Federal Circuit Gives ITC Respondent Chance to get its “Swag” Back, Reaching Res Judicata Decision on Trademark Claim That may be Argued to Have Trade Secret Implications

We previously summarized the Manitowoc Cranes LLC v. Sany America Inc. decision by the U.S. District Court for the Eastern District of Wisconsin granting preclusive effect to the International Trade Commission’s liability determination of trade secret misappropriation. The legal underpinnings for that decision have been the subject of debate and now, potentially another perspective has been published in a recent, unrelated appellate decision.

In Manitowoc, in the absence of 7th Circuit precedent, the district court consulted Union Mf’g Co., Inc. v. Han Baek Trading Co., Ltd., 763 F.2d 42, 45-46 (2d Cir. 1985) (holding that “ITC adjudications of unfair trade practice and trademark infringement causes of action are entitled to res judicata effect”) and Texas Instruments Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558, 1568-70 (Fed. Cir. 1996) (noting the Trade Reform Act of 1974’s legislative history and Federal Circuit precedent since 1986 compelled conclusion that ITC rulings on patent issues have no preclusive effect in subsequent district court proceedings). Distinguishing its trade secret case from the patent dispute in Texas Instruments, and reasoning there was no similar Congressional intent—as there was for patents—to exclude the ITC’s trade secret determinations from having res judicata effect, the Manitowoc court precluded the defendant from re-litigating the misappropriation claim that it had lost before the ITC.

On May 9, 2019, the Court of Appeals for the Federal Circuit reached the opposite conclusion with respect to a trademark infringement determination in Swagway, LLC v. International Trade Commission, Appeal No. 2018-1672. In Swagway, the ITC complainant initially asserted six patents and two trademarks against respondent Swagway, LLC. The Commission found the respondent’s SWAGWAY line of transponders infringed complainant’s trademark for “SEGWAY.” On appeal to the Federal Circuit, the panel affirmed the substantive determination of trademark infringement before turning to the procedural question of whether the ITC should have adopted Swagway’s proposed consent order instead of entering its own order, to avoid res judicata effect from attaching in the parallel district court action in Delaware. The panel dismissed the procedural question as being moot, reasoning that neither type of order would have preclusive effect.

Without acknowledging the Second Circuit’s Union Mf’g opinion, the Federal Circuit panel looked to its own patent-related precedent—Texas Instruments—and concluded that there was no reason to differentiate between the ITC’s patent and trademark decisions. The panel interpreted Congress’s intent to bar ITC determinations on patents from binding district courts to extend to trademarks as well. Despite Federal Circuit guidance, it remains to be seen how the Third Circuit will treat issue preclusion if and when the district court in Delaware allows Swagway to reargue non-infringement on the merits and the trademark owner appeals.

TIP: In light of the Federal Circuit’s lumping the ITC’s trademarks decisions with patent decisions, district courts may be asked to give similar treatment to trade secrets. As such, trade secret holders who seek to leverage the ITC concurrently with district court actions should be mindful of these decisions.