Date: 12-28-2010

Case Style: Board of Regents of the University of Wisconsin System v. Phoenix International Software, Inc.

Case Number: 08-4164

Judge: Tinder

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Western District of Wisconsin (Dane County)

Plaintiff's Attorney:

Defendant's Attorney:

Description: Phoenix International Software created software that it called Condor and registered the CONDOR mark with the Patent and Trademark Office (PTO) for “computer software for on-line programming development, library management and system utilities functioning on mainframe systems.” Phoenix used this mark since June 1978 and registered it in January 1997.

The delay in registration was due to a prior, separate registered CONDOR mark not at issue here. (We are capitalizing CONDOR when we refer to the mark, as the parties have in their briefs.)

The Board of Regents of the University of Wisconsin System (to whom we will refer simply as Wisconsin, because it is an arm of the state) registered its own CONDOR mark with the PTO in 2001 for “computer network operating system software, downloadable from a global computer network, that delivers large amounts of computational power by utilizing idle computing resources in a network of individual computer workstations . . . .”

The question in this case is whether Wisconsin’s CONDOR mark is likely to be confused with Phoenix’s. Phoenix filed a petition before the Trademark Trial and Appeal Board (TTAB) to cancel Wisconsin’s registration on the grounds that Wisconsin’s registration would create confusion in trade. See 15 U.S.C. § 1064 (“A petition to cancel a registration of a mark . . . may . . . be filed . . . by any person who believes that he is or will be damaged . . . by the registration of a mark on the principal register . . . . ”). The confusion in trade allegation refers to 15 U.S.C. § 1052(d), which forbids the registration of a trademark that “[c]onsists of or comprises a mark which so resembles a mark registered in the [PTO] . . . as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive . . . .”

The TTAB granted the petition and cancelled Wisconsin’s registration, finding that the marks are identical in every aspect. In such cases, even when goods or services are not competitive or intrinsically related, the use of identical marks can lead to an assumption that there is a common source . . . . In addition, the parties’ software performs similar functions and, therefore, we cannot find that they are used in unrelated fields. Even sophisticated purchasers would likely believe that there is some relationship or association between the sources of the goods under these circumstances.

Phoenix Software Int’l v. Bd. of Regents of the Univ. of Wis. Sys., Cancellation No. 92042881, at 19 (T.T.A.B. Sept. 26, 2007) (quotations and citations omitted). Wisconsin brought a civil action in federal district court pursuant to 15 U.S.C. § 1071(b) challenging the TTAB’s decision. Phoenix counterclaimed, seeking damages from Wisconsin for trademark infringement and false designation of origin under the Lanham Act (15 U.S.C. §§ 1114, 1125(a)); it also raised state law claims that it later voluntarily dismissed with prejudice. The district court dismissed Phoenix’s federal counterclaims on sovereign immunity grounds and granted Wisconsin’s motion for summary judgment, reversing the TTAB’s determination. Phoenix appeals.

I. Standard of Review

The standard of review in this case is complicated by its initial status as a matter before the TTAB. After losing there, Wisconsin had two options: take an appeal directly to the Court of Appeals for the Federal Circuit or institute an action in a district court. See 15 U.S.C. § 1071.

The procedure for appeal to the Federal Circuit conforms to the familiar standard for administrative appeals.

The parties present their case based on the closed record developed before the TTAB and the circuit court determines whether substantial evidence before the TTAB supported the decision. CAE, Inc. v. Clean Air Eng’g, Inc., 267 F.3d 660, 673, 675 & n.9 (7th Cir. 2001).

The choice to institute an action in the district court allows Wisconsin the benefit of expanding the record by offering new evidence to fend off Phoenix’s cancellation claim. We have described the district court option as “both an appeal and a new action, which allows the parties to request additional relief and to submit new evidence.” Id. at 673; see also Aktieselskabet AF 21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 12-13 (D.C. Cir. 2008) (“[T]he court may consider both new issues and new evidence that were not before the TTAB.”). But a court’s posture when considering an appeal and new issues is different, particularly in terms of issues of fact, which we will see are the key issues in this case. There is tension between the level of deference an appellate court pays to the fact-finder (in this case, an administrative body) and the parties’ opportunity to present new evidence. See CAE, 267 F.3d at 674 (“[T]he district court is an appellate reviewer of facts found by the TTAB and is also a fact-finder based on new evidence introduced to the court.”).

The district court, relying on CAE, adopted a deferential substantial evidence standard to review the TTAB’s findings. See id. at 676. The court described its role as one that “affords deference to the findings of fact made by the board but considers the board’s decision de novo to the extent the parties present new evidence.

The board’s findings of fact are properly reviewed under the standard set forth in [the Administrative Procedure Act (APA)] which requires the court to set aside findings and conclusions ‘unsupported by substantial evidence.’ ” Bd. of Regents of the Univ. of Wis. Sys. v. Phoenix Software Int’l, Inc., No. 07 C 665, 2008 WL 4950016, at *8 (W.D. Wis. Nov. 18, 2008) (citing CAE, 267 F.3d at 674, 675- 76). The district court’s formulation of the interplay between both sets of evidence matches ours. “Although the district court’s review of the TTAB’s decision is considered de novo when the parties present new evidence and assert additional claims, the district court also must afford deference to the fact findings of the TTAB.” CAE, 267 F.3d at 674. (We note, however, that the D.C. Circuit has recently held that because the Lanham Act, 15 U.S.C. § 1071(b), provides for judicial review of TTAB decisions, the APA is not directly applicable. See Aktieselskabet, 525 F.3d at 14. The D.C. Circuit did not address how this would affect its deference to the TTAB’s fact-finding, except to note that courts have interpreted Dickinson v. Zurko, 527 U.S. 150 (1999), as requiring the application of the APA’s substantial evidence standard to TTAB decisions. Aktieselskabet, 525 F.3d at 14 & n.2. We are one such court, CAE, 267 F.3d at 675, and neither party has made an issue of our standard of review.)

So an important part of this case should be to delineate the specific factual findings of the TTAB to which we owe deference and the new evidence, which we view in favor of the nonmoving party on a motion for summary judgment, and assess the impact of each on the summary judgment standard. Given that Phoenix was the prevailing party before the TTAB and that it was the nonmoving party on the summary judgment motion that was granted, we must say at the outset that the state of the facts presents a real obstacle to summary judgment in Wisconsin’s favor. A party is entitled to summary judgment only if there exists “no genuine issue of material fact” and the moving party “is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2).

The entire issue in this case—the likelihood of confusion— is an issue of fact. AutoZone, Inc. v. Strick, 543 F.3d 923, 929 (7th Cir. 2008); CAE, 267 F.3d at 677; Barbecue Marx, Inc. v. 551 Ogden, Inc., 235 F.3d 1041, 1044 (7th Cir. 2000); Reed-Union Corp. v. Turtle Wax, Inc., 77 F.3d 909, 912 (7th Cir. 1996); McGraw-Edison Co. v. Walt Disney Prods., 787 F.2d 1163, 1167 (7th Cir. 1986).

To overturn the TTAB’s decision, therefore, the district court (and this court, on de novo review) must find that substantial evidence did not support the TTAB’s determination, or that a legal error clouded its understanding of the likelihood of confusion issue. If the TTAB’s determination is supported by substantial evidence and there is no undermining legal error, Wisconsin must show that there is a killer set of facts, that Wisconsin neglected to bring to the TTAB’s attention, that resolves the case in its favor even if we credit all the facts the TTAB found during its proceedings. To win on summary judgment, Wisconsin must show that the TTAB was not merely wrong, but wrong as a matter of law, and that the evidence was not only not substantial enough to support its decision but that the evidence compelled, without a new hearing by a fact-finder, the conclusion opposite to the TTAB’s determination. (We ordinarily do not allow a party to hold evidence in reserve for appeal, but our standard of review is prescribed by the Lanham Act, 15 U.S.C. § 1071(b)(1). As the D.C. Circuit noted, the Lanham Act “does not require exhaustion of the administrative procedures itself” and therefore does not impose the traditional waiver rules on parties appealing TTAB decisions to the district court. Aktieselskabet, 525 F.3d at 14.)

We now proceed to the analysis. Only if the record, as credited by the TTAB and supplemented by the parties in the district court, reveals no genuine issue of material fact may we affirm the district court’s decision.

II. Relevant Findings

A. Trademark Trial and Appeal Board

The TTAB found that Wisconsin’s software “involve[s] using individual workstations in a network to better utilize idle computing resources,” while Phoenix’s software “functions on a mainframe system and . . . provides online programming development, library management and systems development.” Phoenix Software Int’l, Cancellation No. 92042881, at 10. Before the TTAB was testimony from Wisconsin’s mainframe coordinator that “an organization that did not have a mainframe or is not involved in developing software application[s] for mainframe computers” would have no use for Phoenix’s software and testimony from Wisconsin’s software creator that established that its software was not used on mainframe computers. (“[N]one of the [Wisconsin] Condor users that came back to us and asked any question told us that it’s installed on a mainframe.”) But Phoenix presented evidence that its software, at least, was usable beyond the mainframe environment. Its sole shareholder, Fred Hoschett, testified in a deposition that “effectively we can run our software, unchanged, unaltered on a workstation, on someone’s desktop, as if it were on a mainframe” and that the software “often” operates on a network of workstations, which he defined as a “LAN, WAN or some other network that allows the interconnection of these workstations.” (LAN is an acronym for Local Area Network; WAN is an acronym for Wide Area Network.) He also testified that he has “many customers that use Condor that do not have mainframes.”

In his deposition, Hoschett also read Wisconsin’s description of its software from the University’s web site: Condor is a specialized workload management system for computer-intensive jobs. Like other full-featured batch systems, Condor provides a job queuing mechanism, scheduling policy, priority scheme, resource monitoring, and resource management. Users submit their serial and parallel jobs to Condor. Condor places them into a queue, chooses when and where to run the jobs based upon a policy, carefully monitors their progress, and ultimately informs the user upon completion.

Hoschett testified that this language “very much” concerned him because when he first read Wisconsin’s description of its software he initially thought it was describing his product. Before the TTAB, Phoenix described its software as “a toolbox of functionality to be used essentially by anyone who uses a computer to assist them in doing their jobs, whether it be programming software, submitted batch jobs and queuing batch jobs, or managing the environment or managing the resources.”

Based on this evidence, the TTAB found that there was “at least some evidence in the record that the parties’ respective software performs the same general functions and the evidence does not demonstrate the goods are used in distinctly different fields,” and that “there is no clear division between the parties’ software that would cause us to conclude that these products are not related.”

The biggest difference between the products the TTAB found was that Phoenix’s software was “used in a mainframe environment while [Wisconsin’s] goods are used in a network of individual computer workstations.” That distinction was “not necessarily” significant, because as one of Wisconsin’s witnesses conceded, “there might be some incentive” to operate “in both environments.”

The TTAB further found that both programs were “downloadable” and nothing in Phoenix’s registration indicated otherwise, that consumers of either program were not ordinary consumers and had “some level of skill and sophistication to the extent that they are programming mainframe computers or networking computer workstations to increase computational resources,” and that their “purchases would be made with some care.” (The TTAB classified consumers of both programs as purchasers, even though Wisconsin distributes its software under an open source, free license. This difference is irrelevant to our analysis.) The TTAB also found that there was no evidence that any consumer was actually confused as to the source of either product despite evidence that Phoenix offered to support its claim to the contrary (including Internet searches for “Condor Software” that returned results for both products and a Wikipedia entry for Wisconsin’s product, with no entry for Phoenix’s).

The TTAB found that both parties’ marketing practices were “relatively limited.” A Wisconsin witness testified that “[w]e don’t do any advertising with Condor” and Phoenix’s controller estimated that Phoenix spent approximately $65,000 in marketing, focused on attending trade shows and printing brochures and other marketing materials. But Wisconsin told the TTAB that it was expanding its operations, which the TTAB found made the chances of confusion more likely. Based on these factual findings and inferences drawn therefrom, and applying relevant law, the TTAB found that Phoenix had met its burden of proving the likelihood of confusion and granted Phoenix’s petition to cancel Wisconsin’s registration of the CONDOR mark. It noted that “the marks are identical in every aspect” and that both products perform similar functions. The TTAB concluded that “we cannot find that they are used in unrelated fields” and that “[e]ven sophisticated purchasers would likely believe that there is some relationship or association between the sources of the goods under these circumstances.”

B. District Court

At the district court, Phoenix attempted to further supplement the record with evidence that bolstered its case that the Condor software products performed overlapping functions. Wisconsin, according to Phoenix’s sole shareholder Fred Hoschett, had struck deals with IBM to make Wisconsin’s version of Condor available on PC-based mainframes. Hoschett also provided a list of customers operating Phoenix’s version of Condor on PCbased mainframes. But the district court rejected the proffered evidence on the grounds that it was filed with Phoenix’s reply brief instead of in its initial proposed findings of fact, in violation of a local rule. Phoenix does not argue that it did, in fact, comply with the local rule.

Based on the evidence it did consider, the district court found that it was undisputed that Phoenix’s software cannot run on a network of workstations that are not connected to a mainframe system, but that the software may be run on non-mainframe computers through the use of emulation software. The court found that the Phoenix software allows “its users to submit batch jobs to local and remote computers through a network of computers to more effectively utilize and balance the available computing cycles,” that Phoenix had 100 or fewer active licensees of its software, but that licenses cost anywhere from $30,000 to $300,000 a year (so that 100 licenses can be very profitable), and that Phoenix advertises at trade shows, on the Internet, and through brochures.

Phoenix’s customers, the court found, must be specialized because mainframe computer systems “are generally expensive computing systems that are extremely reliable and secure and capable of enormous throughput,” they are “centrally managed and maintained,” and a choice of software for use on a mainframe “requires careful consideration.” In other words, customers don’t buy mainframe software on a lark. The end-users of software like Phoenix’s are “mainframe systems administrators and mainframe systems application developers.”

The community of mainframe administrators and developers is a tight-knit one (in the words of the district court, a “niche”) that learns about products through word-of-mouth advertising, mainframe trade shows and conferences, and the advice of consulting firms. Phoenix spent approximately $65,000 on marketing in 2000; that number was virtually unchanged in 2003. Phoenix’s competitors are IBM and Computer Associates.

As for distribution and customer overlap, the district court found that Wisconsin distributes its software under an open software license and links together “a network of individually owned computer resources” to create a system wherein those computers trade operating capacities. The court determined that Wisconsin’s software does not run in mainframe environments, but did not resolve whether a mainframe could be part of the grid on which Wisconsin’s software operates.

The court found that users of Wisconsin’s software are generally systems operators of scientific research groups, but since the software is free and available for download others may use it. Because of this, the court found that users of Wisconsin’s software are tough to identify; Wisconsin’s estimates place the total number of users in the tens of thousands. They generally must have a “systems-level understanding” of computers in order to make Wisconsin’s Condor program work. Users include the “high energy physics community, the DOE [Department of Energy] National labs, biology and computer science departments, and industrial groups.” According to the district court, 3738 copies of Wisconsin’s software were downloaded in 2000; by 2004, the number of downloads grew to 15,155, an increase of more than 400 percent. A promotional program offered by the University of Wisconsin, “Condor Week,” showed similar growth from a one-day event attracting twenty participants (presumably it was then called “Condor Day”) to a four-day event with more than 150 participants.

III. Likelihood of Confusion

The question here is whether consumers were likely to be confused by Wisconsin’s and Phoenix’s concurrent use of the CONDOR marks. As the district court framed it, “the only question is whether the identical marks used in the general field of computing create a likelihood of confusion for consumers . . . or whether the differences in the computer products for which the software is sold, in the trade channels, in the conditions under which sales of products are made and other factors eliminate the possibility of confusion . . . .” Bd. of Regents of the Univ. of Wis. Sys., 2008 WL 4950016, at *1. The district court found that the TTAB “erred when it considered the actual nature of the parties’ goods and misapplied the burden of proof to its determination of a likelihood of confusion.” Id. Because it determined that the TTAB opinion was erroneous, and Phoenix’s evidence before the district court was relevant only to the analysis adopted by the TTAB, the district court found for Wisconsin.

We agree that the key issue in this case is the likelihood of confusion between the products described by the two marks. We are not considering whether the products themselves perform the same functions, but whether consumers, and specifically consumers who would use either product, would be likely to attribute them to a single source. AutoZone, 543 F.3d at 931. “[D]issimilarity is not dispositive of the likelihood of confusion inquiry. A likelihood of confusion may exist even if the parties are not in direct competition or their products and services are not identical. Rather, because the rights of an owner of a registered trademark extend to any goods that might be, in the minds of consumers, ‘related,’ i.e., put out by a single producer, the more accurate inquiry is whether the public is likely to attribute the products to a single source.” CAE, 267 F.3d at 679 (citations omitted). This, as we shall see, is a key point of divergence between our analysis and that of the district court.

There are a series of multiple-factor tests that are used across the circuits to determine the likelihood of confusion. We use this one:

1. Similarity between the marks in appearance and suggestion.

2. Similarity of the products.

3. The area and manner of concurrent use.

4. The degree of care likely to be exercised by consumers.

5. The strength of the plaintiff’s mark.

6. Whether actual confusion exists.

7. Whether the defendant intended to “palm off” his product as that of the plaintiff.

See AutoZone, 543 F.3d at 929. The Federal Circuit uses a different set of factors (referred to by the TTAB in its opinion). See In re E. I. DuPont DeNemours & Co., 476 F.2d 1357, 1361 (C.C.P.A. 1973). They essentially cover the same ground as our factors, and neither party suggests that the differences between the factors affect the outcome of the case. As noted above, likelihood of confusion is a question of fact for the jury to determine. AutoZone, 543 F.3d at 929. “The question of fact may be resolved on summary judgment only if the evidence is so one-sided that there can be no doubt about how the question should be answered.” Id. (quotations omitted).

The district court overruled the TTAB in two key respects.

First, it found that the TTAB erred when it considered the “actual nature of the parties’ goods” rather than the goods as they were described in their respective registrations. This error, the court found, combined with the lack of evidence that the products were sufficiently related to cause confusion, removed a key rationale that supported the TTAB’s decision. The district court also found that the TTAB erred in placing the burden on Wisconsin to prove that the parties’ goods are distinct when it considered the way the products were used or sold. The district court found that the burden should have been placed on Phoenix, who sought to cancel a presumptively valid registered mark, and found that Phoenix did not present sufficient evidence to meet this burden (because the district court rejected all the TTAB’s findings on the products’ similarities as irrelevant).

The district court’s analysis addressed several factors outlined in our test, but focused mainly on the similarity of the products and the area and manner of their use.

Wisconsin does not (and cannot) dispute that the marks are identical and Phoenix has not been able to press the argument that actual confusion existed between the two marks—the TTAB found otherwise and evidence to the contrary was excluded by the district court. Fundamentally, then, the district court’s rejection of the TTAB’s decision rested on a disagreement with its analysis of the products’ similarity and their manner of use.

The district court examined the manner in which both products were described in their registrations, disregarded most evidence of their actual use, and focused on whether a sophisticated consumer would be likely to confuse the product described as “computer software for on-line programming development, library management and system utilities functioning on mainframe systems” with a product described as “computer network operating system software, downloadable from a global computer network, that delivers large amounts of computational power by utilizing idle computing resources in a network of individual computer workstations.”

It appears that the district court mistakenly assumed that the similarity of the products’ functions was the dispositive issue in the case; this misapprehension was magnified by the district court’s error in confining its examination to the registration of the parties’ products. Instead of a focus on the description of the goods in the trademark registry, the proper analytical framework, according to our cases, is “whether the parties’ products are the kind the public might very well attribute to a single source.” AutoZone, 543 F.3d at 931 (citations omitted); McGraw-Edison Co., 787 F.2d at 1169. “The rights of an owner of a registered trademark extend to any goods or services that, in the minds of consumers, might be put out by a single producer. Thus, a likelihood of confusion may exist even if the parties are not in direct competition, or their products and services are not identical.” AutoZone, 543 F.3d at 931 (quotation and citation omitted).

This is a proposition we have repeatedly laid out in the many cases in which we’ve considered the likelihood of confusion between goods described by similar or identical marks. See id. at 931; CAE, 267 F.3d at 679; Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456, 463 (7th Cir. 2000); McGraw-Edison Co., 787 F.2d at 1169. It was also recognized by the TTAB. “[I]t is not necessary that the goods and/or services be similar or competitive, or even that they move in the same channels of trade to support a holding of likelihood of confusion.” Phoenix Software Int’l, Cancellation No. 92042881, at 9 (citing Hilson Research Inc. v. Soc’y for Human Res. Mgmt., 27 U.S.P.Q. 2d 1423, 1432 (T.T.A.B. 1993)). “It is sufficient that the respective goods and/or services are related in some manner, and/or that the conditions and activities surrounding the marketing of the goods and/or services are such that they would or could be encountered by the same persons under circumstances that could, because of the similarities of the marks used therewith, give rise to the mistaken belief that they originate from or are in some way associated with the same producer.” Hilson Research Inc., 27 U.S.P.Q. 2d at 1432.

Once we accept this proposition, we see that Wisconsin’s focus on the descriptions in the registry, adopted by the district court, is a bit of a red herring. Our cases make clear that products don’t even have to perform similar functions, much less be described identically, for a likelihood of confusion to exist. In McGraw-Edison we found that a likelihood of confusion could exist between a mark for electrical fuses and the mark on Disney’s merchandise for the movie Tron. McGraw-Edison Co., 787 F.2d at 1169. In CAE, we found that a likelihood of confusion could exist between a mark registered by a company that designed and manufactured sophisticated measuring equipment and a mark registered by a company that tested facilities for compliance with pollution laws. CAE, 267 F.3d at 679. In AutoZone, we found that a likelihood of confusion could exist between an auto-parts retailer’s mark and the mark of a oil change and carwash operator. AutoZone, 543 F.3d at 931. All of these cases featured products with a far more tenuous similarity than that at issue here. We note that in these cases, the products had identical marks (with the exception of AutoZone, which featured two marks with identical “zone” suffixes). It is possible that we, as a circuit, have historically assigned too much weight to the fact that marks are identical. Cf. M2 Software, Inc. v. M2 Commc’ns, Inc. 450 F.3d 1378, 1385 (Fed. Cir. 2006). But, perhaps that is because the issue is fact-bound and identical marks often create triable issues of fact regarding the various ways a product is marketed. Regardless, neither party attacks our trademark standard as inconsistent with the Lanham Act.

Furthermore, the identical nature of the marks weighed heavily in the TTAB’s analysis. Phoenix Software Int’l, Cancellation No. 92042881, at 19 (citing In re Shell Oil Co., 992 F.2d 1204 (Fed. Cir. 1993)). The TTAB also cited Amcor, Inc. v. Amcor Indus., Inc., 210 U.S.P.Q. 70, 78 (T.T.A.B. 1981), for the proposition that when considering identical marks, “the relationship between the goods on which the parties use their marks need not be as great or as close as in the situation where the marks are not identical or strikingly similar.”

The approach adopted by the district court limiting its consideration to the products as they are described is too formalistic and ignores the requirement that the products are to be examined as they appear to the consumer. “[O]ur inquiry in comparing the two products is not whether they are interchangeable, but whether the parties’ products are the kind the public might very well attribute to a single source.” Eli Lilly & Co., 233 F.3d at 463 (emphasis added) (quotation omitted); see also AutoZone, 543 F.3d at 931; McGraw-Edison, 787 F.2d at 1169 (“In finding the parties’ product lines to be ‘entirely unrelated’ the district court apparently ignored the question of whether the purchasing public might believe a single source could produce both [products].”). Octocom Systems, Inc. v. Houston Computer Services, Inc., 918 F.2d 937, 942 (Fed. Cir. 1990), the Federal Circuit case that the district court relied on, is not to the contrary. In that case, the registrant whose mark was challenged tried to supplement the registration by showing that the registrant really intended its mark to cover a narrow class of goods, rather than the unlimited coverage that the actual mark sought. The Federal Circuit found that the subsequent attempt to limit the registration was improper and the court was required to consider only the goods as described in the registration. The court then found that there was a likelihood of confusion between the products because the registrant’s original application “encompassed modems and computer programs” and thus conflicted with the petitioner’s registration of a similar mark for computer programs. Furthermore, “the record supports no other factual findings but that modems and computer programs are commonly used together in networking, could come from a single source, and be identified with the same mark. Thus, [the attempted registrant’s] elimination of ‘computer programs’ from its application leaving only ‘modems’ was pointless maneuvering.” Octocom Sys., 918 F.2d at 943.

The likelihood of confusion in Octocom stemmed not from the fact that the registrations were identical, but from the registrations’ coverage of similar products. In fact, in Octocom, the Federal Circuit recognized that the similarity of the products described in the registration may be “expressly or inherently” reflected. Id. at 942.

The Federal Circuit noted that “[e]vidence that the goods of the applicant and opposer, as identified in the respective application and registration, are the types of goods that would be expected to move in different trade channels or be sold to different classes of purchasers may be material and relevant.” Id. at 943. So, the relevant question for us is whether a product that runs on a mainframe and a product that runs on a network of computers are the types of goods that are similar enough to be attributed to a single source by consumers likely to use one of those products. While we must consider the marks as they are described, it would be a mistake to bar any evidence of their actual use as irrelevant.

After all, one of the factors in the test is the “area and manner of concurrent use.” See AutoZone, 543 F.3d at 929. And, as noted, the actual use of the product is relevant to explain the meaning of the terms used in the registration. See Octocom Sys., 918 F.2d at 943; see also CAE, 267 F.3d at 681-82; Forum Corp. of N. Am. v. Forum, Ltd., 903 F.2d 434, 442 (7th Cir. 1990). Indeed, the TTAB explicitly declared that it was considering the nature of the parties’ goods “[t]o the extent that these facts provide some information about the market and purchasers of these goods.” Phoenix Software Int’l, Cancellation No. 92042881, at 9.

Rejecting the district court’s approach, however, does not dispose of the case. “Because confusion is a factual matter, the plaintiff must produce proof; a theory about how consumers might be confused will not do, unless evidence supports the theory.” Reed-Union Corp., 77 F.3d at 912. Even as we consider the products’ actual uses to determine the meaning of the marks’ registrations, or more specifically to determine whether there is a possibility of confusion between the two products as described in their registrations, Wisconsin would still prevail if there is no evidence to support the idea that a supplier of software to a mainframe system (the manner of use specified in Phoenix’s registration) can be confused with a supplier of software to a network of individual computer workstations (the manner of use specified in Wisconsin’s registration).

The TTAB relied on three key factors in its order to cancel Wisconsin’s registration. First, and most importantly, it relied on the fact that the marks are identical. Wisconsin does not challenge this finding (and as noted, this seems to be a compelling factor in our circuit). Second, the TTAB found that the parties’ software performs similar functions, which precluded a finding that they were used in unrelated fields. Third, it found that “sophisticated purchasers would likely believe that there is some relationship or association between the sources of the goods under these circumstances.” Phoenix Software Int’l, Cancellation No. 92042881, at 19. Ultimately, the TTAB concluded that sophisticated purchasers would associate the two products. Mapping the TTAB’s findings onto our factors, we see that the TTAB’s finding of a likelihood of confusion was based on the identical nature of the marks, the manner in which both parties’ products are used, and the similarity of the products. The district court dismissed these findings on the basis that all analysis of the products should have been confined to the terms in the registries. As we’ve explained, this was an error. Moreover, because the TTAB was using the correct factor-based balancing test, the district court was incorrect to dismiss the TTAB’s findings on the area and manner of use factor by declaring that the TTAB had misallocated the burden of proof. Because the TTAB found that the similarity of the marks and products weighed in Phoenix’s favor, the area and manner of use tipped the balance in favor of Phoenix. The TTAB noted specifically in its holding that “a presumption of validity attaches to a service mark registration, and the party seeking cancellation must rebut this presumption by a preponderance of evidence.” Id. at 18. “We hold that petitioner has met its burden.”

Id. at 19.

Once we reinstate the TTAB’s findings, we see that Phoenix has offered sufficient evidence to survive summary judgment on the issue of confusion. The TTAB credited Phoenix’s evidence that its mainframe software can operate unaltered on a network of workstations.

The TTAB found that both programs perform similar functions to the extent that Phoenix’s representative was himself confused by Wisconsin’s public description of its product; he thought it was Phoenix’s own. The TTAB further found that, as conceded by Wisconsin’s witness, there was “some incentive” to operate in both the mainframe and network environments. The TTAB also found that both products were delivered in the same manner, and that the same customers are likely to encounter both products, particularly since Wisconsin indicated that it had been and would be expanding its marketing efforts. For the TTAB, these findings justified the cancellation of Wisconsin’s mark.

Wisconsin does offer new evidence to rebut these findings and argues that the facts should be interpreted differently. Most significantly, Wisconsin argues that the sophistication of consumers cuts in the state’s favor. We note that this factor was considered at length by the TTAB, who found in Phoenix’s favor. But as we discussed above, the question is not whether purchasers of Phoenix’s Condor product would accidentally buy Wisconsin’s product but whether those consumers would likely attribute them to a single source. In re Total Quality Group Inc., 51 U.S.P.Q. 2d 1474, 1477 (T.T.A.B. 1999) (“[E]ven careful purchasers are not immune from source confusion. We find this to be especially the case here where the marks are substantially identical and the goods are related.”). Much of the evidence Wisconsin offers is designed to show that mainframe purchasers take care when choosing to purchase a product; this is relevant to, but not dispositive of the likelihood of confusion issue. 4 McCarthy on Trademarks and Unfair Competition § 23:103 (“When there is a strong likelihood of confusion created by other factors, even a high level of care exercised by a professional buyer may not be sufficient to tip the scales in the direction of no confusion.”) The TTAB credited Phoenix’s sole shareholder, who testified that he was confused by Wisconsin’s description of its product; we are bound to give this finding deference. This is a key piece of evidence supporting the finding. The TTAB’s consideration of other factors, namely the fact that the marks are identical and that the products are similar (as determined by the TTAB) both reinforced the TTAB’s judgment. There was also evidence admitted at the district court that the lines between mainframe operations and network systems are disappearing and that Wisconsin was broadening the scope of its operations. Wisconsin’s evidence of sophistication, much of it considered by the TTAB, is not so compelling that we believe no issue of fact exists.

Wisconsin runs through the other factors, focusing mainly on the DuPont analysis, and makes good points.

There was no actual confusion; the “downloadability” of both programs is not dispositive of whether the products were sold in similar trade channels; Phoenix may not have been diligent about protecting its mark; and any confusion is likely to be quickly rectified. Considering this evidence is appropriate, but none of this evidence is sufficient to render the facts found by the TTAB immaterial and compel summary judgment. Weighing all of the parties’ evidence is a task for a finder of fact and we are required to defer to the TTAB’s determination on the issues it considered. Accordingly, we must reverse the district court and remand for a trial on the likelihood of confusion issue.

IV. Phoenix’s Counterclaims

Phoenix also asks us to reinstate the counterclaims it brought under 15 U.S.C. §§ 1114 and 1125 for infringement and false designation of origin; both sections announce Congress’s intent to make states liable in a civil action to anyone damaged by the state’s acts. But, Phoenix’s counterclaims were dismissed on sovereign immunity grounds. We review the district court’s grant of a motion to dismiss de novo. Thompson v. Ill. Dep’t of Prof’l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). The Eleventh Amendment bars suits against states and restores “the sovereign immunity that the States possessed before entering the Union.” Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 669 (1999). There are two relevant exceptions to the sovereign immunity guarantee. See id. at 670. The first occurs when Congress acts pursuant to the Fourteenth Amendment to regulate state behavior. Id. (citing Fitzpatrick v. Bitzer, 427 U.S. 445 (1976)). The second occurs when a state waives its sovereign immunity by consenting to suit. Id. (citing Clark v. Barnard, 108 U.S. 436 (1883)). Phoenix argues that its counterclaims should be reinstated under either theory.

A. Was the Trademark Remedy Clarification Act a valid exercise of Congress’s Fourteenth Amendment power?

The Trademark Remedy Clarification Act (TRCA), Pub. L. 102-542, 106 Stat. 3567, established state liability for trademark violations. A portion of the TRCA has already been deemed unconstitutional by the Supreme Court. Coll. Sav. Bank, 527 U.S. at 691. This portion provided for state liability for false advertising, which is one form a 15 U.S.C. § 1125(a) claim can take; the false designation of origin claim at issue here is another.

We’ll assume for purposes of our discussion that the claim we are considering is different from the provision at issue in College Savings Bank; in any event, the Supreme Court has not spoken clearly on the other counterclaim: trademark infringement under 15 U.S.C. § 1114. The TRCA’s sister statute, the Patent and Plant Variety Protection Remedy Clarification Act (Patent Remedy Act), established state liability for patent infringement and was similarly found unconstitutional. See Fla. Prepaid Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank, 527 U.S. 627, 647-48 (1999). Phoenix’s argument that it should be able to pursue a trademark infringement remedy against Wisconsin depends largely on its ability to convince us that its claims are different from patent enforcement and false advertising claims. The Supreme Court found that states were protected by the Eleventh Amendment against claims for money damages under either of those causes of action. Id.; Coll. Sav. Bank, 527 U.S. at 691.

To preserve its claims against Wisconsin, Phoenix needs to show that Congress expressly intended to abrogate state sovereign immunity, that it did so under Section 5 of the Fourteenth Amendment, that the trademark in question was a property interest cognizable under the Fourteenth Amendment, and that the abrogation of state immunity was an appropriate exercise of Congress’s Section 5 power. See Fla. Prepaid, 527 U.S. at 635. It is undisputed that Phoenix can clear the first two hurdles (Congress expressly intended to abrogate state sovereign immunity and it acted under Section 5). Wisconsin contends that the Fourteenth Amendment does not protect trademarks, but Supreme Court dictum indicates the opposite. “The Lanham Act may well contain provisions that protect constitutionally cognizable property interests— notably, its provisions dealing with infringement of trademarks, which are the ‘property’ of the owner because he can exclude others from using them.” Coll. Sav. Bank, 527 U.S. at 673. Wisconsin gives us no reason to doubt that this would be the Court’s current position. So the question is whether the TRCA is an “appropriate” law as the term is used in Section 5 of the Fourteenth Amendment. (“The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”). In City of Boerne v. Flores, 521 U.S. 507, 519 (1997), the Supreme Court held that Congress’s Section 5 power is inherently limited to remedial and preventive laws. When legislating under Section 5, Congress must achieve “a congruence between the means used and the ends to be achieved.” Id. at 530. Furthermore, the law must be a proportional response to the problem Congress seeks to solve through legislation. Id. at 532; see also Fla. Prepaid, 527 U.S. at 639 (discussing Boerne). Thus, for Congress to invoke Section 5, it must identify conduct transgressing the Fourteenth Amendment’s substantive provisions, and must tailor its legislative scheme to remedying or preventing such conduct. As we’ve noted, the Supreme Court found that the Patent Remedy Act, which is to patents what the TRCA is to trademarks, was not a proportional or congruent exercise of Congress’s Section 5 powers. That act was designed to remedy patent infringement by a state, just as the TRCA is designed to remedy trademark infringement, by providing for money damages against a state.

In Florida Prepaid, the Supreme Court found that Congress identified little evidence of pervasive state infringement of patents. Instead, the harm Congress identified was speculative. Id. at 641. College Savings’ alternative argument, joined by the United States, was that when a state infringes a patent without paying a fee, the state has denied the patent-holder of a property interest without due process of law. But, the Supreme Court rejected this argument because Congress “barely considered the availability of state remedies for patent infringement” and thus did not sufficiently consider whether existing state remedies might already provide constitutionally sufficient due process for patent infringement. Id. at 643. The Court also noted that states are not liable for constitutional violations when they negligently cause injuries and that Congress made no distinction between negligent infringement (which would not be a proper subject of Congress’s Section 5 power) and reckless and intentional infringement which would trigger the Fourteenth Amendment’s protection. Id. at 645. For all these reasons, the Court found that the Patent Remedy Act did not abrogate a state’s Eleventh Amendment immunity.

Wisconsin argues, and the district court found, that the same reasons support a decision to preserve state immunity against damages under the TRCA. We agree that the TRCA is not materially different from the Patent Remedy Act found unconstitutional in Florida Prepaid. Both acts, for instance, share the same Senate Report (S. Rep. No. 102-280) which identifies only one case of state trademark infringement where the state was protected from federal suit, and suffers from all the infirmities identified by the Supreme Court in Florida Prepaid, 527 U.S. at 643-45 (rejecting the idea that the legislative history of the Patent Remedy Act satisfies requirements for Congress’s action under Section 5 of the Fourteenth Amendment).

As for whether trademarks are different than patents, Phoenix argues that trademarks are of permanent duration and that the creation of trademarks protects the public from confusion and thus they must be analyzed under a separate rubric than patents. We agree that the two rights are different, but the Supreme Court in Florida Prepaid treated patents as a serious property right and its holding in that case did not turn on the nature of the property right, but on the insufficiently narrow tailoring of Congress’s remedy to the harms it sought to remedy and the insufficient findings that a national remedy was necessary. Given the similarity between the laws here, we are compelled to find that Florida Prepaid controls the outcome of this issue. Unless Wisconsin waived its immunity from suit, it is protected from Phoenix’s counterclaims.

B. Did Wisconsin waive its immunity from suit?

One problem Congress identified when enacting the TRCA (and its sister patent statute) was the uneven playing field created by a trademark regime without remedies against states. In the patent context, it explained: “A public school such as UCLA can sue a private school for patent infringement, yet USC cannot sue UCLA for the same act. The status of an infringing party should have no relation to the amount of investment made in a product. State universities should not have an unjustified advantage in the commercial arena over private universities for funding because of the potential for immunity from patent infringement actions.” S. Rep. No. 102-280, at 9 (1992) reprinted in 1992 U.S.C.C.A.N. 3568, 3094. The level-playing-field issue is particularly pertinent in the context of scientific research and patents, but this case exemplifies that similar concerns arise in the trademark arena. Phoenix contends that we can fix this problem by finding that Wisconsin waived its sovereign immunity by choosing to participate in the federally regulated trademark process. After all, Wisconsin could have chosen to use the CONDOR mark without registering it, and without concern for damages because of its sovereign immunity guarantee. Wisconsin, however, chose to register the mark, and actively participated in the system by which it gained benefits (i.e., clearing the field of other CONDOR marks). Wisconsin’s gain of benefits from its participation in the system should, Phoenix argues, subject it to responsibilities arising from its participation—namely a suit for damages if it infringes on other marks in the system.

Unfortunately for Phoenix, the Supreme Court rejected a similar argument in the TRCA case, College Savings Bank, where it found that a state’s decision to engage “in the interstate marketing and administration of its program,” 527 U.S. at 671, is not a constructive waiver of immunity, id. at 687.

Wisconsin is in a bit of a different situation than was the state of Florida: it formally registered its mark with the PTO. It entered the federal trademark system not by simply possessing a trademark that it marketed in commerce, as Florida did, but by actively availing itself of the benefits of federal trademark registration. But College Savings Bank sweeps more broadly than merely rejecting a “market-entry” waiver of sovereign immunity. College Savings Bank rejected the entire notion of a constructive waiver of sovereign immunity, id. at 680, and limited the inquiry of waiver to whether “the State made an altogether voluntary decision to waive its immunity,” id. at 681 (quotation omitted). A law that merely alerts the state to the federal government’s intention to abrogate the state’s immunity is insufficient to create a waiver if the state is engaging in otherwise lawful activity. Id. at 687. The state’s choice to register its mark was otherwise lawful activity, and Phoenix does not and cannot suggest that the receipt of trademark registration is specifically conditioned on a waiver of immunity. In fact, Phoenix’s counterclaims do not depend at all on whether Wisconsin registered its mark; the statutory infringement and false designation of origin claims are ordinarily available against any actor who infringes a registered mark.

After College Savings Bank, the doctrine of constructive waiver is no longer available. Wisconsin is entitled to assert its immunity from suit notwithstanding its voluntary participation in the federal trademark registration system.

But Wisconsin’s participation in the trademark system is not the only conduct that Phoenix identifies as triggering a waiver of Wisconsin’s Eleventh Amendment privileges. Phoenix also argues that Wisconsin waived its sovereign immunity the moment it invoked the jurisdiction of the district court pursuant to 15 U.S.C. § 1071(b). Phoenix cites Lapides v. Board of Regents of the University System of Georgia, 535 U.S. 613, 619 (2002), in support of this proposition. There, the state of Georgia was subject to state law claims against it in state court. It removed the case to federal court, and then argued that the Eleventh Amendment barred the federal court from hearing the state law claims against it. In rejecting Georgia’s immunity argument, the Supreme Court “focus[ed] on the litigation act” Georgia performed and concluded that removal was an insufficiently “special” act, Lapides, 535 U.S. at 620, to warrant departure from the longstanding general principle that “where a State voluntarily becomes a party to a cause and submits its rights for judicial determination, it will be bound thereby and cannot escape the result of its own voluntary act by invoking the prohibitions of the Eleventh Amendment.”

Id. at 619 (quoting Gunter v. Atl. Coast Line R.R., 200 U.S. 273, 284 (1906)). It also necessarily implied that by removing the case to federal court, Georgia affirmatively changed the character of its participation in the litigation, for the Supreme Court recognized that Georgia had been “brought involuntarily into the case as a defendant in the original state court proceedings.” Id. at 620.

Phoenix contends that Wisconsin’s litigation status was similarly changed—and its sovereign immunity similarly waived—when it made the decision to file an action in district court pursuant to 15 U.S.C. § 1071(b) rather than appealing the TTAB’s decision to the Federal Circuit pursuant to § 1071(a). In choosing to proceed under § 1071(b) rather than § 1071(a), Phoenix asserts, Wisconsin gained the benefit of additional evidence and so should face the cost of Phoenix’s infringement and false designation of origin counterclaims.

But the simple cost-benefit analysis Phoenix proposes overlooks the true nature of the proceedings here. Wisconsin, like Georgia in Lapides, was originally haled into litigation with Phoenix involuntarily. Its status was that of a defendant. See 37 C.F.R. § 2.116(b). Wisconsin’s election to pursue an appeal in the district court rather than the appellate court—which it, like private parties to cancellation proceedings, was statutorily entitled to do—gave it the official title of plaintiff, but title is not what matters for sovereign immunity purposes. If the character of the litigation act turned on title, Georgia would have been able to assert its sovereign immunity claims in Lapides.

The technically voluntary nature of Wisconsin’s appeal is not determinative either. Our dissenting colleague makes a thoughtful presentation on this front, but the mere fact that Wisconsin exercised its option to challenge an adverse decision against it does not necessarily result in a waiver of its sovereign immunity. Indeed, our colleague concedes that Wisconsin could have appealed in the Federal Circuit—another federal forum reached wholly voluntarily—and still retained its ability to mount a sovereign immunity defense to the very claims Phoenix brings here. See Dissent at 58.

What is crucial is the nature of Wisconsin’s litigation act. Unlike Georgia’s removal in Lapides, Wisconsin’s pursuit of judicial review in the wake of the adverse agency decision it did not initiate is “special.” Despite its formal characterization as a standalone civil action, see 15 U.S.C. § 1071(b); 37 C.F.R. § 2.145, at its heart Wisconsin’s pursuit of redress in the district court is simply a continuation of Phoenix’s original cancellation action. Cf. Vas-Cath, Inc. v. Curators of the Univ. of Mo., 473 F.3d 1376, 1382 (Fed. Cir. 2007) (stating that an appeal brought in the district court pursuant to 35 U.S.C. § 146, which is roughly analogous to 15 U.S.C. § 1071(b), “is not a new claim, but an authorized phase of the interference proceeding that is conducted by the PTO and is subject to judicial review”). “[T]he mere seeking of judicial review of an agency decision . . . by a state that was a defendant before the agency [is] insufficient alone to infer a waiver of immunity,” Taylor v. U.S. Dep’t of Labor, 440 F.3d 1, 5 (1st Cir. 2004) (quotation omitted), and Phoenix has not identified for our consideration any other relevant affirmative litigation acts undertaken by Wisconsin.

We are mindful of the concerns about unfair litigation gameplay that animated the Court’s holding in Lapides, 535 U.S. at 620-22; we recognize that while the Eleventh Amendment gives states an upper hand, it cannot be massaged to create unfair litigation advantages. Attempts to assert sovereign immunity under circumstances that create “inconsistency, anomaly, and unfairness” in the litigation context, id. at 620, implicate those concerns and cannot be permitted to go forward. But there is no indication that Wisconsin used— or even could use, for the potential exploitation of the sovereign immunity privilege is an imperative consideration as well, see Lapides, 535 U.S. at 621—its district court action as an opportunity to gain any sort of unfair or inconsistent litigation advantage over Phoenix here. See Taylor, 440 F.3d at 8 (“The Lapides-[New Hampshire v.] Ramsey[, 366 F.3d 1 (1st Cir. 2004)] line of cases does not prevent a litigant from obtaining any sort of advantage relating to immunity in pursuing his case.

They only condemn those litigation advantages that are ‘inconsistent’ or ‘unfair.’ ” (quoting Lapides, 535 U.S. at 622)). To the contrary, Wisconsin did not employ the hybrid appellate vehicle to raise any new claims; it simply appealed the adverse TTAB ruling. Had it brought new claims against Phoenix, the nature of its litigation act, and the outcome of our analysis, would plainly be different; the assertion of previously unlitigated claims in a federal forum is undoubtedly “a form of voluntary invocation of a federal court’s jurisdiction sufficient to waive the State’s otherwise valid objection to litigation of a matter . . . in a federal forum.” Lapides, 535 U.S. at 624.

Wisconsin made a choice to proceed in the district court, and there were undeniably some litigation advantages to be had as a result of that decision. But these advantages are equally available to all participants in trademark cancellation proceedings; they simply cannot be considered “unfair” or “inconsistent.” It would be both unfair and unrealistic to require states to passively accept—or even pre-empt, see Dissent at 61—adverse TTAB decisions so as to keep their sovereign immunity privilege intact. It was at Phoenix’s behest that Wisconsin was “brought involuntarily into the case as a defendant,” Lapides, 535 U.S. at 620, and Wisconsin’s election to proceed in district court rather than before the Federal Circuit does nothing to fundamentally alter the nature of the proceedings or its participation in them. Wisconsin’s assertion of sovereign immunity in response to claims distinct from those raised in the original administrative action does not implicate the fairness concerns identifed by the Supreme Court. Wisconsin immediately and unfalteringly asserted a sovereign immunity defense when the federal counterclaims were filed. Contra Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1021-22 (9th Cir. 2010). It was generally entitled to defend against Phoenix’s claims in such a manner, see Dissent at 58, and did not use any litigation sleight of hand to invoke the Eleventh Amendment, see, e.g., Lapides, 535 U.S. at 621; Ind. Prot. & Advocacy Servs. v. Ind. Family & Soc. Servs. Admin., 603 F.3d 365, 373 (7th Cir. 2010) (en banc), petition for cert. filed, 79 U.S.L.W. 3063 (July 21, 2010) (No. 10-131); New Hampshire v. Ramsey, 366 F.3d 1, 16-17 (1st Cir. 2004). We therefore conclude that Wisconsin has not through its appeal from the TTAB’s decision waived its sovereign immunity defense to Phoenix’s counterclaims.

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See: http://www.ca7.uscourts.gov/tmp/400TU81N.pdf

Outcome: The district court misapplied the likelihood of confusion test and improperly rejected the TTAB’s factual findings. For that reason, Phoenix is entitled to a trial on the likelihood of confusion issue. However, Wisconsin is protected by the Eleventh Amendment from Phoenix’s counterclaims. Accordingly, we reverse the district court’s decision only with respect to its grant of summary judgment to Wisconsin on the likelihood of confusion issue and remand for a trial on that issue only.

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