Douglas A. Miro and Stephen J. Quigley, Ostrolenk Faber LLP
A recent trend in rulings from the U.S. Patent and Trademark Office, beginning with Medinol Ltd. v. Neuro Vasz Inc., 67 USPQ2d, 1205 (TTAB 2003), finding fraud by trademark owners and cancelling registrations may have been stopped in its tracks by the Court of Appeals for the Federal Circuit’s August 31, 2009 opinion in In re Bose Corp., ___ F.3d ___, 2009 U.S. App. LEXIS 19658 (Fed. Cir. 2009). The Bose decision significantly reduced, if not eliminated altogether, the risk of committing fraud on the Trademark Office.
What Is Fraud?
While Bose changed the standard for proving fraud, the elements remain the same, i.e., fraud in obtaining or maintaining a trademark registration occurs when the owner knowingly makes a false, material representation of fact with the intent to deceive the Patent and Trademark Office. 15 U.S.C. §1064(3). Thus, the elements are:
1) Knowingly: The applicant or registrant knows that the statement concerning the application or registration is false.
2) Material representation of fact: In most instances, the false representation concerns use of the mark on certain goods in the application or registration. Material representations can also include the current manner in which the mark is used, the date of first use of the mark, actual use of the specimen displaying the mark, and whether the applicant is aware of anyone else who is using a confusingly similar mark.
3) Intent to Deceive: The deception must be willful.
Starting with Medinol, the Trademark Trial and Appeal Board (TTAB) began to loosely apply the first and third elements with increasing frequency, finding fraud not only where the trademark owner knew that a false material representation had been made in an application or concerning a registration, but also where the owner “should have known” that the representation was false. With the Bose decision, the “should have known” test no longer applies and fraud now requires proof that the trademark owner had an actual intent to deceive the Patent and Trademark Office.
The Trademark Office Regarded Fraud As a Big Deal
Statements concerning the use of a mark on goods or services “are essential to the integrity of the application and registration process”, Grand Canyon West Ranch LLC v. Hualapai Tribe, 88 USPQ2d 1501, 1509 (TTAB 2008). As noted by the TTAB in Hiraga v. Arena, 90 USPQ2d 1102 (TTAB 2009), the Trademark Office depends on the accuracy of information provided by applicants and registrants regarding goods and services because it has no ability to independently verify the truth of identifications of goods and services and other critical information. Statements under oath that are made in use based applications, statements of use, Section 8 declarations of use, and renewals should be made “with a degree of solemnity requiring thorough investigation prior to signature and submission to the USPTO.” Herbaceuticals Inc. v. Xel Herbaceuticals Inc., 86 USPQ2d 1572, 1577 (TTAB 2008).
As the Board stated in Standard Knitting Ltd. v. Toyota Jidosha Kabushiki Kaisha, 77 USPQ2d 1917, 1928, n. 14 (TTAB 2006):
It is important to note that the United States Patent and Trademark Office relies on the thoroughness, accuracy and honesty of each applicant. In general, the Office does not inquire as to the use of the mark on each good listed in a single class and only requires specimens of use as to one of the listed goods, relying on applicant’s declaration with regard to use on the other listed goods. TMEP Sections 806.01(a) and 904.01(a) (4th ed. 2005).
The TTAB’s position had some severe consequences. For example, in the Medinol case, the application identified neurological stents and catheters. The standard form box in the Statement of Use was checked for “those goods/services identified in the Notice of Allowance for this Application.” At that time, however, the mark was in use only on catheters. What may have been nothing more than a careless mistake on the Statement of Use form resulted in the cancellation of the entire registration. In Standard Knitting, there was no question that the mark was in use on some of the goods listed in each of the Statements of Use and the TTAB implicitly acknowledged that there was no actual intent to deceive the Trademark Office. (“As to the Statement of Use, it is clear that Mr. Yarnell had no idea which, if any, of the listed items were being sold.” Id. at 1928.) Nonetheless, the registrations were cancelled in their entireties.
Nor was partial cancellation of the registration an option. “Fraud cannot be cured merely by deleting from the registration those goods on which the mark was not used at the time of the signing of a use-based application or a Section 8 affidavit.” Turbo Sportswear Inc. v. Marmot Mountain Ltd., 77 USPQ2d 1152, 1155 (TTAB 2005). The Board explained in Herbaceuticals:
Partial cancellation would merely place [the registrant] in the same position in which it would have been had it filed statements of use which accurately recollected the goods on which the marks were being used. Rather, if fraud can be shown in the procurement of a registration, the registration is void in the international class or classes in which fraud based on nonuse has been committed.
86 USPQ2d at 1577.
It is likely that these cases, viewed as harsh by trademark owners and practitioners, did not go unnoticed by the Court of Appeals.
Bose Changes Everything
Under the TTAB’s “should have known” standard, a careless false statement could constitute fraud because “[a]llowing registrants to be careless in their statements of use would result in registrations improperly accorded legal presumptions in connection with goods on which the mark is not used.” Standard Knitting, 77 USPQ2d at 1928, n. 14. Bose equated “should have known” with “simple negligence” and even “gross negligence” – conduct that does not justify an inference of fraud, dishonesty or intent to deceive. In re Bose at *8-9. Bose acknowledged that a subjective intent to deceive is difficult to prove, but it can be inferred from “clear and convincing” indirect and circumstantial evidence of culpability. Id. at *9.
By removing carelessness and negligence as grounds for fraud, however, Bose may have raised the bar for committing fraud on the Patent and Trademark Office to a nearly unattainable level. Indeed, in light of the facts of the Bose case, a reasonable argument can be made that fraud has been virtually eliminated.
Bose Corporation, which over the years has filed more than 250 trademark applications, did not allege that it was careless in failing to delete “audio tape recorders and players” from the renewal application for its WAVE trademark registration. Rather, Bose’s General Counsel, who knew that Bose had stopped selling WAVE tape recorders and players at the time the renewal was filed, stated that it was his belief that Bose met the use in commerce requirement because it continued to repair and return to customers previously sold WAVE tape recorders and players.
The Court agreed with the TTAB that the statement in the renewal application that the mark was in use in commerce on these goods was both material and false. The TTAB, in finding that the Counsel’s belief was unreasonable, held that fraud had been committed and cancelled the registration. The Court reversed this part of the finding, holding that Bose did not commit fraud because there was no evidence that the Counsel intended to deceive the Trademark Office.
Whether the Counsel’s false belief was reasonable was irrelevant because
There is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive. Sullivan [Bose’s Counsel] testified under oath that he believed the statement was true at the time he signed the renewal application. Unless the challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence standard require to establish a fraud claim.
Id. at *15.
The Bose ruling raises the question that if a sophisticated trademark owner such as Bose Corporation can avoid fraud under these facts, will it ever be possible to prove fraud on the Trademark Office? Indeed, it appears that going forward, the worst that can happen to a trademark owner who makes a false material representation is the removal of certain goods or services from the registration, In remanding the case to the Board, the Court stated that “because the WAVE mark is no longer in use on audio tape recorders and players, the registration needs to be restricted to reflect commercial reality.” Id.
Moreover, it has always been the rule that fraud must be proven by clear and convincing evidence, i.e., “to the hilt”, Tri-Star Marketing LLC. v. Nino Franco Spumanti S.R.L., 84 USPQ2d 1912, 1915 (TTAB 2007). Except on the rare occasion, no “smoking gun” exists to demonstrate the trademark owner’s intent to deceive the Trademark Office. Therefore, a party petitioning or counterclaiming to cancel a registration will have to conduct discovery before ultimately determining whether evidence exists to prove the fraud claim. Unless compelling circumstantial evidence is produced, the fraud claim will likely have to be dismissed.
Is There Any Reason to Still Be Concerned About Fraud?
The fraud statute itself remains unchanged and there will be situations where it should be immediately apparent to anyone associated with a trademark that a false material representation will constitute fraud. Absent the smoking gun, whether an intent to deceive can be proven will likely depend on the egregiousness of the false material representation. In most of the recent TTAB cases, fraud was charged because there were goods in the registration for which the mark was not in use at the time the Statement of Use or the renewal application was filed. Even under the Bose standard, filing a Statement of Use for ten goods when the mark was in use on only one of them, or renewing a registration for goods that have not been sold for the past five years, may be regarded as clear and convincing evidence of an intent to deceive.
Thus, the Bose ruling should not lull trademark owners into exercising less care when preparing documents for the Trademark Office. Certain filings should be especially scrutinized:
• Electronic Filings
An attorney’s reliance on “information and belief” that the client’s representations are accurate may not be sufficient because the attorney is “in a position to know (or to inquire) as to the truth of the statements providing reason to believe.” Herbaceuticals Inc. v. Xel Herbaceuticals Inc., 86 USPQ2d at 1577.
• Intent to Use Applications
These are particularly vulnerable to fraud because they tend to include goods or services that are never produced. When the Statement of Use is prepared months, or even years, later, the application should be carefully reviewed, retaining only those goods and services that are in actual commercial use.
• Claims of Use of the Mark
An allegation of fraud arises most frequently in connection with one of the four documents a trademark owner submits to the Trademark Office claiming use of a mark: use based application; Statement of Use for an intent-to-use application; Section 8 Declaration; and Renewal. When these documents are filed, make sure that the statement concerning use of each of the listed goods or services is accurate. For example, if an ITU application lists the goods as handbags, luggage and wallets, and a Statement of Use is due, the applicant must be using the mark on all of the goods in order to file a proper Statement of Use – or remove those goods in the Notice of Allowance on which the mark is not in use. It is insufficient to file a Statement of Use for all goods in the Notice of Allowance if, for example, the mark is used only on handbags, but not luggage or wallets. Including a passage along the lines of the following in communicating with the trademark owner should serve as a sufficient warning:
The [application; Statement of Use; Section 8 Declaration; Renewal] must include only those goods/services for which you are actually using the mark in commerce at this time. If there are any goods/services listed in the [application; Notice of Allowance; registration] for which the mark is not currently in use, they must be deleted. The failure to do so could result in the cancellation of part or all of the registration.
• Opposers Beware
Before a potential opposer or cancellation petitioner initiates an inter partes proceeding, it had better be sure that the registration(s) it will rely on can withstand a fraud counterclaim. The Bose standard is likely to have a minimal impact in this area, since the opposer or petitioner would be expected to challenge a mark that is or will be used for goods or services that compete with the opposer’s or petitioner’s goods or services.