September 20, 2019

Federal Circuit Court of Appeals Leaves Open the Question of Whether ITC Determinations of Trademark Issues Have Preclusive Effect

On August 14, 2019, the U.S. Court of Appeals for the Federal Circuit issued a revised opinion in Swagway, LLC v. ITC, Case No. 18-1672 (Fed. Cir. Aug. 14, 2019) that left open the possibility that decisions by the International Trade Commission (the “ITC”) could have preclusive effect in federal district court cases involving trademarks.

By way of background, “issue preclusion” is a legal doctrine that prevents a party from relitigating an issue resolved by another tribunal. In order for one court’s decision to preclude a party from relitigating that issue in another case, certain circumstances must be present. Generally, the identical issue must have been involved in the prior litigation, the issue must actually have been litigated with a full and fair opportunity to litigate the issue, and the issue must have been decided as part of the court’s final judgment.

By way of further background, the ITC is a federal administrative body that, among other things, investigates and adjudicates intellectual property claims involving imported goods. Although the ITC does not award damages, intellectual property owners sometimes bring their intellectual property claims to this forum because the proceedings are swift and may result in the exclusion of infringing goods from entry into the country.

The Swagway case began when Segway filed a complaint with the ITC alleging (among other things) that Swagway’s use of SWAGWAY and SWAGTRON violated Segway’s rights in two federally registered marks for SEGWAY (in stylized and standard character forms). Segway asked the ITC to exclude Swagway’s goods and prevent them from entering the United States. Shortly before the hearing in the matter, Swagway moved for partial termination of the proceedings on the basis of a consent order stipulation in which Swagway voluntarily agreed not to sell or import goods under the SWAGWAY mark. Segway opposed the motion because it would allow Swagway to relitigate the trademark issue in the future. The administrative law judge (the “ALJ”) found that the use of SWAGWAY did infringe Segway’s trademark rights (though the use of SWAGTRON did not), and denied Swagway’s motion for a consent order. The Commission reviewed one of the ALJ’s factual findings, but ultimately agreed with the ALJ on likelihood of confusion as well as infringement conclusions (and did not review the ALJ’s denial of Swagway’s motion).

Swagway appealed the denial of its motion as well as the finding that SWAGWAY infringed the SEGWAY marks to the U.S. Court of Appeals for the Federal Circuit. With respect to the former issue, Swagway argued that an important difference between its proposed consent order and the Commission’s order was that the latter would be entitled to preclusive effect.

On May 9, 2019, the court issued an opinion affirming the determination of infringement. The court declined to reach Swagway’s arguments about its consent order motion, concluding that the Commission’s findings of trademark infringement or validity are not entitled to preclusive effect in federal district courts. The court explained that it had previously determined that Congress did not intend ITC decisions to have preclusive effect in patent cases and it saw no reason to treat trademark cases differently.

Segway petitioned for rehearing, arguing that the court’s decision conflicts with decisions in three other circuits as well as the conclusion by the U.S. Supreme Court in B & B Hardware that administrative agency decisions in trademark cases should have preclusive effect in district court cases (so long as the usages adjudicated are the same and other ordinary elements of issue preclusion are met). Moreover, Segway argued that the court did not have jurisdiction to decide whether the decision should be given preclusive effect because the parties had not yet litigated the issue (which would likely be litigated if and when the district court proceedings that had been stayed pending resolution of the appeal were resumed).

In its response to the petition, the ITC agreed with Segway that the court should not have determined whether the Commission’s decision would be given preclusive effect before the district court. Thus, the ITC urged the court to vacate the portion of its opinion finding that the Commission’s decision would have no preclusive effect and then simply reject Swagway’s procedural arguments and affirm the Commission’s determination.

Swagway responded by arguing instead that the court was correct in finding that Commission’s determination would have no preclusive effect (although this would seem to contradict some of the arguments Swagway originally made on appeal) and asked the court to decide its motion for consent order if the court were to vacate the portion of its earlier order finding the Commission’s determination would have no preclusive effect.

On August 14, 2019, the court granted the request for panel rehearing in part and issued its revised opinion. The opinion vacated the portion of the May 9 opinion that had found Commission’s determinations have no preclusive effect. Instead, it affirmed the denial of Swagway’s consent order motion on procedural grounds. It remained silent on the issue of whether the Commission’s decisions would have preclusive effect. This suggests that it ultimately agreed that it should not have reached the question of preclusive effect in the first instance.

Thus, the decision does not conclusively resolve the question as to whether ITC determinations in trademark cases have preclusive effect. Rather, the issue will continue to be litigated (perhaps very soon, in Delaware). In any event, the possibility that ITC trademark decisions could have preclusive effect in district court cases increases the moment and consequence of the decisions of this administrative agency much in the same way the U.S. Supreme Court’s decision in B & B Hardware raised the stakes for cases heard by the Trademark Trial and Appeal Board. Litigants before these tribunals must consider the potential ramifications of a decision on future litigation in district court.