B & B Hardware, Inc. v. Hargis Industries, Inc.

• Decision Date: 22 June 2009
• Docket Number: No. 07-3866.,07-3866.
• Citation: 569 F.3d 383
• Parties: B & B HARDWARE, INC., a California Corporation, Appellant, v. HARGIS INDUSTRIES, INC., a Texas Corporation, d/b/a Sealtite Building Fasteners, d/b/a East Texas Fasteners; East Texas Fasteners, a business entity of form unknown; John Does 1 through 10, inclusive, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

569 F.3d 383

B & B HARDWARE, INC., a California Corporation, Appellant, v. HARGIS INDUSTRIES, INC., a Texas Corporation, d/b/a Sealtite Building Fasteners, d/b/a East Texas Fasteners; East Texas Fasteners, a business entity of form unknown; John Does 1 through 10, inclusive, Appellees.

No. 07-3866.

United States Court of Appeals, Eighth Circuit.

Submitted: September 25, 2008.

Filed: June 22, 2009.

Kathryn Bennett, Perkins, argued, Little Rock, AR, Brook A. Brewer, on the brief, for appellant.

Herbert A. Yarbrough, III, argued, Tyler, TX, H. William Allen and Kevin M. Lemley, Little Rock, AR, and Trey Yarbrough, Tyler, TX, on the brief, for appellee.

Before BYE, BEAM, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

B & B Hardware ("B & B") appeals the district court's dismissal, on collateral estoppel grounds, of its trademark infringement action filed against Hargis Industries ("Hargis"). For the reasons explained herein, we reverse the dismissal and remand this matter to the district court for further consideration.

I.

In 1990, B & B began manufacturing and selling a fastener product under the name "Sealtight." This product is largely used in the aerospace industry. Pursuant to a 1990 application, B & B received a certificate of registration for the "Sealtight" mark from the Patent and Trademark Office (PTO) on October 12, 1993. In 1992, Hargis began manufacturing and selling, under the "Sealtite" mark, a line of self-drilling and self-taping screws that are used primarily in the metal building industry.

In July 1996, Hargis filed an application with the PTO to register its "Sealtite" mark, but the PTO refused to grant the registration, citing the likelihood of confusion with B & B's "Sealtight" mark. In March 1997, Hargis sought before the PTO's Trademark Trial and Appeal Board (TTAB) to cancel the registration of B & B's mark. The TTAB initially granted the cancellation request, but later reinstated B & B's registration and stayed the TTAB proceedings pending the outcome of a federal trademark infringement action filed by B & B against Hargis in June 1998 in the United States District Court for the Eastern District of Arkansas. After a four day trial held in May 2000, a jury returned a verdict in favor of Hargis, determining that B & B's "Sealtight" mark was merely descriptive and had not acquired a secondary meaning. A panel of this court affirmed that decision on appeal. B & B Hardware, Inc. v. Hargis Indus., Inc., 252 F.3d 1010 (8th Cir.2001).

Following the affirmance, Hargis requested that the TTAB resume proceedings regarding Hargis's request for cancellation of B & B's mark. The TTAB permitted Hargis to amend its petition to include as a ground, in accordance with the jury's determination, that B & B's mark was merely descriptive and had not acquired a secondary meaning. In July 2002, the TTAB granted Hargis's motion for summary judgment and canceled the registration of B & B's "Sealtight" mark. The TTAB subsequently reversed itself and held that the motion to amend the petition was untimely, set aside its grant of summary judgment, and dismissed the cancellation proceeding.

In February 2003, B & B filed an opposition to the Hargis's application to register its "Sealtite" mark. In reply, Hargis argued that the prior federal action, which determined that there was no trademark infringement, should be given preclusive effect by the TTAB. In August 2004, the TTAB rejected this argument, holding that the jury in the federal trademark action had not made any findings concerning the likelihood of confusion. The TTAB also held that Hargis was barred in its attempt to cancel B & B's mark on the basis that B & B's mark was merely descriptive because B & B's mark had been registered for more than five years.

In June 2006, B & B filed an affidavit of incontestability with the TTAB regarding B & B's "Sealtight" mark on the grounds that the mark had been on file for five years without challenge. On September 21, 2006, the PTO issued a Notice of Acknowledgement, recognizing that B & B's "Sealtight" mark had become incontestable. Meanwhile, in August 2006, B & B filed the present action against Hargis, alleging trademark infringement, unfair competition, trademark dilution, and false designation of origin.¹ Hargis sought an order of dismissal on grounds of res judicata and collateral estoppel based upon the 2000 jury verdict. Following a hearing, the district court granted Hargis's motion to dismiss on the basis of collateral estoppel.

In granting the motion to dismiss, the district court recognized B & B's mark had become incontestable and that this status protected the mark from an attack that it is merely descriptive and without secondary meaning. The district court further recognized that incontestability of a mark addresses one of two elements of a trademark infringement action.² The court rejected, however, B & B's argument that receipt of incontestability status after initially losing a trademark infringement action, without more, should prevent the application of collateral estoppel. The district court explained, "B & B cites no authority for the proposition that incontestability makes any difference where a prior judgment otherwise bars a subsequent infringement action." In reaching this outcome, the district court relied upon the Fifth Circuit's decision in Test Masters Educational Services, Inc. v. Singh, 428 F.3d 559 (5th Cir.2005) (Test Masters), holding that, "[t]he only recognized exception to issue preclusion for trademark infringement is a material change in the trademark's strength over an extended period of time" and that "mere passage of time as a factor [does not] permit[ ] relitigation of a previously failed claim." The district court held B & B's claims were barred by collateral estoppel, reasoning that "B & B's reliance on the incontestability of its mark as a basis for denying the application of preclusion lacks persuasive authority." The district court concluded that the 2000 jury verdict, which held for Hargis on B & B's prior trademark infringement claim, was entitled to preclusive effect and that application of collateral estoppel was appropriate. The district court granted Hargis's motion to dismiss the complaint.

At the time of the dismissal order, the district court was unaware that the TTAB had sustained B & B's opposition to Hargis's request to register its "Sealtite" mark because of the likelihood of confusion with B & B's "Sealtight" mark. B & B sought reconsideration of the district court's dismissal order and attached the TTAB ruling to its motion to reconsider. In denying the motion to reconsider, the district court held "the decision of the TTAB is not entitled to preclusive effect . . . and does not create an exception to permit relitigation of trademark infringement." Further, the district court noted that the TTAB decision "was not submitted until after entry of judgment when it could have been brought to the Court's attention before the motion to dismiss was granted."

On appeal, B & B argues the district court erred in granting the motion to dismiss on collateral estoppel grounds. B & B also contends the district court should have given deference to the decisions of the TTAB that (1) B & B's "Sealtight" registration could not be attacked on grounds of descriptiveness because Hargis's challenge was not timely made and (2) the prior district court decision did not address the issue of likelihood of confusion.

II.

"This court reviews de novo the grant of a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6)." Levy v. Ohl, 477 F.3d 988, 991 (8th Cir.2007). In conducting this review, we "assume[ ] as true all factual allegations of the complaint." Id. To survive dismissal, the complaint must allege "only enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). We also review the applicability of collateral estoppel, a question of law, de novo. Morse v. Comm'r, 419 F.3d 829, 833 (8th Cir.2005).

The district court determined that B & B's trademark infringement claim was barred by the doctrine of collateral estoppel or issue preclusion.

In the Eighth Circuit, issue preclusion has five elements: "(1) the party sought to be precluded in the second suit must have been a party, or in privity with a party, to the original lawsuit; (2) the issue sought to be precluded must be the same as the issue involved in the prior action; (3) the issue sought to be precluded must have been actually litigated in the prior action; (4) the issue sought to be precluded must have been determined by a valid and final judgment; and (5) the determination in the prior action must have been essential to the prior judgment."

Robinette v. Jones, 476 F.3d 585, 589 (8th Cir.2007) (quoting Anderson v. Genuine Parts Co., 128 F.3d 1267, 1273 (8th Cir. 1997)).

According to B & B, the current action should not be barred by application of the doctrine of collateral estoppel. B & B contends the jury in the prior action did not reach the question of likelihood of confusion because it held instead that B & B's "Sealtight" mark was merely descriptive and had not acquired a secondary meaning. B & B argues, therefore, that the issues raised in this action are not the same as those involved in the prior action; that the question of likelihood of confusion was not actually determined in the prior action; that no valid and final judgment has been entered on the question of likelihood of confusion; and that a decision on the question of likelihood of confusion was not necessary to the prior judgment.

In granting the motion to dismiss on collateral estoppel grounds, the district court found the reasoning of the Fifth Circuit in Test Masters to be "compelling and controlling." In Test Masters, after the Fifth Circuit reversed the district court's...