Fraud on the PTO – A Trademark Perspective

Last Friday (April 9), during the American Bar Association Intellectual Property Law Section conference, I delivered a presentation on Trademark Prosecution Ethics, and in particular, the history and current status of the fraud in the procurement theory used to cancel registrations (or oppose applications) when material misrepresentations have been made to the Patent & Trademark Office during the application or renewal process.

I plan to upload both my article and my PowerPoint presentation to my firm’s web site as quickly as feasible, and you are welcome to review them there. In sum, however, my conclusions were as follows:

“While the test for determining that an applicant’s or registrant’s conduct in filing an application or maintaining trademark registrations was fraudulent has become more stringent, applicants, registrants and their counsel still face some pitfalls in the process. Indeed, although certain amendments of an inaccurate filing may be accepted (provided that no challenge to the validity of the application or registration has yet been filed), it is clear that both the TTAB and the Federal Circuit discourage carelessness in preparing these filings.

Accordingly, applicants and registrants are strongly encouraged to do at least the following to avoid increasing the risk of claims or counterclaims of fraud on the USPTO, and thus, loss of a pending application or a particular registration:

  • Conduct appropriate due diligence to ensure that the marks sought to be registered (or renewed) qualify as “in use” or validly subject to the “intent to use” process;
  • Ensure that the intended signatory for the declaration has the appropriate level of personal knowledge to support the allegations of use or intent to use, exclusive right to use the mark and other averments of fact;
  • Ensure that any licensees upon whose use the applicant/registrant will rely to maintain the registration properly use the mark in commerce and provide sufficient evidence to the applicant/registrant to support the maintenance filing; and
  • Undertake proper due diligence before filing an Opposition or Cancellation proceeding to ensure that the trademark or service mark forming the basis of a challenge to another application or registration does not have any exposure to a counterclaim for fraud on the USPTO and thus at risk for cancellation during the pendency of the proceeding.

Note that undertaking these preparations cannot completely moot claims of fraud on the USPTO, but they lend support and reasonableness to a potential response that no “intent to deceive” can be demonstrated by clear and convincing evidence. Finally, this entire line of cases confirms that the USPTO, TTAB and Federal Circuit Court of Appeals have strong interests in ensuring that the trademark Register be kept current and accurate, and demonstrates a disfavor of carelessly filed and unreliable factual statements about the use or non-use of trademarks and services marks in active use in U.S. commerce.

I welcome your comments.

UPDATE on 4/20/10: The slides from the presentation can be found on the ABA’s IPL Section site.

UPDATE on 5/7/10: The published article and the accompanying slides are now available on my firm’s web site. The direct links are here: “Ethics in Trademark Application Prosecution: Alleging ‘Fraud in the PTO’ After In re Bose,” ABA Intellectual Property Law Section 25th Annual Conference (April 9, 2010)(with presentation slides).

USPTO Trademark Public Advisory Committee Meeting Tomorrow

On November 20, 2009, the U.S. Patent & Trademark Office’s Trademark Public Advisory Committee will be holding a public meeting to discuss, among other things, the impact that the Federal Circuit’s recent decision in the In re Bose Corp. case will have on the USPTO’s “Trademark Operation.” (More information on the In re Bose Corp. case and some of its predecessors in the Medinol line of cases can be found in my prior blog entries.)

The meeting will be webcast, and runs from 9:00am – 12:00pm Eastern Time. You can also dial in by phone to hear the audio only, if you prefer. (Instructions for participating and the proposed agenda can be found here.)

Based on the published agenda, the segments relevant to the In re Bose opinion will likely be the following:

* 10:15 a.m. (20 minutes) – Discussion with TTAB Judge Gerard Rogers regarding TTAB matters, including “What steps has the TTAB taken, and what steps (if any) does it plan to take, in the wake of the Federal Circuit decision in In re Bose Corp.”

* 10:35 a.m. (60 minutes) – Discussion with Trademarks Commissioner Lynne Beresford about “what steps the Trademark Operation should take, if any, in the wake of the [In re Bose Corp. decision] to minimize the amount of ‘deadwood’ on the trademark registers.” Some of the suggested subtopics in this category are:

“* Should any special action be taken regarding applications claiming a large
number of goods/services?
* Should proof of mark usage be required on each
item of goods/services?
* Should there be a procedure by which a third party
can require an interim proof of use of a mark by a mark registrant on some or
all goods/services covered in a registration?”

Also of interest in this section is the discussion of a proposal to update TMEP (the USPTO’s Trademark Manual of Examining Procedure) on a continuous basis.

If you cannot participate in the meeting, but are interested in reading about it afterward, the transcript will likely be posted on TPAC’s main page at some point after the meeting concludes. Transcripts from prior meetings can also be found there.

Federal Circuit Clarifies Fraud Standard for Cancelling Trademark Registrations

On August 31, 2009, the U.S. Court of Appeals for the Federal Circuit reversed the Trademark Trial and Appeal Board’s (“the Board”) 2007 decision cancelling Bose’s federal Trademark Registration for its mark WAVE in connection with “radios, clock radios, audio tape recorders and players, portable radio and cassette recorder combinations, compact stereo systems and portable compact disc players.” See In re Bose Corporation, Appeal No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009). More importantly, however, the Court removed the threat of cancellation of a registered trademark if a registrant mistakenly included goods or services in its application (or requests for renewal) on which the mark was never used, or which the registrant had stopped using. The key to this analysis was the Court’s return to the “knowing” requirement in fraud pleadings, instead of the current “knowing or should have known” standard.

In the underlying case, the Board found that Bose had submitted a false sworn affidavit of continued use in support of the renewal of its Registration. Having found falsity, the Board further held that cancellation of this registration was appropriate because Bose “should have known” that the affidavit was false with respect to “audio tape recorders and players,” and was thereby attempting to defraud the Trademark Office by submitting it. (The Board recognized that the mark continued to be used in connection with the remaining goods covered by the Registration and only focused on the affidavit with respect to these few goods.) See Bose Corp. v. Hexawave, Inc., Opposition No. 91/157,315, 88 USPQ2d 1332 (TTAB Nov. 6, 2007). More information about the underlying case and the Medinol line of cases can be found at these prior posts.

In reversing the Board’s decision, the Court held that the Board erred when it relied on a lower standard to prove fraud in obtaining or maintaining a trademark registration as set forth in the Board’s 2003 decision in the Medinol case and when it cancelled the Registration for this mark in its entirety. The Court remanded the case for further proceedings to narrow Bose’s registration to “reflect commercial reality,” presumably to remove the goods on which the mark is no longer used in interstate commerce (specifically “audio tape recorders and players”). Bose, slip op. at 11.

Through this single opinion, the Court has accomplished that which practitioners have sought in various fora since 2003. See Medinol Ltd. v. Neuro Vasx, Inc., Cancellation No. 92040535, 67 USPQ2d 1205 (TTAB May 13, 2003). Specifically, while practitioners may generally agree that the Principal Register (cataloging active trademark registrations) should be culled periodically of those marks that are no longer in use in commerce, it has been argued that cancelling an entire registration – even longstanding and valuable registrations – as punishment for the registrant’s carelessness rather than permitting the registrant to amend the registration to remove outdated items was Draconian. See U.S. Patent and Trademark Office, Public Advisory Committee Meeting, Transcript at 137-42 (Feb. 20, 2009) (one panelist suggested that using cancellation for fraud as a punishment for these types of mistakes was akin to imposing the “death penalty” for a traffic violation).

Now, apparently, such amendments may be permitted.

Standard to Find Fraud on the Trademark Office

In order to support the cancellation of a registration based on the claim that the “registration was obtained [or maintained] fraudulently” (15 U.S.C. § 1064(3)), a court must find that the applicant “knowingly [made] false, material misrepresentations of fact in connection with his application.” Bose, slip op. at 3 (quoting Torres v. Cantine Torresella, S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986)). The Court confirmed that a “heavy burden of proof” is required and that the party seeking cancellation has to prove the allegation of fraud “to the hilt” through clear and convincing evidence. Id. (“There is no room for speculation, inference or surmise and, obviously, any doubt must be resolved against the charging party.”).

The Court focused on the Board’s conclusion that Bose “should have known” that its renewal affidavit was false and held that the Board’s prior opinion in the Medinol case changing the standard from “knew” to “should have known” (on which the Board relied in the Bose case) improperly reduced the standard to that of ordinary negligence. Id. at 5-6. In addition, finding that an applicant’s conduct constituted “mere negligence” or even “gross negligence” would be insufficient to meet the proof requirement for fraud. Instead, a subjective “intent to deceive” is an indispensible element of the claim. Id. at 6-8.

In sum, “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). Fraud does not exist when false statements are “occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at 10 (citations omitted).

Applying the Proper Standard to the Bose Registration

Applying the rule to the case at bar, the Court determined that this “intent to deceive” was absent and credited the testimony of Bose’s general counsel that he believed that repairing previously-sold tape players and shipping them back to consumers constituted “use in commerce” sufficient to support the renewal when he signed the affidavit in 2001. Id. at 9. While the Court declined to reach the issue of whether this belief was “reasonable,” the Court noted that no prior decision had been issued that found the repair/return activity to be insufficient to prove use of the mark in commerce. Id. at 9 n.2. As a result, Bose’s general counsel had not ignored prior legal precedent in submitting his affidavit.

Applying the Proper Standard to Prior “Fraud on the PTO” Cases

Not only did the Court confirm that a “knowing” misrepresentation and intent to deceive are required to support a fraud allegation, but it also clarified that “honest misunderstandings” or “inadvertence” in sworn statements made in connection with trademark applications or renewals do not constitute fraud in the absence of proof of a willful intent to deceive the Trademark Office.

This clarification is significant, particularly in light of the many decisions by the Board to cancel a registration or affirm the refusal of registration in reliance on the “should have known” standard articulated in its opinion in Medinol. One could argue that the Federal Circuit’s opinion in Bose effectively overturns many of these decisions.

Certainly, applicants could rely on the Bose opinion to seek to amend their registrations to reflect commercial reality where they can demonstrate that mistakes in their sworn statements about whether a mark is or continues to be used in commerce were inadvertent or the result of honest misunderstandings, a result which Medinol would have precluded.

Fraud on PTO Refusal is not Obviated by Lack of Counsel; Amendments Cannot Expand Goods Sought to be Covered

Updating a prior post: Fraud on the PTO Jurisprudence: Further Approval for Timely Corrective Action to Avoid Cancellation

On June 25, 2009, the TTAB issued another opinion in its “Fraud on the PTO” jurisprudence. Esprit IP Limited v. Mellbeck Ltd, Opposition No. 91189412 (TTAB June 25, 2009) [not precedential]. In this case, Applicant (Mellbeck) filed an application seeking trademark registration for the following goods:

Athletic apparel, namely, shirts, pants, jackets, footwear, hats and caps, athletic uniforms; Belts; Bibs not of cloth or paper; Caps; Children’s and infants’ cloth bibs; Children’s cloth eating bibs; Cloth bibs; Cloth bibs for adult diners; Cloth bibs for use by senior citizens or physically- or mentally-challenged persons; Cloth diapers; Clothing for wear in judo practices; Clothing for wear in wrestling games; Clothing, namely, arm warmers; Clothing, namely, folk costumes; Clothing, namely, hand-warmers; Clothing, namely, khakis; Clothing, namely, knee warmers; Clothing, namely, neck tubes; Clothing, namely, throbes [sic]; Clothing, namely, wrap-arounds; Corsets; Dusters; Foulards; Hoods; Infant and toddler one piece clothing; Infant cloth diapers; Jerseys; Leather belts; Mantles; Mufflers; Nondisposable cloth training pants; Paper hats for use as clothing items; Parts of clothing, namely, gussets for tights, gussets for stockings, gussets for bathing suits, gussets for underwear, gussets for leotards and gussets for footlets; Perspiration absorbent underwear clothing; Shifts; Short sets; Shoulder wraps; Swaddling clothes; Ties; Tops; Travel clothing contained in a package comprising reversible jackets, pants, skirts, tops and a belt or scarf; Triathlon clothing, namely, triathlon tights, triathlon shorts, triathlon singlets, triathlon shirts, triathlon suits; Underarm clothing shields; Wearable garments and clothing, namely, shirts; Wraps.

The application passed initial review by the Examining Attorney without Office Actions or Examiner’s Amendments, and was published for opposition on December 2, 2009. See Full File, including Notice of Publication dated November 12, 2008.

Opposition Filed

Esprit IP Limited (“Opposer”) opposed the application on March 23, 2009, alleging that it was filed fraudulently (among other claims) and requested that registration be refused. Notice of Opposition ¶ 21.

In its answer, Applicant conceded that it “does not sell in the US all of the apparel products listed in the application” for this mark. Answer ¶ 17 (admitting Opposer’s allegation on this point without modification).

Attempts to Modify the Description of Goods

Shortly thereafter, Opposer moved for judgment on the pleadings on several of its claims, including on the fraud claim. In response, Applicant responded to the motion, admitting its error in drafting the description of goods, and filed a motion to amend the description in an attempt to fix the problem. The amendment it requested was:

Clothing, namely, fleece jackets, t-shirts, ski masks, helmet liners, neck warmers, socks, thermal underwear, windcheaters, base-layers, thermal gloves, undersuits, longjohns, sweaters, [and] hats.

In general, the USPTO might accept a modification to the description of goods or services covered by a particular application, but only if the modification is narrower than the original filing; the USPTO will not accept a broader description or one that deviates completely from the original as filed. 37 C.F.R. § 2.71(a) (“The applicant may amend the application to clarify or limit, but not to broaden, the identification of goods and/or services.”) (emphasis added); TMEP § 1402.06. Should an applicant wish to obtain a registration for the mark as applied to goods or services beyond the original description, it may only do so by filing a new application to cover the new goods or new services.

Unfortunately for Applicant, however, both Opposer and the TTAB recognized that this modified description had only one product in common with the original description: hats. Opinion at 3-4. The rest of the description covered brand new products. The TTAB denied the motion to amend, rejecting the new expanded description, concluding that it was “unacceptable because it designates goods that are outside the scope of the identification as set forth in the application as filed.” Id. at 3 (citations omitted).

Reliance on Lack of Counsel to Defend Against the Fraud Claim

In attempting to change its description completely, Applicant lamented that it was “not represented by an attorney and has no prior experience in United States trademark matters” and therefore argued that it should be excused from liability for having submitted a completely false description of goods used in connection with the mark. Id. at 5. In prior cases, however, the TTAB expressly rejected an applicant’s attempt to rely on the advice of counsel, or to hide behind its lack of counsel, in an effort to avoid refusal/cancellation of its application/registration due to fraud. See Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., Cancellation No. 92045172, 86 USPQ2d 1572 (TTAB Mar. 7, 2008) [precedential] (precluding client from relying on the advice of counsel as a defense to a fraud claim); Tequila Cazadores, S.A. De C.V. v. Tequila Centinela S.A. De C.V., Opposition No. 91125436 (TTAB Feb. 24, 2004) [not precedential] (refusing to recognize a defense of lack of counsel to a claim of fraud). Here, the TTAB held that “[t]he fact that applicant is a foreign entity that is representing itself without previous experience in United States trademark procedure cannot avoid a finding of fraud.” Opinion at 8.

Instead, it is incumbent upon applicants to be fully informed about the truth of their statements made under oath and to understand the implications of giving such a declaration in connection with their applications for trademark registration. See Hacehette Filipacchi Presse v. Elle Belle, LLC, Cancellation No. 92042991, 85 USPQ2d 1090 (TTAB Apr. 9, 2007) [precedential]; Hurley Int’l LLC v. Volta, Opposition No. 91158304, 82 USPQ2d 1339 (TTAB Jan. 23, 2007) [precedential].

TTAB Refused Registration

Ultimately, in the Esprit case, the TTAB found that “[b]y setting forth an identification of goods for more than fifty goods, when applicant was not using the mark on all of these goods, and indeed may have been actually using the mark only on one of those identified goods, applicant made a material misrepresentation of fact that the [USPTO] relied upon in determining applicant’s right to registration.” Opinion at 8. The TTAB granted Opposer’s motion for judgment on the pleadings and refused registration to Applicant. Id. at 9.

Lessons Learned

Finally, while this case may not be cited as precedent in other cases, it should suggest the following lessons for applicants: 1) descriptions of goods and services can only be narrowed during examination; 2) applicants cannot file applications based on “use in commerce” in connection with goods or services on which they have not actually used the mark in question; and 3) applicants cannot rely on the lack of counsel or claimed misunderstandings of the requirements of U.S. trademark law to avoid refusal or cancellation based on this doctrine.

AIPLA Reports on the May 6, 2009 Federal Circuit Oral Argument on the Bose v Hexawave Case

In today’s issue of AIPLA Reports, the AIPLA (American Intellectual Property Law Association) summarized very cogently an oral argument on May 6, 2009 before the Federal Circuit in the Bose Corp. v. Hexawave, Inc. case. Opposition No. 91157315 (filed July 17, 2003). The AIPLA had submitted an amicus brief in the case and partipated in the oral argument.

The AIPLA’s summary also includes a link to the MP3 file of the audio recording of the oral argument. Based on this summary, it sounds as if the Federal Circuit might consider overturning the TTAB’s opinion in the underlying case, in which the TTAB held that Bose’s reliance on its repair services to demonstrate a continued “use in commerce” in support of its Section 8 and 9 declarations (for renewal of the registration) was unreasonable. Opinion at 14-17. The TTAB found fraud in the filing of the renewal declaration, granted the counterclaim to cancel Bose’s Registration No. 1633789 and ordered that the cancellation occur in “due course.” The appeal to the Federal Circuit followed, on June 11, 2008.

It remains to be seen how the Federal Circuit will actually rule, but this promises to be a pivotal decision in the Fraud on the PTO jurisprudence, which perhaps will provide more guidance to practitioners and their clients in determining what goods and services should be included in the applications and/or renewal declarations.