April 16, 2015

TTAB Rulings Held Preclusive in Federal Court

8 min

On March 24, 2015, the United States Supreme Court released its long-awaited decision in B&B Hardware v. Hargis Industries, 13-352 (U.S. Mar. 24, 2015), holding that the Trademark Trial and Appeal Board (TTAB) findings of mark similarity can be preclusive in later federal proceedings as long as "the ordinary elements of issue preclusion are met." Slip op. at 2. This ruling stands in direct opposition to the majority of recent federal precedent, and will dramatically increase the import of TTAB rulings in the coming years. In other words, the TTAB just got a bit of a promotion.

Case Background

This case initially arose when Hargis Industries applied to register the trademark "SEALTITE" in the construction industry in 1996. B&B Hardware opposed this application and simultaneously filed a Lanham Act trademark infringement lawsuit, asserting that B&B had previously registered the trademark "SEALTIGHT" in 1993 for its fastener product in the aerospace industry. While B&B's federal suit was pending the TTAB determined that Hargis’s proposed mark was confusingly similar to B&B's mark and denied Hargis's trademark application. As a result, B&B argued in its district court proceeding that the TTAB's finding of mark similarity was entitled to preclusive effect in the court. Unpersuaded, the district court refused to admit the TTAB's holding into evidence, stating that no deference should be accorded to the findings of a non-Article III court. The jury then held in favor of Hargis. Later, in upholding this decision, the U.S. Court of Appeals for the Eighth Circuit found that because the TTAB uses a slightly different "likelihood of confusion" standard, each court inevitably decides different factual questions and, thus, that TTAB's findings could never preclude federal courts.

Supreme Court Holding

The Supreme Court summarily reversed these holdings, finding 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 a district court, issue preclusion should apply." Slip op. at 2. In fact, these "ordinary elements of issue preclusion" are present "[w]hen [the same] issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment,…" RESTATEMENT (SECOND) OF JUDGMENTS §27 (emphasis added). As such, while the Court's ruling does give the TTAB preclusive power regardless of its procedural variations from federal court, it only does so where, among other things, the issues and usages analyzed in each proceeding are "materially the same."

Specifically, the Court began its analysis by noting, in contrast with the district court's analysis, that non-Article III bodies have long been found to create preclusive rulings. Indeed, the Court cited its decision in Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U.S. 104 (1991), in which it held that where agencies are authorized by Congress to settle disputes, "courts may take it as a given that Congress has legislated with the expectation that [issue preclusion] will apply except when a statutory purpose to the contrary is evident." Slip op. at 9 (quoting Astoria, 501 U.S. at 108). As agencies are provided this power, and as the Lanham Act contains no such "statutory purpose to the contrary," the Court concluded that there is no reason why the TTAB should not be afforded a similar level of deference. It should be noted, however, that Justices Thomas and Scalia dissented on the use of this case, asserting that the Astoria presumption cannot be applied to the Lanham Act, as the Act both predates Astoria and does not otherwise indicate congressional intent that agency decisions carry preclusive weight.

After establishing the Board's ability to issue preclusive rulings, the Court moved on to distinguish the asserted legal, procedural, and evidentiary differences between TTAB and federal court proceedings from those that might actually prevent issue preclusion. In doing so, the Court first rejected Hargis's argument that the marginally different legal standard applied to TTAB disputes justifies a lack of issue preclusion in federal court. In contrast, the Court found that each court uses "essentially the same" likelihood of confusion test, and that any variations between the tests are merely textual. Slip op. at 15-18. Further, the Court rejected Hargis's argument that preclusion is inappropriate because the TTAB analyzes marks as used in their registration or applications, whereas federal courts look to their actual marketplace use. Instead, the Court found that as long as the issue to be analyzed is "materially the same," or in other words, involves the same mark used in the same context, preclusion is appropriate. Finally, the specific procedures and "lower stakes" that characterize the TTAB similarly did not prevent preclusion, as the Court found no reason to doubt the quality and fairness of the Board’s proceedings and had no reason to believe that all TTAB proceedings would involve lower stakes than would federal court.

The Court was, however, careful to limit the above ruling by noting that the issue preclusion standard referenced in this holding is a narrow one, and that a "great many" cases would likely not satisfy it. In other words, while TTAB rulings may indeed have preclusive effect in this instance, issue similarity is far from guaranteed under the Court's strict issue preclusion standard. Specifically on this point, the Court cautioned that "if the TTAB has not decided the same issue as that before the district court, there is no reason why any deference would be warranted." Slip op. at 19 (emphasis added). It is worth noting, however, that the Court did not further explain what issues qualify as "the same" or "materially the same," and as such, this vague definition may well become a subject of contention in the coming years. The Court further narrowed its holding by explaining that if a "compelling showing of unfairness" at the TTAB is made, or if the proceeding is not "actually litigated," the Board's holding cannot be preclusive in later proceedings. Accordingly, parties showing that important evidence was excluded in the TTAB, that critical oral testimony was not allowed, or that the matter was never "actually litigated" because of a default judgment may be able to circumvent an otherwise preclusive TTAB holding.

Practical Impacts of B&B Hardware

The newfound significance this ruling attaches to TTAB rulings will likely have long-ranging effects on trademark professionals in transactional and litigation practices alike, and may generally shape decision-making in quasi-judicial proceedings. However, in understanding this holding it is important that parties also remain cognizant of the limitations inherent in its construction.

First, this holding will have broad implications for parties whose applications or registrations are challenged at the TTAB. Indeed, parties to TTAB proceedings should factor B&B Hardware into their TTAB litigation and settlement strategy, and not treat TTAB decisions as merely affecting the state of the USPTO Register.

Second, this ruling may undercut the TTAB’s reputation as a streamlined and cost-effective trademark dispute venue. Whereas parties could previously resolve trademark disputes quickly and inexpensively through the TTAB, parties who receive an unfavorable TTAB ruling after B&B Hardware will essentially be required to spend additional time and money to appeal the decision, as they may otherwise risk it becoming a preclusive "final judgment" on the issue. Indeed, the Court warns litigants of this exact point, stating that litigants should seek immediate review of a TTAB decision they believe to be in error, as "[t]he fact that the TTAB may have erred . . . does not prevent preclusion." Slip op. at 19. While this added cost may well make some litigants less eager to bring TTAB proceedings in the future, it may also give litigants with successful claims "more bang for their buck" by enabling them to avoid relitigating a key issue in district court.

Aside from its effects in the trademark world, it is important to note that B&B Hardware's ruling may signal a sea change in how courts deal with quasi-judicial bodies more generally. Significantly, patent entities like the Patent Trial and Appeal Board (PTAB) may be similarly found to create preclusive holdings through inter partes and post grant review proceedings. Further, the fact that issue preclusion lies for singular issues of fact or law suggests that this ruling could be particularly important for rulings on claim construction, level of skill in the art, and prior art determinations.

However, even with the aforementioned implications it is important not to overstate the applicability of this ruling. As the Court was careful to narrow its holding only to instances where "ordinary elements of preclusion" are met, litigants should be cognizant that only a narrow set of issues will actually be precluded in federal court, and thus should think carefully about how parties present issues in TTAB proceedings. For instance, the Court explicitly notes that where "the TTAB does not consider the marketplace usage of the parties' marks, the TTAB's decision should 'have no later preclusive effect in a suit where actual usage in the marketplace is the paramount issue.'" Slip op. at 18 (quoting 6 McCarthy §32:101, at 32–246). Additionally, it is important to note that the factual background of this case sets it apart from most federal court trademark proceedings, and as such may further narrow the application of this holding. Specifically, litigants should be aware of how this holding may apply to federal district court cases filed non-simultaneously with TTAB proceedings, or even filed after a TTAB holding has been appealed.

In sum, the ruling in B&B Hardware represents a clear departure from previous law in the weight it bestows on final TTAB judgments, and will undoubtedly affect both the litigation and transactional strategies of parties preserving trademark, patent, or other legal rights through quasi-judicial decision-making bodies. These qualities, along with this ruling’s carefully delineated limitations and novel factual background, lead the authors to conclude that B&B Hardware will generate no shortage of interesting legal questions in the coming years.