Take care around trials and appeals

By Peter Lemire

A recent decision by the Supreme Court will have attorneys and business paying more attention to what are known as “adversary proceedings” before the United States Patent and Trademark Trial and Appeals Board (TTAB).

Adversary proceedings are basically mini administrative trials that are conducted when one party believes that it will be harmed by the USPTO allowing the registration of a trademark to a third party. There are two forms of adversary proceedings: oppositions and cancellations. An opposition is when a third party objects to the registration of a mark prior to the granting of the registration.

A cancellation action is identical to an opposition, but it occurs after a registration has already been issued and the third party is seeking to cancel the registration. While these proceedings have for the most part been taken seriously, the Supreme Court decision in B&B Hardware, Inc. v. Hargis Industries, Inc. has exponentially raised the stakes due to the fact that the court ruled that a TTAB decision regarding whether there exists a likelihood of confusion between two trademarks can in some cases have a preclusive effect (meaning that the TTAB decision would be binding in the later infringement action) in a subsequent trademark infringement litigation.

This is a big deal.

To illustrate what a potential game-changer this decision is, some background is probably in order. Historically, there has been somewhat of a divide between the world of registration at the USPTO and the world of infringement that is battled over in the federal courts.

This is due to the fact that the trademark system is somewhat of a dual system of common law (unregistered marks) and federally registered trademarks. Contrary to what many people believe, the federal registration does not create trademark rights. Trademark rights are actually created by an individual’s or company’s use of the mark to identify its goods or services. It’s the use that actually creates the rights, known as common law rights.

By federally registering these rights through the USPTO, an individual or business gains certain extra advantages. In today’s world, most businesses – especially small- and medium-sized businesses and startups – greatly benefit from federal registration; however, it is not a necessity.

The Lanham Act (the federal trademark statute) sets out the rules and process for federal trademark registration. One of these rules is that a registration can’t issue if it causes a likelihood of confusion with another registration.

Additionally, owners of federal registrations and common law users who believe that they will be harmed by a registration can contest the registration through an opposition or cancellation proceeding. These proceedings are quasi judicial proceedings wherein limited discovery is generally conducted and the “trial” generally amounts to written testimony and arguments submitted to the TTAB.

Historically, these proceedings had fairly low consequences, due to the fact that an adversary proceeding only deals with the issue of whether a mark is registerable with the USPTO, and not whether it infringes on another mark. The only downside to a party defending an adversary proceeding was that the mark may be prohibited from registration or an existing registration was cancelled.

No damages, attorney’s fees or injunctions can be awarded in an adversary proceeding. If a mark holder lost an adversary proceeding, they could always just rely on their previously established common law rights. Furthermore, if an infringement action was subsequently filed, the mark holder would essentially have a second bite at the apple if they wished to defend the litigation, since the likelihood of confusion standard, with some differences, is also the test for infringement.

With the Supreme Court’s decision, how the adversary proceeding is prosecuted and argued can now have a profound effect on a subsequent infringement action. A mark holder whose mark is found to cause a likelihood of confusion at the TTAB leve, can also now have that determination applied against them in an infringement case, where they would be liable for damages and attorney’s fees, and could face an injunction preventing them from using their mark. Therefore, these actions should now be fought just as aggressively as one would in an infringement case.

The takeaway from all of this is that for businesses facing adversary proceedings at the TTAB, the stakes now just got higher. Businesses will need to be more strategic with their arguments in front of the TTAB, and probably conduct significantly more discovery than was done in the past. Interestingly, this may also encourage more settlement at the adversary proceeding stage.

If both parties are wary of potential preclusive effect of a TTAB decision, this may lead them to engage in more serious settlement talks in order to avoid the risky proposition of having an adverse TTAB decision bind them in future proceedings. Time will tell.