Federal Court Broadly Applies Preclusion from TTAB Decision

Parties involved in trademark disputes should be aware of a federal district court opinion that broadly applies preclusive effect to a prior Trademark Office administrative proceeding. In 2015, the Supreme Court ruled that decisions of the Trademark Trial and Appeal Board (TTAB) are to be given the same preclusive effect as a prior court decision under traditional rules of res judicata. But because the issues decided before the TTAB are often different than those decided in district court, it remains unclear how such preclusion would be applied.

A recent decision of a New York federal court, Cesari SRL v. Peju Province Winer LP, applies the doctrine of collateral estoppel broadly, and the defendant was precluded from re-visiting the issue of likelihood of confusion.

Parties involved in trademark disputes need to carefully consider whether to litigate in the TTAB or federal court, since a decision in one forum may well lead to unexpected results in later litigation. If it is expected that infringement litigation will result, then it is often advisable to bring an action in federal court (either an infringement or declaratory judgment action) and stay the TTAB proceeding, so that all issues can be decided together.

Trademark disputes are generally litigated in federal courts, which decide whether one party’s use of a mark is likely to cause confusion with the other’s. They can also be decided in the TTAB – when one party applies for a registration, the other party can file an opposition proceeding, or, if already registered, a cancellation proceeding to cancel the registration. The most common basis for opposition or cancellation is likelihood of confusion. What happens if the TTAB finds likelihood of confusion – what is the effect of such a decision in a later district-court litigation?

In B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015), the Supreme Court held that the usual preclusion rules between one court proceeding and another apply – which is includes what is known as “collateral estoppel” or “issue preclusion.” Four requirements must be met: (1) "the issues in both proceedings are identical," (2) "the issue in the prior proceeding was actually litigated and actually decided," (3) "there was a full and fair opportunity for litigation in the prior proceeding," and (4) “the issues previously litigated were necessary to support a valid and final judgment on the merits.”

The first requirement – that the issues be “identical” is the most vexing one. In TTAB proceedings, the TTAB only looks at the marks and goods/services listed in each parties’ registrations. If, as is common, the goods/services are stated broadly, they are likely to overlap, and then confusion is more likely to be found. Nor does the TTAB consider other external factors – for example, if other trademarks (e.g. housemarks) are also being used, which might obviate confusion.

In district court proceedings, on the other hand, district courts are required to examine what is actually occurring in the market – what market niche each side operates in, and what other factors might increase or decrease confusion.

The Cesari case illustrates this well. Cesari owned a registration for the mark LIANO for wines. Peju Wineries later filed an application for the mark LIANA, also for wines. Cesari opposed; not surprisingly, the TTAB ruled that there was a likelihood of confusion, because the goods (wines) were identical, and the marks were very similar.

Undeterred, Peju continued selling wine under the mark LIANA; Cesari filed suit in federal court in New York. It then moved for summary judgment based on the prior TTAB decision and the doctrine of issue preclusion.

Peju argued that issue preclusion should not apply because its actual marketplace usage of LIANA was materially different from that which the TTAB adjudicated. This usage, according to Peju defendants, is limited to: wines from grapes grown in Northern California, wines purchased by sophisticated customers; new world wines; wines priced between $40 and $60 a bottle; and wines sold on specific websites and at specific wineries. In other words, it usage was more limited than simply “wines” that was the subject of its rejected trademark application.

The district court rejected that argument, however, holding that because Peju’s use was “encompassed” within what was decided by the TTAB (all “wines”) the issues was the same. It also noted that the TTAB does not consider such qualifiers unless they are in the parties’ application or registration.

One might well criticize this decision. The fact that the TTAB does not consider these qualifications does not mean that the district court would not have to in its decision. Had the TTAB never rendered a decision, then the district court might well consider, for example, that the parties sell wines at different price ranges, or only in limited venues (e.g., wineries or websites). The TTAB decision was based on an application that sought to register a mark for “wines” – and that potentially could include all price points and market venues. But the district court’s issue centers on actual market use. A strong argument can be made (and may be made on appeal) that the issue are indeed not “identical.”

One might also ask whether other externalities would be considered in deciding whether to apply issue preclusion. For example, many companies use several marks – a house mark for the whole brand, and a line mark for a line of goods. (Think HONDA ACCORD, or MICROSOFT OFFICE). When disputes arise over use of a line mark, courts have at times held that the use of a house mark, especially a famous one, may dispel confusion, even where the line marks are very similar. For example, in Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033 (2d Cir.1992), the Second Circuit overturned a finding of confusing similarity between packages for EXCEDRIN PM and TYLENOL PM because “the prominence of the trade names on the two packages weighs heavily against a finding of consumer confusion.” See W.W.W. Pharm. Co v. Gillette Co., 984 F.2d 567, 573 (2d Cir. 1993) (RIGHT GUARD SPORT STICK not confusingly similar to SPORTSTICK as matter of law; "when a similar mark is used in conjunction with a company name, the likelihood of confusion may be lessened").

The TTAB generally does not consider this factor, since house marks are generally not part of a trademark application or registration. (Honda, for example, owns a registration for ACCORD by itself for automobiles.) Suppose a party loses an opposition or cancellation proceeding at the TTAB. Can it later argue in a district court proceeding that its additional use of a house mark dispels confusion? Not clear under the Cesari decision.

In any event, parties are now well advised to carefully consider where they wish to litigate. TTAB proceedings have many advantages – they tend to be faster and less expensive. But a loss at the TTAB might well later lead to a loss in district court when a party’s actual use is challenged.