Claim Preclusion Leads to Early Win in Trademark Suit

Claim Preclusion Leads to Early Win in Trademark Suit

The apparel and lifestyle brand Diesel recently won summary judgment on its trademark infringement and dilution claims against Diesel Power Gear LLC (“DPG”), a company featured on the Discovery Channel reality TV show Diesel Brothers.   In Diesel S.p.A. v. Diesel Power Gear, LLC, the federal district court for the Southern District of New York (“SDNY”) granted plaintiff’s motion for summary judgment on the grounds that defendant DPG was precluded from relitigating trademark infringement and dilution claims that had previously been adjudicated by the Trademark Trial and Appeal Board (TTAB). 

Trademark Dispute Concerning Diesel Marks

Plaintiff Diesel S.p.A. (“Diesel IT”) owns the DIESEL brand and DIESEL trademarks, and plaintiff Diesel USA, Inc. (“Diesel USA,” and together with Diesel IT, “Diesel”) is Diesel IT’s exclusive licensee in the United States. Together, they design, manufacture, market, and distribute DIESEL products, including apparel, footwear, accessories, and home and lifestyle products.  The owners of DPG appear on the Discovery Channel’s Diesel Brothers, a reality TV show that follows the exploits of a truck repair and customization shop in Utah.

According to court documents, DPG uses or has used the word “diesel” in connection with its online retail services, apparel, accessory products, and business. In 2015, DPG filed an application to register its DIESEL POWER GEAR trademark with the United States Patent and Trademark Office (USPTO) for use on apparel. Diesel IT opposed that application, asserting claims for likelihood of confusion and dilution of its Diesel trademarks. DPG failed to defend against Diesel IT’s opposition, and the TTAB ultimately entered a default judgment against DPG, such that Diesel IT’s opposition was sustained and registration of the DPG’s DIESEL POWER GEAR trademark was refused.

In 2017, DPG again applied to register its DIESEL POWER GEAR trademark with the USPTO for use on apparel, and Diesel IT again opposed.  Finding that the previous default judgment against DPG satisfied “the elements of claim preclusion,” the TTAB once again granted summary judgment sustaining the opposition and refusing the registration of DPG’s DIESEL POWER GEAR trademark . 

District Court Finds TTAB Decision Binds the Court

In 2019, Diesel filed suit against DPG in the SDNY asserting violations of both the Lanham Actand New York state law, including claims of trademark infringement, trademark dilution, and unfair competition.  The district court granted Diesel summary judgment on their trademark infringement, trademark dilution, and federal unfair competition claims, and Judge Vyskocil’s decision specifically held that the DPG was precluded from re-litigating whether DPG’s DIESEL POWER GEAR trademark was likely to cause confusion or dilute the DIESEL marks.

Under the doctrine of claim preclusion, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. In explaining why the TTAB’s default judgments against DPG had preclusive effect, Judge Vyskocil wrote:

Plaintiff Diesel S.p.A. opposed Defendant’s application on the grounds that its DIESEL POWER GEAR trademark would cause confusion with and dilute Plaintiffs’ marks. Defendant had the opportunity to litigate the issues of likelihood of confusion and dilution in that TTAB proceeding. Rather than litigate these issues, Defendant opted to default on its own trademark application, and proceed with the use of its DIESEL POWER GEAR mark anyway. Defendant cannot now seek to relitigate this issue. Therefore, Plaintiffs are entitled to summary judgment on their trademark infringement and dilution claims with respect to Defendant’s use of the DIESEL POWER GEAR mark.

The district court’s decision relied on case law holding that trademark opposition proceedings before the TTAB can have res judicata effect, even where such judgment was the result of a default judgment, and also cited Supreme Court (B & B Hardware, Inc. v. Hargis Indus., Inc., 575 U.S. 138, (2015) and Second Circuit precedent (Jim Beam Brands Co. v. Beamish & Crawford Ltd., 937 F.2d 729 (2d Cir. 1991) for the proposition that collateral estoppel, or issue preclusion, applies to TTAB decisions. 

The Diesel S.p.A. decision noted that, for claim preclusion to apply, the later suit must involve the same cause of action as the earlier suit and must arise from the same transaction or involve a common nucleus of operative facts.  The district court also observed that in B&B Hardware, the U.S. Supreme Court held that the standard for analyzing likelihood of confusion is the same both for registration and for infringement purposes.  As a result, Judge Vyskocil held that, where a trademark owner is sued for uses of its trademark that are materially the same as the usages indicated in a prior registration application decided by the TTAB in an opposition proceeding, the TTAB has necessarily already decided the same likelihood-of-confusion issue presented in the subsequent infringement litigation.

In the Diesel S.p.A. case, DPG attempted to escape the application of collateral estoppel by arguing that the decision not to contest a TTAB opposition cannot be considered a “full and fair opportunity” to litigate, because losing before the TTAB is “low stakes” compared to the potentially calamitous results of losing a trademark infringement suit (including, e.g., having to undertake a potentially fatal rebrand and the possibility of significant financial liability; the amount of damages and attorneys’ fees for which DPG may be liable has not yet been decided).

The district court rejected this argument, citing the Supreme Court’s rejection of a similar argument in B&B Hardware. In B&B Hardware, the Supreme Court reasoned that, since the benefits of registration are substantial (e.g., registration serves as “constructive notice of the registrant’s claim of ownership” of the mark and is prima facie evidence of its validity), “there is good reason to think that both sides will take the matter seriously“ when “registration is opposed.”

Key Takeaway

In Diesel S.p.A. v. Diesel Power Gear, the district court acknowledged that there were other substantial grounds that would have merited granting summary judgment on Diesel’s trademark infringement and federal unfair competition claims even absent the preclusive effects of the prior TTAB proceedings.  

Nevertheless, the Diesel S.p.A. summary judgment decision highlights the importance of aggressively pursuing and protecting your intellectual property rights. Diesel reaped the benefits of having been vigilant in policing potentially infringing marks and opposing registration of marks that could threaten its brand. DPG’s failure to protect itself at the TTAB, on the other hand, significantly impaired its ability to defend against a subsequent infringement suit. The financial ramifications for DPG may ultimately be significant. 

If you have questions, please contact us

Missteps in protecting your trademarks can come back to haunt you. To ensure that you are taking all available steps to safeguard your brand and leverage your trademark rights, we encourage you to work with an experienced intellectual property attorney. If you have any questions or if you would like to discuss the matter further, please contact me, Michael Sheppeard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.