Nasalok Coating Corp. v. Nylok Corp.
70 Fed. R. Serv. 3d 354, 522 F.3d 1320, 2008 U.S. App. LEXIS 8376 (2008)
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Rule of Law:
While a claim for trademark invalidity is not a compulsory counterclaim to a trademark infringement lawsuit, the doctrine of claim preclusion bars a defendant from later seeking to cancel the trademark's registration if doing so would nullify the rights established by the prior judgment and constitute an impermissible collateral attack.
Facts:
- Nylok Corporation manufactures and sells self-locking fasteners, including those using a blue nylon locking element.
- Nylok owns federal trademark Registration No. 2,398,840 for a patch of blue on a specific portion of an externally threaded fastener.
- Nasalok Coating Corporation, a Korean company, also applies nylon coatings to self-locking fasteners for industrial use.
- Nasalok's products, which feature a blue nylon element, are purchased by U.S.-based companies or for end users located in the United States.
- Nasalok sold or imported into the U.S. self-locking fasteners that had a blue nylon locking element.
Procedural Posture:
- Nylok sued Nasalok in the U.S. District Court for the Northern District of Illinois for trademark infringement.
- Nasalok was properly served but failed to enter an appearance in the district court action.
- The district court entered a default judgment in favor of Nylok, finding trademark infringement.
- The district court issued a permanent injunction against Nasalok and declared Nylok's trademark valid and enforceable.
- Nasalok did not appeal the district court's judgment.
- Five months later, Nasalok filed a petition with the Trademark Trial and Appeal Board (Board) to cancel Nylok's trademark registration.
- The Board granted summary judgment for Nylok, holding that Nasalok's cancellation petition was barred by the doctrine of res judicata (claim preclusion).
- Nasalok (appellant) appealed the Board's decision to the U.S. Court of Appeals for the Federal Circuit.
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Issue:
Does the doctrine of claim preclusion bar a defendant, who defaulted in a prior trademark infringement action that resulted in an injunction, from later initiating a cancellation proceeding with the Trademark Trial and Appeal Board to invalidate the same trademark?
Opinions:
Majority - Circuit Judge Dyk
Yes. A defendant who defaulted in a prior trademark infringement action is barred by claim preclusion from later seeking to cancel the same trademark because such an action constitutes an impermissible collateral attack on the prior judgment. The court reasoned in two parts. First, a claim for trademark invalidity is not a compulsory counterclaim to an infringement action because the two claims do not arise from the 'same transaction or occurrence'; an infringement claim focuses on the defendant's conduct and likelihood of confusion, while an invalidity claim focuses on the inherent attributes of the mark itself and the registrant's actions in obtaining it. Second, despite not being a compulsory counterclaim, claim preclusion still applies under the 'defendant preclusion' rule against collateral attacks. Allowing Nasalok to cancel the registration would 'nullify the initial judgment' and 'impair rights established in the initial action,' specifically the injunction Nylok secured. The fact that the prior judgment was by default does not prevent the application of claim preclusion.
Concurring - Circuit Judge Newman
Yes. I concur in the judgment but would affirm on the simpler grounds that the cancellation proceeding is barred by basic claim preclusion, not the more complex 'collateral attack' theory. The majority's extensive analysis of whether invalidity is a compulsory counterclaim is irrelevant dictum. The district court's default judgment explicitly held that Nylok's trademark 'is valid and enforceable.' By failing to appear and contest this, Nasalok allowed a final judgment on the issue of validity. The cancellation proceeding is a direct attempt to relitigate the same issue between the same parties based on the same transactional facts, which is precisely what res judicata is designed to prevent.
Analysis:
This decision clarifies the scope of claim preclusion in trademark litigation by distinguishing between compulsory counterclaims and collateral attacks. It establishes that while a defendant is not technically required to challenge a mark's validity in an initial infringement suit, failing to do so and suffering an adverse judgment can still bar a future validity challenge. The ruling reinforces the finality of district court judgments, especially injunctions, preventing defendants from getting a 'second bite at the apple' in an administrative forum after losing in federal court. This precedent incentivizes defendants to raise all potential defenses and counterclaims in the initial infringement action to avoid preclusion.
