Third Circuit clarifies its position on collateral estoppel

In Jean Alexander Cosmetics Inc v L'Oréal USA Inc, the US Court of Appeals for the Third Circuit has adopted the view on collateral estoppel advanced by the First Restatement of Judgments and sustained by other appellate courts.

In 1988 L'Oréal USA Inc's predecessor in interest began use of the mark SHADES EQ in connection with hair-care products. In 1990 Jean Alexander Cosmetics Inc began use of the mark EQ SYSTEM, which it registered in 1993. In 1996 L'Oréal sought to register a modernized, 1992 version of its SHADES EQ mark. However, the trademark examiner refused registration based on a likelihood of confusion with Jean Alexander's registered EQ SYSTEM mark.

L'Oréal then initiated a cancellation proceeding before the USPTO against Jean Alexander's registration, contending that, if there was a likelihood of confusion, the Jean Alexander registration should be cancelled due to the priority of the original and modernized SHADES EQ marks. In support of the cancellation petition, L'Oréal argued that (i) its use of the original SHADES EQ mark preceded Jean Alexander's use of EQ SYSTEM, and (ii) the first date of use of the original mark could be tacked on to extend its claimed use of the modernized mark, a legal equivalent of the original mark, thereby giving the modernized mark priority. Jean Alexander denied L'Oréal's priority claims and any likelihood of confusion. After four years of extensive proceedings, the US Patent and Trademark Office (USPTO) Trademark Trial and Appeal Board (TTAB) found that although the original SHADES EQ mark enjoyed priority over Jean Alexander's mark, it was not a legal equivalent to the modernized SHADES EQ mark. Thus, the respective use periods could not be tacked together and L'Oréal could not establish priority of the modernized SHADES EQ mark, which it sought to register. The board further held that there was no likelihood of confusion between the marks and denied L'Oréal's petition to cancel.

Because the TTAB's decision negated the trademark examiner's rejection, L'Oréal's modernized SHADES EQ mark was published for opposition in 2002. Jean Alexander initiated an opposition based on a likelihood of confusion argument. However, the board foreclosed this opposition and Jean Alexander commenced a federal trademark infringement suit premised on the same issue (ie, likelihood of confusion). The district court dismissed the complaint, holding that, in view of the TTAB's holdings, the doctrine of issue preclusion, also termed collateral estoppel, prevented Jean Alexander from re-litigating the likelihood of confusion between the marks. Jean Alexander appealed.

The key issue on appeal was whether the board's likelihood of confusion determination, which could be deemed alternate or secondary to the priority determination, should be given preclusive effect. Jean Alexander argued that the "necessity" required to apply collateral estoppel was absent because, once the board had determined that the modernized SHADES EQ mark lacked priority, the likelihood of confusion pronouncement was not required to deny the cancellation petition. L'Oréal countered that the finding should be given a preclusive effect because, even though alternative (ie, not strictly necessary to the judgment because there was another stated basis for the decision), it was independently sufficient to uphold the earlier decision.

The Third Circuit agreed with L'Oréal, finding that the preclusive effect of alternate findings furthered the doctrine of collateral estoppel, in part by preventing needless litigation of "actually [fully] litigated issues" and the "inefficient use of private and public litigation resources". The court noted that this approach would be particularly effective under circumstances where it is obvious that the alternative finding is a product of careful judicial reasoning.

Natalie A Ward, McDermott Will & Emery LLP, Washington DC