Not with a bang but with a fastener

B&B Hardware, Inc. v. Hargis Indus., Inc., — F. Supp. 3d
—-, 2017 WL 957548 (E.D. Ark. Feb. 16, 2016)
I mentioned this development a while back, but it’s now
getting into the federal reporter, which is good so that people don’t
misunderstand what ultimately happened. 
As for background, “[s]uffice it to say that the twenty-plus year
dispute ended in another jury verdict and judgment for defendant Hargis
Industries,” and the court here rejected B&B’s various arguments for
extending the agony.
A jury found for B&B and against Hargis on B&B’s
claims for federal trademark infringement, false designation of origin, and
unfair competition. The jury found for Hargis on B&B’s claim of unfair
competition under California law, and for Hargis on its counterclaims for false
advertising and false designation. The jury also found that Hargis’s
infringement was not willful, and that B&B engaged in fraud on the PTO to
obtain incontestability status. The court then granted judgment for Hargis
given the fraud finding.
For the fraud on the PTO claim, the jury was required to
find (1) a material misrepresentation or the failure to disclose material
information (2) made with the intent to deceive.  The court explained:
Hargis’s position at trial was that
Larry Bogatz, B&B’s president, misled the PTO – and thus committed fraud –
by signing a declaration in support of his incontestability petition. That
declaration required Bogatz to declare that B&B had not received a final
decision on the merits adverse to its claim of ownership of the trademark that
affected its right to register that mark. Of course, B&B cannot reasonably
dispute that Bogatz’s declaration was false: the 2000 jury verdict found
B&B’s mark to be merely descriptive and devoid of secondary meaning which,
under the law, means the mark could not be registered.
B&B argued that the TTAB knew about the 2000 verdict and
thus couldn’t have been misled by Bogatz’s statement, and that Bogatz had no
intent to deceive because he was acting on counsel’s advice. True, the TTAB
referred to the 2000 verdict in its correspondence, but that’s a different
office, and the PTO doesn’t engage in substantive examination of an incontestability
affidavit.  There was no reason to think
that the PTO considered the 2000 verdict and still awarded
incontestability.  (Implicitly, since it’s
the courts that are supposed to engage in substantive review, it’s the court of
appeals that screwed this one up when it held that B&B’s incontestability
meant it was no longer bound by the 2000 verdict by failing to determine
whether B&B had actually
qualified for incontestability, rather than simply filing an affidavit correct
in form.)
As for reliance on counsel, the jury was free to reject
Bogatz’s testimony about his intent and reliance on counsel, especially given
that the jury was permitted to draw a reasonable inference of intent “considering
the timing of the declaration occurring mere weeks before filing a new lawsuit,
the witnesses’ testimony about their interactions in the past, and Bogatz’s
admitted knowledge of the 2000 jury’s findings.”
B&B also argued that the jury’s verdict was inconsistent
in finding for B&B on the trademark infringement and false designation of
origin claim, and against B&B on the unfair competition claim under
California law. But the verdict wasn’t inconsistent given the extra element of
damage to B&B under California law. Relatedly, the jury’s finding that none
of Hargis’s profits were attributable to Hargis’s infringement was fine.  Under the instructions, the jury’s starting
point was Hargis’s total profit; then, the jury could deduct all or a part of
profit “attributable to factors other than use of the trademark.” “ Hargis
presented testimony from several of its customers to explain that the
customers’ motivation for purchasing Hargis products was not connected with the
Sealtite name – thus, not connected with the allegedly infringing trademark –
but rather other characteristics such as customer service experience and
quality of product.”
B&B then argued that collateral estoppel didn’t bar the
action, as the court ruled after the jury’s fraud on the PTO finding.  In 2000, a jury found that B&B’s mark was
descriptive without secondary meaning, and there was no need to proceed to a
confusion analysis.  When B&B filed
the instant lawsuit, it alleged new circumstances—the incontestability.  “[E]ssentially, B&B is given a ‘pass’ on
the first element – the element that doomed its prior case – and allows a jury
to consider the second.” 
Incontestability was the “significant intervening factual change” that
rendered collateral estoppel inappropriate. But fraud on the PTO removed the
benefits of incontestability, downgrading the mark to “the same status it had
when the jury rendered its verdict in 2000,” meaning that there was no more
reason to give B&B its second bite at the apple.
B&B argued that the TTAB did not apply issue preclusion
in its own proceedings, so the court shouldn’t here. The court didn’t see the
point of that argument, especially since the court proceedings were about the
first element of an infringement case, protectability, whereas the TTAB rulings
were about confusion. Nor was B&B entitled to disgorgement of Hargis’s
profits, even if we assumed that it won its infringement claims.  B&B couldn’t show that the jury was wrong
to find Hargis’s infringement to be not willful—Hargis obviously had notice of
the registration, but that is not necessarily enough, especially given “the
ongoing litigation repeatedly finding no infringement and the fact that the two
companies engaged in different markets.” 
And disgorgement is discretionary, not mandatory; also, it depends on
unjust enrichment/compensation theories rather than on a penal justification,
and the evidence that B&B didn’t lose sales from infringement was therefore

Judgment for Hargis on its counterclaims was also
appropriate.  “[I]t is clear the jury
accepted Hargis’s argument that B&B copied photos, text, or size and weight
charts from Hargis’s website and posted them to B&B’s website as B&B’s
fasteners.” Hargis then suffered injury when it had to engage experts and fight
B&B’s activity. 

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