BOARD OF REGENTS OF THE UNIVERSITY OF WISCONSIN SYSTEM v. PHOENIX INTERNATIONAL SOFTWARE (August 5, 2011)
Phoenix International Software and the University of Wisconsin each registered the mark CONDOR with the Patent and Trademark Office. Phoenix has used the mark since 1978 and registered it in 1997. Wisconsin registered its mark in 2001. Each mark refers to computer software, although the Phoenix system is designed principally for mainframe systems and the Wisconsin system is designed principally for individual computers. Phoenix petitioned theTrademark Trial and Appeal Board to cancel Wisconsin's mark on the ground that it creates confusion. The Board granted the petition and canceled the mark. Wisconsin challenged the Board's decision by filing an action in federal district court. Phoenix counterclaimed for trademark infringement and false designation of origin. Judge Crabb (W.D. Wis.) reversed the Board’s determination on Wisconsin's motion for summary judgment and also dismissed Phoenix's counterclaims on sovereign immunity grounds. Phoenix appealed.The Seventh Circuit reversed and remanded that part of the district court's judgment granting summary judgment on the trademark dispute but affirmed the district court (with Judge Wood dissenting) with respect to its finding that the university was entitled to sovereign immunity. Phoenix petitioned for rehearing.
In their opinion, Seventh Circuit Judges Flaum, Wood, and Tinder granted the petition for rehearing limited to the sovereign immunity question, reaffirmed its earlier ruling reversing summary judgment, and also reversed the district court on its finding of sovereign immunity. Although the rehearing was limited to the sovereign immunity issue, the Court did readdress the summary judgment issue. It concluded, as it had done earlier, that the district court erred when it granted summary judgment to the Board of Regents, particularly in light of the TTAB finding and the standard of review. The central question is whether customers are likely to be confused. The TTAB applied the correct standard and looked at the right factors. The district court was wrong when it criticized the TTAB be for considering the actual nature of the products and it was also wrong when it focused so heavily on the registration materials themselves. The TTAB gave three reasons for canceling Wisconsin's mark: they were identical, they performed similar functions, and a sophisticated purchaser would likely believe that there was some relationship between them. Although Wisconsin put on additional evidence challenging these conclusions, it was not sufficient to eliminate any fact issue. The Court turned to sovereign immunity. Although the Eleventh Amendment confers immunity upon a state, it is not absolute. First, Congress can authorize suits against states. Although Phoenix's counterclaims did rely on statutes in which Congress subjected states to liability, the Court doubted that either would survive a constitutional challenge. The Supreme Court has already struck down provisions for state liability in the false advertising and patent infringement areas. Second, a state may voluntarily waive sovereign immunity by its litigation conduct. In Lapides, the Supreme Court held that Georgia waived its sovereign immunity when it removed to federal court a complaint that had been filed in state court. The Supreme Court stated that it would be "unfair" to allow a state to both invoke federal jurisdiction and then to assert sovereign immunity to deny that very jurisdiction. The Court found that the majority of its sister courts had read Lapides to state a general rule, as opposed to being limited to its facts. The Court also concluded that the general rule need not be limited to instances of removal. Here, Wisconsin did not raise sovereign immunity during the administrative proceedings and chose to challenge the findings of those proceedings by filing a separate federal lawsuit. The Court explored the four alternative paths that Wisconsin could have taken that would not have resulted in a waiver -- do nothing after the TTAB finding, refuse to participate at all in the administrative proceedings, file suit in state court, and appeal the administrative findings to the Federal Circuit. One principle that stands out in Lapides is that a state should not be able to advance its litigation position by choosing a federal forum and then asserting sovereign immunity. The Court identified at least three advantages that inured to Wisconsin's benefit because of its choice of the federal forum. The Court then had to resolve whether Wisconsin's waiver extended far enough to permit Phoenix’s federal counterclaims. Relying on guidance from the Supreme Court and its sister circuits, the Court concluded that the waiver was broad enough to encompass compulsory counterclaims. Under Rule 13(a), a compulsory counterclaim is one that arises out of the same transaction or occurrence. The Court had no difficulty, applying the "logical relationship" test, to conclude that the Phoenix counterclaims arose out of the same occurrence as Wisconsin's challenge. Phoenix, therefore may pursue its counterclaims on remand.