TTAB would not be deciding the same issue and preclusion should not apply. The Court also states that use of different factors by the TTAB and courts is of no relevance.
Materiality is a crucial consideration. Issue preclusion can still apply even if there are minor variations between actual use and the applied for use.
In court proceedings bearing on a mark’s use, often much more attention is placed on marketplace factors, consumer base, advertising channels and formats, and other such use issues than a TTAB proceeding would hear. The Court’s decision hardly addresses these differences. Also downplayed are the differences in TTAB and court procedure, as well as the higher significance that the TTAB places on marks’ appearance and sound.
Nonetheless, the Court importantly states that, if the TTAB does not consider the marketplace usage of the parties’ marks (at all), then the TTAB’s decision will have no preclusive effect in a court proceeding where actual use is “the paramount issue.”
The Court Also Addresses a Circuit Split
The decision today aligns fairly closely with the law of the Third and Seventh Circuits, which have given TTAB rulings preclusive effect when facts and analyses in the parallel cases lined up sufficiently. The Second Circuit has done so in cases where the TTAB contemplated the marketplace fully. Other Circuits, such as the Fifth and the Eleventh, have refused to give TTAB decisions preclusive effect, yet nonetheless have given some deference to TTAB decisions.
A Noteworthy Dissent
Justice Thomas, joined by Justice Scalia, issued a dissent that is nearly as lengthy as the majority opinion. Among other issues discussed, the dissent rejects the presumption of administrative preclusion, and specifically finds that the TTAB is not a court of competent jurisdiction as a tribunal must be for issue preclusion to apply. Further, the dissent finds that TTAB registration decisions were never meant to be decisive in later infringement suits.
Implications of the Court’s Majority Opinion
The Court’s reasoning extends to issues beyond likelihood of confusion between two marks. So long as the standards used by the TTAB and courts “are not fundamentally different,” issue preclusion should apply. Expect the Court’s decision to be applied to priority, descriptiveness, abandonment, acquired distinctiveness, and other issues determined by the TTAB.
Moreover, the TTAB may be less inclined to quickly suspend proceedings when a court action is filed. In fact, district court litigation – at least in its early stages, or if a concurrently running TTAB proceeding is in its later stages – may be stayed so that the TTAB can issue its decision, which the court will follow.
TTAB proceedings are likely to become more costly and involve more extensive discovery and motion practice as the Court’s decision increased the stakes for brand owners. Infringement lawsuits in district courts have traditionally carried greater consequences than TTAB proceedings because only courts can issue remedies of damages, attorneys’ fees, court costs, and injunctions. But in cases where a TTAB decision will be dispositive at the district court level, parties will be more willing to vigorously dispute likelihood of confusion and other issues before the TTAB. As a result of extra discovery and increased motion practice, TTAB proceedings will advance slowly at more expense to the parties.
These effects may make it more likely that trademark owners forum shop and circumvent the TTAB altogether. On the other hand, even after TTAB proceedings conclude, where additional facts arise, careful lawyering might allow a party to present a new issue on appeal so as to avoid issue preclusion.
Of course, the Court’s decision raises several new questions, as well. Among these include:
- What is the standard for determining whether actual use in the marketplace is significant enough to be “paramount” in a court proceeding such that preclusion might not apply?
- If the situation is not right for issue preclusion, can a federal court nonetheless find that a TTAB holding is persuasive, or should the court give the TTAB decision no evidentiary weight?