Trademark Decisions at the ITC May Have Preclusive Effect at the District Court

Picture of Segway

On May 18, 2016, Segway filed a Complaint with the International Trade Commission (ITC) alleging violations of 19 U.S.C. § 1337 based on the infringement of six patents and two trademarks. On March 21, 2017, Swagway, one of the Respondents, moved for partial termination of the investigation regarding the trademark infringement allegations by asking for a consent order stipulation to be entered where Swagway stipulated that it would not sell or import SWAGWAY-branded personal transporter products as well as all components thereof, packaging and manuals therefor.

Before the Administrative Law Judge (“ALJ”) ruled on Swagway’s motion for consent order, the ALJ issued a Final Initial Determination (“ID”) finding that Swagway’s use of the SWAGWAY designation infringed Segway’s trademarks. This ID did not comment on Swagway’s motion for partial termination based on its consent order stipulation but merely stated in a footnote that “[a]ny pending motion that has not been adjudicated is denied, unless otherwise noted.”

As a result, Swagway filed a petition for review but the Commission determined not to review the ALJ’s denial of the consent order motion and agreed with the ALJ’s trademark infringement determination. Swagway then appealed the Commission’s decision of trademark infringement and the Commission’s failure to enter the proposed consent order to the Federal Circuit.

In its May 9, 2019 opinion, the Federal Circuit affirmed the Commission’s finding for a likelihood of confusion. Additionally, it found that the Commission’s determination which entered enforcement and cease-and-desist orders prohibiting importation and sale of SWAGWAY-branded personal transporters, components thereof, and packaging and manuals thereof, was practically no different from Swagway’s proposed consent order. In both cases, the SWAGWAY-branded personal transporters could not be imported into or sold within the United States, so the consent order is moot.

At oral argument though, Swagway articulated that its concern regarding the Commission’s orders is its potential preclusive effect. Swagway is currently in a pending district court litigation in the District of Delaware where Segway is accusing Swagway of infringing the same trademarks as in the ITC investigation. Swagway asserts that a termination of the investigation based on a consent order would have no impact on this pending litigation, but a decision on the merits against Swagway might have an adverse preclusive effect. In addressing this concern, the Federal Circuit noted that its prior decisions stated that “Congress did not intend decisions of the ITC on patent issues to have preclusive effect” and therefore since there is no reason to differentiate between the effect of the Commission’s patent decisions and trademark decisions, the Federal Circuit held that the Commission’s trademark decisions also have no preclusive effect.

On June 10, 2019, though, the Complainants in the ITC investigation intervened in the appeal to file a petition for rehearing or rehearing en banc and provided various reasons to differentiate the effect of the Commission’s patent decisions with its trademark decisions. They noted that the Supreme Court’s decision in B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015), stated that a trademark adjudication by an administrative agency should be given preclusive effect. Additionally, the Complainants pointed out that the First, Second, and Fourth Circuits have all concluded that the Commission’s non-patent decisions in § 337 cases do have preclusive effect. Finally, the Complainants noted that there is no evidence to show that Congress did not intend the Commission’s non-patent decisions to have preclusive effect and there is a strong policy towards giving preclusive effect to administrative adjudications unless there is clear Congressional intent to the contrary.

After review of this petition, the Federal Circuit withdrew its May opinion and its modified August 14, 2019 opinion now no longer has any determination regarding the preclusive effect of the Commission’s non-patent decisions. While the Federal Circuit did not explicitly conclude that the Commission’s trademark decisions would have preclusive effect on district courts, its withdrawal of its earlier opinion stating that these decisions have no preclusive effect is persuasive. Therefore, those who are litigating at the ITC on non-patent issues should be cognizant of the potential effect of an ITC decision at the district court and plan their strategy accordingly.

For more information on this topic, contact your Intellectual Property counsel at Smith, Gambrell & Russell, LLP.