Federal district courts continue to apply the Supreme Court’s ruling in B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S.Ct. (2015) with unpredictable results. The latest such example comes from the Southern District of New York, where Judge Buchman, in reliance on B&B Hardware, precluded the defendant from contesting likelihood of confusion. Cesari S.R.L. v. Peju Province Winery L.P., 1:17-cv-00873-NRB (S.D.N.Y. Dec. 11, 2017).

Plaintiff Cesari is an Italian winery with U.S. trademark rights in the mark LIANO for wines dating back to August 2001. Defendant Peju, a Northern California winery, began using the mark LIANA for wine in 2002. Based on its registration of LIANO, Cesari, in October 2003 initiated opposition proceedings before the Trademark Trial & Appeal Board against Peju’s application to register LIANA, and, in July 2004, the Board granted Cesari’s motion for judgment on the pleadings – which it construed a motion for summary judgment – based on application of the du Pont likelihood of confusion factors.

Peju continued to use the LIANA mark for certain types of wine and expanding its operations after the Board’s ruling. In March 2016, Peju filed another application to register LIANA, which mark was published for opposition despite Cesari’s registration of LIANO. Cesari timely filed an opposition in January 2017 and, shortly thereafter, filed the lawsuit. Not 4 months into the lawsuit, Cesari filed a motion for partial summary judgment, arguing that, per B&B Hardware, Peju was precluded from relitigating the issue of likelihood of confusion based on the Board’s 2004 decision.

The Court identified the four elements necessary to establish issue preclusion: (1) the issue in both proceedings are identical; (2) the issue in the prior proceeding was actually litigated and actually decided; (3) there was a full and fair opportunity for litigation in the prior proceeding; and (4) the issues previously litigated were necessary to support a valid and final judgment on the merits. The Court’s analysis was limited to the first and third elements, the only ones contested by Peju.

As to the first element, the Court identified the different factual bases grounding likelihood of confusion determinations in federal court and the Board. As to the former, “a court determines the likelihood of confusion between the parties’ marks by ‘analyz[ing] the defendant’s ‘use in commerce’ of its mark and compar[ing] that use to that of the plaintiff and its mark.” The Board, on the other hand, “typically analyzes the marks, goods, and channels of trade only as set forth in the application and in the opposer’s registration, regardless of whether the actual usage of the marks by either party differs.” Per B&B Hardware, despite these different standards, a Board’s likelihood of confusion determination may be preclusive “[i]f a mark owner uses its mark in ways that are materially the same as the usages included in its registration application,” such that the Board “is deciding the same likelihood-of-confusion issue as a district court in infringement litigation.”

Applying this law, the Court found issue preclusion appropriate because “[t]he parties each use their mark in ways that are materially the same as the usages adjudicated by the [Board],” namely, both parties use their respective marks for wines. The Court did not find persuasive Peju’s argument that it actually used its LIANA mark in a manner materially different than that considered by the Board, i.e., on new world wines retailing for $40-60 a bottle that were marketed to sophisticated consumers and sold through specific online and brick-and-mortar retail outlets. Each of these distinctions, the Court reasoned, was necessarily encompassed by the Board’s analysis, which “must presume that the goods move through all reasonable trade channels for such goods to all usual classes of consumers for such goods.”

As to the third element, the Court held there could be little doubt that there was a full and fair opportunity for litigation in the Board proceeding. The Court held that Peju could establish it was prejudiced by the Board’s conversion of Cesari’s motion for judgment on the pleadings to a motion for summary judgment. Moreover, the Court reasoned that had Peju been prejudiced, it could have sought review of the Board’s decision, yet it never did.

The Court’s holding, particularly as to the first element of issue preclusion, is an important reminder that courts continue to misunderstand the significant differences between a Board’s determination of likelihood of confusion and that of a district court on an infringement claim. And in the wake of B&B Hardware, theses misunderstandings can have devastating consequences, as it did for Peju. Here, the Court did not consider material Peju’s showing that it and Cesari used their respective marks in different stylizations and with house marks, the different varietals offered by the parties under their respective marks, and the sophistication of the parties’ respective consumers, not to mention Peju’s allegation that in the parties’ long coexistence in the marketplace there had been no instances of actual confusion. By reasoning that the parties’ actual use in commerce is encompassed within the broader circumstances of use considered by the Board, the Court essentially erases the differences between the two likelihood of confusion determinations. Also, the Court intimates that Peju violated Cesari’s rights by continuing to its LIANA mark after the Board decision in 2004, despite the fact that the Board’s decision was limited to Peju’s right to register, not use, the mark.