Trademark Owner's Fate Sealed Tight After Finding of Fraud on PTO
Addressing the issue of collateral estoppel, the US Court of Appeals for the Eighth Circuit upheld a ruling dismissing a trademark owner’s second infringement lawsuit against the same defendant after a finding that the trademark at issue was no longer incontestable because of fraud on the US Patent and Trademark Office (PTO). B&B Hardware, Inc. v. Hargis Indus., Inc., Case Nos. 17-1570, -1755 (8th Cir. 2018) (Shepard, J).
B&B Hardware and Hargis Industries manufacture and sell fasteners for the aerospace industry and the construction trade, respectively. In 1993, B&B registered the mark SEALTIGHT for its fasteners. Hargis subsequently applied to register SEALTITE, beginning an almost 20-year dispute between the companies.
B&B filed its first trademark infringement suit against Hargis in 2000. The jury in that case found that the SEALTIGHT mark lacked secondary meaning and therefore was not protectable. The Eighth Circuit affirmed. In 2006, B&B filed a declaration of incontestability for the SEALTIGHT mark. In the declaration, B&B averred that there was no final decision adverse to B&B’s right to own or register the SEALTIGHT mark, and never disclosed the 2000 jury verdict. The PTO accepted the declaration, resulting in a presumption that the SEALTIGHT registration was valid and the mark had secondary meaning.
B&B filed another trademark infringement action against Hargis shortly thereafter. The district court dismissed this action based on collateral estoppel (issue preclusion). The Eighth Circuit reversed and remanded, holding that the incontestable status of the SEALTIGHT mark was a “significant factual change” preventing application of the doctrine of collateral estoppel. After losing another trial and appeal, B&B filed an appeal to the Supreme Court of the United States, resulting in an eventual remand to the district court.
On remand, a jury found that Hargis had committed trademark infringement but awarded B&B no damages. The jury also found that the incontestability status of the SEALTIGHT mark had been obtained by fraud based on the failure to disclose the 2000 jury verdict. Based on the fraud verdict, the district court ruled that B&B committed fraud on the PTO, and that the SEALTIGHT mark was no longer entitled to incontestable status. As a result, the district court dismissed the case, concluding that B&B’s claims were barred by collateral estoppel. B&B appealed.
B&B challenged the jury’s fraud verdict on two grounds. First, B&B argued that the 2000 jury verdict was not a final adverse decision. However, the Eighth Circuit noted that during a 2007 proceeding denying registration of Hargis’ SEALTITE mark, the TTAB clearly stated that the 2000 jury verdict was an adverse decision. B&B further argued that it was not aware that the 2000 jury verdict was an adverse decision, and that no fraud occurred because it relied on advice of counsel when it decided not to disclose the 2000 jury verdict. B&B’s owner testified as to the reliance on advice of counsel, and the jury was free to determine his credibility. The Eighth Circuit found no error in the district court’s findings that B&B acted willfully in failing to disclose the 2000 jury verdict and that B&B committed fraud on the PTO.
The Eighth Circuit then addressed the district court’s application of collateral estoppel to the issue of secondary meaning. At the outset, the Court noted that it was the incontestability status of the SEALTIGHT mark that allowed B&B to maintain the second action against Hargis and avoid the preclusive effect of the 2000 jury verdict. B&B alleged no other significant factual changes since the 2000 action. Without incontestable status, B&B returned to the position it was in at the 2000 jury trial—having to prove secondary meaning for the SEALTIGHT mark. However, B&B and Hargis had already litigated the issue of secondary meaning, an essential element in the case, and the 2000 jury verdict was a valid and final judgment. Having satisfied all of the elements of collateral estoppel, the Eighth Circuit affirmed the district court’s application of the doctrine and the dismissal of B&B’s claims.