by Dennis Crouch
Swagway v. ITC and Segway (Fed. Cir. 2019) (Swagway II Revised Opinion)
The Federal Circuit previously released its opinion in this appeal that I discussed in an essay titled Who Needs Proof of Actual Confusion? Not a TM Plaintiff, Patentlyo-O (May 9, 2019) (Swagway I). Now, the court has released a new opinion focusing on the preclusive impact of ITC orders.
Background: Although Swagway is clearly playing on the Segway brand to create some initial interest, Swagway argued that there was no proof of actual confusion despite years of both brands being on the market. In this case, however, the court found insufficient evidence of “long-term, concurrent use in the same channels of trade.” As such, proof of a likelihood of confusion was enough for an infringement verdict.
Consent Order vs Exclusion Order: At the ITC, Swagway had proposed a consent order that it “would not sell for importation, import, or sell after importation into the United States products sold under the SWAGWAY mark.” Rather than entering the consent order, however, the ITC entered an enforcement and cease-and-desist order prohibiting importation of “SWAGWAY-branded personal transporters …”
On appeal, Swagway wanted the consent order granted and the exclusion order removed. Although this was not expressly argued in the briefs, Swagway felt that the consent order (as a settlement) would not have the same preclusive impact the ongoing parallel district court litigation as would the exclusion order (as a judgment on the merits).
Swagway contended at oral argument that the difference between its proposed consent order and the orders issued by the Commission was the preclusive effect it believed would be afforded to the Commission’s final decision and its resulting orders.
Swagway I. In its original decision, the Federal Circuit found no basis bringing the appeal since ITC trademark decisions “do not have preclusive effect.”
Rehearing: Segway has now successfully petitioned for rehearing — arguing that the court had gone too far with the “no preclusion” statement. In particular, the Federal Circuit had cited decades old precedent for its no-preclusion holding while recent Supreme Court cases point in the other direction. In its brief, Segway explains:
In reaching this [no-preclusion] conclusion, the panel makes no mention of the Supreme Court decision that a trademark adjudication by an administrative agency should be given preclusive effect. B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015). Nor does the panel mention the fact that the First, Second, and Fourth Circuits have all reached the opposite conclusion: that the Commission’s decisions in Section 337 cases regarding non-patent rights do have preclusive effect. . . .
These precedents show that while there is evidence that Congress did not intend decisions of the Commission on patent issues to have preclusive effect, there is no such evidence regarding the Commission’s decisions on non-patent cases. These precedents also show that there is a strong policy in favor of giving preclusive effect to administrative adjudications unless there is clear Congressional intent to the contrary. The panel did not “see” those reasons because it did not have the benefit of any briefing on the issue, which was not raised by Swagway until oral argument.
Based upon this briefing, the panel has withdrawn its original opinion and issued a new one. The new opinion has the same result, but removes the declaration that the ITC order would have no preclusive effect.
In particular, the court found that the error alleged in Swagway’s appeal was that the ITC denied the consent order motion using the wrong paper — in the Final Initial Determination [ID] rather than in an Order. Since on remand the ITC could simply reissue the denial in an “Order” — the court found no actual harm.
Biggest bottom line: Non-patent ITC orders are likely to begin having preclusive effect in parallel district court litigation. This improves the attractiveness of the ITC for enforing trademarks, copyrights, and trade secrets against companies importing products into the US. The result then – get a quick win on the merits at the ITC and obtain an exclusion order; then take decision to the district court to collect damages.