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Truth or Consequences: The Dangers of Fraud in Trademark Prosecution

Federal trademark registrations can be very powerful tools for preventing brand confusion and unfair competition. The loss of a registration, therefore, can be a significant hindrance in the enforcement of rights in one's protected brand. There was a time when the United States Patent and Trademark Office ("USPTO") rarely addressed charges that there had been fraud in the prosecution of a trademark registration. No longer. Not only has the USPTO recently grown more aggressive in its treatment of fraudulent statements made in trademark filings, but recent cases indicate that the repercussions for fraudulent misrepresentation to the USPTO are becoming increasingly severe. Although the USPTO does not have jurisdiction to award money damages, the USPTO, through its internal administrative court the Trademark Trial and Appeals Board (the "TTAB" or "Board") will strike portions of an application or registration, or the application or registration in its entirety when fraud is found, even if the misstatement was made inadvertently. A finding of fraud also may now be justification for precluding civil enforcement of the mark covered by the application or registration.

Under Section 1(a)(3)(C) and (D) of the federal Trademark (Lanham) Act ("Act"), a trademark application based on actual use must include a declaration stating that: (a) the mark is in use in commerce; and (b) to the best of the verifier's knowledge and belief, no other person has the right to use the applied for mark or one that is similar, in a manner that is likely to cause confusion, mistake, or to deceive (with a limited exception for concurrent use situations). 15 U.S.C. § 1051(a)(3)(C) and (D). Similar declarations are required for subsequent filings that keep a registration alive that are made under Sections 8, 15 and 9.

Traditionally, fraud on the USPTO would be found where a knowingly false statement material to obtaining or maintaining a trademark registration was made. See Torres v. Cantine Torresella S.r.l, 808 F.2d 46, 1 USPQ2d 1483, 1484 (Fed. Cir. 1986). See also, Mister Leonard Inc. v. Jacques Leonard Couture Inc., 23 USPQ2d 1064, 1065 (TTAB 1992) (citing Torres, supra, in stating that a finding of fraud on the USPTO requires that the statement to be (1) false, (2) a material representation and (3) made knowingly). The definition of falsity follows the traditional view that a statement is false if it is untrue or misleading. The test of materiality for fraud in trademark prosecution is whether the registration would have issued or been maintained without the misrepresentation or nondisclosure. See Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985 (8th Cir. 1993).

On the issue of falsity, The TTAB's position traditionally has been that fraud does not exist where the applicant swore that it/he/she was the exclusive owner and user of the mark, even if another party was known to be using the same mark, if the applicant could show it had an honestly-held, good faith belief that its right to register was superior to that of the others known to be using the mark. See Woodstock's Enterprises Inc. v. Woodstock's Enterprises Inc., 43 U.S.P.Q.2d 1440, 1444, 1997 WL 440268 (TTAB 1997), aff'd, 152 F.3d 942 (Fed. Cir. 1998); See Also, Standard Knitting Ltd. v. Toyota Jidosha Kabushiki Kaisha, 77 USPQ2d 1917, 1926 (TTAB 2006) (stating that a statement will not be deemed fraudulent if it can be proven that the statement, though false, was made with a reasonable and honest belief that it was true);Rosso and Mastracco, Inc. v. Giant Food Inc., 720 F.2d 1263, 219 U.S.P.Q. 1050 (Fed. Cir. 1983) (Stating that a senior user ordinarily need not identify junior users in the application oath, unless conflicting rights of a junior user are clearly established, for example, by a court decree, by the terms of a settlement agreement, or by a registration).

Proving fraud had other obstacles, including that clear and convincing proof was necessary, and it commonly was held that fraud must be proven "to the hilt," meaning that all doubts were to be resolved against the party asserting the claim. See Marshall Field & Co. v. Mrs. Fields Cookies, 25 U.S.P.Q.2d 1321, 1329 (TTAB 1992); Yocum v. Covington, 216 U.S.P.Q. 210, 216 (TTAB 1982) (stating that fraud in a trademark cancellation must be "proved to the hilt" with "little or no room for speculation or surmise; considerable room for honest mistake, inadvertence, erroneous conception of rights, and negligent omission; and any doubts resolved against the charging party."); Maids To Order Of Ohio, Inc. v. Maid-To-Order, Inc., 78 U.S.P.Q.2d 1899 (TTAB 2006) (similar).

This trend recently came to a grinding halt in a line of cases starting with the Medinol decision in 2003.

In Medinol, the TTAB found that an applicant could be committing fraud if it included in its application statement of the goods and/or services offered under the trademark that it had not actually used or was no longer using. Medinol Ltd. v. Neuro Vasx Inc., 67 U.S.P.Q. 2d 1205 (TTAB 2003). Neuro Vasx filed an intent-to-use trademark application for the mark NEUROVASX for certain medical devices. Neuro Vasx subsequently filed a Statement of Use for the goods identified in the application, and included the required signed declaration.

Competitor Medinol Ltd. ("Medinol") filed a petition to cancel the resulting NEUROVASX Registration No. 2,377,833 (the "Registration"). Medinol claimed that Neuro Vasx had never started using use of the mark with some of the goods (i.e., products) identified in the Statement of Use and thus was guilty of fraud.

In an attempt to render Medinol's petition moot, Neuro Vasx sought to amend its registration by deleting the goods which were not in use . The TTAB rejected Neuro Vasx's attempted amendments, agreeing instead with Medinol's argument that the fraud extended to the entire Registration and could not be cured by amending the description of goods. As a result, the Board acted sua sponte and granted summary judgment in favor of Medinol on the issue of fraud, stating that Neuro Vasx knew or should have known at the time it submitted its Statement of Use that the mark was not in use on all of the goods. Consequently, the entire registration was cancelled.

A curious and most significant aspect of the Medinol decision was that the TTAB did not engage in the traditional inquiry as to whether Neuro Vasx had the requisite intent to deceive the USPTO. Rather than considering Neuro Vasx's subjective intent, the Board focused instead on the objective manifestations of that intent. Specifically, the Board held that intent to defraud could be established by proving that the false statement was made either with knowledge of its falsehood or with reckless disregard for the truth.

While the Medinol decision did not receive a lot of attention initially, it quickly became obvious that it was merely the foothold for further treatment on the subject of fraud by the TTAB and the USPTO generally when the TTAB continued to expand its holding in Medinol to other circumstances.

In Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., the TTAB reiterated its holding in Medinol, cancelling several registrations after finding fraud. Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., 86 USPQ2d 1572 (TTAB 2008). Here, the TTAB expressly held that proof of specific intent to commit fraud was not required, opting instead for an "objective manifestation" formulation of intent; in other words, whether the applicant/registrant knew, or should have known that the statement was false. As to proof of falsity, the Board held that summary judgment finding fraud was appropriate where admissions of nonuse of the mark for specific goods or services were made in discovery responses.

The TTAB seemingly cemented its stance on fraud in Bose Corp. v. Hexawave Inc., which was decided on the heels of the Herbaceuticals decision. In Bose, the Board denied Bose's request for reconsideration of the Board's decision of that Bose had committed fraud in filing a renewal for one of is registrations for WAVE because it included in the renewal application the goods "tape recorders and players." Bose attempted to argue that it was still using mark with these goods when it providing repairs. The Board rejected Bose's argument and, as a result, the entire registration was cancelled. Bose is appealing to the Federal Circuit. In an unusual twist, the Director of the Trademark Office is intervening in an effort to uphold the Board's decision.

Somewhat unexpectedly, in January 2009, the TTAB scaled back its apparent assault on fraud, finding that fraud in less than all classes of a multiple-class trademark registration would not result in the cancellation of the entire registration, but only of the fraudulent class. G&W Laboratories, Inc. v. G W Pharma Limited, 89 USPQ2d 1571 (TTAB 2009). The TTAB's conclusion was that a multi-class registration is akin to a series of one-class registrations, stating: "each class of goods or services in a multiple class registration must be considered separately when reviewing the issue of fraud, and judgment on the ground of fraud as to one class does not in itself require cancellation of all classes in a registration."

In a subsequent case, Honda Motor Co., Ltd. v. Friedrich Winkelmann, Opposition No. 91170552 (April 8. 2009) ,the TTAB made it clear that it also would increase its scrutiny of applications based on foreign applications or registrations under Section 44 of the Act. In Honda, the Board sustained an opposition on summary judgment against a Section 44(e) application based on a German registration of the same mark. . The TTAB ruled that the German owner failed to establish the requisite bona fide intent because mere statements of subjective intent, without more, are insufficient to establish the requisite bona fide intent to use the mark in commerce in the United States. The Board declared the application void ab initio. It remains to be seen whether the Honda decision will open a Pandora's Box for all foreign applicants and registrants who may now be far more vulnerable to challenges against their applications and registrations.

There are additional reasons to guard against submitting fraudulent statements during trademark prosecution. For instance, under Section 38 of the Act, a person who procures or maintains a registration by a false or fraudulent declaration or representation or any other false means is liable in a civil action by any person who is injured by the fraud for any damages sustained in consequence thereof. 15 U.S.C. § 1120. This includes damages attributable to the use of the mark while falsely registered. D. M. & Antique Import Corp. v. Royal Saxe Corp., 311 F. Supp. 1261, 166 U.S.P.Q. 302 (S.D. N.Y. 1969) (stating that damages under this section may be caused not merely by fraudulently obtaining a registration, but by the use of such a registration); But cf., Jackson v. Lynley Designs, Inc., 729 F. Supp. 498, 14 U.S.P.Q.2d 1903 (E.D. La. 1990) (an individual whose personal name was registered on the basis of a fraudulent consent has no standing to seek damages where no monetary loss was suffered as a result of the fraud). Further, Section 33(b)(1) of the Act provides a fraud defense against a charge of infringement. 15 U.S.C. § 1115(b)(1).

The federal district courts can hear appeals of TTAB decisions and have jurisdiction to hear cases under the Act (in fact, this jurisdiction is concurrent with state courts). Since money damages are not available in the TTAB or USPTO, more cases involving fraud defenses no doubt will arise given this less stringent burden.

The trend toward finding fraud where fraud previously was not found is real, and requires attention. Statements that had been viewed traditionally as formalities now carry grave consequences for trademark owners. Given the importance of brands in today's marketplace and the value of registrations of those brands, extra attention in the registration process is now critical.

_{1. Steven Weinberg is the senior partner in the West Coast Office of the entertainment/intellectual property firm Cowan, DeBaets, Abrahams & Sheppard, LLP (www.cdas.com) with offices in Los Angeles and New York, and is a member of the CCBA Board. He is a former Editor in Chief of The Trademark Reporter and adjunct law professor in courses on trademarks, unfair competition and copyright laws and entertainment law. Alexis N. Mueller is a senior associate in the firm specializing in trademark and digital media laws.}

_{2. Obtaining a federal trademark registration is a process that starts with the filing of an application for registration. The owner of an application is referred to as an "applicant." Following what can be a lengthy and sometimes adversarial series of events, if the application is approved for registration, it will be registered in the USPTO. A federal registration endows many benefits to its owner, including presumptive, and after 5 years, conclusive exclusive national rights in the mark.}

_{3. Trademark applications can be based on the actual use of the mark for specific goods or services, or on the basis that one has a good faith intent to use the mark on certain goods or services. Registration of a so-called "intent to use" application only can occur after the applicant files a document (either an application amendment or a Statement of Use depending on the stage of the application process) with the USPTO alleging that it actually is using the mark for specific goods and/or services.}

_{4. Goods and services are registered in product or service categories, referred to as "International Classes." For example, paper goods are one class and clothing are another class. One can seek registration of a mark in multiple classes either in a multi-class application or in separate applications.}

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