Vol. 7 Issue 2 Archives - Kinney & Lange

Supreme Court Clarifies Standard of Review for Claim Construction

Posted on November 1, 2015 by Kinney & Lange, P.A.

■ Nicholas J. Peterka

In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 574 U.S. ___, No. 13-854 (2015), the Supreme Court held that the Federal Circuit must apply the clearly erroneous standard when reviewing a district court’s resolution of subsidiary factual matters made during the court’s patent claim construction.

At dispute was the meaning of the term “molecular weight.” Each party presented extrinsic evidence in the form of expert testimony and, relying on patent owner Teva’s expert, the district court determined that “molecular weight” was not indefinite. Sandoz appealed the claim construction to the Federal Circuit, which reviewed de novo all aspects of the district court’s claim construction and determined that “molecular weight” was indefinite. The Supreme Court granted certiorari and found that, while the determination of questions of law (such as the final claim construction) are reviewed de novo, underlying determinations of subsidiary facts are reviewed for clear error. The Court stated that subsidiary factual matters arise when the court uses extrinsic evidence, such as expert testimony, to aid in claim construction. The Court’s holding will factor into whether a party uses extrinsic evidence, for a party aiming to add more finality to a district court’s claim construction may frame the issues so that extrinsic evidence is vital to the court’s claim construction and, conversely, a party seeking to overturn a claim construction may argue that intrinsic evidence is dispositive and extrinsic evidence is unnecessary. This decision will also affect summary judgment. Because the Court’s holding seemingly elevates the importance of factual determinations in claim construction, factual issues may become potential obstacles to summary judgment, which requires no genuine dispute as to any material fact.

SUPREME COURT RULES TRADEMARK TACKING IS A QUESTION FOR THE JURY

Posted on May 1, 2015 by Kinney & Lange, P.A.

■ Andrew R. Swanson

In Hana Financial, Inc. v. Hana Bank, 135 S.Ct. 907 (2015), a unanimous Supreme Court held that the determination of whether two trademarks may be “tacked” for the purpose of determining priority is a question for the jury. Prior to Hana, circuit courts were split as to whether tacking was a question of law for the judge, or a question of fact for the jury. While the Court determined that the jury is in the best position to determine if the tacking doctrine applies, the Court did leave open the judge’s ability to determine the tacking issue at various points during litigation, such as on summary judgment or motions for judgment as a matter of law.

The rights to a trademark are determined based on the mark’s use in commerce. While the first date of use in commerce establishes the priority date of a mark, a party may sometimes clothe a new mark with the priority granted to an old mark. Clothing the new mark with the old mark’s priority is known as “tacking.” The tacking doctrine evolved to allow trademark users to make slight, insubstantial changes to an existing mark without risking the loss of an established priority date. Tacking is available in very limited circumstances, where the new mark is considered to be the “legal equivalent” of the original mark. To be legal equivalents, trademarks must “create the same, continuing commercial impression,” such that an ordinary consumer would consider the old mark and the new mark as the same mark.

While tacking is generally available to allow a new mark to claim an earlier priority date, courts apply tacking in “exceptionally narrow circumstances.” As such, the tacking doctrine is an exceedingly narrow doctrine, such that even the use of a mark that contains portions of the earlier mark may not qualify for tacking. It is not the similarity of the old mark and the new mark when viewed in the abstract that determines whether the new mark is entitled to the priority date of the old mark; instead, it is the impression that the mark creates within the ordinary consumer that controls. For example, in One Industries, LLC v. Jim O’Neal Distributing, 578 F.3d 1154, 1161 (9th Cir. 2009), the Ninth Circuit compared a “Rounded O’” graphical mark, shown below on the left, with an “Angular O’” graphical mark, shown below on the right, to determine if the “Angular O’” could tack to the earlier priority date of the “Rounded O’”.

In comparing the two marks, the Ninth Circuit noted thinner top and bottom lines on one “O” versus the other, the visual differences between the two apostrophes, and that one “O” was boxy while the other “looks like the outline of a lemon.” These differences led the Ninth Circuit to refuse to allow tacking between the “Angular O’” and the “Rounded O’” marks. Similarly, the Federal Circuit refused to allow the word mark CLOTHES THAT WORK to obtain the priority date of the earlier word mark CLOTHES THAT WORK. FOR THE WORK YOU DO, even though the later mark was simply a shortened version of the earlier mark. Van Dyne-Crotty, Inc. v. Wear-Guard Corp., 926 F.2d 1156 (Fed. Cir. 1991). There, the Federal Circuit determined tacking as a matter of law, and the court concluded that the two marks were not legal equivalents because the two did not create the same commercial impression. However, the Federal Circuit decision shows the difficulty involved when determining tacking as a matter of law, because it is unclear how or why the two phrases would evoke differing commercial impressions when viewed by the ordinary consumer in the context that trademarks are generally viewed.

In Hana, Hana Financial, Inc. (HFI) sued Hana Bank for infringement of the HFI registered mark, a pyramid logo with the words HANA FINANCIAL, when Hana Bank used the mark HANA BANK. Hana Bank was established in 1971 in Korea, and the evolution of the allegedly infringing HANA BANK mark began when Hana Bank started using the name “Hana Bank” in Korea in 1991. Hana Bank did not begin providing financial services in the United States until May 1994, when it specifically targeted those services at Korean expatriates under the name “Hana Overseas Korean Club.” Hana Bank began using the name “Hana Bank” in advertisements in the United States in 1994, though the advertisements contained the name “Hana Overseas Korean Club” in both English and Korean and contained the name “Hana Bank” in only Korean. In 2000, Hana Bank then changed the name of its overseas club to “Hana World Center.” In 2002, Hana Bank began operating a bank in the United States using the name Hana Bank. HFI was established in June 1994 in California, and began using the name “Hana Financial” in commerce in 1995. HFI obtained a federal trademark registration for a pyramid logo with the words HANA FINANCIAL in 1996. HFI sued Hana Bank for trademark infringement in 2007, alleging infringement of the HANA FINANCIAL mark. As such, to prevail on its tacking claim, Hana Bank needed to establish a pre-1995 priority date for a mark that Hana Bank did not begin using until 2002. To establish that the two marks are “legal equivalents,” Hana Bank needed to prove that the later mark, HANA BANK, created the same, continuing commercial impression as the earlier mark, HANA OVERSEAS KOREAN CLUB, such that “consumers ‘consider both as the same mark.’”

After a jury trial in the district court, the jury found that Hana Bank’s use of HANA BANK was the legal equivalent of marks that it was using continuously since a time prior to HFI’s first use in 1995. As such, Hana Bank’s use of the HANA BANK mark was found to be non-infringing. It thus appears that the jury considered the use of “Hana” as the most relevant portion of the mark, and that Hana Bank’s continuous use of that term, which actually translates to “‘number one,’ ‘first,’ ‘top,’ or ‘unity,’” in Korean, created the same impression in consumers regardless of whether it was followed by “Overseas Korean Club” or “Bank.”

HFI put forth four arguments as to why the Court should find that a determination of tacking is a legal, and not a factual, determination. First, HFI argued that the tacking standard requires legal equivalency, which necessarily involves the application of a legal standard. While the Court acknowledged

“Application of a test that relies upon an ordinary consumer’s understanding of the impression that a mark conveys falls comfortably within the ken of a jury.”

that the tacking doctrine requires the application of a legal standard, the Court viewed the tacking test as a “mixed question of law and fact,” of the kind typically decided by juries.

Second, HFI argued that tacking determinations necessarily create new law, the creation of which is reserved for judges, not juries. In a related third argument, HFI argued that leaving tacking determinations to the jury will undermine the trademark system by removing predictability. The Court dismissed both of these arguments by analogizing trademarks to torts, contracts, criminal, and various other areas of the law where juries may reach differing decisions based on similar facts. Interestingly, the Court noted that tacking cases are rarely decided based upon similar legal precedent, and that precedent is usually relied upon only to define the relevant legal standard. Instead, the facts of each particular case, and the commercial impression created by the marks, are determinative. Thus, even if there is a previous case where two marks that seem similar in the abstract were found not to tack, that has no bearing on the relatedness of the marks at issue in any other case.

Two trademarks cannot be assessed in a vacuum when making a tacking determination

Finally, HFI argued that judges have historically resolved tacking issues. However, the precedent relied upon by HFI involved tacking disputes resolved by bench trials or on summary judgment, and was thus unpersuasive. The Court did state that though tacking is a question for the jury, judges do have the power to resolve tacking issues when the facts “warrant entry of summary judgment or judgment as a matter of law.” Therefore, a litigant that wishes to keep the tacking determination from the jury may still do so; however, such opportunities are limited.

Two trademarks cannot be assessed in a vacuum when making a tacking determination. No matter how similar the two marks look or sound, it is the overall commercial impression made upon the consumer that determines whether tacking applies. The Supreme Court’s decision in Hana Bank has placed any trademark tacking determination squarely in the hands of the jury, except in those instances where the issue is so clear that summary judgment or judgment as a matter of law is warranted. Hana Bank confirmed the majority interpretation of trademark tacking as a question for the jury. The Supreme Court also confirmed that each trademark tacking inquiry is highly fact-sensitive and regardless of the similarity or difference of the two marks when viewed in the abstract, whether tacking applies depends upon the commercial impression both marks have on an ordinary consumer.

B&B HARDWARE: TTAB PROCEEDINGS CAN CREATE ISSUE PRECLUSION

Posted on May 1, 2015 by Kinney & Lange, P.A.

■ Andrew W. Werner

On March 24, 2015 the U.S. Supreme Court decided in B&B Hardware, Inc. v. Hargis Industries, Inc., 575 U.S. ___ (2015); holding that when trademark usages adjudicated by the Trademark Trial and Appeal Board (“TTAB”) are materially the same as those before a district court, issue preclusion should apply so long as the other ordinary elements of issue preclusion are met.

B&B Hardware stems from a 1996 trademark registration by Hargis Industries, Inc. (“Hargis”) for the SEALTITE mark for “self-piercing and self-drilling metal screws for use in the manufacture of metal and post-frame buildings.” B&B Hardware, Inc. (“B&B”) filed an opposition at the TTAB in response to Hargis’s registration of SEALTITE, due to B&B’s 1993 registration of the mark SEALTIGHT for “threaded or unthreaded metal fasteners and other related hardwar[e]; namely, self-sealing nuts, bolts, screws, rivets and washers, all having a captive o-ring, for use in the aerospace industry.” In its opposition, B&B argued that the SEALTITE mark could not be registered

The TTAB determined there was a likelihood of confusion between the SEALTITE mark and the SEALTIGHT mark

because it is confusingly similar to B&B’s SEALTIGHT mark given both companies have an online presence, the largest distributor of fasteners sells both companies’ products, and consumers sometimes call the wrong company to place orders. Hargis contended that Hargis and B&B sell different products, for different uses, to different types of consumers, through different channels of trade. The TTAB determined that the SEALTITE mark could not be registered because it so resembled the SEALTIGHT mark as to be likely to cause confusion, after concluding that the most critical factors in a likelihood of confusion analysis were the similarities of the marks and the similarity of the goods.

In a concurrent suit for trademark infringement, B&B argued to the District Court that Hargis could not contest likelihood of confusion following the TTAB’s decision because of the preclusive effect of the TTAB decision. The District Court disagreed with B&B, reasoning that the TTAB is not an Article III court. The jury returned a verdict for Hargis, finding no likelihood of confusion. Upon appeal to the Eighth Circuit, the District Court’s decision was affirmed for three reasons: first, because the TTAB uses different factors than the Eighth Circuit to evaluate likelihood of confusion; second, because the TTAB placed too much emphasis on the appearance and sound of the two marks; and third, because Hargis bore the burden of persuasion before the TTAB, while B&B bore it before the District Court.

The three issues before the U.S. Supreme Court were:

(1) whether an agency decision can ever ground issue preclusion;
(2) whether there is an “evident” reason why Congress would not want TTAB decisions to receive preclusive effect, even in those cases in which the ordinary elements of issue preclusion are met; and
(3) whether there is a categorical reason why registration decisions can never meet the ordinary elements of issue preclusion.

Agency Decisions & Issue Preclusion
Relying on Astoria Federal Savings & Loan Association v. Solimino, 501 U. S. 104 (1991) and United States v. Utah Construction & Mining Co., 384 U. S. 394, 422 (1966), the Court reasoned that where a single issue is before a court and an administrative agency, preclusion often applies. Proclaiming the common law principle of issue preclusion as “well established”, the Court stated “in those situations in which Congress has authorized agencies to resolve disputes, ‘courts may take it as given 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.’” The Court then relied on previous holdings where courts have not hesitated to apply res judicata in situations “[w]hen an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate[.]”

Agency decisions can ground issue preclusion for future Article III determinations when the parties have had an adequate opportunity to litigate

In so reasoning, the Court determined that an agency decision, such as from the TTAB, can ground issue preclusion for future Article III determinations.

“Evident” Congressional Reason for TTAB Non-Preclusion
The Court pointed out that trademark registration is not a prerequisite to an infringement action but is rather a separate proceeding to decide separate rights. In the instance of where exhausting an administrative process is a prerequisite to a suit in court, giving preclusive effect to the agency’s determination in that very administrative process could render the judicial suit “strictly pro forma” and thus issue preclusion could not be grounded. This however was not the instance in this case. Additionally, the Court relied upon

“We conclude that nothing in the Lanham Act bars the application of issue preclusion in such cases. The Lanham Act’s text certainly does not forbid issue preclusion. Nor does the Act’s structure.”

ordinary preclusion law (citing Restatement (Second) of Judgments §28, Comment a and Illustration 1) to assert 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. The Court concluded that neither the Lanham Act’s test nor its structure rebuts the “presumption” in favor of giving preclusive effect to TTAB decisions where the ordinary elements of issue preclusion are met.

Categorical Preclusion of Registration Decisions
The Court asserted that it does not matter that the statutory provisions and the factors used to assess likelihood of confusion are different as between trademark registration and trademark infringement. The Court determined the Eighth Circuit had erred in holding that issue preclusion could not apply due to the TTAB relying too heavily on “appearance and sound.” The fact that the TTAB may have erred in placing too much emphasis on certain factors in this instance does not necessarily prevent preclusion in all instances.

Next, the Court reasoned that although the TTAB and the district courts often use different procedures, procedural differences by themselves do not defeat issue preclusion. Instead of focusing on whether procedural differences exist, the Court focused on whether the procedures

Procedural differences themselves do not defeat issue preclusion

used in the first proceeding were fundamentally poor, cursory, or unfair. The Court determined there was no categorical reason to doubt the quality, extensiveness, or fairness of the TTAB’s procedures in part because they are exactly the same as in federal court, given the TTAB has adopted almost all of Federal Rule of Civil Procedure 26. Additionally, the Court asserted the ordinary law of issue preclusion already accounts for those “rare” cases where a “compelling showing of unfairness” can be made. The Court then closed by stating that “Congress’ creation of this elaborate [trademark] registration scheme, with so many important rights attached and backed up by plenary review, confirms that registration decisions can be weighty enough to ground issue preclusion.”

Trends
With the holding in this case, it is interesting to compare the Court’s trademark usage centric analysis with Fresenius USA v. Baxter Int’l, No. 2012-1334 (Fed. Cir. July 2, 2013), which considered a similar issue with respect to patent invalidity in reexamination proceedings. In Fresenius, the Federal Circuit ruled that a USPTO decision of invalidity in reexamination prevails over a prior, Federal Circuit affirmed, jury decision of validity and infringement of the same claims in view of the same prior art. With the preclusive effect of TTAB decisions, the IP community has generally received yet another indication of incentivizing the use of administrative procedures to determine who wins and who loses.