Issue preclusion is a familiar concept to most practicing attorneys. Under this doctrine, “later courts should honor the first actual decision of a matter that has been actually litigated.” Charles Alan Wright et al., Federal Practice and Procedure § 4416, at 386 (2d ed. 2002). However, courts have struggled with the question of whether a prior decision by an administrative agency, as opposed to the judgment of an Article III court, can serve as the basis for issue preclusion. The Supreme Court recently addressed this issue in B&B Hardware Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015), finding that, in certain circumstances, a prior decision by the Trademark Trial and Appeal Board (“TTAB”) can have a preclusive effect on an Article III court. This article explores the rationale behind B&B Hardware and the potential impact of that decision on practice before both the TTAB and other administrative agencies charged with deciding issues related to intellectual property.
I. B&B Hardware: Finding Preclusive Effect Based on TTAB Decisions
A. Procedural Background. In 1993, B&B Hardware (“B&B”) registered the trademark “SEALTIGHT” for use in connection with various metal fasteners for the aerospace industry. Three years later, Hargis Industries (“Hargis”) attempted to register the trademark “SEALTITE” for use in connection with certain metal screws for the manufacture of metal and post-frame buildings. B&B opposed Hargis’ registration on the grounds that SEALTITE was confusingly similar to B&B’s own SEALTIGHT mark, and instituted opposition proceedings before the TTAB.
While the TTAB proceeding was pending, B&B sued Hargis for trademark infringement in district court, based on its previously registered “SEALTIGHT” mark. Prior to any ruling in the district court on infringement, the TTAB issued a decision finding a likelihood of confusion between SEALTITE and the prior SEALTIGHT mark. Notably, Hargis did not seek judicial review of this decision. In the district court, B&B then argued that the TTAB decision should be given preclusive effect against Hargis. The district court disagreed, holding that preclusion could not apply because the TTAB was not an Article III Court. The jury ultimately returned a verdict for Hargis, finding no likelihood of confusion.
B&B appealed, and the Eighth Circuit affirmed the district court’s holding on somewhat different grounds. Specifically, the Eighth Circuit found that: (i) the TTAB used different factors than did the Eighth Circuit in its likelihood of confusion analysis; (ii) the TTAB placed too much emphasis on the sound and appearance of the marks in its decision; and (iii) the parties bore different burdens of persuasion before the TTAB and the district court.
B. Ordinary Principles of Issue Preclusion Apply to TTAB Decisions. In a 7-2 decision written by Justice Alito, the Supreme Court reversed the Eighth Circuit and remanded. The Supreme Court rejected the narrow approach taken by the Eighth Circuit, and instead held that ordinary principles of issue preclusion should apply to prior TTAB decisions. First, the Court addressed the general question of whether agency decisions could form the basis for issue preclusion. Relying on the Restatement (Second) of Judgments and its prior decisions in, e.g., University of Tenn. v. Elliott, 478 U.S. 788, 797-798 (1986), the Court held that “issue preclusion is not limited to those situations in which the same issue is before two courts. Rather, where a single issue is before a court and an administrative agency, preclusion also often applies.” B&B Hardware, 135 S. Ct. at 1303 (emphasis in original)
In reaching this holding, the Supreme Court noted that issue preclusion had been so “well established” at common law that “Congress has legislated with the expectation that the principle [of issue preclusion] will apply except when a statutory purpose to the contrary is evident.” Id. In view of this presumption, the Court held that nothing in the text or structure of the Lanham Act reflected a Congressional intent to bar issue preclusion. See id. at 1305.
The Court further held that, even though a TTAB decision could be subject to de novo review on appeal to a district court, it does not follow that unreviewed TTAB decisions cannot ground issue preclusion: “[O]rdinary preclusion law teaches that if a party to a court proceeding does not challenge an adverse decision, that decision can have preclusive effect in other cases, even if it would have been reviewed de novo.” Id. On the other hand, issue preclusion would not apply to cases in which exhausting an administrative process was a prerequisite to filing a suit in court. But B&B Hardware was not an appeal from the TTAB decision; it was a “separate proceeding to decide separate rights.” Id.
C. Differences in Procedure or Analysis May Not Be Sufficient to Defeat Issue Preclusion.
The Court also rejected the Eighth Circuit’s reliance on the purported differences between the factors used by that court and those used by the TTAB to determine whether a likelihood of confusion exists. The Court observed that the TTAB applies the test for likelihood of confusion in the registration context; by contrast, “the Eighth Circuit looks to similar, but not identical, factors” when considering likelihood of confusion in the infringement context. B&B Hardware, 135 S. Ct. at 1306. Nevertheless, the Court found the factors used by the appeals court and the TTAB were “not fundamentally different,” and that any “[m]inor variations” did not defeat preclusion. Id. at 1307.
The Court did recognize that a distinction exists between the registration provision of the Lanham Act, which considers whether marks “resemble” each other, and the infringement provision, which considers the “use in commerce” of the marks. Compare 15 U.S.C. § 1052(d) with 15 U.S.C. § 1114(1). In view of this distinction, the Court noted preclusion would not apply if the “marketplace usage of the parties’ marks” were materially different from those disclosed in the trademark application. B&B Hardware, 135 S. Ct. at 1308. However, the Court concluded that “trivial” variations in marketplace usage cannot defeat preclusion, just as trivial variations in marks do not create different marks. See id.
The Court also found that, contrary to the Eighth Circuit’s conclusion, the TTAB’s reliance on the mark’s sound and appearance did not defeat preclusion, noting that any such alleged error by the TTAB should have been raised in a direct review of the TTAB decision, rather than in re-litigation in a separate proceeding. In this, the Court implicitly criticized B&B’s failure to seek judicial review of the TTAB decision: “Undoubtedly there are cases in which the TTAB places more weight on certain factors than it should. When that happens, an aggrieved party should seek judicial review.” Id. at 1308.
The Court further held that procedural differences (such as whether live testimony would be admitted), by themselves, do not bar issue preclusion. Instead, the Court explained that the “correct inquiry” should focus on whether the procedures in the first proceeding were “fundamentally poor, cursory, or unfair.” Id. at 1309.
Finally, the Court dismissed the notion that issue preclusion should not apply because the “stakes” in a TTAB proceeding are allegedly lower than in district court. The Court noted the “substantial” benefits of trademark registration, including that “registration is ‘prima facie evidence of the validity of the registered mark,’ and is a precondition for a mark to become ‘incontestable.’” Id. at 1310.
II. Impact of B&B Hardware Decision on TTAB Proceedings
A. Scope of Issue Preclusion in View of B&B Hardware. The Supreme Court’s decision in B&B Hardware expressly noted that issue preclusion would not apply to all determinations of likelihood of confusion by the TTAB. As highlighted in Justice Ruth Bader Ginsburg’s concurrence: “The Court rightly recognizes that ‘for a great many registration decisions issue preclusion obviously will not apply.’ … because contested registrations are often decided upon ‘a comparison of the marks in the abstract and apart from their marketplace usage.’” B&B Hardware, 135 S. Ct. at 1310 (Ginsburg, J., concurring). Thus, for a significant percentage of such TTAB decisions (in which marketplace usage is not an issue), courts may reasonably find that issue preclusion does not apply to the prior TTAB determination.
On the other hand, the Court’s reasoning is not limited to the issue of likelihood of confusion. A number of other issues decided in TTAB proceedings, including descriptiveness, genericness, acquired distinctiveness, abandonment, priority, and dilution determinations, may now give preclusive effect under the rationale of B&B Hardware. Thus, we may see a notable expansion in the number district court cases finding issue preclusion in the trademark context.
B. Impact on TTAB and Litigation Strategy. From a practical perspective, B&B Hardware may have a significant impact on how parties approach TTAB proceedings. First, TTAB proceedings are likely to become more complicated and expensive, as parties will seek both to develop more substantial evidentiary records and also to litigate such proceedings as thoroughly as possible, to avoid being bound by an adverse preclusive decision in a subsequent infringement suit. Parties also will likely be more motivated to seek de novo review of adverse TTAB decisions to avoid the risk that a failure to seek review might be counted against them in infringement proceedings.
Second, given the limitations on evidence in TTAB proceedings (including the inability to submit live testimony), parties may be more inclined to forego TTAB proceedings altogether and seek relief directly in district court, where traditional rules of evidence of apply and a more robust evidentiary record may be developed. Given the potential increased expense of TTAB proceedings, parties that were previously less inclined to litigate may now see federal court as a more favorable option than the TTAB.
Third, certain trademark holders, fearing the risk and expense of an opposition proceeding, may elect to forego registration entirely, and simply take any potential infringement action directly to court.
III. Issue Preclusion for Other Intellectual Property Related Administrative Agencies
Notwithstanding the impact of B&B Hardware in the trademark context, the effect of B&B Hardware on decisions by other intellectual property related administrative agencies, such as the International Trade Commission (“ITC”) and the Patent Trial and Appeal Board (“PTAB”), may be more limited.
A. Issue Preclusion in View of Prior ITC Cases. Unlike the Supreme Court’s analysis of the Lanham Act, the Federal Circuit has held that issue preclusion does not apply to ITC decisions. As the Federal Circuit noted in Texas Instruments Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558 (Fed. Cir. 1996), Congress cautioned that “disposition of [an ITC] action by a Federal Court should not have res judicata or collateral estoppel effect in cases before such courts.” Texas Instruments, 90 F.3d at 1569 (quoting S. Rep. No. 1298, 93d Cong., 2nd Sess. 196 (1974)). “[T]he [ITC’s] findings neither purport to be, nor can they be, regarded as binding interpretations of the U.S. patent laws in particular factual contexts.” Id. Thus, even under the framework set forth in B&B Hardware, ITC decisions would not give rise to issue preclusion, due to the evidence of a “statutory purpose to the contrary.”
B. Issue Preclusion in View of PTAB Proceedings. The impact of B&B Hardware on the application of issue preclusion to PTAB proceedings (e.g., Covered Business Method (“CBM”), Inter Partes Review (“IPR”), and Post Grant Review (“PGR”)) is likely to be limited. First, express statutory authority already sets out the binding effect of final decisions from PTAB proceedings on petitioners in subsequent district court cases. For example, in an IPR or PGR proceeding that proceeds to “a final written decision,” a petitioner “may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the [ITC] under section 337 of the Tariff Act of 1930 that the claim is invalid on any ground that the petitioner raised or reasonably could have raised” in the prior proceeding. See 35 U.S.C. §§ 315(e)(2), 325(e)(2). Similarly, petitioners in petitions that proceed to a final written decisions are precluded from asserting “that [a] claim is invalid on any ground that the petitioner raised during that transitional proceeding.” AIA Sec. 18(a) (1)(D), 125 Stat. 284; 37 C.F.R. § 42.300. Next, the results of PTAB proceedings can be binding on patent owners in subsequent litigation, but not due to issue preclusion. In considering a substantially analogous statutory provision to that governing IPR and PGR proceedings (see 35 U.S.C. §§ 307, 318, 328), the Federal Circuit in Fresenius USA, Inc. v. Baxter Int’l, Inc., addressed “whether, under [that] statute, the cancellation of claims by the PTO is binding in pending district court infringement litigation.” 721 F.3d 1330, 1336 (Fed. Cir. 2013). Reviewing the legislative history, the Court found that “when a claim is cancelled, the patentee loses any cause of action based on that claim, and any pending litigation in which the claims are asserted becomes moot.” Id. at 1340. Cancellation “is binding not because of collateral estoppel, but because Congress has expressly delegated reexamination authority to the PTO under a statute requiring the PTO to cancel rejected claims, and cancellation extinguishes the underlying basis for suits based on the patent.” Id. at 1344. Thus, any canceled claims of a patent were void ab initio and any pending litigation before a district court was moot.
In issuing final written determinations on the ultimate issue of validity, the PTAB will often reach decisions on underlying issues, such as the scope and content of prior and the level of ordinary skill in the art. The rationale of B&B Hardware provides some support for the proposition that PTAB decisions on these issues may be entitled to preclusive effect, “[s]o long as the other ordinary elements of issue preclusion are met.” See B&B Hardware, 135 S. Ct. at 1310.
However, unlike the TTAB proceedings addressed in B&B Hardware, PTAB proceedings are decided under a different standard of review (preponderance of the evidence) than is applied by a district court as to invalidity (clear and convincing ). See 35 U.S.C. §§ 316(e), 326(e) (2012). Indeed, the Federal Circuit has relied on this which the claims are asserted becomes moot.” Id. at 1340. Cancellation “is binding not because of collateral estoppel, but because Congress has expressly delegated reexamination authority to the PTO under a statute requiring the PTO to cancel rejected claims, and cancellation extinguishes the underlying basis for suits based on the patent.” Id. at 1344. Thus, any canceled claims of a patent were void ab initio and any pending litigation before a district court was moot. In issuing final written determinations on the ultimate issue of validity, the PTAB will often reach decisions on underlying issues, such as the scope and content of prior and the level of ordinary skill in the art. The rationale of B&B Hardware provides some support for the proposition that PTAB decisions on these issues may be entitled to preclusive effect, “[s]o long as the other ordinary elements of issue preclusion are met.” See B&B Hardware, 135 S. Ct. at 1310. However, unlike the TTAB proceedings addressed in B&B Hardware, PTAB proceedings are decided under a different standard of review (preponderance of the evidence) than is applied by a district court as to invalidity (clear and convincing ). See 35 U.S.C. §§ 316(e), 326(e) (2012). Indeed, the Federal Circuit has relied on this distinction in finding that district courts and the PTO can reach inconsistent decisions on the issue of validity. See, e.g., In re Swanson, 540 F.3d 1368, 1377 (Fed. Cir. 2008); In re Baxter Int’l, Inc., 678 F.3d 1357, 1365 (Fed. Cir. 2012). Moreover, district courts are required to apply a presumption of validity, whereas no such presumption exists before the PTAB. Thus, even under B&B Hardware, courts may simply find that due to the differing burdens and standards, the “ordinary elements of issue preclusion” would not be met.
The Supreme Court’s holding in B&B Hardware may have a significant impact on how parties approach TTAB proceedings. As a practical matter, the risk of such a preclusive finding will result in parties spending more effort—and money—on such proceedings. Moreover, in certain circumstances, parties may elect to forego the TTAB route entirely and proceed straight to district court, where a more substantial evidentiary record can be developed. In the patent context, parties receiving adverse rulings before the ITC and PTAB should be prepared for their adversaries to argue that those decisions should also be given preclusive effect under B&B Hardware, although it appears unlikely that the Article III courts ultimately will do so.