Federal Circuit holds that plain language of Rule 2.127(d) trumps TTAB’s interpretation

United States of America
In Benedict v Super Bakery Inc (Case 2011-1131, December 28 2011), the US Court of Appeals for the Federal Circuit has affirmed a decision by the Trademark Trial and Appeal Board (TTAB) rendering default judgment against appellant Ward E Benedict, but rejected the TTAB’s interpretation of Trademark Rule 2.127(d). Benedict had argued under the Code of Federal Regulations 37 CFR § 2.127(d) that filing a motion for summary judgment automatically stayed other aspects of the pending proceeding, including his obligation to respond to outstanding discovery requests. The TTAB disagreed, ruling that discovery was not stayed unless and until it said so in an order. Because the TTAB had already entered repeated orders compelling discovery responses, which Benedict disregarded, it entered default judgment against him and cancelled his trademark registration.

Benedict appealed to the Federal Circuit, which, on December 28 2011, agreed with Benedict that the TTAB’s interpretation of Rule 2.127(d) was unsupported by a plain reading of the rule.

The case began in 2005, when the US Patent and Trademark Office rejected Super Bakery’s application to register GOODY MAN due to Benedict’s existing registration for G THE GOODYMAN (Registration No 2,966,225). Super Bakery sought to clear this obstacle by petitioning to cancel Benedict’s registration on the grounds of fraud and abandonment.

Although Benedict answered the petition, he did not respond to Super Bakery’s discovery requests or to its consequent motion to compel discovery, which was granted by the TTAB. On February 12 2009 the TTAB once again ordered Benedict to respond to Super Bakery’s discovery requests by March 13 2009.

Rather than complying with the order, Benedict moved for summary judgment on March 12 2009, asserting that certain arguments that Super Bakery had raised in support of its application barred its claims under the doctrine of res judicata. On March 30 2009 the TTAB stayed the proceeding pending resolution of the motion. Benedict, however, had failed to respond to Super Bakery’s discovery requests by March 13 as ordered, so Super Bakery renewed its motion for default judgment, which the TTAB granted.

On Benedict’s initial appeal to the Federal Circuit, he argued that, because he had filed a summary judgment motion, the TTAB proceeding, including his obligation to comply with the TTAB’s discovery sanctions, should have been deemed suspended automatically under Trademark Rule 2.127(d), which provides, in pertinent part:
"When any party files … a motion for summary judgment, or any other motion which is potentially dispositive of a proceeding, the case will be suspended by the [TTAB] with respect to all matters not germane to the motion…"
The Federal Circuit remanded the action to the TTAB, so that the TTAB could consider the effect of Rule 2.127(d). On remand, the TTAB held that filing a dispositive motion does not automatically stay proceedings. In interpreting Rule 2.127(d), the TTAB noted that, during the rulemaking process in 1998, the USPTO specifically considered and rejected a proposal to suspend proceedings automatically upon the filing of a potentially dispositive motion. According to at least one prior TTAB decision, and a comment on the rule documented during the rulemaking process, only an order of the TTAB formally suspending proceedings could have such effect. The TTAB Manual of Procedure thus states in Section 528.03: “The filing of a summary judgment motion does not, in and of itself, automatically suspend proceedings in a case; rather, proceedings are suspended only when the [TTAB] issues an order to that effect.”

Because the TTAB had not issued an order suspending the case following Benedict’s motion for summary judgment until March 30 2009, the TTAB concluded that he was obligated to respond to Super Bakery’s discovery requests by the March 13 2009 deadline, and had failed to do so.

Benedict once again appealed to the Federal Circuit, arguing that Trademark Rule 2.127(d) is unqualified in its requirement that when a summary judgment motion is filed, the case “will be suspended by the [TTAB]... and no party should file any paper which is not germane to the motion except as otherwise specified in the [TTAB]’s suspension order”. Benedict impressed upon the court that he complied with the language of the rule as written, and that it would be inequitable to apply the TTAB’s interpretation in view of the rule’s express language.

Judge Pauline Newman, writing for the Federal Circuit, agreed with Benedict’s reasoning:
[T]he rule does not state that no suspension shall occur until the [TTAB] separately acts to impose it, and that any filing deadlines will remain in force despite the rule's prohibition on filing. The rule does not state that the requirement that no papers should be filed does not come into effect when the summary judgment motion is filed, despite the rule's prohibition." 
Consequently, Rule 2.127(d) "does not clearly present the interpretation with which the [TTAB]… [endowed] it". Judge Newman noted that due process standards guide and limit the acts and proceedings of the TTAB, and that an individual is entitled to fair and adequate notice of how administrative proceedings will affect his or her rights. Her opinion implies that the TTAB’s interpretation of Rule 2.127(d), an interpretation that could not be gleaned from the rule on its own, did not provide Benedict with fair notice of his rights, and could not serve as a basis for deprivation of those rights.

One might read the Federal Circuit’s opinion narrowly, to suggest only that ambiguities in a rule do not support "the extreme sanction of default judgment". But one could also read the court’s reasoning more broadly to suggest that, regardless of what the TTAB Manual of Procedure, rulemaking history or prior TTAB decisions say, the plain language of the Code of Federal Regulations, on which litigants rely to secure their rights, must, as a matter of due process, prevail.

Benedict won this battle but lost the war. The Federal Circuit affirmed the TTAB’s entry of default judgment against him, holding that, in light of Benedict’s “repeated failures to comply with established and reasonable procedures orders”, default judgment was reasonable and within the discretion of the TTAB. 
James L Bikoff, David Heasley and Judd Lauter, Silverberg Goldman & Bikoff LLP, Washington DC

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