Friday, May 03, 2013

TTAB likely confusion finding not entitled to deference in infringement case

B & B Hardware, Inc. v. Hargis Industries, Inc., --- F.3d ----, 2013 WL 1810614 (8th Cir.)

After a seven-day jury trial, the jury rejected B&B’s claims of trademark infringement and unfair competition and found in favor of Hargis’s counterclaims for false advertising and false designation of origin; the district court awarded attorney’s fees to Hargis.  B&B appealed, arguing that the district court should have given preclusive effect to the TTAB’s findings about likely confusion between the parties’ marks.  The majority rejected that argument (though it did remand for recalculation of fees).

B&B makes a fastener under the mark Sealtight, used mostly in the aerospace industry.  Hargis makes screws commonly used in metal buildings under the Sealtite mark.  They’ve been litigating for over 15 years.  In 2007, the TTAB refused registration to Hargis’s Sealtite on the basis of a 2(d) likely confusion finding.  B&B argued that this should have preclusive effect.  The district court held that, because the TTAB isn’t an Article III court, no preclusion was required, and further excluded evidence of the TTAB ruling as confusing to the jury.

In the past, the circuit had held that a likelihood of confusion determination in a cancellation proceeding by the old Court of Customs and Patent Appeals collaterally estopped relitigation of that question in a subsequent infringement action between the same parties.  But the TTAB isn’t an Article III court as the CCPA was.  (In a footnote, the court noted criticism of the earlier decision for failing to distinguish between registration standards and infringement standards.)

The question to be decided was the weight to be given TTAB decisions: preclusive effects as to adjudicated facts; some weight; significant weight?  “[C]ollateral estoppel may be appropriate where administrative agencies are acting in a judicial capacity.”  However, preclusion wasn’t appropriate here because the TTAB simply didn’t decide the same likely confusion issues as were before the district court.  As the Second Circuit, following McCarthy, has held, though the issues before the TTAB may bear the same label, they’re not identical for preclusion purposes if the standards governing them are significantly different—and that may happen for the issue of likely confusion in a registration/cancellation proceeding compared to an infringement case.  Among other things, the TTAB used only 6 factors in making its determination, which weren’t identical to the 8th Circuit’s multifactor test.

The TTAB found that the similarities in the marks and their use on fasteners supported a confusion finding, but also determined that the specific fasteners were significantly different products marketed to different industries and customers.  It determined that, for registration purposes, the former considerations trumped the market usage.  But for collateral estoppel to apply, the TTAB must have examined the “entire marketplace context” as in a trademark infringement action.  By placing greater emphasis on the mark similarity, the TTAB ignored the “critical determination” of marketplace usage, which could be appropriate for registration but was inappropriate for infringement. 

Furthermore, a party’s failure to carry the burden of persuasion on an issue shouldn’t have preclusive effect when an adversary would later have the burden of persuasion on that issue.  So the fact that Hargis couldn’t overcome B&B’s challenge to the registration didn’t mean that B&B could meet its burden of persuasion on infringement.  The court again noted the evidence of marketplace differences.

B&B argued that the TTAB’s decision was entitled to deference, but that’s when there’s a challenge to a registration decision, which this was not.  Nor did the district court abuse its discretion in refusing to admit the TTAB decision into evidence because it determined that admission “would be highly confusing and misleading to the jury,” given that the jury and the TTAB weren’t supposed to use the same factors to analyze infringement in the same way.  The majority agreed and noted that the jury was presented with factual evidence relating to the confusion factors; much of that evidence was also presented to the TTAB, and the probative value of the TTAB’s ultimate conclusion was minimal.

The court of appeals also found no abuse of discretion in the award of attorney’s fees.  The district court found that the case was exceptional because B&B “went to great lengths to manufacture evidence in support of its claim, such as creating a false website developed with images from Hargis's website, contacting long-time Hargis customers to create confusion with those customers, and making misrepresentations at trial and in B&B owner Larry Bogatz's deposition testimony.”  This showed that the infringement claim was groundless and unreasonable.  However, because B&B’s prior appeal resulted in a ruling in its favor, that appeal wasn’t groundless and unreasonable, so fees from that appeal had to be deducted.

Judge Colloton dissented, concluding that the TTAB previously decided the likely confusion issue. The TTAB concluded that the most critical factors were the similarities of the marks and the goods: the marks are substantially identical and they’re used on closely related products.  The TTAB accepted anecdotal evidence of actual confusion.

According to the Supreme Court, “giving preclusive effect to administrative factfinding serves the value underlying general principles of collateral estoppel: enforcing repose.” Therefore, “[w]hen an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose.” McCarthy says that courts too readily deny preclusive status to TTAB findings.  Though it’s deciding registration, “[i]f in the course of doing so factual issues are decided there is no policy reason why those factual questions should not be foreclosed from further re-litigation in court as long as the issues in the two cases are indeed identical and the other rules of collateral estoppel are carefully observed.”

The majority determined that the issues weren’t the same, but just because the TTAB articulates a different multifactor test than the 8th Circuit doesn’t mean that the issues were different.  “Modest differences in analytical approach to the same ultimate issue … do not justify dispensing with collateral estoppel, just as variations in analysis among the circuits about a legal issue does not mean that one circuit's decision lacks preclusive effect in another.”  If the TTAB weighed the factors differently than they should be weighed in an infringement case, then a TTAB finding will never be preclusive in an infringement action.  But the TTAB compared the marks in their “entire marketplace context,” “discussing the companies' goods in relation to the fastener industry, the companies' channels of distribution, and the behavior of consumers in the market for the companies' products.”  Given that contextual decision, the factual basis for the confusion finding was the same and collateral estoppel was appropriate.  Mere disagreement with the TTAB wasn’t a reason to deny its decision preclusive effect.

The majority also suggested that Hargis bore the burden of persuasion in a registration action, while B&B had the burden as plaintiff.  But that only matters when the difference in burden affects who should win, and the TTAB’s decision here showed that the burden wasn’t material, saying, “[t]o the extent that any doubts might exist as to the correctness of our likelihood of confusion analysis, especially considering the prior determination that opposer's mark is merely descriptive and has not acquired secondary meaning, we resolve such doubts against applicant.”  But that was after a finding of likely confusion; this last sentence was “an alternative holding based on an uncertain contingency.”  The dissent would have vacated the judgment and remanded for further proceedings based on the preclusive effect of the TTAB’s decision.

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