Using Settlements and Case Resolution to Reduce the High Cost of U.S. Trademark Disputes

Anyone who has ever been involved in a legal proceeding in the United States knows how difficult, expensive, and time-consuming it can be — and why settlement is the preferred approach. Both parties know that the process may take years and could result in hundreds of thousands, if not millions, of dollars in legal fees and costs. Further, because prevailing parties in the United States are not automatically awarded their attorneys’ fees, even a party who wins a litigation can likely incur substantial legal fees for which there is no reimbursement. Trademark disputes are no different.

Many times, a trademark dispute will start at the United States Patent and Trademark Office (USPTO) through an inter partes proceeding in the nature of an opposition or cancellation, which is when one party believes it will suffer damage through the registration of a trademark. Even though these proceedings are administrative in nature and are held before the Trademark Trial and Appeal Board (TTAB) and not a court, such proceedings are governed by the Federal Rules of Civil Procedure and are run like federal litigation, with written discovery, depositions, motion practice, testimony, final briefs, oral argument, etc. Accordingly, legal fees in a TTAB proceeding can be comparable to those incurred in federal litigation, and they are significantly higher than the fees incurred by parties in similar proceedings in other countries. It is not unheard of for the legal fees in a TTAB proceeding to exceed $250,000 or more.

Federal Court vs. TTAB

A factor that can contribute to the high cost of TTAB proceedings is that a corporate entity is allowed to represent itself in the proceedings, which is not permitted in a federal court action. If a party is representing itself and does not have to pay an attorney, this sometimes results in one party taking actions that increase the legal fees of the other, including making frivolous motions or refusing to participate in discovery in good faith, thus necessitating even more motion practice. Such a scenario can also occur if one party has significantly more resources than the other and can thus try to force the other to capitulate at the risk of incurring astronomical legal fees. To compound the problem, unlike a federal court, the TTAB has no authority to grant an award of monetary damages or monetary sanctions against a party acting in bad faith or needlessly increasing the other party’s costs.

If a party is acting unreasonably in a TTAB proceeding by filing frivolous motion after frivolous motion, for example, it may make sense for the other party to file a federal court action for trademark infringement, declaratory judgment, and/or cancellation of a registered trademark, especially when one party is representing itself in the TTAB proceeding. This would almost certainly result in the suspension of the TTAB proceeding pending the outcome of the federal court action and would force that party to retain counsel. When faced with having to pay legal fees of its own, the party may become more reasonable. In addition, federal courts have the authority to award monetary sanctions against a party acting in bad faith and, in appropriate circumstances, legal fees to the prevailing party under the trademark laws. A federal court can also grant an injunction against the use of an infringing trademark, while the TTAB has power only over the registration of a trademark but cannot prevent the use of a trademark. While federal court cases are expensive and time-consuming, so are TTAB proceedings, and in some situations, a federal court case could be preferable to a TTAB proceeding.

Settlement

Given the significant legal fees that would likely be incurred in a TTAB proceeding, prior to instituting such a proceeding, if a party believes it will be damaged by the registration of a trademark, they should almost always reach out to the other party to determine whether a settlement can be reached by taking advantage of the automatic 90-day extension period. It is usually apparent after the first communication whether the other party is going to be reasonable. If the other party does not appear to be reasonable, a thorough analysis of the matter should be conducted prior to filing so that the chances of success and associated risks are thoroughly vetted.

Accelerated Case Resolution

If a settlement cannot be reached, the TTAB does have an Accelerated Case Resolution process that bypasses many of the steps in a regular TTAB proceeding — and also allows for a faster result (usually within 12 months as opposed to three to four years). Having a case heard in this manner can usually save time and tens of thousands of dollars in legal fees. The problem with this process, however, is that both parties must agree to it, and if there is a party acting unreasonably and trying to increase the other party’s legal fees, that party is not likely to agree to have the matter heard on an accelerated basis.

Time for a Change

In summary, the trademark opposition and cancellation system in the United States seems to be due for an overhaul. In most other countries, comparable proceedings are a small fraction of the cost here (usually around US$5,000-10,000) and are most often decided in less than a year. The cumbersome and expensive process in the United States likely results in many parties foregoing what would otherwise be a meritorious action, thus allowing a confusingly similar trademark to be registered and used. By the same token, a party with “deep pockets” can stifle competition by forcing another party to give up its trademark (which is not confusingly similar) because that party cannot afford to spend hundreds of thousands of dollars — or more — in legal fees. There are certain actions a party can take to try to mitigate the fees and time involved, but such proceedings, whether in the TTAB or federal court, are most often time-consuming and costly endeavors. It may be time for a change.

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