Jet, Inc. v. Sewage Aeration Systems

Citations: 223 F.3d 1360; 55 U.S.P.Q. 2d (BNA) 1854; 2000 U.S. App. LEXIS 21145; 2000 WL 1190798Docket: 99-1518

Court: Court of Appeals for the Federal Circuit; August 23, 2000; Federal Appellate Court

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Jet, Inc. appeals the dismissal by the Trademark Trial and Appeal Board of its petition to cancel Sewage Aeration Systems' federally registered trademark AEROB-A-JET. Jet has trademark registrations for JET AERATION and JET, while SAS holds the AEROB-A-JET mark. Jet initially filed a trademark infringement suit against SAS in December 1994, claiming that AEROB-A-JET would confuse consumers with its JET marks. Jet sought to amend its complaint to include a cancellation claim, which was denied, prompting Jet to file a separate cancellation action with the Patent and Trademark Office in October 1996 after SAS consented to an amendment in the district court that removed references to JET AERATION.

The Board stayed the cancellation proceeding while the infringement case was ongoing. In May 1997, the district court ruled in favor of SAS, finding no likelihood of confusion between JET and AEROB-A-JET, a decision affirmed by the Sixth Circuit in 1999. The appellate court concluded that a reasonable jury could not find the marks confusingly similar due to the high standard of care expected from consumers. The Federal Circuit found that the Trademark Trial and Appeal Board erred in dismissing Jet's petition on the basis of claim preclusion and reversed the decision, remanding for further proceedings.

After receiving notice of the Sixth Circuit's decision and a dismissal request from SAS, the Board dismissed the cancellation action against Jet, determining that res judicata applied. The Board concluded that the infringement litigation involved the same claims as the cancellation proceeding, which barred Jet from canceling the AEROB-A-JET trademark based on the JET and JET AERATION marks. This decision led to an appeal, granting the court jurisdiction under 28 U.S.C. § 1295(a)(4)(B). The Board found SAS "entitled to judgment as a matter of law," a determination subject to de novo review. The reviewing court may set aside agency conclusions that are not legally compliant. The Board's ruling was grounded in the doctrine of res judicata, which prevents a second suit involving the same parties and cause of action after a judgment on the merits. For claim preclusion to apply, there must be an identity of parties, a final judgment on the merits in the first suit, and the second claim must arise from the same transactional facts. In this case, there was agreement on the identity of the parties and the prior judgment, leaving only the analysis of the transactional facts to be determined.

A common set of transactional facts is identified pragmatically, with courts defining 'transaction' through concepts such as 'core of operative facts' and 'same nucleus of operative facts.' One test for determining whether causes of action should be joined in one suit is whether the evidence for one claim would prove the other. The identity of causes of action is based on the identity of facts that create the right of action. In assessing claim preclusion, it must be determined if a trademark infringement claim shares the same factual basis as a petition to cancel a federally registered mark. The court finds that they do not share the same factual allegations.

Trademark infringement under federal law involves: (1) possession of a valid registered trademark; (2) defendant's use in commerce of any imitation of the registered mark; (3) use in connection with selling or advertising goods or services; and (4) likelihood of confusion. In contrast, a petition for cancellation requires: (1) existence of a registered mark held by the respondent; (2) the petitioner's belief of damage from the mark; (3) filing within five years of registration; and (4) grounds for cancellation, which may include resemblance to another mark. 

Key differences include: (1) infringement requires the plaintiff to have a valid registered mark, while cancellation does not; (2) infringement necessitates the defendant's commercial use of the mark, which cancellation does not require; (3) cancellation requires the respondent to hold a federally registered mark, while infringement does not; and (4) cancellation involves the registrability of the respondent's mark, which is irrelevant in infringement cases.

Claim preclusion does not apply to bar a petition for cancellation stemming from a prior infringement proceeding due to significant differences in the transactional facts. The only overlap between the two causes of action is a shared 'likelihood of confusion' analysis, which is insufficient for claim preclusion. In infringement cases, the analysis compares the plaintiff's registered mark with the defendant's possibly unregistered use, while in cancellation cases, it compares the respondent's registered mark with either a prior-registered trademark or the petitioner’s unregistered mark that has established trade identity. The distinct transactional facts prevent claim preclusion from an infringement action from impacting a cancellation claim.

After the district court denied Jet's motion to amend its complaint to cancel the AEROB-A-JET mark, it permitted Jet to file a Second Amended complaint that removed the JET AERATION mark from the infringement case, with SAS's consent. This amendment caused no prejudice, akin to a dismissal without prejudice under Federal Rule of Civil Procedure 41(a)(2), indicating that it does not affect the merits of the case and has no preclusive effect. The terms of Rules 41(a)(2) and 15(a) are functionally similar in this context, with the focus on the dismissal being without prejudice being crucial. The procedural effects of amending a complaint can mirror those of a voluntary dismissal, as evidenced in case law.

Jet's Second Amended complaint supersedes its previous complaints, thereby preserving its right to initiate litigation regarding the AEROB-A-JET mark, as established under Fed. R. Civ. P. 15(a). An amended complaint stands alone and nullifies earlier complaints, making the latter non-functional in the ongoing case. Consequently, the doctrine of claim preclusion does not prevent Jet from pursuing a cancellation case based on the JET AERATION mark. The earlier infringement action does not bar this subsequent petition. Upon remand, the Board must evaluate whether issue preclusion applies to the 'likelihood of confusion' between the JET mark and AEROB-A-JET, which requires examining four factors: the identity of issues in a prior proceeding, actual litigation of those issues, their necessity for the judgment, and whether the defending party had a fair opportunity to litigate. The Sixth Circuit's opinion confirms that the likelihood of confusion was fully litigated, necessary to the judgment, and that Jet had adequate opportunity to argue this point.

Factor (1) addresses the 'likelihood of confusion' analysis in trademark infringement versus cancellation proceedings. The circuit court has established that state court findings related to likelihood of confusion can invoke issue preclusion if the issues are identical, citing *Mother's Restaurant* and *Midland Cooperative*. Although Jet references *Jim Beam Brands* to argue that the issues 'may' differ, the case emphasizes the necessity of examining the specific facts from previous litigation to determine issue identity. The Board must assess whether the previously decided issue in the infringement case overlaps sufficiently with the cancellation proceeding regarding the 'likelihood of confusion' between the marks JET and AEROB-A-JET.

The conclusion states that prior trademark infringement does not invoke claim preclusion for subsequent cancellation petitions. However, if common issues like likelihood of confusion were litigated earlier, issue preclusion applies to prevent relitigation. The Board incorrectly dismissed Jet's cancellation petition based on claim preclusion without evaluating issue preclusion, warranting a reversal of the decision and remand for further proceedings. It is noted that the Board has previously ruled against claim preclusion between infringement and cancellation proceedings, highlighting the fundamental differences between these claims. Additionally, the circumstances differ from those in *International Nutrition Co. v. Horphag Research*, which involved res judicata between opposition and cancellation proceedings. No costs are awarded.

The Board's decision was primarily grounded in the doctrine of claim preclusion, despite only referencing 'res judicata.' While 'res judicata' may refer to both claim and issue preclusion, the Board's opinion indicates it was applied narrowly to claim preclusion. For claim preclusion to be valid, a final judgment must be made on the merits, involving the same parties and cause of action. The Board did not address issue preclusion factors, such as whether the relevant issues were fully litigated. Chief Judge MAYER dissents, asserting that the Board's dismissal was appropriate based on claim preclusion, which requires parties to consolidate all claims arising from a single transaction in one lawsuit. Policy dictates against splitting claims to conserve judicial resources. The principle of res judicata prevents relitigation of any claim or defense concluded by a court judgment. The Mars case illustrates that closely related claims must be pursued together, and similarly, Jet's cancellation claim arose from the same transactional facts as its infringement claim. Consequently, Jet was barred from seeking cancellation in a separate forum after the district court denied its motion to amend the complaint to add the cancellation claim.