Federal Circuit Limits Trademark Fraud Claims – But Risks Still Remain
Recently, in In re Bose Corp., Appeal No. 2008-1448 (Fed. Cir. Aug. 31, 2009), the Court of Appeals for the Federal Circuit announced that fraud in obtaining a trademark registration requires proof that the applicant or registrant knowingly made a false, material misrepresentation with the intent to deceive the Patent & Trademark Office (“PTO”). The court discarded the old rule of Medinol v. Neuro Vasx, 67 USPQ2d 1205 (TTAB 2003), that fraud existed whenever the applicant or registrant “knew or should have known” its statements were false. According to Bose Corp., subjective intent to deceive, however difficult to prove, is an “indispensable element” of a fraud claim, and to prevail on a fraud claim the evidence supporting intent to deceive must be clear and convincing.
Thus, in Bose Corp., the court reversed an order by the Trademark Trial and Appeal Board ("TTAB") cancelling the incontestable registration of Bose Corp.’s WAVE trademark. Applying the less rigorous “should have known standard,” the Board had ruled that Bose committed fraud on the PTO in renewing its registration claiming trademark use on various goods, including previously sold Bose audio tape recorders and players, that Bose repaired and shipped back to its customers. The Bose employee who signed the renewal application knew that Bose had stopped manufacturing these devices at the time of the renewal, but believed that Bose’s repairing of the damaged, previously-sold WAVE audio tape recorders and players and returning the repaired goods to the customers nonetheless met the “use in commerce” requirement for renewing the trademark. The Board held that the belief that such use was a proper basis for renewing the registration for audio tape players was unreasonable and ordered cancellation.
In reversing the TTAB, the Federal Circuit held that there is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive. Since the Bose Corp. declarant testified under oath that he believed the statement was true at the time he signed the renewal application, and the challenger had not pointed to evidence to support an inference of deceptive intent, the Federal Circuit ruled that clear and convincing evidence of fraud was lacking and that the registration should not have been cancelled.
Bose Corp. overturns Medinol’s holding 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. “By equating ‘should have known’ of the falsity with a subjective intent, Medinol had effectively lowered the fraud standard to a simple negligence standard.” To the extent Medinol created such a standard, the Federal Circuit concluded in Bose that it was inconsistent with the framework for fraud set out in its prior decisions and of no precedential force. The holding in Bose is consistent with decisions of the Fifth, Seventh, Eighth, Ninth and Tenth Circuits that have also required proof of intent to deceive before cancelling a trademark registration.
Fraud Claims Post Bose Corp.
The Federal Circuit’s tightening of the fraud standard is bound to reduce the frequency with which such claims are alleged, as proof of intent to deceive in most cases will require substantial discovery. Nonetheless, trademark owners should still proceed with caution in applying for or renewing a trademark registration. In particular, and among other things:
- Confirm whether your mark is in use on all of the goods listed in the application prior to filing. All statements about the use of marks in an initial application or renewal of a registration should be investigated fully prior to signature and submission to the PTO. Failure to adequately review a declaration attesting to use of a mark as to all listed goods may constitute “reckless disregard.” The Federal Circuit in Bose Corp. left open the question of whether such conduct rises to the level of fraud.
- For existing registrations, take proactive steps to correct any false statements regarding use before asserting the registration against another party. The Federal Circuit recently held that correction of false statements before the registration has been challenged creates a rebuttable presumption that the registrant did not intend to commit fraud. Zanella Ltd. v. Nordstrom Inc., 90 USPQ2d 1758 (May 13, 2009) (correction of false statements in the identification of goods in post registration filings before an actual or threatened challenge to the registrations creates a rebuttable presumption that opposer did not intend to deceive the PTO).