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In determining whether the use of two registered trademarks would be likely to create an assumption in the minds of consumers that the products came from the same source, a district court erred in limiting its analysis to the descriptions of the goods as found in the respective trademark registrations, the U.S. Court of Appeals for the Seventh Circuit ruled Dec. 28 (Board of Regents of the University of Wisconsin System v. Phoenix Software International Inc., 7th Cir., No. 08-4164, 12/28/10).
Reversing summary judgment in favor of the board that oversees Wisconsin's state university system, the court, however, let stand a ruling that the state's opponent in the case could not bring claims under federal trademark law because of the state's sovereign immunity under the 11th Amendment to the U.S. Constitution.
A lengthy dissent on the sovereign immunity issue argued, however, that when a state chooses voluntarily to initiate a federal court action to challenge an agency decision, it should not be able to assert sovereign immunity to block counterclaims that arise from the same facts. The dissent questioned the fairness of allowing an arm of the state government to seek to enforce rights created by federal law in federal court while blocking its opponent from seeking to enforce its rights under the same law.
Phoenix Software International Inc. is a software development company based in Los Angeles. Since 1978, it has used the term “Condor” for a line of its software products. In 1997, Phoenix obtained registration of the term “Condor” with the Patent and Trademark Office for “computer software for on-line programming development, library management and system utilities functioning on mainframe systems.”
In 2001, the Board of Regents of the University of Wisconsin System, the body that governs Wisconsin's state universities, obtained registration of the term “Condor” for “computer network operating system software, downloadable from a global computer network, that delivers large amounts of computational power by utilizing idle computing resources in a network of individual computer workstations.”
Pursuant to 15 U.S.C. §1064, Phoenix petitioned the Trademark Trial and Appeal Board for cancellation of the regents' registration, arguing that under 15 U.S.C. §1052(d), the university's use created a likelihood of confusion with its registered mark. The board found that the marks were identical and that there was a likelihood of confusion. It therefore cancelled the regents' registration.
The regents then initiated the instant proceeding, pursuant to 15 U.S.C. §1071(b), seeking to overturn the board's cancellation of its registration. Phoenix counterclaimed, alleging trademark infringement and false designation of origin under federal trademark law.
Judge Barbara B. Crabb of the U.S. District Court for the Western District of Wisconsin granted the regents' motion for summary judgment and dismissed Phoenix's counterclaims on the basis of sovereign immunity. The district court found that the TTAB had erred in basing its findings on the “actual nature of the parties' goods” rather than on the descriptions found in the trademark registrations. The court also found error in the board's placement on the regents the burden of showing that the parties' products were distinct when looking into the question of the manner of use of the products.
Noting that under the Administrative Procedure Act, the court owed deference to the TTAB's findings on matters of fact that were before it, Judge John Daniel Tinder commented that “we must say at the outset that the state of the facts presents a real obstacle to summary judgment in Wisconsin's favor,” given that Phoenix had prevailed before the board and that on the regents' summary judgment motion any questions of fact should be read in Phoenix's favor.
Specifically, the regents bore the burden of showing that the TTAB's findings had not been supported by substantial evidence or that the board had committed an error of law. According to the court, the regents “must show that there is a killer set of facts, that [they] neglected to bring to the TTAB's attention, that resolves the case in its favor even if we credit all the facts the TTAB found during its proceedings. To win on summary judgment, [the regents] must show that the TTAB was not merely wrong, but wrong as a matter of law, and that the evidence was not only not substantial enough to support its decision but that the evidence compelled, without a new hearing by a fact-finder, the conclusion opposite to the TTAB's determination.”
The relevant findings of the board included that there was sufficient evidence to establish that the Phoenix Condor software and the university system's Condor software “perform[ed] the same general functions” and that they were not “used in distinctly different fields.”
The findings of the district court, however, were somewhat different, namely that Phoenix's software could only run on a mainframe system of networked terminals, although it could be emulated on non-mainframe stations. This was contrasted with the finding that the regents' software was not used on mainframe systems.
The appeals court emphasized that the key question was not whether the two products actually were capable of performing the same functions, but rather whether consumers were likely to assume, as a function of the use of the “Condor” marks by both parties, that the products came from the same source. The court then examined the district court's application of a seven-factor test for likelihood of confusion as set forth in AutoZone Inc. v. Strick, 543 F.3d 923, 88 USPQ2d 1225 (7th Cir. 2008) (76 PTCJ 704, 9/19/08). The court said:
It appears that the district court mistakenly assumed that the similarity of the products' functions was the dispositive issue in the case; this misapprehension was magnified by the district court's error in confining its examination to the registration of the parties' products. Instead of a focus on the description of the goods in the trademark registry, the proper analytical framework, according to our cases, is “whether the parties' products are the kind the public might very well attribute to a single source.”
Thus, the court said, focusing on the descriptions of the products in the registrations constituted a “red herring,” and was “too formalistic.” Indeed, “the products don't even have to perform similar functions, much less be described identically, for a likelihood of confusion to exist,” the court emphasized.
Having rejected the district court's analysis, the court focused on the question of whether there was a likelihood of confusion given that Phoenix's software was primarily for mainframe systems; whereas, the regents' software was for individual computers attached to a network. The court reinstated the TTAB's findings that the two programs performed similar functions and that consumers would be likely to assume that they came from the same source.
Regarding the confusion factor addressing the sophistication of the relevant market of potential purchasers, the court criticized the district court's focus on the question of whether a consumer would likely purchase the wrong product. Again, the relevant question was whether the buyers would assume that the two products came from the same source, the very finding established by the TTAB. For example, the court referred to testimony by Phoenix's principal himself that upon seeing references to the regents' Condor software, he assumed that they were using his own product.
Given that, the court found sufficient evidence to create a genuine outstanding question of material fact to avoid summary judgment on the question of likelihood of confusion.
The court thus reversed the award of summary judgment and remanded the matter for trial on the question of likelihood of confusion.
Turning to Phoenix's counterclaims against the regents, the court agreed with the district court that the Trademark Remedy Clarification Act of 1992, which made state governments liable for trademark violations, was an analogue to the Patent and Plant Variety Protection Remedy Clarification Act of 1992, which had been found unconstitutional in Florida Prepaid Postsecondary Educational Expense Board v. College Savings Bank, 527 U.S. 627, 51 USPQ2d 1081 (1999) (58 PTCJ 226, 6/24/99). Thus, the court said, the regents, as an arm of the state government, could be liable under the federal trademark statute only if they had waived sovereign immunity.
The court rejected that the regents had constructively waived immunity by taking advantage of the federal law by registering a trademark, citing the companion case to Florida Prepaid, College Savings Bank v. Florida Prepaid Postsecondary Educational Expense Board, 527 U.S. 666, 51 USPQ2d 1065 (1999). The court said:
College Savings Bank rejected the entire notion of a constructive waiver of sovereign immunity … and limited the inquiry of waiver to whether “the State made an altogether voluntary decision to waive its immunity” …. A law that merely alerts the state to the federal government's intention to abrogate the state's immunity is insufficient to create a waiver if the state is engaging in otherwise lawful activity. … The state's choice to register its mark was otherwise lawful activity ….
After College Savings Bank, the doctrine of constructive waiver is no longer available.
The court also rejected the argument that the regents' initiation of the district court action following the TTAB's ruling constituted a waiver of the state's immunity. The court distinguished the instant facts from those in Lapides v. Board of Regents of the University System of Georgia, 535 U.S. 613 (2002), in which the state had faced state law claims in state court, which state law had waived immunity for, but then had the proceedings removed to federal court, where it asserted immunity. In this case, the regents did not initiate the federal court proceeding simply as part of an unfair attempt to avoid liability, the court said, but rather to pursue review of an adverse decision by a federal agency.
Thus, the court affirmed the dismissal of Phoenix's counterclaims.
Judge Joel M. Flaum joined the court's opinion.
In partial dissent, Judge Diane P. Wood disagreed with the court's ruling on the question of sovereign immunity. The dissent argued that the regents made a significant choice in choosing to initiate a claim before a district court rather than appealing the TTAB's decision directly to the U.S. Court of Appeals for the Federal Circuit. If it had pursued the latter route, then the regents would have been limited to the record created before the TTAB and would not have been able to introduce additional evidence.
In so choosing, the dissent said, the state had “effectively waived its sovereign immunity for all matters that might arise in that particular case, including counterclaims that arise out of the same transaction or occurrence.”
The dissent pointed to Lapides for the principal that a state could waive its sovereign immunity through conduct in litigation and interpreted Lapides more broadly than the majority had. Applying it to a wider variety of situations in which a state might voluntarily invoke federal jurisdiction, the dissent said:
I have no quarrel with my colleagues' view that a state waives its immunity only when it exhibits a voluntary change in behavior that demonstrates that it is no longer defending the lawsuit and is instead taking advantage of the federal forum. … The waiver-by-litigation analysis should not turn on whether the state is a defendant, as in Lapides, an intervening claimant …, a plaintiff, as [the regents are] here, or even an appellant in this court …. Instead, the crucial considerations are the voluntariness of the state's choice of forum and the functional consequences of that choice.
In this case, the regents' “decision to challenge the TTAB's unfavorable decision by initiating a suit in federal court is precisely the affirmative choice to move to federal district court that my colleagues say Lapides requires.”
The Board of Regents was represented by Anthony A. Tomaselli of Quarles & Brady, Madison, Wis. Phoenix was represented by James P. McCann of Doerner, Saunders, Daniel & Anderson, Tulsa, Okla.
Opinion at http://pub.bna.com/ptcj/084164Dec28.pdf
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