Monday, January 03, 2011

7th Circuit Rules That Sovereign Immunity Shields State from TM Infringement Counterclaim in Action for Review of TTAB Decision

On December 28, 2010, in an 85-page opinion, the U.S. Court of Appeals for the Seventh Circuit reversed in part a federal district court's entry of summary judgment, in an appeal by way of civil action from the TTAB's cancellation of the University of Wisconsin's registration for the mark CONDOR for certain software. The appellate court held that summary judgment was improper on the issue of likelihood of confusion, but the panel majority ruled that the U.S District Court for the Western District of Wisconsin was correct in holding that the University, as a state agency, was immune to the counterclaims of Phoenix Software and did not waive its sovereign immunity by bringing the action for review of the Board's decision. Board of Regents of the University of Wisconsin System v. Phoenix International Software, Inc., Appeal No. 07-C-665 (7th Cir. December 28, 2010).

Likelihood of Confusion: The Board (here) had found likelihood of confusion due to the identity of the marks and the relatedness of the goods, despite the sophistication of the purchasers. The University brought a civil action under Section 1071(b) of the Trademark Act to challenge the TTAB's decision.

The choice to institute an action in the district court allows Wisconsin the benefit of expanding the record by offering new evidence to fend off Phoenix's cancellation claim. We have described the district court option as "both an appeal and a new action, which allows the parties to request additional relief and to submit new evidence." ***

"Although the district court’s review of the TTAB’s decision is considered de novo when the parties present new evidence and assert additional claims, the district court also must afford deference to the fact findings of the TTAB."

The district court had discarded the TTAB's findings but the appellate court reinstated them. Wisconsin offered new evidence, and "most significantly, argued that the sophistication of consumers cuts in the state's favor." Nothing in the state's evidence, however, rendered the findings of the TTAB immaterial. And so the appellate court reversed and remanded for a trial on the likelihood of confusion issue.

Sovereign Immunity: The majority first ruled that the Trademark Remedy Clarification Act, which purported to establish state liability for trademark violations, "is not materially different from the Patent Remedy Act found unconstitutional in Florida Prepaid Postsecondary Educ. Expense Bd. v. College Savings Bank, 527 U.S. 627, 647-48 (1999)." The majority concluded that the TRCA did not abrogate Wisconsin's sovereign immunity.

The court then addressed the issue of whether Wisconsin had waived its immunity by (1) "choosing to participate in the federally regulated trademark process," or (2) invoking the jurisdiction of the district court by bringing its action under Section 1071(b). The majority rejected both arguments, concluding that a state's securing of a registration was not "conditioned on a waiver of immunity," and that Wisconsin's civil action was a involuntary result of its being dragged into the litigation process by Phoenix's petition for cancellation.

The dissent (47 pages) contended that Wisconsin waived its sovereign immunity by its "litigation conduct."

Text Copyright John L. Welch 2010.


At 11:42 AM, Blogger Daniel Ballard, Esq. said...


So the parties now get to have a trial on whether the use of Wisconsin's mark is likely to cause confusion in light of Phoenix's mark. If it does, then the registration for Wisconsin's mark is canceled ... but Wisconsin can still continue to do business under the mark because Wisconsin is immune from infringement liability.

Phoenix has gone through a TTAB cancellation proceeding, a District Court proceeding through summary judgment, and an Appellate process and is now looking at a trial [with the prospect of another appeal]. And now the only upside is cancellation of Wisconsin's registration. Time to let this go?

At 12:56 PM, Blogger John L. Welch said...

Are there any Wisconsin taxpayers out there who are wondering whether this is a fight worth having?

At 1:13 PM, Anonymous Tal Benschar said...

Haven't read the opinion, but under Ex Parte Young, 209 U.S. 123 (1908), the plaintiff can still obtain injunctive relief notwithstanding sovereign immunity. So why can't Phoenix get an injunction (although it would be barred from monetary damages)?


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