Articles
Client Alert - U.S. Federal Circuit Court of Appeals Rejects Medinol “Should Have Known” Standard of Fraud, Raising the Bar in Fraud Cases
By Baila H. Celedonia & Sujata Chaudhri
Sep. 17, 2009
On August 31, 2009, the Court of Appeals for the Federal Circuit (CAFC) handed down a much awaited decision in In re Bose Corporation, Appeal No. 2008-1448 (Fed. Cir., August 31, 2009). The decision reversed what many U.S. practitioners considered an incorrect expansion of the fraud standard by the Trademark Trial and Appeal Board (TTAB) in Medinol v. Neuro Vasx, Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003) and its progeny.
In In re Bose, the CAFC reaffirmed that “a trademark is obtained fraudulently under the Lanham Act only if the applicant registrant knowingly makes a false, material representation with the intent to deceive the [United States Patent and Trademark Office] PTO.” Bose at p. 7. (emphasis added). The CAFC rejected the TTAB’s Medinol standard of fraud, which held that a party who “should have known” of the falsity had the necessary subjective intent to deceive. Even a material misstatement that a mark is in use on particular goods or services, when it is not, would not be fraud if occasioned by an honest misunderstanding or inadvertence, and without a willful intent to deceive.
Background. The long journey that culminated in the CAFC’s opinion began when Bose filed an opposition against Hexawave, Inc.’s application to register the mark HEXAWAVE, alleging a likelihood of confusion between the HEXAWAVE mark and Bose’s registered mark WAVE. Hexawave counterclaimed to cancel Bose’s registration, alleging that Bose had committed fraud on the PTO when it renewed the registration. Bose’s renewal application had stated that it was using the WAVE mark on all goods covered by the registration, when in fact, Bose no longer manufactured audio tape recorders and players. Bose’s renewal application had been signed by its general counsel, who testified that he believed that the WAVE mark was used on these goods because Bose continued to transport back to consumers audio tape recorders and players that it repaired. The TTAB held that repairing and shipping back did not constitute sufficient use to maintain Bose’s registration for these goods and that such a belief was unreasonable. Bose Corporation v. Hexawave, Inc., 88 U.S.P.Q.2d 1332, 1338 (T.T.A.B. 2007). Based on this, the TTAB ordered cancellation of Bose’s entire registration on fraud grounds. 1
The Decision on Appeal. The CAFC rejected the reasoning of the Medinol line of TTAB cases that a trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration of use which it knows or should have known to be false or misleading. “By equating ‘should have known’ of the falsity with a subjective intent, the [TTAB] erroneously lowered the fraud standard to a simple negligence standard.” Bose at 6. Rather, the AFC 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.” Id. (emphasis added). Of course, subjective intent to deceive is difficult to prove and generally must be inferred from indirect and circumstantial evidence. However, the Bose court held such evidence “must still be clear and convincing, and inferences drawn from lesser evidence cannot satisfy the deceptive intent requirement.” Id.
Bose’s general counsel had testified under oath that he believed that repair and shipping of previously-sold WAVE audio tape recorders and players met the “use in commerce” requirement for renewal. Because, at the time the declaration as submitted, “neither the PTO nor any court had interpreted ‘use in commerce’ to exclude the repairing and shipping repaired goods,” there was no evidence of deceptive intent.2 Id.
Practical Implications. In In re Bose, the CAFC effectively reversed the Medinol “should have known” standard, thereby raising the bar for establishing fraud on the PTO. For a fraud claim to succeed against a registration or application, more than the fact of a material misstatement will have to be shown, making it harder to use a fraud claim as a tool to gain leverage in contested matters before the TTAB. However, the CAFC specifically declined to resolve whether a reckless disregard of [a statement’s] truth or falsity satisfies the intent to deceive required,” Bose at n.2. Reckless disregard could well be found if there is a failure to do any investigation regarding use.
In addition, given the draconian result of loss of a registration if fraud is found, trademark applicants and registrants are still well advised to be diligent, thoroughly investigating use of a mark in commerce before filing an application or a Statement of Use, and retaining evidence of such use at the critical filing dates in case of a later dispute. Also, to the extent possible, applicants and registrants should correct any false statements before a fraud challenge is raised. 3
Lawyers must continue to press their clients regarding the extent of use of a mark on and in connection with goods and services in a registration or application. 4 This is particularly so for U.S. registrations based on a foreign registration which contains a laundry list of goods as services for “defensive purposes.” Fraud could well be found, for example, when the Section 8 Declaration of Use continues to include goods a registrant has never manufactured.
For more information, please feel free to contact us:
Baila Celedonia: (212) 790-9203 or bhc@cll.com
Sujata Chaudhri: (212) 790-9236 or szc@cll.com
Endnotes
1 Even with the registration cancelled, the TTAB sustained the opposition based on Bose’s common law right in the WAVE mark.
2 The CAFC agreed that the WAVE mark was no longer in use on audio tape recorders and players and remanded the case back to the TTAB “because …the registration needs to be restricted to reflect commercial reality”. Bose at 11.
3 Zanella v. Nordstrom, 90 U.S.P.Q. 2d 1758 (T.T.A.B. 2008).
4 Both business persons and their attorneys share a duty to confirm the accuracy of any statements regarding use.
Hachette Filipacchi Presse v. Elle Belle LLC, 85 U.S.P.Q. 2d 1090 (T.T.A.B.. 2007)