A recent decision by the U.S. Court of Appeals for the Seventh Circuit has changed the calculus used by states and state universities when deciding how to challenge and appeal a determination by the Trademark Trial and Appeal Board (TTAB).

On August 5, 2011, the Seventh Circuit ruled that the Board of Regents of the University of Wisconsin System had waived its sovereign immunity defense to compulsory counterclaims when it appealed a TTAB decision to a federal district court rather than to the Federal Circuit. In the TTAB proceeding, Phoenix International Software, Inc. petitioned to cancel the University’s CONDOR trademark, claiming a likelihood of confusion.

Phoenix registered the CONDOR trademark in 1997 for software that runs on mainframe computers and provides online programming development, library management, and systems development. Four years later, the University registered the identical mark for software that takes advantage of unused processing power across a network of computers. The TTAB agreed with Phoenix and canceled the University’s registration.

Rather than appeal the TTAB decision to the Federal Circuit, the University appealed to its home federal court, the U.S. District Court for the Western District of Wisconsin. There, Phoenix asserted counterclaims for trademark infringement and false designation of origin under the Lanham Act. After the parties filed cross-motions for summary judgment, the District Court granted summary judgment in favor of all claims to the University, reversing the TTAB’s decision and dismissing Phoenix’s claims on grounds of sovereign immunity claimed by the University.

Phoenix appealed the District Court’s decision to the Seventh Circuit, and, among other things, asked the Circuit Court to reinstate the counterclaims it had asserted against the University. The Seventh Circuit reversed the District Court, and found that in appealing the TTAB decision to a District Court, the University had voluntarily instituted the proceeding and reaped litigation advantages through its forum selection, thereby waiving its sovereign immunity with regard to compulsory counterclaims brought against it. The Seventh Circuit noted that the University had several options that would not have waived its sovereign immunity, including appealing the TTAB decision to the Federal Circuit, which would have prevented Phoenix from asserting any new counterclaims.

Instead, the University chose to sue Phoenix in its hometown federal district court, which constituted both an appeal of the TTAB decision and a new action. By suing in district court, the University could introduce new evidence and supplemental claims and would also receive de novo review of the TTAB decision. On a direct appeal to the Federal Circuit, however, the University could use only the record available at the TTAB. In choosing to accept the benefits of a district court action, the Seventh Circuit ruled that the University had waived its sovereign immunity with regard to “compulsory” counterclaims, meaning counterclaims that arise from the “same transaction or occurrence” as the TTAB cancellation proceeding.

Here, Phoenix’s counterclaims were compulsory because they arose from the same transaction or occurrence as the TTAB cancellation proceeding in that they dealt with a determination of a likelihood of confusion. The court noted that had the TTAB cancellation proceeding been initiated on other grounds, such as fraud, it is possible that Phoenix’s counterclaims would not have been compulsory.

In protecting their trademarks, state actors should be wary of appealing a TTAB decision to a district court. Even though such an appeal may provide certain advantages, it exposes the state actor to waiver of its sovereign immunity and subjects it to new counterclaims not available at the TTAB