By Karin C. Khan

Nylok Corporation (“Nylok”) is the owner of the federally registered trademark No. 2,398,840 for “a patch of the color blue on a selected number of threads of an externally threaded fastener …”  In 2003, Nylok filed a trademark infringement action against Nasalok Coating Corporation (“Nasalok”).  However, Nasalok failed to make an appearance, and Nylok obtained a default judgment of trademark infringement against Nylok.  Nasalok did not appeal this judgment.

About five months later, Nasalok decided to petition the Trademark Trial and Appeal Board (“TTAB”) for the cancellation of Nylok’s trademark.  Nasalok argued it was entitled to the cancellation of Nylok’s mark based on various grounds, including that the mark was functional, a phantom mark, and descriptive.  Nylok brought a summary judgment motion, arguing that res judicata prevented Nasalok’s cancellation proceeding due to the district court’s entry of default judgment for Nylok.  The TTAB granted Nylok’s motion for summary judgment, and Nasalok appealed the decision of the TTAB.

The Court of Appeals produced a detailed discussion of the grounds for res judicata.  When the Court considered whether the claim preclusion requirement that the second claim was based on the same set of transactional facts as the first, it found that the infringement claim and the cancellation claim did not arise out of the same facts.  Additionally, the Court concluded that a claim of trademark invalidity is not a compulsory counterclaim to a claim of trademark infringement.

Furthermore, the Court explained that there were public policy considerations, as set out in the case Lear v, Adkins, which allows a defendant to freely assert a claim of invalidity to a claim intellectual property.  The Court also explained that Lear provided support for its conclusion that challenges to the validity of a trademark are not compulsory counterclaims in trademark infringement actions.

Even in light of the above, the Court went on to consider whether Nasalok’s cancellation would effectively be a collateral attack on the district court’s default judgment.  When the district court granted judgment for Nylok, it in part enjoined Nasalok from selling or importing into the United States any “self-locking fastener with a blue (or similarly colored) nylon locking element.”  If Nasalok was allowed to challenge the validity of Nylok’s trademark, it would undermine the district court’s injunction against Nasalok.  The Court also noted that a default judgment can act as res judicata in the appropriate circumstances, such as when due process requirements are satisfied.  Thus, the Court ultimately decided that the default judgment satisfied due process requirements and that the collateral attack on the district court’s default judgment was barred by claim preclusion.

Although Judge Newman concurred with the decision, he agreed on the grounds decided by the TTAB that Nasalok’s claim was precluded by the district court’s default judgment.  Judge Newman found the majority’s reasoning to be irrelevant since the district court did decide the issue of validity before entering a default judgment.  He also did not agree with the public policy considerations of Lear put forth by the majority, calling their discussion inappropriate dictum.