January 2011 Issue

Civil Cases

Bd. of Regents of the Univ. of Wis. Sys. v. Phoenix Software Int’l, Inc.,
2010 WL 5295853 (7th Cir. Dec. 28, 2010)

ABSTRACT
On appeal of a TTAB decision cancelling a federal registration on likelihood-of-confusion grounds, the district court found that the TTAB erred in considering the actual nature of the parties’ goods, believing it should have confined its analysis to the goods as identified in the registrations.  The Seventh Circuit reversed, reinstated the TTAB’s findings, and remanded for trial on the issue of likelihood of confusion.  It agreed with the district court’s finding, however, that trademark-infringement counterclaims against the governmental party were barred under principles of sovereign immunity.

CASE SUMMARY

FACTS
Phoenix Software International, Inc. (“Phoenix”) registered the mark CONDOR for “computer software for online programming development, library management and system utilities functioning on mainframe systems.”  Subsequently, the Board of Regents of the University of Wisconsin System (“Wisconsin”), an arm of the state, obtained a registration for the mark 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.”  Phoenix petitioned the TTAB for cancellation of Wisconsin’s registration on the ground that Wisconsin’s use created a likelihood of confusion with its own mark.  Finding the marks identical, the functions of the software similar, and that purchasers would likely believe that there was some relationship between the sources, the TTAB granted the petition and cancelled Wisconsin’s registration.

Wisconsin brought a civil action in federal district court challenging the TTAB’s decision and offering new evidence that the sophistication of the purchasers weighed in its favor.  Phoenix counterclaimed, seeking damages for trademark infringement.  The district court dismissed the TTAB’s finding that confusion was likely, believing that all analysis of the similarity of the products should have been confined to the actual wording of the parties’ registrations rather than a consideration of actual marketplace use.  The district court granted Wisconsin’s motion for summary judgment and dismissed Phoenix’s counterclaims on sovereign-immunity grounds.

ANALYSIS
On appeal, determining whether consumers were likely to be confused by Wisconsin’s and Phoenix’s concurrent use of the CONDOR marks, the Seventh Circuit found that the district court erred in limiting its analysis to the descriptions of goods in the parties’ trademark registrations, an approach the Seventh Circuit described as “too formalistic” and one that “ignores the requirement that the products are to be examined as they appear to the consumer.”  The proper analytical framework, the Seventh Circuit held, was whether the parties’ products are the kind the public might well attribute to a single source.  The appeals court stated, “While we must consider the marks as they are described, it would be a mistake to bar any evidence of their actual use as irrelevant.  After all, one of the facts in the [likelihood-of-confusion] test is the ‘area and manner of concurrent use.’”

According to the Seventh Circuit, the district court had not only erred in confining its examination to the registrations, but also had mistakenly assumed that the similarity in the products’ functions was dispositive.  Accordingly, the Seventh Circuit held that the TTAB had properly applied the correct factor-based likelihood-of-confusion balancing test and, in doing so, had properly apportioned the burden of proof.  In reaching its holding, the TTAB had relied on its findings for three key factors, namely, the identical nature of the marks, the manner in which both parties’ products were used, and the similarity of the products.  Once the TTAB’s findings were reinstated, the Seventh Circuit found that Phoenix had offered sufficient evidence to survive summary judgment on the issue of likelihood of confusion.  Accordingly, it reversed the district court’s decision and remanded for a trial on the likelihood of confusion.

Turning to Phoenix’s counterclaims, the majority of the appeals court agreed with the district court that the Trademark Remedy Clarification Act (“TRCA”) of 1992, which purported to make state governments liable for trademark violations, was not materially different from the Patent Remedy Act that had previously been found unconstitutional in Florida Prepaid v. College Savings Bank, 527 U.S. 627 (1999).  Thus, the Seventh Circuit agreed that Wisconsin could be liable under federal trademark law only if it had waived sovereign immunity.  It then rejected the argument that Wisconsin had constructively waived sovereign immunity in taking advantage of the Lanham Act by registering a trademark, or by bringing the appeal in a federal district court under Section 1071(b) rather than at the Federal Circuit.  In a lengthy dissent on the issue of sovereign immunity, one judge on the appeals panel believed that in choosing to initiate a claim before a district court rather than appealing directly to the Federal Circuit, Wisconsin had “effectively waived its sovereign immunity for all matters that might arise in that particular case, including counterclaims.”  Had it appealed directly to the Federal Circuit, it would have been limited to the record created before the TTAB.

CONCLUSION
This decision is noteworthy in its finding that the TRCA of 1992 did not abrogate a state’s sovereign immunity.  Practically speaking, assuming the cancellation of its trademark registration is upheld on remand, Wisconsin will nevertheless be able to continue to use its mark in commerce without fear of infringement liability under federal law.