Jean Alexander v. L'Oreal USA Inc ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
8-14-2006
Jean Alexander v. L'Oreal USA Inc
Precedential or Non-Precedential: Precedential
Docket No. 05-4321
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-4321
JEAN ALEXANDER COSMETICS, INC.,
Appellant
v.
L’OREAL USA, INC.;
REDKIN 5 TH AVENUE, N.Y.C.
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 04-cv-00975)
District Judge: Honorable Terrence F. McVerry
Argued June 12, 2006
Before: RENDELL and VAN ANTWERPEN, Circuit
Judges,
and ACKERMAN*, District Judge.
* Honorable Harold A. Ackerman, Senior District Judge for
the District of New Jersey, sitting by designation.
(Filed August 14, 2006)
James Cirilano [ARGUED]
Jennifer M. Haven
Cirilano & Associates
722 Broadway Avenue
McKees Rocks, PA 15136
Counsel for Appellant
Robert L. Sherman [ARGUED]
Paul, Hastings, Janofsky & Walker
75 East 55 th Street
New York, NY 10022
Counsel for Appellees
OPINION OF THE COURT
RENDELL, Circuit Judge.
In proceedings before the Trademark Trial and Appeal
Board (“TTAB” or “Board”), the predecessor in interest of
L’Oreal USA, Inc. (“L’Oreal”) argued that a registered
trademark used by Jean Alexander Cosmetics, Inc. (“Jean
Alexander”) was likely to be confused with two of its marks and
that the registration should therefore be cancelled. The TTAB
denied the petition to cancel, holding, among other things, that
there was no likelihood of confusion as between the marks. In
the instant action for trademark infringement, Jean Alexander
2
seeks to revisit the Board’s finding with respect to likelihood of
confusion.
The District Court held that Jean Alexander was
precluded from relitigating the TTAB’s determination that there
was no likelihood of confusion, and we agree. The issue was
actually litigated and previously decided in the cancellation
proceedings. Although the TTAB’s conclusion on likelihood
of confusion was not its only basis for denying the cancellation
petition, it was one of two independently sufficient grounds on
which the Board resolved the case. Under these circumstances,
we will apply the doctrine of issue preclusion and affirm the
District Court’s dismissal of Jean Alexander’s complaint.
I.
Sometime in 1988, L’Oreal’s predecessor in interest
began using the mark “Shades EQ” and associated design for
certain hair care products.1 In 1990, Jean Alexander began
using its “EQ System” mark and design and, in 1993, it
registered this mark with the Patent and Trademark Office
(“PTO”). In 1996, L’Oreal attempted to register a modernized
version of its Shades EQ mark that it had begun using in 1992.
The examiner at the PTO rejected the application for
registration of the modernized Shades EQ mark because it was
likely to be confused with Jean Alexander’s EQ System mark.
All three marks are reproduced as an appendix to this opinion.
1
For the sake of convenience, we will refer to L’Oreal’s
predecessor in interest simply as L’Oreal.
3
After the PTO rejected L’Oreal’s application to register
its mark, L’Oreal filed a petition to cancel Jean Alexander’s
registration for the EQ System mark. L’Oreal alleged that it had
used its original Shades EQ mark prior to Jean Alexander’s use
of the EQ System mark and that, if there was a likelihood of
confusion between the two marks, Jean Alexander’s registration
should be cancelled. In addition, L’Oreal alleged that the
original and modernized versions of its Shades EQ mark were
“legal equivalents” and that it could therefore tack the date of
first use of the original version of the mark onto the modernized
version, giving the modernized version priority over Jean
Alexander’s EQ System mark as well.
In its answer to L’Oreal’s petition to cancel, Jean
Alexander denied that L’Oreal’s marks had priority over its
trademark or that there was a likelihood of confusion between
its EQ System mark and L’Oreal’s Shades EQ marks. It also
raised the latter claim as an affirmative defense.
During more than four years of proceedings, the parties
created an extensive record that included depositions and trial
testimony of several of the parties’ executives. On June 28,
2001, the TTAB dismissed L’Oreal’s petition to cancel the
registration of Jean Alexander’s EQ System trademark. The
TTAB held that the original Shades EQ mark had priority over
the EQ System mark, but found that the modernized Shades EQ
mark was not a legal equivalent of the original version.
Consequently, L’Oreal could not establish the priority of its
modernized Shades EQ mark over Jean Alexander’s EQ System
mark.
4
Having resolved the question of priority, the TTAB
examined likelihood of confusion. Because L’Oreal’s original
Shades EQ mark had priority over Jean Alexander’s EQ System
mark, it was necessary for the Board to determine whether there
was a likelihood of confusion between these two marks.
However, “solely for the sake of completeness,” the TTAB also
considered the likelihood of confusion between the EQ System
mark and the modernized Shades EQ mark. The TTAB did this
“in case upon further review, it is determined that [L’Oreal’s]
original and modernized marks are legal equivalents,” a finding
that would give the modernized version priority over the EQ
System mark. (App. 79a.)
The Board concluded that there was no likelihood of
confusion between Jean Alexander’s mark and either the
original or modernized versions of L’Oreal’s mark. In addition
to noting the basic differences between the marks, the TTAB
relied on (1) testimony from L’Oreal’s assistant vice president
for marketing to the effect that there was “some possibility of
confusion,” but not a likelihood, (2) testimony from L’Oreal’s
former senior vice president of marketing and advertising that
there was no likelihood that the modernized Shades EQ mark
would be confused with the EQ System mark, (3) testimony
from Jean Alexander’s chief executive officer that the public
was not likely to be confused by the marks, and (4) the fact that
neither party offered evidence of any instances of actual
confusion. Taken as a whole, this evidence convinced the
Board that there was no likelihood of confusion.
Instead of appealing the TTAB’s decision in the
cancellation action, L’Oreal reasserted its request with the PTO
5
to register its modernized Shades EQ trademark. Relying on the
TTAB’s finding that there was no likelihood of confusion
between the modernized Shades EQ mark and the EQ System
mark, the PTO withdrew its refusal to register L’Oreal’s mark.
The modernized Shades EQ mark was approved for publication
in the Official Gazette on October 10, 2002, which entitled third
parties to oppose its registration. See 15 U.S.C. § 1063.
Jean Alexander timely filed a notice of opposition to the
registration of the modernized Shades EQ mark, arguing that it
would likely be confused with the EQ System mark. The
TTAB held that the likelihood of confusion between the two
marks had been fully and decisively litigated in the cancellation
proceedings. It noted that
the Board made detailed and
specific findings in its
determination of both priority and
likelihood of confusion, and the
determination of no likelihood of
confusion in the market place was
necessary to the final judgment.
This is not a case where the Board
made incidental determinations on
an issue which was not before it.
The issue of likelihood of
confusion was the focus of the
parties’ pleadings and was fully
litigated before the Board.
(App. 63a.) Because Jean Alexander was precluded from
6
relitigating likelihood of confusion, the TTAB granted summary
judgment in favor of L’Oreal.
Thereafter, Jean Alexander filed a complaint against
L’Oreal in the District Court alleging trademark infringement
of its EQ System mark and specifically averring likelihood of
confusion. The District Court dismissed the complaint, holding
that the doctrine of issue preclusion, also known as collateral
estoppel, prevented Jean Alexander from relitigating likelihood
of confusion and foreclosed its claim for trademark
infringement. Jean Alexander timely appealed. The District
Court had subject matter jurisdiction under 28 U.S.C. § 1338and we have appellate jurisdiction under 28 U.S.C. § 1291.
II.
Before turning to the merits, we must first determine the
proper standard of review. We note that “different panels of
our Court have applied different standards of review where
collateral estoppel is in issue.” Nat’l R.R. Passenger Corp. v.
Pennsylvania Pub. Util. Comm’n, 288 F.3d 519, 524-25 (3d
Cir. 2002); see also Witkowski v. Welch, 173 F.3d 192, 198 n.7
(3d Cir. 1999). In some cases we have reviewed the application
or nonapplication of issue preclusion for abuse of discretion,
while in others we have applied plenary review. Compare
Raytech Corp. v. White, 54 F.3d 187, 190 (3d Cir. 1995)
(reviewing district court’s decision to apply collateral estoppel
for abuse of discretion), Temple University v. White, 941 F.2d
201, 212 n.16 (3d Cir. 1991) (same), and McLendon v.
Continental Can Co., 908 F.2d 1171, 1177 (3d Cir. 1990)
(same), with Szehinskyj v. Att’y Gen. of the United States, 432
7
F.3d 253, 255 (3d Cir. 2005) (applying plenary review to
application of issue preclusion), Dici v. Commonwealth of
Pennsylvania, 91 F.3d 542, 547 (3d Cir. 1996) (same), and
Arab African Int’l Bank v. Epstein, 958 F.2d 532, 534 (3d Cir.
1992) (same). We have not offered a clear rationale for
adopting one standard of review over another.
These cases can be reconciled. The general rule is that
we exercise plenary review over the application of issue
preclusion. See Szehinskyj, 432 F.3d at 255 (applying plenary
review to application of mutual offensive collateral estoppel);
Delaware River Port Authority v. Fraternal Order of Police,
290 F.3d 567, 572 (3d Cir. 2002) (exercising plenary review
over decision of whether to apply defensive collateral estoppel);
Greenleaf v. Garlock, Inc., 174 F.3d 352, 357 (3d Cir. 1999)
(same); Dici, 91 F.3d at 547 (same); Arab African Int’l Bank,
958 F.2d at 534 (same). The only cases in which we have
reviewed for abuse of discretion are those in which a nonparty
to a previous proceeding has asserted issue preclusion against
a defendant, that is, in cases involving “non-mutual offensive
collateral estoppel.” See Smith v. Holtz, 210 F.3d 186, 199 n.18
(3d Cir. 2000) (reviewing use of non-mutual offensive collateral
estoppel under an abuse of discretion standard); Raytech Corp.,
54 F.3d at 190 (same); Temple University, 941 F.2d at 212 &
n.16 (same); McLendon, 908 F.2d at 1177 (same).2
2
There are also instances in which we have specifically
declined to decide the proper standard of review and simply
applied plenary review because the result would have been the
same under either abuse of discretion review or the more
8
Applying different standards of review in these different
settings makes sense. The predominant question in preclusion
cases involving defensive or mutual collateral estoppel is
whether the basic requirements for issue preclusion are
satisfied. See Nat’l R.R. Passenger Corp., 288 F.3d at 525(noting that the equitable exceptions to issue preclusion depend
on mutuality of estoppel and whether estoppel is being asserted
offensively or defensively). This is a matter of law over which
we exercise plenary review. See Szehinskyj, 432 F.3d at 255
(“Application of collateral estoppel is a question of law . . . .”);
Resolution Trust Corp. v. Keating, 186 F.3d 1110, 1114 (9th
Cir. 1999) (“Whether collateral estoppel . . . is available to a
litigant is a question of law that we review de novo.”);
Sandberg v. Virginia Bankshares, Inc., 979 F.2d 332, 344 (4th
Cir. 1993) (reviewing the satisfaction of the basic requirements
for issue preclusion de novo); United States v. Sandoz Pharms.
Corp., 894 F.2d 825, 826 (6th Cir. 1990) (same); Balbirer v.
Austin, 790 F.2d 1524, 1526 (11th Cir. 1986) (“[T]his court
exercises plenary review over the rules governing collateral
estoppel.”).
By contrast, the application of non-mutual offensive
collateral estoppel presents a unique potential for unfairness
because a defendant may have had little incentive to defend the
first action vigorously, “particularly if future suits [were] not
foreseeable,” the judgment relied upon may have been
inconsistent with one or more previous judgments in favor of
exacting plenary standard. See Nat’l R.R. Passenger Corp., 288
F.3d at 524-25; Witkowski, 173 F.3d at 198 n.7.
9
the defendant, or the second action may “afford[] the defendant
procedural opportunities unavailable in the first action that
could readily cause a different result.” Parklane Hosiery Co.,
Inc. v. Shore, 439 U.S. 322, 330-31 (1979). Moreover, the use
of non-mutual offensive collateral estoppel “does not promote
judicial economy in the same manner as defensive use does”
because it creates an incentive for plaintiffs “to adopt a ‘wait
and see’ attitude, in the hope that the first action by another
plaintiff will result in a favorable judgment.” Id. at 329-30. To
address these problems, the Supreme Court concluded that trial
courts should have broad discretion to determine when to apply
non-mutual offensive collateral estoppel. Id. at 331. Thus, it is
undoubtedly appropriate to review for abuse of discretion in
such cases.
The instant case involves a defensive assertion of
collateral estoppel by a party to the original TTAB proceeding.
Accordingly, we will exercise plenary review over the District
Court’s decision to apply issue preclusion.
III.
The Second Restatement of Judgments articulates the
general rule of issue preclusion as follows: “When an issue of
fact or law is actually litigated and determined by a valid and
final judgment, and the determination is essential to the
judgment, the determination is conclusive in a subsequent
action between the parties, whether on the same or a different
claim.” Restatement (Second) of Judgments § 27 (1982). “We
have consistently applied this general rule,” Nat’l R.R.
Passenger Corp., 288 F.3d at 525, though our decisions have
10
employed slight variations on the basic requirements embodied
in the Restatement. Compare id., with Henglein v. Colt Indus.
Operating Corp., 260 F.3d 201, 209 (3d Cir. 2001), and
Seborowski v. Pittsburgh Press Co., 188 F.3d 163, 169 (3d Cir.
1999).
We have identified four standard requirements for the
application of collateral estoppel in our case law: “‘(1) the
identical issue was previously adjudicated; (2) the issue was
actually litigated; (3) the previous determination was necessary
to the decision; and (4) the party being precluded from
relitigating the issue was fully represented in the prior action.’”
Henglein, 260 F.3d at 209 (quoting Raytech Corp., 54 F.3d at
190); see also Szehinskyj, 432 F.3d at 255; Hawksbill Sea Turtle
v. Federal Emergency Management Agency, 126 F.3d 461, 475
(1997). We have also considered whether the party being
precluded “had a full and fair opportunity to litigate the issue in
question in the prior action,” Seborowski, 188 F.3d at 169, and
whether the issue was determined by a final and valid judgment,
Nat’l R.R. Passenger Corp., 288 F.3d at 525.
The dispute in this case centers on whether the
TTAB’s finding on likelihood of confusion was “necessary” to
its decision in the cancellation proceedings. Jean Alexander
argues that once the Board concluded that the EQ System mark
had priority over the modernized Shades EQ mark, there was no
reason for it to analyze likelihood of confusion as to these two
marks. To resolve the case at that point, the TTAB needed only
to consider whether the original Shades EQ mark, which had
11
priority, was likely to be confused with the EQ System mark.3
Thus, Jean Alexander contends that the Board’s determination
that there was no likelihood of confusion as between the EQ
System mark and the modernized Shades EQ mark was
unnecessary to its 2001 decision and should not be given
preclusive effect.
L’Oreal argues that collateral estoppel applies here
because both priority of use and likelihood of confusion figured
prominently in the cancellation proceedings and both issues
were potentially dispositive of the case. L’Oreal urges us to
adopt a rule under which preclusive effect is given to a finding
that is an alternative ground for a judgment where that finding,
standing alone, would have been sufficient to support the
judgment. Though an alternative finding may not be strictly
necessary to the judgment in the sense that there was another
stated basis for the decision, L’Oreal contends that giving such
a finding preclusive effect would not compromise the objectives
behind the necessity principle.
The requirement that a preclusive finding must have
been necessary to a judgment is rooted in principles of fairness.
3
Had the Board concluded that the original and modernized
Shades EQ marks were legal equivalents, it could have tacked
the date of first use of the original version onto the modernized
version. This would have given the modernized version priority
over the EQ System mark and forced the Board to address
whether there was a likelihood of confusion between the EQ
System mark and the modernized Shades EQ mark.
12
“[P]arties should be estopped only on issues they actually deem
important, and not on incidental matters.” Lynne Carol
Fashions, Inc. v. Cranston Print Works Co., 453 F.2d 1177,
1183 (3d Cir. 1972). Because litigants are likely to view an
issue that is necessary to the resolution of a case as important
and to litigate it vigorously, it is fair to give such a
determination preclusive effect. See Wickham Contracting Co.,
Inc. v. Bd. of Educ. of City of New York, 715 F.2d 21, 28 (2d
Cir. 1983) (noting that the necessity rule ensures that “parties to
litigation have sufficient notice and incentive to litigate matters
in earlier proceedings which may bind them in subsequent
matters”). The necessity requirement also ensures that
preclusive effect is not given to determinations that did not
“receive close judicial attention,” Commercial Assocs. v. Tilcon
Gammino, Inc., 998 F.2d 1092, 1097 (1st Cir. 1993), or that
were unappealable by virtue of being incidental to a decision,
see Restatement (Second) of Judgments § 27 cmt. h. See also
Pettaway v. Plummer, 943 F.2d 1041, 1044 (9th Cir. 1991)
(“The primary purpose of the rule that prior resolution of an
issue will have collateral estoppel effect only if it was
necessarily decided is to ensure that the finder of fact in the first
case took sufficient care in determining the issue.”); Hicks v.
Quaker Oats Co., 662 F.2d 1158, 1168 (5th Cir. Dec. 1981)
(“[A]n immaterial issue may not have been afforded the same
careful deliberation and analysis as an issue necessary to the
judgment . . . . [and] a decision on an immaterial issue provides
the losing party with no incentive to contest an erroneous
decision by appeal.”); 18 Charles Alan Wright et al., Federal
Practice and Procedure § 4421, p.539 (2d ed. 2002)
(recounting these “[t]wo common explanations” for the
necessity requirement).
13
There is no question that likelihood of confusion was a
central issue in the cancellation proceedings. It was the focus
of the parties’ pleadings and had been litigated extensively over
the course of four years. Reviewing its own decision from
2001, the TTAB noted that this was “not a case where the
Board made incidental determinations on an issue which was
not before it.” (App. 63a.) Rather, the TTAB believed that
likelihood of confusion was an important issue in the case and,
in fact, intended its determination that there was no likelihood
of confusion to be controlling if its holding on priority were
overturned on appeal. Thus, L’Oreal is correct that the finding
on likelihood of confusion constituted an alternative ground on
which the Board dismissed its petition to cancel.
However, this conclusion does not resolve the question
of whether the finding should be given preclusive effect
because, as Jean Alexander notes, the case could have been
resolved without the Board’s determination that there was no
likelihood of confusion between the EQ System mark and the
modernized Shades EQ mark. We must determine whether a
finding that is an alternate, but independently sufficient, basis
for a judgment should be deemed necessary to a decision for
purposes of collateral estoppel.
“Traditional analysis has viewed [alternative holdings]
as presenting a dilemma between two choices – preclusion must
be available as to each of the independently sufficient findings,
or it must be denied as to all.” Wright et al., supra, at § 4421,
p.564. Courts that apply collateral estoppel to alternative
findings have sidestepped the requirement that the
determination be “necessary” to the decision and focused
14
instead on the trustworthiness and practical considerations
surrounding the adjudication. Those courts that deny preclusion
to independently sufficient findings do so because an alternative
holding, by definition, is not “necessary” to a judgment.
The First Restatement of Judgments resolved this
dilemma in favor of extending preclusion to each alternative
holding. See Restatement of Judgments § 68 cmt. n (1942)
(“Where the judgment is based upon the matters litigated as
alternative grounds, the judgment is determinative on both
grounds, although either alone would have been sufficient to
support the judgment.”). The Second Restatement, crafted forty
years later, adopted the contrary position. It states that “[i]f a
judgment of a court of first instance is based on determinations
of two issues, either of which standing independently would be
sufficient to support the result, the judgment is not
conclusive with respect to either issue standing alone.”
Restatement (Second) of Judgments § 27 cmt. i.
There is no consensus among the courts of appeals as to
whether the First or Second Restatement offers the better
approach. The Courts of Appeals for the Second, Seventh,
Ninth, and Eleventh Circuits generally give preclusive effect to
alternative findings. See Magnus Elecs., Inc. v. La Republica
Argentina, 830 F.2d 1396, 1402 (7th Cir. 1987) (holding that
there is “no adequate reason not to apply” the position of the
First Restatement); Schellong v. INS, 805 F.2d 655, 658-59 (7th
Cir. 1986) (“[A] judgment which is based on alternative
grounds is an effective adjudication as to both and is collaterally
conclusive as to both.”); Gelb v. Royal Globe Ins. Co., 798 F.2d
38, 45 (2d Cir. 1986) (“The general rule in this Circuit is that ‘if
15
a court decides a case on two grounds, each is a good
estoppel.’” (quoting Irving Nat’l Bank v. Law, 10 F.2d 721, 724
(2d Cir. 1926))); DeWeese v. Town of Palm Beach, 688 F.2d
731, 734 (11th Cir. 1982) (“Normally, each alternative basis
would form an independent ground for collateral estoppel . . .
. In this case, however, the existence of alternative grounds
makes the application of offensive collateral estoppel
problematic.” (emphasis added)); In re Westgate-California
Corp., 642 F.2d 1174, 1176-77 (9th Cir. 1981) (following
“established rule” that preclusion apples to each adjudicated
issue necessary to support any of the grounds upon which a
judgment rests).4
4
The Second Restatement relied heavily on the reasoning of
Halpern v. Schwartz, 426 F.2d 102 (2d Cir. 1970) in articulating
its position on independently sufficient alternative findings. See
Restatement (Second) of Judgments § 27 reporter’s note (“[T]he
reasoning of the [Halpern] court is highly persuasive and is
adopted as the basis of [Comment i] . . . .”). However, even
before the Second Restatement had been completed, the Court
of Appeals for the Second Circuit noted that Halpern was
limited to its facts and that the decision was “not intended to
have . . . broad impact outside the specific context” in which
Halpern arose, namely, bankruptcy proceedings. Winters v.
Lavine, 574 F.2d 46, 67 (2d Cir. 1978); see also Williams v.
Ward, 556 F.2d 1143, 1154 (2d Cir. 1977). Thus, in the Second
Circuit, the view of the First Restatement still controls “in
circumstances divergent from those in Halpern.” Winters, 574
F.2d at 67.
16
By contrast, the Courts of Appeals for the Tenth and
Federal Circuits have refused to give preclusive effect to
alternative findings that were each independently sufficient to
support a judgment. See Comair Rotron, Inc. v. Nippon Densan
Corp., 49 F.3d 1535, 1538-39 (Fed. Cir. 1995) (holding that a
finding was not essential to a judgment for collateral estoppel
purposes where judgment was supportable on other grounds);
Turney v. O’Toole, 898 F.2d 1470, 1472 n.1 (10th Cir. 1990)
(following Restatement (Second) of Judgments § 27 cmt. i).
The Fifth Circuit Court of Appeals, though explicitly declining
to decide whether to adopt the Second Restatement’s rule in all
cases, has discussed the rule with approval and applied it in the
context of non-mutual offensive collateral estoppel. Hicks, 662
F.2d at 1169-70, 1173. Similarly, opinions of the Fourth
Circuit Court of Appeals reflect a preference for the Second
Restatement position, though the Court has not been entirely
consistent on the issue. Compare Tuttle v. Arlington County
Sch. Bd., 195 F.3d 698, 704 (4th Cir. 1999) (declining to apply
collateral estoppel to alternative finding of prior court), with
Ritter v. Mount St. Mary’s College, 814 F.2d 986, 993-94 (4th
Cir. 1987) (noting “general rule” that alternative findings are
not given preclusive effect, but nonetheless applying collateral
estoppel to an alternative ground for a judgment that was fully
litigated).
Our Court has not staked out a definitive position as to
whether the doctrine of issue preclusion should apply to an
independently sufficient alternative finding, or how the
necessity requirement figures into this situation. In a case
where we were applying New Jersey law, which follows section
27 of the Second Restatement, we permitted the parties to
17
relitigate an alternative holding of a state court that had not
been reviewed on appeal. See Arab African Int’l Bank, 958
F.2d at 537 (citing Restatement (Second) of Judgments § 27
cmts. i, o). However, we gave no indication of whether we
would adopt this approach ourselves in a case that involved
only federal law.
In another case, Hawksbill Sea Turtle v. Federal
Emergency Management Agency, the plaintiffs argued that
collateral estoppel was inappropriate because “any findings
made with respect to [the issue in question] were part of an
alternative holding, and therefore not necessary to the prior
ruling.” 126 F.3d at 473-74. In the prior case between the
parties, the district court had held that it lacked the power to
hear the plaintiffs’ claims and, alternatively, that these claims
were meritless. Id. at 475. We held that applying issue
preclusion to the substantive findings was improper because,
once a court determines that it lacks jurisdiction to hear a
plaintiffs’ claims, “any findings made with respect to the merit
of those claims are not essential to the judgment and cannot
support the application of collateral estoppel.” Id.Hawksbill Sea Turtle stands for the proposition that “[a]
court that admits its own lack of power to decide should not
undertake to bind a court that does have power to decide.”
Wright et al., supra, at § 4421, p.576-78; see also Gulla v.
North Strabane Twp., 146 F.3d 168, 173 (3d Cir. 1998)
(declining to give preclusive effect to findings that both deny
court’s power to decide the merits and express a view on the
merits); Stebbins v. Keystone Ins. Co., 481 F.2d 501, 508 (D.C.
Cir. 1973) (holding that collateral estoppel is not applicable to
18
finding against plaintiff on merits where court also held that
plaintiff lacked standing). This principle is more narrow than
the Second Restatement’s rule that an alternative finding should
never be given preclusive effect. Here, both of the TTAB’s
alternative holdings related to the merits of the cancellation
action, and there was no doubt as to the Board’s power to rule
on both. Consequently, Hawksbill Sea Turtle does not control.
Finally, in Henglein v. Colt Industries Operating Corp.,
we gave a court’s alternative findings preclusive effect in a
subsequent proceeding between the same parties. However, the
findings had originally been made in the context of a
declaratory judgment action and we noted in our issue
preclusion analysis that the necessity requirement for collateral
estoppel “has diminished importance in the declaratory
judgment setting.” Henglein, 260 F.3d at 212. “‘Since the very
purpose of declaratory relief is to achieve a final and reliable
determination of legal issues, there should be no quibbling
about the necessity principle.’” Id. (quoting Wright et al.,
supra, at § 4421, p.581). Consequently, though we held that
collateral estoppel should apply to all issues that the parties
have litigated and a court has resolved in a declaratory action,
we did not comment on how this principle applies beyond the
context of declaratory judgments. Nonetheless, we were willing
to look beyond the necessity requirement based on the nature of
the proceeding.
Thus, the cases in which we have considered whether to
give preclusive effect to independently sufficient alternative
findings are all distinguishable from the instant case. We have
never chosen between the positions of the First or Second
19
Restatement under the circumstances before us. We will
accordingly turn to the arguments in support of each approach.
Applying issue preclusion to independently sufficient
alternative findings furthers the basic objectives of the doctrine.
“Collateral estoppel . . . has the dual purpose of protecting
litigants from the burden of relitigating an identical issue with
the same party or his privy and of promoting judicial economy
by preventing needless litigation.” Parklane Hosiery, 439 U.S.
at 326. Denying preclusive effect to a finding that would
support a court’s judgment merely because the case was
disposed of on other grounds as well would result in the
inefficient use of private and public litigation resources. Courts
routinely decide cases on multiple grounds, each of which has
been fully litigated and given careful consideration due to their
potentially dispositive role in the case. Because the interests
that the necessity principle protects are not compromised under
these circumstances, it would be curious to conclude that none
of these findings were necessary to the judgment for purposes
of collateral estoppel. See Restatement of Judgments § 68 cmt.
n (“It seems obvious that it should not be held that neither
[alternative finding] is material [to a judgment], and hence both
should be held to be material.”).
In opposition to this position are three arguments against
applying collateral estoppel to independently sufficient
alternative findings. “First, a determination in the alternative
may not have been as carefully or rigorously considered as it
would have if it had been necessary to the result, and in that
sense it has some of the characteristics of dicta.” Restatement
(Second) of Judgments § 27 cmt. i. Second, “[s]ince one
20
alternative ground will support the judgment, the losing litigant
has little incentive to appeal another ground, even if erroneous.”
Hicks, 662 F.2d at 1168; see also Restatement (Second) of
Judgments § 27 cmt. i (“[T]he losing party, although entitled to
appeal from both determinations, might be dissuaded from
doing so because of the likelihood that at least one of them
would be upheld and the other not even reached.”). Without an
“incentive to appeal, the losing litigant will be less likely to
consider collateral consequences of the erroneous ground, and
this may disadvantage him unfairly later, unless he is
particularly prescient.” Hicks, 662 F.2d at 1168.
Finally, to the extent that parties would file “cautionary
appeals” to avoid the possible preclusive effects of an
alternative holding in future litigation, this would “increas[e]
the burdens of litigation on the parties and the courts rather than
lightening those burdens.” Restatement (Second) of Judgments
§ 27 cmt. i. Of course, this result is “contrary to the principles
of judicial economy which motivated the doctrine of collateral
estoppel in the first place.” Hicks, 662 F.2d at 1169.
We are not persuaded by the rationale supporting the
position of the Second Restatement. As a general matter, we
are unconvinced that courts do, or should be assumed to, give
less rigorous consideration to the alternative grounds they voice
for their decisions. A determination that is independently
sufficient to support a court’s judgment is not “incidental,
collateral, or immaterial to that judgment,” Hicks, 662 F.2d at
1168, and it is reasonable to expect that such a finding is the
product of careful judicial reasoning.
21
Moreover, because collateral estoppel applies only to
issues that were “actually litigated” in prior proceedings, there
is little risk that preclusive effect will be given to
determinations that the parties did not deem important or that
were not subject to evidentiary proof. See Wright et al., supra,
at § 4419, p.495 (noting the relationship between the “actual
litigation” and “necessary” prongs for collateral estoppel); id. at
§ 4421, p.545 (“The necessity principle may become mingled
with the requirements of actual litigation and actual decision.”).
For example, in the instant case, the parties focused on
the likelihood of confusion in their pleadings and extensively
litigated the issue for more than four years. Thus, litigants are
adequately protected from the unfairness of giving preclusive
effect to a finding that was not “vigorously litigated” or was not
a “focus of the court’s decision.” Commercial Assocs., 998
F.2d at 1097; see also Williams, 556 F.2d at 1154 (“The
concern that an issue not essential to the prior judgment may not
have been afforded the careful deliberation and analysis
normally applied to essential issues is a real one in some
circumstances, but not . . . where [the prior court] had the
substantive issue fully briefed, and discussed its factual basis at
length.”).
Nor do we believe that the position of the First
Restatement increases the risk that preclusion will be applied
unfairly against a litigant who failed to appeal a judgment
because it was supportable on alternative grounds. This
concern is utterly speculative and does not outweigh the
systemic interest that courts and litigants have in ensuring that
the identical parties receive only “one bite at the apple” on a
given issue.
22
Adopting the Second Restatement’s view that preclusive
effect should be denied to findings because they are stated in
the alternative would significantly weaken the principle that
“later courts should honor the first actual decision of a matter
that has been actually litigated.” Wright et al., supra, at § 4416,
p.386. The doctrine of collateral estoppel protects this vital
interest of the judicial system. See S. Pac. Ry. v. United States,
168 U.S. 1, 49 (1897) (noting that the “general rule” of issue
preclusion “is demanded by the very object for which civil
courts have been established”). Litigants often raise multiple
issues that are potentially dispositive of a case, and courts
routinely address them in the interest of providing a complete
and thoroughly reasoned decision. To permit or require
relitigation of all alternative findings would eviscerate a great
number of judicial determinations that were the products of
costly litigation and careful deliberation. Indeed, under the
approach of the Second Restatement, the judicial findings in
nearly any complex case would be unlikely to preclude
subsequent relitigation of the same issues.
Thus, we will follow the traditional view that
independently sufficient alternative findings should be given
preclusive effect. We recognize that such determinations do not
fulfill the necessity requirement for collateral estoppel in a strict
sense but, just as we did not “‘quibbl[e] about the necessity
principle’” in the context of declaratory judgments, Henglein,
260 F.3d at 212 (quoting Wright et al., supra, at § 4421, p.581),
neither will we do so in the context of alternative holdings that
have been actually litigated and decided. Applying collateral
estoppel in such cases does not undermine the interests that the
necessity principle protects. We have little difficulty promoting
23
the objectives of the necessity rule rather than requiring its
formal fulfillment in situations where those objectives are
served and it is equitable to do so. See Raytech Corp., 54 F.3d
at 195 n.8 (noting that issue preclusion is equitable in nature);
Jack Faucett Assocs., Inc. v. Am. Tel. & Tel. Co., 744 F.2d 118,
125 (D.C. Cir. 1984) (same); see also Nat’l R.R. Passenger
Corp., 288 F.3d at 525 (describing the “equitable exceptions”
to collateral estoppel); Restatement (Second) of Judgments § 28
(same). Accordingly, we adopt the view of the First
Restatement and the other courts of appeals that permit the
application of issue preclusion to alternative findings.
We note that at least one commentator has offered a
variation on the First Restatement’s rule, whereby
independently sufficient alternative findings would be given
preclusive effect only “if a second court can determine without
extended inquiry that a particular finding reflects a careful
process of decision.” Wright et al., supra, at § 4421, p. 580; see
also Nat’l Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900,
909 (6th Cir. 2001) (“[W]here . . . one ground for the decision
is clearly primary and the other only secondary, the secondary
ground is not ‘necessary to the outcome’ for the purposes of
issue preclusion.”). This approach might work well in
circumstances such as those before us, where the same tribunal
that made the potentially preclusive finding also concluded later
that this finding was necessary to its earlier judgment.
However, “it is in the interest of predictability and simplicity for
the result of nonpreclusion to be uniform.” Restatement
(Second) of Judgments § 27 cmt. i. Given that “the question of
preclusion will almost always be a close one if each case is to
rest on its own particular facts,” id., a rule that required case-by-
24
case evaluation and second-guessing of how carefully the first
tribunal considered a question would deny the parties the
benefit of a “clear rule” and would likely result in a “wasteful
expansion of the effort to reconstruct the initial process of
decision,” Wright et al., supra, at § 4421, p.580. We thus
believe that the First Restatement of Judgments articulates a
clearer and better rule to be applied in the circumstances before
us.
Jean Alexander contends that, regardless of whether we
adopt the First Restatement rule, it would be unfair to apply
issue preclusion here because Jean Alexander was the
prevailing party in the cancellation proceedings and was
therefore unable to appeal the TTAB’s favorable finding on
likelihood of confusion. See Restatement (Second) of
Judgments § 28(1) (rejecting issue preclusion where “the party
against whom preclusion is sought could not, as a matter of law,
have obtained review of the judgment in the initial action”).
We disagree. Any “party to a [TTAB] proceeding who is
dissatisfied with the decision of the Board” may appeal.
Trademark Trial and Appeal Board Manual of Procedure §
901.01 (2d ed. 2004); see also 15 U.S.C. § 1071; 37 C.F.R. §
2.145. But see Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d
622, 626 (9th Cir. 1991) (citing Weight Watchers Int’l, Inc. v.
I. Rokeach & Sons, Inc., 546 F. Supp. 841, 842 (S.D.N.Y.
1981), for proposition that a prevailing party may only appeal
the Board’s action in needlessly reaching an issue, rather than
its erroneous resolution of that issue). More generally, the
Supreme Court has held that a prevailing party may appeal “for
the purpose of obtaining a review of findings he deems
erroneous which are not necessary to support the decree.” Elec.
25
Fitting Corp. v. Thomas & Betts Co., 307 U.S. 241, 242 (1939);
see also Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 334
(1980) (“[A]ppeal may be permitted from an adverse ruling
collateral to the judgment on the merits at the behest of the party
who has prevailed on the merits, so long as that party retains a
stake in the appeal satisfying the requirements of Art[icle] III.”).
Under this authority, Jean Alexander could have appealed the
Board’s finding on likelihood of confusion, even as the
prevailing party.
Jean Alexander’s corollary argument is that, even if it
could have appealed the finding, it would have harmed its own
interest to do so. “In the context of the [c]ancellation
[p]roceeding before the TTAB, Jean Alexander had absolutely
no interest in proving that there was likelihood of confusion,”
as this was a requirement for L’Oreal to prevail. (Jean
Alexander Br. at 26.) We are unsympathetic to this argument.
It was not necessary for Jean Alexander to resist the
cancellation petition by denying the likelihood of confusion
between its EQ System mark and the modernized Shades EQ
mark and raising the issue as an affirmative defense. However,
having raised and litigated this specific claim, Jean Alexander
cannot now avoid the Board’s determination of it because its
own interests or the litigation context have changed. See United
States v. Webber, 396 F.3d 381, 385-86 (3d Cir. 1968).
IV.
We follow the rule of the First Restatement of Judgments
and give preclusive effect to the TTAB’s alternative holding
that there is no likelihood of confusion between L’Oreal’s
26
modernized Shades EQ mark and Jean Alexander’s EQ System
mark.5 Because Jean Alexander’s claim is barred by the
doctrine of collateral estoppel, we will affirm the District
Court’s order.
5
We also reject Jean Alexander’s alternative arguments. First,
it has claimed that it lacked a full and fair opportunity to litigate
likelihood of confusion because it did not bear the burden of
proof on this issue in the cancellation proceedings. We reject
this argument out of hand. There is no legal authority for the
proposition that a party without the burden of proof does not
have the opportunity to litigate an issue and, in any event, Jean
Alexander asserted as an affirmative defense to the cancellation
action that there was no likelihood of confusion and therefore
did bear a burden of proof on the issue.
Jean Alexander also argues that the District Court should
have converted L’Oreal’s motion to dismiss into a motion for
summary judgment after L’Oreal attached to its motion to
dismiss copies of the TTAB’s opinions and the parties’
pleadings before the TTAB in the cancellation action. However,
“[t]o resolve a 12(b)(6) motion, a court may properly look at
public records, including judicial proceedings, in addition to the
allegations in the complaint.” S. Cross Overseas Agencies, Inc.
v. Wah Kwong Shipping Group Ltd., 181 F.3d 410, 426 (3d Cir.
1999). Thus, the District Court did not err in this respect.
27
APPENDIX
L’Oreal’s Original “Shades EQ” Mark
(First Used in 1988)
28
Jean Alexander’s “EQ System” Mark
(First Used in 1990; Registered in 1993)
29
L’Oreal’s Modernized “Shades EQ” Mark
(First Used in 1992; Application for Registration Filed in
1996)