TTAB no substitute for federal court when infringement action is threatened

In Rhoades v Avon Products Inc (Case 05-56047, October 15 2007), the US Court of Appeals for the Ninth Circuit has held that the district court had jurisdiction over a declaratory judgment action and thus reversed the district court's dismissal of the case.

The underlying dispute revolved around confusing similarity between Avon Products Inc's ANEW mark and Dean Rhoades's DERMANEW, NUTRANEW and GEMMANEW marks, among others. During the course of the dispute, Avon filed five oppositions and two cancellations against Rhoades's filings with the Trademark Trial and Appeal Board (TTAB). Soon after the first opposition proceeding commenced, the parties began settlement negotiations that lasted for four years. When the parties' negotiations reached an impasse, Rhoades filed a lawsuit seeking a declaratory judgment of non-infringement of Avon's mark.

Avon moved to dismiss the complaint for lack of subject-matter jurisdiction. Specifically, Avon alleged that it did not threaten Rhoades with a trademark infringement action and that the case should thus remain with the TTAB. In support of his fear of an infringement action, Rhoades alleged instances during the negotiations when Avon's in-house counsel orally threatened to bring a lawsuit. Rhoades further alleged that Avon's counsel wrote a letter threatening "additional proceedings or litigation" and that Avon's counsel indicated orally that it would not give up its right to damages.

For the purpose of the jurisdictional motion, the Ninth Circuit presumed that Rhoades's allegations as to Avon's threats were true. The court then held that these circumstances were sufficient for Rhoades to perceive a threat of an infringement action. Moreover, the court construed the letter threatening "additional proceedings or litigation" to mean a lawsuit, considering that Avon had already filed opposition proceedings before the TTAB. Additionally, Avon's insistence on recovering money damages was construed as a threat to commence a lawsuit, because money damages cannot be awarded by the TTAB and would be available only through a court action.

Relying on Rule 408 of the Federal Rules of Evidence, Avon argued that the discussions and correspondence that occurred during the course of settlement negotiations were not admissible for the purpose of the jurisdictional motion. The court disagreed, reasoning that Rule 408 limits the use of statements made during settlement negotiations, but does not prohibit their use entirely. Rather, among other things, such evidence is not permitted to be used for proving liability. In the present case, the evidence was not being used to prove liability for trademark infringement; instead, it was being used for a purpose unrelated to liability and thus was admissible.

The court also discussed the issue of whether the district court properly dismissed the case under the doctrine of primary jurisdiction. Primary jurisdiction authorizes the courts to route the threshold decision on certain issues to the governmental agency charged with primary responsibility for supervision or control of the particular industry or activity involved. Here, the issue was whether the court should cede jurisdiction to allow the TTAB to first decide the opposition and cancellation proceedings.

Noting that the Ninth Circuit had never addressed the issue of whether a court should defer on primary jurisdiction grounds to pending proceedings before the TTAB, the court looked to the First and Second Circuits, which had both addressed the issue. Those courts have held that primary jurisdiction does not justify deferral to the TTAB. The Ninth Circuit agreed with the other two circuits. In particular, the court was persuaded by the fact that the TTAB cannot provide the same type of relief available in an infringement action, as it cannot enter an injunction or award money damages.

Having determined that there was a sufficient and admissible allegation by Rhoades of an apprehension of liability for infringement based on Avon's conduct during the settlement negotiations, the Ninth Circuit reversed the dismissal of the case and granted Rhoades's request that the case be directed to a new judge.

Karin Segall, Darby & Darby PC, New York