UNIVERSITY OF WISCONSIN v. PHOENIX INTERNATIONAL SOFTWARE (December 28, 2010)
The Court withdrew this opinion on February 10, 2011 and granted Phoenix’ Petition for Rehearing limited to the sovereign immunity issue. Supplemental briefing and oral argument will focus on:
Whether the district court erred in concluding that plaintiffâappellee Board of Regents of the University of Wisconsin (Wisconsin) did not waive any sovereign immunity it may have had
to the counterclaims asserted by defendantâappellant Phoenix International Software (Phoenix),
or otherwise consent to their adjudication in this case?
Whether the counterclaims brought by Phoenix against Wisconsin are compulsory or
permissive counterclaims under FED. R. CIV. P. 13?
Phoenix International Software and the University of Wisconsin each registered the mark CONDOR with the Patent and Trademark Office. Phoenix has used the mark since 1978 and registered it in 1997. Wisconsin registered its mark in 2001. Each mark refers to computer software, although the Phoenix system is designed principally for mainframe systems and the Wisconsin system is designed principally for individual computers. Phoenix petitioned the Trademark Trial and Appeal Board to cancel Wisconsin's mark on the ground that it creates confusion. The Board granted the petition and canceled the mark. Wisconsin challenged the Board's decision by filing an action in federal district court. Phoenix counterclaimed for trademark infringement and false designation of origin. Judge Crabb (W.D. Wis.) reversed the Board’s determination on Wisconsin's motion for summary judgment and also dismissed Phoenix's counterclaims on sovereign immunity grounds. Phoenix appeals.
In their opinion, Seventh Circuit Judges Flaum, Wood (dissenting in part), and Tinder reversed and remanded for trial on the likelihood of confusion issue but affirmed on the sovereign immunity issue. The Court first addressed the likelihood of confusion issue and specifically the standard of review. Wisconsin had two choices to challenge the Board's decision: a direct appeal to the Federal Circuit limited to the record below and decided on a substantial evidence standard, or a new action in the district court allowing it to supplement the record below. Since Wisconsin chose the latter course, the Court's standard of review is layered. The Board's findings are owed typical administrative appeal deference while the new evidence is treated like a typical summary judgment record and viewed in the light most favorable to the non-moving party. That required the Court to distinguish the Board's findings from new evidence below. The Court concluded that the district court erred in reversing the Board. The principal issue in the case is the likelihood of confusion. The Board considered the actual nature and use of the software while the district court focused its analysis on the description of the products in their registration materials. But whether the public may be confused (i.e., attribute the products to a single source) is the real focus of the multiple factor likelihood of confusion test. The district court was wrong when it focused principally on the products' similarities and matters of use (and doubly wrong when it focused exclusively on the written descriptions). On the other hand, the Board was right when it focused on the facts that the marks were identical, their functions were similar, and sophisticated purchasers were likely to believe that their sources were related. The Court reinstated the Board's findings. It considered Wisconsin's new evidence but found it not sufficient to overcome those findings and compel summary judgment in Wisconsin's favor. It therefore remanded for a trial on likelihood of confusion. The Court next considered Phoenix's counterclaims, which the district court dismissed on sovereign immunity grounds. There are two exceptions to the Eleventh Amendment's grant of sovereign immunity. The first is when Congress regulates state behavior pursuant to the Fourteenth Amendment. The second is when a state waives its immunity and consents to suit. The Court noted that the Supreme Court has already found unconstitutional the Patent Remedy Act's creation of state liability for patent infringement in Florida Prepaid. Given the similarities between the two statutes, the Court found the decision controlling. With respect to waiver, the Court first rejected the argument that Wisconsin's participation in the regulated trademark process amounted to waver, again relying on Florida Prepaid. Lastly, the Court addressed and rejected the argument that Wisconsin voluntarily waived its sovereign immunity when it chose to challenge the Court's decision by filing a suit in the district court. The Court distinguished the Supreme Court's Lapides decision, in which Georgia was not allowed to invoke sovereign immunity after it removed a case from state court. Here, Wisconsin's filing simply reflected its choice of a forum for judicial review. It did not alter the nature of the proceedings in any way.
Judge Wood agreed with the majority on the likelihood of confusion with issue and also with respect to whether Wisconsin's participation in a federal regulatory program constituted a waiver of sovereign immunity. She dissented, however, on the issue of whether Wisconsin's district court challenge to the Board’s decision constituted a waiver. The issue is not, she said, whether the state is a defendant, a plaintiff, an intervenor, or an appellant. It is, instead, the voluntariness of the decision and its consequences. Here, Wisconsin chose to file a case. Lapides controls -- Wisconsin has waived sovereign immunity. Wisconsin was not even required to appeal. It could have accepted that the Board's decision. Similarly, it could have appealed to the Federal Circuit, where Phoenix would not have been able to file a counter court. Instead, Wisconsin chose to gain a litigation advantage by filing in the district court. Just like in the Lapides case, Wisconsin was using its sovereign immunity to gain a litigation advantage. Finally, Judge Wood wrote at length suggesting that it may be time to reconsider a "commercial act" exception to the scope of sovereign immunity.
Forty-five years ago, Eva Sweis opened the first "Eva's Bridal" shop in Chicago. The business was quite successful, selling dresses for brides and bridesmaids. The business eventually passed to her daughter and son-in-law. They sold one of their "Eva's Bridal" shops in a Chicago suburb to Nayef Ghusein. Their agreement required a $75,000 annual payment for the right to use the name. The agreement did not require Ghusein to conduct his operations according to any particular guidelines. The agreement expired in 2002 but Ghusein continues to operate the store under the same name without paying an annual fee. Eva's Bridal brought suit pursuant to the Lanham Act. Judge Darrah (N.D. Ill.) dismissed the complaint, concluding that plaintiffs abandoned the mark when they allowed Ghusein to use it without exercising any control over the nature and quality of the business. Plaintiffs appeal..jpg)
