On March 24, the US Supreme Court issued a decision that is likely to raise the stakes of proceedings before the Trademark Trial and Appeal Board (TTAB). In B&B Hardware, Inc.v. Hargis Industries, Inc., No. 13-352 (March 24, 2015), the Supreme Court held that issue preclusion applies to holdings of the TTAB where the ordinary elements of issue preclusion are satisfied. The decision is likely to make TTAB proceedings more litigation-like and expensive, with parties hoping to gain the benefit of issue preclusion urging more extensive discovery in the TTAB and seeking to introduce more evidence in order to assure that the elements for issue preclusion are met. A coordinated litigation strategy that takes into account both TTAB and district court proceedings will be more important in the wake of the decision. 

Summary 

The case relates to a long-running dispute between B&B Hardware, Inc., the petitioner, and Hargis Industries, Inc., the respondent. Both companies manufacture types of fasteners-B&B for the aerospace industry, and Hargis for the construction industry. In 1993, B&B registered the trademark SEALTIGHT with the United States Patent and Trademark Office (PTO). In 1996, Hargis sought to register the trademark SEALTITE. B&B opposed the registration on the ground that SEALTITE was too similar to B&B's SEALTIGHT mark. 

The parties litigated the issue in the PTO and in the federal courts for many years. B&B argued, among other things,that the largest distributor of fasteners sold the products of both companies, and that consumers had in the past called the wrong company to place orders. Hargis argued, among other things,that the companies had different products, consumers and channels of trade.

In 2003, following extensive opposition proceedings, the TTAB found that SEALTITE should not be registered because there was a likelihood of confusion between the marks. Hargis did not seek judicial review of that decision in federal court, and, as a result, abandoned its attempt to obtain a federal trademark registration for SEALTIGHT.

After the TTAB finding, in separate infringement proceedings in federal district court, B&B argued that Hargis could not contest likelihood of confusion because of the preclusive effect of the TTAB decision. The district court disagreed, finding that the TTAB's holding could not have preclusive effect because the TTAB is not an Article III court. At trial, the jury found for Hargis, determining that there was no likelihood of confusion.

On appeal, the Eighth Circuit affirmed on different grounds,finding that the identical issue was not decided by the TTAB and the federal court. In particular, the Eighth Circuit found that (1)the TTAB did not use the same factors that the Eighth Circuit uses to consider likelihood of confusion; (2) the TTAB put more emphasis on the appearance and sound of the marks than on marketplace context, contrary to the analysis applied in an infringement context; and (3) different parties bore the burden of persuasion in the two settings. (The Supreme Court subsequently determined that the Eighth Circuit erred with respect to the third point.)

In a 7-2 opinion authored by Justice Alito, the Supreme Court reversed and remanded, holding that "[s]o long as the other ordinary elements of issue preclusion are met, when the usages adjudicated by the TTAB are materially the same as those before the district court, issue preclusion should apply." (Emphasis added.)

The Court rejected the view that an agency decision should never form the basis for issue preclusion, and concluded that nothing in the Lanham Act-the primary trademark statute-presumptively bars application of issue preclusion to a TTAB holding. The Court also relied on the fact that the same standard for likelihood of confusion is applied in the TTAB and in the district court,notwithstanding the use of "similar, but not identical, factors"used in the two fora. Thus, although TTAB decisions may in some cases not meet the ordinary elements of issue preclusion,there is no categorical reason they would never do so.

The Court made clear that whether issue preclusion applies is a case-by-case analysis, and that, "for a great many registration decisions issue preclusion obviously will not apply because the ordinary elements will not be met." For example, issue preclusion would not apply if the TTAB did not decide the same issue being considered by the district court. Thus, "if the TTAB does not consider the marketplace usage of the parties' mark,the TTAB's decision should 'have no later preclusive effect in a suit where actual usage in the marketplace is the paramount issue.'" Moreover, while the differences in procedure between the TTAB and the district court do not necessarily prevent issue preclusion, issue preclusion may be inappropriate where "the procedures used in the first proceeding were fundamentally poor,cursory, or unfair." In addition, issue preclusion may not apply if the stakes for registration in the TTAB were much lower than for the infringement determination in the district court,although the Court made clear that this would not occur as a matter of course, since "[w]hen registration is opposed, there is good reason to think that both sides will take the matter seriously."

Justice Ginsburg issued a brief concurrence, emphasizing the Court's finding that "for a great many registration decisions issue preclusion obviously will not apply." Quoting a treatise,Justice Ginsburg noted in particular that "contested registrations are often decided upon 'a comparison of the marks in the abstract and apart from their marketplace usage,'" and that preclusion would not apply in such cases.

Justice Thomas dissented, joined by Justice Scalia, arguing for a categorical rule against administrative issue preclusion under the Lanham Act. 

Analysis 

For companies engaged in opposition or cancellation proceedings before the TTAB, B&B Hardware potentially increases the significance of those administrative proceedings, particularly for a company's valuable trademarks, since it creates the possibility that a TTAB decision on the right to register a trademark will determine a district court's later decision on the right to use the trademark in the marketplace. While the Court made clear that issue preclusion would not inevitably apply-and perhaps often will not-the case-by-case approach that the Court called for may make the result in a particular case difficult to predict. The decision is likely to make TTAB proceedings more litigation-like, requiring more time and resources. Moreover, while the B&B Hardware decision dealt with likelihood of confusion, its reasoning appears applicable to other issues that might arise in the context of an opposition or cancellation proceeding, such as descriptiveness,secondary meaning or functionality.

A coordinated TTAB and district court litigation strategy will be more important following the B&B Hardware decision. In the TTAB, parties will need to consider the factors that make issue preclusion more or less likely in a particular case. Factors often considered in determining whether issue preclusion applies include: whether the identical issue was actually litigated previously, whether the party against whom preclusion would apply had a full and fair opportunity to litigate the issue, whether the determination of the issue was necessary to the outcome of the prior proceeding, and whether there was a final judgment in the prior proceeding. See,e.g.Pope v. Fed. Home Loan Mortg. Corp., 561 Fed. Appx. 569, 572-573 (8th Cir. 2014); United States v. Moreland, 570 Fed. Appx. 843, 845 (11th Cir. 2014);Georgia-Pacific Consumer Prods. LP v. Four-U-Packaging,Inc., 701 F. 3d 1093, 1098 (6th Cir. 2012).

The first factor-whether the identical issue was litigated-is likely to be most relevant here. The B&B Hardware Court determined that the standard for likelihood of confusion is the same for purposes of registration in the TTAB and for purposes of infringement in the district court, despite the fact that the tests applied by the TTAB and the Eighth Circuit are not identical. The Court conceded, however, that where the TTAB's analysis did not extend to real-world usages of a trademark—because those usages were not set forth in the registration application—it would not be appropriate to conclude that the TTAB had decided the same issue and thus issue preclusion should not apply. Parties wishing to increase the likelihood that issue preclusion will apply thus may seek to introduce evidence in the TTAB of real-world marketplace usages of a mark (although this may not always be possible due to the TTAB's limitations on the types of evidence it will consider).

The second factor-whether the applicant had a full and fair opportunity to litigate-is also implicated by the Supreme Court's opinion, which suggests that procedural differences could in some cases prevent application of issue preclusion. On this basis,parties seeking issue preclusion will be interested in urging more extensive discovery and other litigation-like procedures in theTTAB.

Parties concerned about the limiting effect of TTAB issue preclusion may choose to skip the TTAB altogether, and sue for infringement and cancellation of a mark in the district court to avoid the limiting effect of TTAB issue preclusion. Appeals of TTAB decisions to the district court may also become more common,as parties seek to avoid the preclusive effect of the decision throughde novo review.