Alert > Intellectual Property
Federal Circuit Overturns the Standard Used by the Trademark Trial and Appeal Board for Determining Whether Fraud Occurred in the Trademark Application Process
A federal trademark registration can be cancelled by the USPTO’s Trademark Trial and Appeal Board (TTAB) if it is determined that the registrant committed fraud in the application or renewal process. Since its decision in Medinol Ltd v. NeuroVasx, Inc., the TTAB has found registrations to have been obtained fraudulently if the registrant merely “knew or should have known” that a material representation made to the PTO during the initial application or renewal process was false, even if inadvertent and made without intent to deceive. Under Medinol and its progeny, a finding of fraud results in cancellation of the entire registration or entire classes of goods and services in the registration.
In In re Bose Corp., a decision filed on August 31, 2009, the United States Court of Appeals for the Federal Circuit addressed the TTAB’s practice of finding fraud based upon the “knew or should have known” standard. The Court concluded that a federal trademark registration can only be cancelled on the ground that the registration was obtained fraudulently if the “registrant knowingly makes a false material representation with the intent to deceive the PTO.” The “intent to deceive” requirement is an important standard for all trademark registrants because it greatly reduces the threat of a finding of fraud on the PTO due to an inadvertent false statement in a trademark application.
The Case
Plaintiff Bose Corporation (Bose) opposed defendant Hexawave Inc.’s (Hexawave) application to register the mark HEXAWAVE for use in connection with certain electrical devices, including transistors, tuners, mixers, and amplifiers. Bose based its opposition on claims of likelihood of confusion with its registered marks ACOUSTIC WAVE and WAVE, which were registered for use in connection with items such as loudspeaker systems, radios, and stereo systems. As is often the case after the Medinol decision, Hexawave brought a counterclaim to cancel Bose’s WAVE registration on the ground of fraud. Hexawave alleged that Bose committed fraud when it filed its renewal application for the WAVE registration, which claimed use of the mark on various items including audio tape recorders and players, which Bose no longer manufactured or sold.
It was undisputed that Bose was not selling audio tape recorders and players under the WAVE mark when the renewal application was executed and filed. However, the Bose employee who signed the application testified that he believed the mark was still in use on those goods because consumers continued to return the goods to Bose for repairs and the goods were then transported back to the owners in interstate commerce. The TTAB rejected this argument. Applying the Medinol “knew or should have known standard,” the TTAB held that Bose had defrauded the PTO, as the “belief that the return of a repaired audio tape recorder and player to its owner after rendering repair services was sufficient to support use in connection with [the] goods...was not reasonable.” Upon finding that Bose committed fraud, the TTAB cancelled the WAVE registration in its entirety, even as to those goods on which the mark was still being used.
The Federal Circuit Decision
The Federal Circuit began by reviewing the TTAB’s standard of finding fraud based on what the applicant or registrant should have known. The Court stated that “[b]y equating ‘should have known’ of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard” and that even “‘gross negligence’ does not of itself justify an inference of intent to deceive.” The Court held 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.” As with other claims of fraud, the Court held that the claimant must prove a subjective intent to deceive and, though the intent may be inferred from indirect and circumstantial evidence, the evidence must be clear and convincing.
Applying these standards to Bose’s actions, the Court held that the TTAB’s finding that Bose had acted fraudulently was reversible error. Although the Court agreed that the belief that the WAVE mark remained in use on audio tape players and recorders was unreasonable, it stated that reasonableness is not part of the fraud analysis: “[t]here is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” The employee who signed the renewal application testified that he believed the statement of use was true at the time he signed the application. Because there was no evidence to support an inference of deceptive intent, there could be no clear and convincing evidence of fraud.
Lastly, the Court held that invalidating the registration in its entirety as a result of Bose’s false, not fraudulent, statements was error. However, the Court did agree that the registration should be “restricted to reflect [the] commercial reality” that “the mark is no longer in use in connection with audio tape recorders and players.” It left the decision of how to restrict the registration to the TTAB.
Conclusion
By overturning the TTAB’s use of the “knew or should have known” standard for finding fraud in the application process for a trademark registration, the Federal Circuit has put the TTAB back in line with the fraud standard used in other areas of law. Returning a “subjective intent to deceive” element back into the standard will help to prevent the cancellation of entire registrations due to inadvertent mistakes and mistaken beliefs, and gives trademark owners more certainty when assessing their own potential claims. Moreover, the Federal Circuit found that the Medinol penalty — cancellation of the entire mark — was error. Despite this, it is unclear how the TTAB will deal with registrations that were obtained as a result of false, not fraudulent, information, and trademark applicants and owners should remain vigilant in making sure that all information in their initial and renewal application is accurate and truthful.
This alert was prepared by Larry Stanley and Mit Winter of Bingham’s Intellectual Property Group. For more information on this alert, please contact any of the lawyers listed below:
William Abrams, Co-chair, Intellectual Property Group
william.abrams@bingham.com
Scott Bluni, Co-chair, Intellectual Property Group
scott.bluni@bingham.com
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