Wednesday, March 15, 2017

Not with a bang but with a fastener

B&B Hardware, Inc. v. Hargis Indus., Inc., --- F. Supp. 3d ----, 2017 WL 957548 (E.D. Ark. Feb. 16, 2016)

I mentioned this development a while back, but it’s now getting into the federal reporter, which is good so that people don’t misunderstand what ultimately happened.  As for background, “[s]uffice it to say that the twenty-plus year dispute ended in another jury verdict and judgment for defendant Hargis Industries,” and the court here rejected B&B’s various arguments for extending the agony.

A jury found for B&B and against Hargis on B&B’s claims for federal trademark infringement, false designation of origin, and unfair competition. The jury found for Hargis on B&B’s claim of unfair competition under California law, and for Hargis on its counterclaims for false advertising and false designation. The jury also found that Hargis’s infringement was not willful, and that B&B engaged in fraud on the PTO to obtain incontestability status. The court then granted judgment for Hargis given the fraud finding.

For the fraud on the PTO claim, the jury was required to find (1) a material misrepresentation or the failure to disclose material information (2) made with the intent to deceive.  The court explained:

Hargis’s position at trial was that Larry Bogatz, B&B’s president, misled the PTO – and thus committed fraud – by signing a declaration in support of his incontestability petition. That declaration required Bogatz to declare that B&B had not received a final decision on the merits adverse to its claim of ownership of the trademark that affected its right to register that mark. Of course, B&B cannot reasonably dispute that Bogatz’s declaration was false: the 2000 jury verdict found B&B’s mark to be merely descriptive and devoid of secondary meaning which, under the law, means the mark could not be registered.

B&B argued that the TTAB knew about the 2000 verdict and thus couldn’t have been misled by Bogatz’s statement, and that Bogatz had no intent to deceive because he was acting on counsel’s advice. True, the TTAB referred to the 2000 verdict in its correspondence, but that’s a different office, and the PTO doesn’t engage in substantive examination of an incontestability affidavit.  There was no reason to think that the PTO considered the 2000 verdict and still awarded incontestability.  (Implicitly, since it’s the courts that are supposed to engage in substantive review, it’s the court of appeals that screwed this one up when it held that B&B’s incontestability meant it was no longer bound by the 2000 verdict by failing to determine whether B&B had actually qualified for incontestability, rather than simply filing an affidavit correct in form.)

As for reliance on counsel, the jury was free to reject Bogatz’s testimony about his intent and reliance on counsel, especially given that the jury was permitted to draw a reasonable inference of intent “considering the timing of the declaration occurring mere weeks before filing a new lawsuit, the witnesses’ testimony about their interactions in the past, and Bogatz’s admitted knowledge of the 2000 jury’s findings.”

B&B also argued that the jury’s verdict was inconsistent in finding for B&B on the trademark infringement and false designation of origin claim, and against B&B on the unfair competition claim under California law. But the verdict wasn’t inconsistent given the extra element of damage to B&B under California law. Relatedly, the jury’s finding that none of Hargis’s profits were attributable to Hargis’s infringement was fine.  Under the instructions, the jury’s starting point was Hargis’s total profit; then, the jury could deduct all or a part of profit “attributable to factors other than use of the trademark.” “ Hargis presented testimony from several of its customers to explain that the customers’ motivation for purchasing Hargis products was not connected with the Sealtite name – thus, not connected with the allegedly infringing trademark – but rather other characteristics such as customer service experience and quality of product.”

B&B then argued that collateral estoppel didn’t bar the action, as the court ruled after the jury’s fraud on the PTO finding.  In 2000, a jury found that B&B’s mark was descriptive without secondary meaning, and there was no need to proceed to a confusion analysis.  When B&B filed the instant lawsuit, it alleged new circumstances—the incontestability.  “[E]ssentially, B&B is given a ‘pass’ on the first element – the element that doomed its prior case – and allows a jury to consider the second.”  Incontestability was the “significant intervening factual change” that rendered collateral estoppel inappropriate. But fraud on the PTO removed the benefits of incontestability, downgrading the mark to “the same status it had when the jury rendered its verdict in 2000,” meaning that there was no more reason to give B&B its second bite at the apple.

B&B argued that the TTAB did not apply issue preclusion in its own proceedings, so the court shouldn’t here. The court didn’t see the point of that argument, especially since the court proceedings were about the first element of an infringement case, protectability, whereas the TTAB rulings were about confusion. Nor was B&B entitled to disgorgement of Hargis’s profits, even if we assumed that it won its infringement claims.  B&B couldn’t show that the jury was wrong to find Hargis’s infringement to be not willful—Hargis obviously had notice of the registration, but that is not necessarily enough, especially given “the ongoing litigation repeatedly finding no infringement and the fact that the two companies engaged in different markets.”  And disgorgement is discretionary, not mandatory; also, it depends on unjust enrichment/compensation theories rather than on a penal justification, and the evidence that B&B didn’t lose sales from infringement was therefore relevant.

Judgment for Hargis on its counterclaims was also appropriate.  “[I]t is clear the jury accepted Hargis’s argument that B&B copied photos, text, or size and weight charts from Hargis’s website and posted them to B&B’s website as B&B’s fasteners.” Hargis then suffered injury when it had to engage experts and fight B&B’s activity. 

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