On  March  24,  2015,  the  Supreme  Court  of  the  United  States  issued  an  important   decision  in  B&B Hardware, Inc. v. Hargis Industries, Inc., No. 13-352 (Mar. 24, 2015), holding that a “likelihood  of confusion” decision by the Trademark Trial and Appeal Board (“TTAB” or “Board”) is binding in a  subsequent trademark infringement lawsuit if the ordinary elements of issue preclusion are met and  the usages of the mark adjudicated by the TTAB are materially the same as those before the federal  court. Although the Court was careful to limit its ruling and noted that issue preclusion would not  apply to “a great many [TTAB] registration decisions,” the opinion has potentially significant  implications  for  a subset of trademark infringement actions, and it is likely to increase the  importance of both TTAB proceedings and judicial review of TTAB decisions.

Yesterday’s decision was the latest ruling in a nearly two-decade legal battle between B&B  Hardware, Inc. (“B&B”) and Hargis Industries, Inc. (“Hargis”). Both B&B and Hargis manufacture  metal fasteners: B&B’s fasteners are for use in the aerospace industry, while Hargis’s fasteners  are used in the construction trade. B&B registered the mark SEALTIGHT in 1993, and Hargis sought to  register SEALTITE in 1996. B&B opposed SEALTITE’s registration, arguing that Hargis’s mark was  confusingly similar to SEALTIGHT. In proceedings before the TTAB, the Board sided with B&B and  determined that SEALTITE “so resembles” SEALTIGHT that it could be “likely to cause confusion.”  Hargis did not seek judicial review of the TTAB’s decision by appealing to the United States Court  of Appeals for the Federal Circuit or by filing a new action in a district court, as it had the  right to do under the Lanham Act.

Meanwhile, B&B also sued Hargis for trademark infringement in the United States District Court for  the Eastern District of Arkansas. The TTAB issued its decision in the registration proceeding  before the district court ruled on likelihood of confusion in the infringement action. Thus, B&B  argued that Hargis could not contest likelihood of confusion in the district court because of the  preclusive effect of the Board’s decision. The district court disagreed on the ground that the TTAB  is not an Article III court. The jury ruled in favor of Hargis and found no likelihood of  confusion. On appeal, the United States Court of Appeals for the Eighth Circuit, “though accepting  . . . that agency decisions can ground issue preclusion,” affirmed the district court’s ruling on  three grounds: (1) “the TTAB uses different factors than the Eighth Circuit to evaluate likelihood  of confusion,” (2) the “TTAB placed too much emphasis on the appearance and sound of the two  marks,” and (3) different parties bear the burden of persuasion before the TTAB and before the district court. The Eighth Circuit’s decision stood alone in announcing a categorical  rejection of  TTAB   preclusion,   while   other   circuits   had   either   allowed   application   of    preclusion   in   certain circumstances or accorded deference to TTAB rulings. 

The Supreme Court reversed and remanded the case for further proceedings.   In a decision written  by Justice Samuel Alito and joined by six of the Court’s members, the Court held that: under existing  Supreme Court precedent, an agency’s decision can ground issue preclusion; nothing in the Lanham  Act bars the preclusive effect of TTAB decisions where the ordinary elements of issue preclusion  are met because the Board proceeding “is a separate proceeding to decide separate rights,” rather  than a prerequisite to, or an exhaustion requirement for, an infringement action in federal court;  and there is no categorical reason why TTAB registration decisions can never meet the ordinary  elements of issue preclusion, namely that “‘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 . . .  .’”

The Court rested its decision on three principal reasons. First, the Court disagreed with the  Eighth Circuit’s ruling that issue preclusion could not apply because the TTAB and courts in the  Eighth Circuit apply different factors when assessing  the likelihood  of confusion. The Court held  that federal law provides a single standard for registration and infringement—likelihood of  confusion—and it does not matter if different tribunals “apply that one standard differently.” In  any event, the Court concluded that the factors applied by the TTAB and the courts are “not  fundamentally different.” Thus, as long as the usages in a TTAB proceeding are materially the same  as the marketplace usages considered in an infringement litigation, the Board and the district  court are deciding the same likelihood of confusion issue. Second, the Court determined that issue  preclusion is not categorically improper because the TTAB uses different procedures than those used  by district courts. Rather, when evaluating whether issue preclusion applies, “the correct inquiry  is whether the procedures used in the first proceeding were fundamentally poor, cursory or unfair.”  Here, the Court ruled that “there is no categorical ‘reason to doubt the quality, extensiveness, or  fairness,’ of the agency’s procedures” and that they are “[i]n large part . . . exactly the same as in federal court.” For example, “the TTAB has adopted almost the whole of  Federal Rule of Civil Procedure 26,” although the TTAB bars live testimony in its proceedings. Third, the  Court rejected the argument that because “the stakes for registration are so much lower than for  infringement . . . issue preclusion should never apply to TTAB decisions.”  Emphasizing the “substantial” benefits  of TTAB registration, which “is a precondition for” a mark’s “[i]ncontestability,” the Court ruled that  “[w]hen registration is opposed, there is good reason to think that both sides will take the matter  seriously,” and that “registration decisions can be weighty enough to ground issue preclusion.”

In his dissenting opinion joined by Justice Antonin Scalia, Justice Clarence Thomas expressed doubt  that “Congress intended administrative preclusion to apply to TTAB findings of fact in a subsequent  trademark infringement suit,” based on the history of administrative preclusion and both the  express language and “several features” of the Lanham Act, including that the Act confers limited  authority on the TTAB and provides for judicial review of the Board’s decisions.  Justice Thomas also concluded that “the  majority’s application  of  administrative  preclusion  raises  serious  constitutional  concerns,”  because   allowing  an agency decision to have preclusive effect in a later proceeding before a federal court may violate  Article III.  The majority had declined to address this constitutional question since the issue was not  before the Court.

As Justice Alito acknowledged in his opinion, and Justice Ruth Bader Ginsburg echoed in  concurrence, at the end of the day, the Court’s decision may have an impact on only a relatively small subset of  trademark actions. Most TTAB decisions fail “the other ordinary elements of issue preclusion,”  because the trademark “usages adjudicated by the TTAB” in registration proceedings often are not  “materially the same” as the actual marketplace uses at issue before the district court.  Nonetheless, by raising the possibility that a TTAB decision may preclude a district court from  litigating a likelihood of confusion issue, the Court’s opinion increases the importance of TTAB  actions and requires litigants to re-evaluate their strategies in such proceedings. Indeed, parties  to a TTAB registration action should assess whether, given the uses to be adjudicated by the Board,  there is a potential for issue preclusion in a later litigation. Perhaps most significantly, the  Court’s ruling reminds litigants of the importance of seeking judicial review of TTAB decisions.  Trademark litigants faced with an unfavorable TTAB registration decision have always had the option  to seek de novo review of the Board’s decision in either the U.S. Court of Appeals for the Federal  Circuit or a district court.  The Court’s decision underscores the importance of exercising that right.