08/16/13

IN THIS ISSUE
Federal Court Denies Preclusion for Trademark Ruling

E-Discovery:  The Digital Age of Litigation
Deceptive Tea Trademark Not Registrable for Acquired Distinctiveness

Federal Court Denies Preclusion for Trademark Ruling

Timothy J. Lockhart

A divided panel of the U.S. Court of Appeals for the Eighth Circuit has held that rulings by the Trademark Trial and Appeal Board (TTAB) are not necessarily entitled to preclusive effect.  B & B Hardware, Inc. v. Hargis Industries, Inc., __F.3d__, 2013 WL 1810614 (8th Cir. May 1, 2013).  With the judges voting 2-1, the court held that because the TTAB is not an Article III court under the U.S. Constitution, a TTAB finding that one mark is likely to be confused with another is not preclusive with respect to the issue of trademark infringement raised between the mark’s owners.

B & B Hardware (B & B) manufactures and sells a fastener branded SEALTIGHT that is used primarily in the aerospace industry, and Hargis Industries (Hargis) manufactures a line of self-drilling and self-tapping SEALTITE screws used primarily to construct metal buildings.  The parties have been litigating over their respective marks for more than 15 years.

In 2007 the TTAB ruled that, because SEALTITE was likely to be confused with SEALTIGHT, Hargis was not entitled to register SEALTITE with the U.S. Patent and Trademark Office.  In a trial of  B & B’s allegations against Hargis for trademark infringement and unfair competition, the district court rejected B & B’s arguments and found in favor of Hargis on its counterclaims, awarding Hargis its attorneys’ fees.

On appeal, B & B argued that the district court should have given preclusive effect to the TTAB’s earlier ruling as to the likelihood of confusion, which would have entitled B & B to prevail on its infringement claim.  B & B relied heavily on Flavor Corp. of America v. Kemin Industries, Inc., 493 F.2d 275 (8th Cir. 1974).  In Flavor, the Eighth Circuit upheld the district court’s ruling that affirmation by the U.S. Court of Customs and Patent Appeals (CCPA, predecessor to the U.S. Court of Appeals for the Federal Circuit) of a TTAB likelihood-of-confusion decision precluded Kemin from challenging the CCPA’s affirmation in an infringement action.

The B & B Hardware appellate court distinguished Flavor by noting that they are an Article III court.  The CCPA had ruled on the likelihood-of-confusion issue, not merely the TTAB.  In addition, the court said that although there might be instances where TTAB decisions should be given preclusive effect (also known as "collateral estoppel"), B & B Hardware was not one of them because the TTAB had used a likelihood-of-confusion test different from that used by the district court.  For example, in comparing SEALTITE to SEALTIGHT the TTAB used some (but not all) of the thirteen factors laid out in In re E.I. DuPont DeNemours & Co., 476 F.2d 1357 (CCPA 1973), the district court used the six factors established by the Eighth Circuit in SquirtCo v. Seven-Up Co., 628 F.2d 1086 (8th Cir. 1980).

The Eighth Circuit found differences among the two tests’ factors, although slight, to be compelling.  “Although some of the E.I. DuPont factors are the same or comparable to the SquirtCo factors, ‘for collateral estoppel to apply, the [TTAB] must have examined the “entire marketplace context”’ as is done in trademark infringement actions.”  B & B Hardware, at * 8 (citations omitted).  The court said the TTAB had focused on the similar appearance and pronunciation of the SEALTIGHT and SEALTITE marks and had found that the evidence of market context “weighed against a finding of likelihood of confusion.”  Id.

The court also held that the district court had properly refused to allow B & B to admit the TTAB’s decision into evidence.  No one had challenged the TTAB’s decision, the court said, and admitting it would have confused the jury, especially given that the jury has seen much of the same factual evidence on the likelihood-of-confusion issue as the TTAB.

However, the Eighth Circuit partially granted B & B’s appeal of the award of attorneys’ fees to Hargis.  The Trademark Act permits courts in “exceptional cases [to] award reasonable attorney fees to the prevailing party [note:  not only the plaintiff].”  15 U.S.C. § 1117(a).  The Eighth Circuit held that because B & B had “manufacture[d] evidence,” B & B’s “claim of trademark infringement is groundless and unreasonable,” B & B Hardware, at * 11, thereby justifying the award of attorneys’ fees to Hargis.  But because B & B’s prior appeal resulted in a ruling in its favor, that appeal was not groundless or unreasonable, and so the Eighth Circuit remanded the case to the district court with directions to deduct the attorneys’ fees awarded for the prior appeal.

The dissenting judge argued that the district court should have given the TTAB’s decision preclusive effect.  As a general matter, he noted that the U.S. Supreme Court “recently emphasized that ‘giving preclusive effect to administrative factfinding serves the value underlying general principles of collateral estoppel:  enforcing repose.’”  Id., at * 13 (citation omitted).

Next he argued that the differences between the TTAB’s and the district court’s infringement tests were too slight to justify dispensing with collateral estoppel.  Then he noted that the majority’s drawing a distinction between the TTAB’s analysis of likelihood of confusion for registration purposes and a court’s analysis of that issue for infringement purposes “is tantamount to holding that a finding of the [TTAB] on likelihood of confusion will never be preclusive in an infringement action.”  Id., at * 15.  Finally, he argued that although the majority might disagree with the TTAB’s decision, the doctrines of claim preclusion and issue preclusion “‘prevent relitigation of wrong decisions just as much as right ones,’” else “‘the doctrines would have no effect and be useless’”  Id. (citation omitted).

E-Discovery:  The Digital Age of Litigation

Joseph P. Moriarty and David A. Kushner

In today’s world, almost all business information and communications are digital.  Consequently, litigation matters of all types increasingly are affected by the demands of electronic discovery.  Electronic discovery is the extension of the discovery process in litigation to include data in electronic format (commonly referred to as Electronically Stored Information (ESI)).  Our E-Discovery Practice Group regularly advises clients on the best practices to handle their electronic discovery obligations.  This article provides a primer on the following core concepts:  The Duty to Preserve ESI, Collecting and Preserving ESI, and Sanctions for Failure to Preserve ESI. 

Because of the increasing importance of electronic discovery in nearly all of our clients’ litigation, our E-Discovery Practice Group will begin publishing a regular newsletter on important E-Discovery issues.  The first newsletter, which will be published this summer, will include a more detailed introduction to E-Discovery.  Subsequent volumes will provide important updates and will address E-Discovery issues which are important to our clients.

The Duty to Preserve ESI
When litigation is or should be reasonably anticipated, your business has a legal duty to preserve relevant evidence.  As discussed below, severe sanctions can arise when a business fails to take reasonable steps to ensure the preservation of relevant evidence, including ESI.  In order to avoid these sanctions, it is critical that you understand when the duty to preserve evidence arises.  In general, the duty to preserve evidence is triggered when a potential litigant reasonably anticipates litigation.  This standard is an objective one, and asks the question of whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation. 

The duty to preserve can arise months or even years before a lawsuit is filed or government investigation is commenced.  Frequently, this requires your business to conduct an analysis of whether litigation is probable based upon credible facts and circumstances known at the time.  As a general rule, you should assume that your business has a duty to begin the preservation process at least as of the time your business:

  • Receives a demand letter or other communication threatening a lawsuit;
  • Becomes aware of an administrative charge (such as an EEOC Charge) filed against your business;
  • Becomes aware that a lawsuit has been filed or is likely to be filed against your business; or
  • Begins discussing the possibility of filing suit against another business.

We suggest that your business be proactive by creating procedures and policies for identifying and evaluating potential litigation and by documenting your good faith efforts to preserve information. 

Collecting and Preserving ESI
There are various technical strategies employed to preserve evidence once litigation is anticipated, and the duty to preserve is triggered.  This process is often referred to as implementing a “legal hold” or “litigation hold.”  Once litigation is anticipated, it is strongly suggested that you contact your legal counsel to assist with the defensible preservation of evidence.  In most situations, your business (with the assistance of counsel) should issue a written “legal hold” notice to employees likely to possess or control relevant evidence, including ESI.  This notice should also be sent to IT custodians, including third parties in possession of ESI under your business’ control, and others responsible for managing your business’ information system.  The “legal hold” notice should define what information is to be preserved and how the preservation is to be undertaken.  In addition, a business has a duty to stop the routine deletion of relevant evidence once a duty to preserve is triggered.  Failure to issue an effective “legal hold” notice could not only result in severe sanctions but could also result in the loss of the information needed to defend against the claims in the lawsuit.

Overall, the best way to avoid the possibility of spoliation-related sanctions is to be proactive.  Even before litigation is anticipated, your business should form a working group on ESI preservation, which should include senior managers from all divisions, internal and/or outside counsel, IT management, as well as representatives from human resources.  This working group should be tasked with drafting and implementing a general document and ESI retention policy, as well as with understanding where and how information is stored within the company.  The ultimate goal is to develop policies and procedures providing repeatable and defensible processes for identifying and preserving relevant evidence, including ESI, once a duty to preserve is triggered.

Sanctions for Failure to Preserve ESI
If a business fails to appropriately preserve relevant evidence (even accidentally) it may be subject to sanctions for so-called “spoliation” of evidence.  Sanctions motions increase the cost of litigation and distract from the underlying issues in dispute.  Courts have broad discretion to sanction parties for failure to preserve evidence, including:

  • Monetary sanctions, such as requiring the spoliating party to pay the other parties’ attorneys’ fees;
  • Granting an “adverse inference” instruction, in which the court informs the jury that it should assume that there would have been damaging evidence had the offending party not spoliated evidence; and
  • “Case-terminating sanctions,” in which a court enters judgment against the spoliating party without addressing the merits of the case.

The level of culpability required to hand out these sanctions varies from one jurisdiction to another.  For example, some courts (including the state and federal courts sitting in Virginia) do not require a showing of “bad faith” before issuing sanctions.  Even in these courts, however, the judges have limited the severity of sanctions where the loss of evidence was based on simple negligence.  There is a current proposal to amend the Federal Rules of Civil Procedure to provide uniformity in federal courts.  The proposal to amend Rule 37(e) would shield a business’ pre-litigation destruction of information from sanctions except where that destruction was “willful or in bad faith and caused substantial prejudice in the litigation” or “irreparably deprived a party of any meaningful opportunity to present a claim or defense.”  The varying and uncertain standards only emphasize the importance to document your good faith efforts to timely preserve relevant evidence.

As we will discuss in more detail in our upcoming E-Discovery Newsletter, businesses can substantially reduce or eliminate this risk of sanctions by understanding the duty to preserve evidence, and taking reasonable steps to collect and preserve evidence once the duty to preserve is triggered.  If you would like to subscribe to Willcox Savage’s E-Discovery Newsletter please click here.  If you have any questions about E-Discovery issues, please feel free to contact the Co-Chairs of the E-Discovery Practice Group, Joseph P. Moriarty and David A. Kushner.

Deceptive Tea Trademark Not Registrable for Acquired Distinctiveness

Timothy J. Lockhart

As appeared in the June 1, 2013 issue of the "INTA Bulletin."

On March 5, 2013, the Trademark Trial and Appeal Board (TTAB) found that the mark WHITE JASMINE & Design, as used with “beverages made of tea; black tea; flavourings of tea; spice blends; spices” in Class 30, was deceptive and therefore unregistrable under Section 2(a) of the Trademark Act. In re White Jasmine LLC, Serial No. 77115548, 106 U.S.P.Q.2d 1385 (T.T.A.B. 2013) (precedential). Although deceptiveness is an absolute bar to registration, in the “interest of completeness” the TTAB also found that the mark was also deceptively misdescriptive but had not acquired distinctiveness so as to be otherwise registrable under Sections 2(e) (1) and 2(f).

White Jasmine LLC applied to register the mark WHITE JASMINE & Design in 2007. The application had a long and difficult prosecution history that included several office actions. In the fifth office action, issued in 2010, the examining attorney withdrew the Section 2(a) deceptiveness refusal with respect to WHITE JASMINE but continued it with respect to WHITE. The examiner explained that WHITE implied the applicant’s goods included “white tea” when in fact the applicant had indicated that its goods did not include such tea.

The Three Factors of Deceit
Considering the continued refusal on appeal, the TTAB applied the three-factor test for deceptiveness set forth in In re Budge Manufacturing Co., 857 F.2d 773 (Fed. Cir. 1988), aff’g 8 U.S.P.Q.2d 1790 (T.T.A.B. 1987): “(1) Is the [allegedly] deceptive term misdescriptive of the character, quality, function, composition or use of the goods? (2) If so, are prospective purchasers likely to believe that the misdescription actually describes the goods? (3) If so, is the misdescription likely to affect a significant portion of the relevant consumers’ decision to purchase?”

The TTAB held that because white jasmine tea is a subcategory of two types of tea (white tea and jasmine tea), “the word ‘White’ immediately describes, without conjecture or speculation, a significant ingredient of tea” and was therefore misdescriptive of the applicant’s goods. It also held that prospective purchasers would believe, falsely, that the applicant’s goods included white tea. Finally, the TTAB held that because some consumers believe that white tea has “desirable health benefits,” the misdescription would be material to such consumers and likely to induce them to buy the applicant’s goods. Because the mark WHITE JASMINE & Design reflected all three factors in the Budge test, the TTAB affirmed that it was deceptive and therefore unregistrable.

Turning to the issue of whether the mark was deceptively misdescriptive, the TTAB applied the two-part test laid out in In re Quady Winery Inc., 221 U.S.P.Q. 1213, 1214 (T.T.A.B. 1984): “(1) whether the matter sought to be registered misdescribes the goods and, if so, (2) whether anyone is likely to believe the misrepresentation.” The Board held that because WHITE was deceptive with respect to the applicant’s goods, WHITE was also misdescriptive of those goods, and that consumers would be likely to believe that the goods were white jasmine tea when they were not. Accordingly, the TTAB found that the mark WHITE JASMINE & Design was deceptively misdescriptive, requiring a disclaimer of the word portion of the mark unless the word portion had acquired distinctiveness.

Deceptive, Not Distinctive
The final issue was whether, absent the refusal under Section 2(a), the mark was registrable as deceptively misdescriptive under Section 2(e)(1) but with acquired distinctiveness under Section 2(f). The TTAB held that the applicant’s evidence—for example, approximately 10,000 units sold and $75,000 in revenue generated over a period of four years—was insufficient to show that WHITE JASMINE & Design had become distinctive with respect to the applicant’s goods. Accordingly, the TTAB affirmed the requirement for a disclaimer.

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