The U.S. Court of Appeals for the Seventh Circuit concluded that Wisconsin waived its sovereign immunity from trademark infringement counterclaims when it filed a federal lawsuit seeking to overturn a ruling by the U.S. Trademark Trial and Appeal Board (TTAB) brought under 15 U.S.C. 1071(b).  Board of Regents of University of Wisconsin System v. Phoenix Int’l Software, Case No. 08-4164 (7th Cir., Aug. 5, 2011) (Wood, J.).

Phoenix International Software  is a small software developer and the owner of a trademark registration for “CONDOR,” used in connection with mainframe software that allows online programming.  Phoenix filed a petition with the TTAB to cancel an identical trademark registration for “CONDOR,” owned by the Board of Regents of the University of Wisconsin System (Wisconsin), which is an arm of the state of Wisconsin, used in connection with a different kind of software that manages processing power across a network of computers.  After the TTAB granted the cancellation petition, Wisconsin sued in the district court under 15 U.S.C. 1071(b) for review of the decision.  Phoenix filed a counterclaim for trademark infringement.

The district court issued summary judgment for Wisconsin, thereby reversing the TTAB decision.  The district court also dismissed the counterclaims filed against Wisconsin based on sovereign immunity.  A 7th Circuit panel reversed the summary judgment on the TTAB review as requiring a trial on fact issues related to confusion.  However it affirmed the dismissal of the infringement counterclaims based on sovereign immunity.  Phoenix sought and was granted rehearing on the sovereign immunity issue.

In a unanimous panel, the 7th Circuit on rehearing reversed its prior ruling on sovereign immunity.  In examining the types of litigation conduct by a state that will constitute a waiver, the panel noted that the key characteristic must be the voluntariness of invoking federal jurisdiction.  In finding that Wisconsin waived sovereign immunity, the court explained that “to maximize its chances of reversing the agency’s decision, the state availed itself of the advantages of a fresh lawsuit, choosing that path over a number of others available. It would be anomalous if, after invoking federal jurisdiction, the state could declare that the federal court has no authority to consider related aspects of the case.  Phoenix’s counterclaims are compulsory in nature and thus lie well within the scope of Wisconsin’s waiver of immunity.”

Wisconsin argued that it had no choice but to take the appeal that it did.  However, the court found that Wisconsin could have taken a variety of alternatives to that action.  The court explained that, among other things, Wisconsin could have simply accepted the TTAB ruling, brought a state court action against Phoenix before the cancellation proceedings began or appealed the TTAB decision directly to the Federal Circuit.  The court concluded that Wisconsin voluntary invoked federal jurisdiction and, hence, waived its sovereign immunity.  Therefore, the court reversed the district court’s grant of summary judgment, reinstated Phoenix’s counterclaims and remanded for further proceedings.