Friday, July 08, 2016

Guess what the latest development in B&B v. Hargis is?

B&B Hardware, Inc. v. Hargis Industries, Inc., No. 06CV01654, 2016 WL 3615833 (E.D. Ark. May 16, 2016)

So, despite all the commotion surrounding this case, B&B forgot to renew its registration, which was duly cancelled.  A cautionary story for clients!  Also, incontestability is a really big deal, which deserves to be much, much better policed.

As you may recall, B&B sells self-sealing fasteners for the aerospace industry under the mark “Sealtight.” Hargis sells fasteners for the construction trade under the mark “Sealtite.” As the Supreme Court said, the full story of the litigation “could fill a long, unhappy book.”  And here we go again, denying Hargis’ motion for judgment on the pleadings.

B&B registered Sealtight in 1993.  It opposed Hargis’s 1996 application; Hargis sought to cancel B&B’s mark, and then B&B sued for infringement.  A jury found in favor of Hargis, holding that B&B’s mark was “merely descriptive” and had not acquired a “secondary meaning.” Hargis’s petition to cancel B&B’s trademark was dismissed in June 2003.  In 2006, B&B filed a declaration of incontestability, “negat[ing] the first jury’s findings on descriptiveness and secondary meaning.”  B&B then sued again.  Before the second case went to the 2010 jury, the TTAB found a likelihood of confusion; the jury again found for Hargis on all claims.  But the Supreme Court held that TTAB decisions have preclusive effect!  Thus, the 2010 judgment was remanded for further proceedings, “including what remedies may be awarded for infringement.” The Eighth Circuit instructed the trial court to “give preclusive effect to the decision of the TTAB on likelihood of confusion.”

But then!  After the remand, “Hargis discovered that B&B failed to renew its registration, resulting in its cancellation some time after the 2010 trial.”  The PTO’s official record of the cancellation says the mark was cancelled on February 29, 2016, but Hargis argued that the cancellation occurred some time prior, which I suspect is true given ordinary PTO practice but have not specifically investigated.  The cancellation record is a ministerial act; the registration lapsed when the Section 8 deadline passed. See Land O' Lakes, Inc. v. Hugunin, 88 U.S.P.Q.2d 1957, 2008 T.T.A.B. Lexis 47, at *4–5 (T.T.A.B.2008) (precedential) (“[T]he date of expiration of application's registration is not dependent on the date the Office undertook the ministerial function of entering the cancellation into the USPTO database.”).

B&B since reapplied for registration, which is pending, but obviously can’t provide B&B with priority over Hargis even if it’s ultimately granted.  (If it is, because confusion with Hargis’s use is unlikely and, though preclusion applies in court to TTAB holdings, the PTO isn’t bound by prior rulings on different marks, then Hargis will have a good argument for its saga replacing Bleak House as the definititive account of ridiculous litigation; I haven’t even mentioned some of the details of what went on before.)

The district court confronted the question: now what?

First, B&B didn’t waive review of the non-infringement claims such as unfair competition, nor was it estopped from relitigating them or barred by the law of the case.  “Considering how intertwined ‘likelihood of confusion’ is with the other claims, it cannot be ruled that B&B waived or is estopped from re-litigating the other claims when it explicitly argued that such an important element was improperly decided.”  Nor did the law of the case govern, because B&B “was certainly a significant development that changed the game for both parties.”  And the trial court’s earlier error about preclusion “also affected the admissibility of evidence. B&B was limited by pretrial rulings on how the decision could be used during trial.”  (Query: why would the TTAB ruling be admissible now?  Of course the arguments for why it’s not relevant now have a different basis.)

Then, the court ruled, “the Lanham Act does not require a registrant to maintain [its] registration through to trial.”  Sections 32 and 43(a) have the same basic elements, except that incontestability is conclusive evidence of validity (subject to various defenses).  Hargis argued that B&B could no longer rely on its registration, because it doesn’t have one.  “B&B argues that its mark was registered during the period of infringement and its subsequent cancellation only changes the theory on which it can rely for the time after cancellation.”

Hargis argued that the words “registrant,” “registered mark,” and “registered on the principal register” in the Lanham Act all require B&B to maintain its registration for the duration of the suit, rather than simply possess it when Hargis allegedly infringed.  The court considered this an issue of first impression.  (I’m dubious of the court’s reasoning here.  Consider the situation where the registration is directly and successfully attacked.  The court properly orders the registration cancelled.  It’s beyond peradventure that the presumptions accorded the registration, although they applied at the outset of the case, can’t still be accorded the former registration.  The registration did exist when the litigation started, but now it doesn’t.  Even if the mark is cancelled for reasons that are not absolute bars, this should be true.  Consider, for example, fraud on the PTO: the mark is in theory registrable, but the registrant deliberately lied to register it with the intent to deceive the PTO, then sues someone else.  The fraud is proven and the registration is cancelled.  The plaintiff claims that it still has common-law rights (say, secondary meaning for a descriptive term).  The defendant shouldn’t still confront the presumption of ownership/validity that existed at the outset of the case.)

The court reasoned that, when an unregistered mark becomes registered during the pendency of the litigation, that doesn’t change the fact that it was unregistered at the outset and thus no burden-shifting from the trademark claimant is appropriate.  But that seems completely different to me, because the initial basis of the claimant’s rights—its unregistered common-law rights—is still present in the case, and those rights simply continue.  It would be completely unfair to, say, a §33(b) remote good faith user to say that the registration relates back to the initiation of the case, when a key point of registration is to fix the date on which rights became nationwide as a matter of law.

But, for the very same reason, the result should be different here: registration provides statutory rights that are explicitly provided over and above the common law, and it was those things—nationwide priority, the very broad description of the goods in the specification, and, for incontestability, distinctiveness as a matter of law—that allowed B&B priority and victory in its likely confusion claim.  Those are now gone from B&B’s arsenal.  B&B should be able to claim whatever common-law priority it has, including rights concurrent with its federal registration, but the cancelled registration ought to be treated as if it had never existed.   

However, relying on the analogy to unregistered marks that become registered, the court held that “registration only impacts the theory of recovery during periods of infringement.”  The court also considered that its rationale was in line with constructive notice: even a nonrenewed registration provided constructive notice during the period of registration.  Action Temp. Serv., Inc. v. Labor Force, Inc., 870 F.2d 1563, 1566 (Fed. Cir. 1989).

But constructive notice and existence of rights are pretty different.  Indeed, the Action Temp court continued that the TTAB’s conclusion that an initially unlawful adoption of a mark stayed unlawful was “flawed.”  Though use during the pendency of another’s now-cancelled registration wasn’t “lawful” in the sense necessary to support a concurrent use registration, that was only one part of the question the TTAB had to resolve on remand, given that mere knowledge of a prior user isn’t itself bad faith precluding registration.  See also Action Temp, 870 F.2d at 1566 n.9 (citing Anderson, Clayton & Co. v. Krier, 478 F.2d 1246, 1248 (C.C.P.A. 1973), for the proposition that “whatever benefits a federal registration confers are lost when that registration is canceled”).

Unfortunately, the B&B court’s research failed to disclose the cases—few of them, to be sure—reaching the opposite conclusion.  Spin Master, Ltd. v. Zobmondo Entertainment, LLC, 2012 WL 8134013 (C.D. Cal. Jun. 18, 2012), for example, has some striking similarities with this case.  The Ninth Circuit held that plaintiffs’ registration, which was granted without a requirement of showing secondary meaning, entitled it to a presumption of inherent distinctiveness and therefore reversed a grant of summary judgment to defendants. While the case was back before the district court, however, the time for filing the section 8 affidavit expired.  Plaintiffs argued that the presumption of validity/inherent distinctiveness still applied to the time the registration was in effect.  The court disagreed, concluding that “[t]he statutory evidentiary presumptions attendant to a registration disappear when the registration lapses, including a lapse caused by the failure to file a timely Section 8 affidavit.” 

Along with a few other cases, the Zobmondo court pointed to TTAB practice of rejecting expired registrations as evidence of anything, including protectability, validity, use, likely confusion, or anything other than that the registration issued.  “When a registration lapses, the ‘applicant is now in much the same position it would have been had the prior registration never issued ....’”  See, e.g., In re Compania Tabacalera Santiaguense, S.A., 1999 WL 546830, at *3 (T.T.A.B. July 21, 1999) (“Once a registration has been cancelled under the provisions of Section 8 of the Trademark Act, however, it cannot serve as evidence of any existing rights in the mark.… By failing to timely file a Section 8 affidavit, applicant has opened up its mark to reexamination under present standards.”); In re Compania Tabacalera Santiaguense, S.A ., 1999 WL 546830, at *3 (T.T.A.B. July 21, 1999) (non-precedential) (“Once a registration has been cancelled under the provisions of Section 8 of the Trademark Act ... it cannot serve as evidence of any existing rights in the mark.”); cf. Kellogg Company v. Western Family Foods, Inc., 209 U.S.P.Q. 440 (T.T.A.B. 1980) (explaining that TTAB makes an exception to its practice and takes judicial notice of cancellations of relevant registrations that occur during the pendency of an opposition proceeding, because of the potential material effect of cancellation on parties’ rights).

In sum, the Zobmondo court held, the expired registration “is treated as never having been issued,” which is “a bright-line rule that does not turn on the factual and procedural nuances of a particular case. Thus, when the ‘830 registration lapsed, the statutory presumption of validity evaporated.”  As a result, the plaintiffs would now have to proceed without any rights conferred by registration, despite their victory at the court of appeals based on their registration when suit began.  See also Advance Magazine Publ’rs, Inc. v. Norris, 627 F.Supp.2d 103, 114 n. 2 (S.D.N.Y. 2008) (finding that the presumption of validity evaporated upon expiration of registration two years after suit was filed and “affording neither presumptions nor evidentiary advantages to any party”). 

The reasoning in ZipSleeve, LLC v. West Marine, Inc., 2015 WL 2380990 (D. Or. May 19, 2015), relies on Lexmark but reaches the same conclusion:

ZipSleeve was indeed the “registrant” of the registered trademark “ZIPSLEEVE” when West Marine allegedly began its infringing activity in 2011. ZipSleeve accordingly argues that its right to sue under § 1114 accrued at that time—and that the cancellation of the mark [for failure to renew during the pendency of the case] did not extinguish that right….
A statutory cause of action “extends only to plaintiffs whose interests fall within the zone of interests protected by the law invoked.” Lexmark, 134 S.Ct. at 1388. The constructive notice to competitors and evidentiary presumptions afforded the registrant are among the most important rights a trademark registrant has under the Lanham Act. By contrast, the right to exclude others from use of the mark comes not from registration, but merely from priority of use of a protectable mark. And that right may be protected, in the absence of a registered trademark, using § 1125(a). The weight of authority thus clearly indicates that Congress sought to protect only the interests of plaintiffs with registered trademarks under § 1114. Plaintiffs with unregistered trademarks are protected by § 1125(a), but do not fall within the zone of interests protected by § 1114. Therefore, the owner of a mark that was valid when issued but which has since lapsed has no cause of action under § 1114—not even for infringement that occurred during the lifetime of the mark.

The B&B district court’s conclusion was, by contrast, that:

“registrant” and “registered mark” do not refer to a claimant’s present condition, but only the situation at the time of infringement. Hargis’s argument inserts words into the statute, as the Lanham Act does not say that a mark must be “presently registered” or “currently registered.” B&B’s registration was not cancelled because it was obtained improperly, but merely expired when it failed to renew. 

I don’t understand that distinction, which does not explain why someone with a mark cancelled for a substantive reason wouldn’t also have been the “registrant” at the time the lawsuit began.  The statute also doesn't say "legitimate/ly" or "valid/ly" before registrant/registered.

Anyway, the court went on to hold that B&B’s requested remedies, an injunction and money damages, were both still available. An injunction was still available to prevent injury given that B&B filed a new registration application seeking expedited review.  “Should Hargis be found liable at trial, the parties may argue whether an injunction is appropriate.”  As for damages, willful infringement wasn’t a prerequisite; the court found that the statute was straightforward because of the more recently added language requiring willfulness for damages caused by dilution.  And anyway, there was a question of material fact:

Viewed in the light most favorable to B&B, Hargis knew of B&B’s concern for the confusing marks since the mid-1990s, and even after Hargis won at trial in 2000, Hargis knew that the PTO deemed B&B’s mark worthy of registration. Hargis had knowledge of B&B’s registration, and thus B&B’s right of exclusive ownership, and Hargis admits that it was aware of the PTO’s later determination of incontestability. Based on this limited record, this is sufficient to create a jury question on whether Hargis willfully infringed on B&B’s mark.

(Is that really sufficient for willfulness as to infringement? Ah well.)  Questions about equitable defenses also would have to be resolved after liability, if it were found.

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