September 14, 2009
Intellectual Property Alerts

Federal Circuit Overrules Controversial Fraud on the Trademark Office Decision
by Cyrus Wadia

In one of the more significant trademark rulings of the past several years, the United States Court of Appeals for the Federal Circuit has reversed a line of authority establishing nearly strict liability in ruling on claims of fraud on the U.S. Patent and Trademark Office (PTO).  In re Bose Corporation, Appeal No. 2008-1448 (Fed. Cir., Aug. 31, 2009) (listen to oral argument here).
 
Prior to obtaining a trademark registration, an applicant must declare under penalty of perjury that the trademark is "in use" in connection with all the goods and/or services claimed in the application.  The Trademark Trial and Appeal Board (TTTAB) permits cancellation of a trademark on grounds that the registration was obtained fraudulently.  In Medinol v. Neuro Vasx, Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003), the TTAB cancelled a trademark on the grounds that the applicant had committed "fraud on the PTO" by inadvertently declaring use in connection with all the goods set forth in an application, when only some of the goods were actually in use at the time the declaration was filed.  The TTAB held in Medinol  that "[a] trademark applicant commits fraud in procuring a registration when it makes material representations of fact . . . which it knows or should know to be false or misleading."  (Emphasis added.)  This strict standard for fraud on the PTO has been followed by the TTAB since 2003 in several cancellation proceedings, with failure to delete unused goods or services from a declaration of use serving as the basis for cancellation even when the mark is in actual use with other goods or services in that same application or registration.
 
Using the Medinol precedent, the TTAB found that Bose Corporation (Bose) committed fraud on the PTO in renewing its trademark WAVE.  Bose had opposed Hexawave, Inc.'s application for the mark HEXAWAVE, and Hexawave counterclaimed for cancellation of Bose's WAVE mark on the grounds that Bose's renewal application claimed continued use of the mark in connection with audio tape recorders and players even though Bose was no longer offering such products.  Bose claimed that it did not commit fraud on the PTO because of continued repair services it offered on such products, but the TTAB found that repair services do not constitute sufficient "use in commerce" for renewal purposes and that Bose's declarant "should have known" otherwise.  The TTAB thus cancelled the mark under the Medinol standard.
 
The Federal Circuit reversed, holding that by equating the "should have known" standard of falsity with a subjective intent, the TTAB in Medinol had "erroneously lowered the fraud standard to a simple negligence standard."  Bose at p. 6.  The Federal Circuit reaffirmed its pre-Medinol line of cases, and 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."  The Federal Circuit found that if a "false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive," there is no fraud.  Bose at p. 10.  Because Bose's declarant testified that he believed the statement regarding use in commerce was true at the time he signed the renewal application, the Federal Circuit found no "clear and convincing evidence" of fraud on the PTO.  Accordingly, it concluded that Bose did not commit fraud in renewing its WAVE mark and therefore the TTAB erred in canceling the WAVE mark in its entirety.  The Federal Circuit remanded the case to the TTAB for further proceedings, in particular to restrict the mark to reflect that it was no longer in use on certain goods in its application.
 
This case ushers in a new era in claims of fraud on the PTO, making it much more difficult to prove in opposition and cancellation actions because proof of subjective intent to deceive is a necessary element of any such claim.
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