The United States Court of Appeals for the Federal Circuit rejected the Trademark Trial and Appeal Board's (TTAB) "known or should have known" standard on August 31, confirming that a finding of fraud requires clear and convincing evidence of an intent to deceive. See In re Bose Corp. , No. 2008-1448, slip op. (Fed. Cir. August 31, 2009).
In holding that "a trademark is obtained fraudulently under the Lanham Act only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO," [ id. at 7 (emphasis added)], the Federal Circuit has made it significantly more difficult to prove fraud in trademark proceedings. In the past six years, the TTAB had employed a " should have known" standard, which the Bose court equated to a lesser standard of negligence. The Bose court ruled, however, that "[t]he standard for finding intent to deceive is stricter than the standard for finding negligence," (id. at 6-7), and held that the stricter standard applies to trademark fraud cases.
Medinol: 2003 - 2009
In Medinol Ltd. v. Neuro Vasx Inc ., 67 U.S.P.Q.2d 1205, 1209 (T.T.A.B. 2003), the TTAB (Board) held that "[a] trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration which it knows or should know to be false or misleading." [ Id . (emphasis added)]. For the past six years, third-party challengers to the validity of federally registered trademarks have enjoyed the benefit of the TTAB's interpretation of that holding, i.e., that a simple negligence standard is sufficient to support a finding of fraud before the Board. A finding of fraud resulted in the cancellation of the entire trademark registration.
Until now, opposition and cancellation defendants needed only to call into question whether a mark was actually in use in connection with each and every item listed in the asserted trademark registration at the time when the trademark owner signed documents that caused the registration to issue - or to be maintained. Such an allegation put the owner of the asserted registration in a defensive position and, in many cases, required the quick mounting of a case to support the asserted uses of the mark. To the extent a declaration was signed - either in connection with Statement of Use or a Section 8 affidavit of continued use - at a time when the declarant either " knew or should have known " the mark was not in use with one or more goods/services listed in the registration, the registration was deemed fatally flawed.
In the wake of Medinol , trademark owners sometimes attempted to convince the TTAB that, to the extent the statement of use was incorrect, i.e., that the mark was not in use with all of the goods/services at the time of signing, the statement was made in good faith, without any intent to deceive the Trademark Office. These attempts to salvage challenged registrations, based on misunderstandings, miscommunications, and inadvertent error, were consistently rejected by the Board. In all of these cases, the Board applied the " should have known " standard, imparting upon the trademark owners an affirmative duty to investigate, understand and correctly submit the statement of use. The punishment for a failure to confirm this information, despite the unintentional error, was cancellation of the entire trademark registration.
In re Bose Corp., August 31, 2009
In its first opportunity to review the Board's holding in Medinol , the Federal Circuit dispensed with the Board's lower standard of negligence and applied the more traditional standard for fraud, ruling that there must be a finding (by clear and convincing evidence) of an intent to deceive on the part of the applicant or registrant. Hence, there is no fraud when "a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive." In re Bose Corp . at 10.
In the Federal Circuit opinion in Bose , the court states the TTAB placed too much emphasis on the " should have known " inquiry, which it gleaned from Torres v. Cantine Torresella S.r.l. , 808 F.2d 46 (Fed. Cir. 1986), rather than on the factual evidence supporting what was actually known. In the Torres case, the registrant actually knew that the mark, as registered, was no longer in use. Also in that case, the registrant knowingly made false statements about the mark and its use at the time the renewal application was filed. The Bose court found the Board's interpretation of Torres , as setting forth a lesser " should have known " standard, is erroneous. In applying the established rule that fraud requires an intent to deceive, in Bose , the court found the registrant did not make knowingly false statements about the use of the trademark at issue and disregarded the Board's finding that the declarant's belief (as to the sufficiency of the use) was unreasonable.
Going Forward
Despite this seemingly good news, trademark owners should continue to carefully review and investigate facts supporting the issuance and maintenance of U.S. trademark registrations based on allegations of use. The Bose court makes it clear that allegations of fraud are to be taken seriously and that a determination of whether there is an intent to deceive can only be made after a highly fact-specific inquiry based on the evidence of record. Therefore, it remains important to conduct an audit of the prosecution history of a trademark registration prior to asserting that registration in any dispute.
Conversely, trademark owners looking to challenge potentially problematic third-party applications and registrations based on fraud will need to conduct a more exhaustive inquiry into the facts of each case to assess whether there is the requisite level of evidence to show the applicant or registrant intended to deceive the PTO by making a material misrepresentation of facts.
To the extent trademark owners are currently engaged in cancellation actions pending before the TTAB, it may be necessary to extend or reopen discovery to allow for the disclosure of additional facts, if any, to support the higher fraud standard, consistent with the Bose holding. While the Bose case will be well received by many trademark owners, the decision could also be seen as increasing the costs of a trademark owner's policing and enforcement efforts, as the higher fraud standard may diminish the effect of a fraud claim in the first instance.
Published October 4, 2009.
