Fraud in the Eye of the Beholder

"Fraud is the ready minister of injustice." Edmund Burke

Judge Michel's opinion last week in the Federal Circuit case of In re Bose resets the cornerstone for cancellation of a trademark registration based upon fraud. Sect. 14 of the Lanham Act (15 U.S.C. Sect. 1064) provides that a registered trademark can be cancelled in certain instances, including if the registration is the result of fraud. Since 2003, the Trademark Trial and Appeal Board has been actively cancelling trademark registrations based upon a broad definition of fraud. The TTAB's 2003 opinion in Medinol v. Neuro Vasx, Inc. defined fraud to include both knowing mistatements in PTO filings based upon an intent to deceive, plus mistatements in which the falsity "should have been" known.

As a result of the TTAB's "knowing or should have known" fraud standard, all sorts of trademarks have been denied registration. Two illustrations may suffice. Last December, the TTAB cancelled the foreign registration for MONTELVINI VENEGAZZU because the Italian registrant mistated in its Sects. 8/15 filing that its mark was in use on all listed goods when, in fact, it was not. It appears from the facts of that case that the registrant (an Italian farmer) was not aware of the PTO filing standards and that, at most, the registrant's mistatement relating to the use of its mark was reckless without an intent to deceive. In my August 26th post, I wrote about a recent TTAB cancellation in the case of Honda v. Wilkelmann, in which it appears from the facts that the registrant's mistatement of intent to use its mark on all listed goods was beyond reckless, and intentional.

The Federal Circuit explained it decision last week in Bose in a straightforward manner, relying on a standard definition for fraud requiring scienter: knowledge or intent.

We have previously stated that “[m]ere negligence is not sufficient to infer fraud or dishonesty.” Symbol Techs., Inc. v. Opticon, Inc., 935 F.2d 1569, 1582 (Fed. Cir. 1991). We even held that “a finding that particular conduct amounts to ‘gross negligence’ does not of itself justify an inference of intent to deceive.” Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc). The principle that the standard for finding intent to deceive is stricter than the standard for negligence or gross negligence, even though announced in patent inequitable conduct cases, applies with equal force to trademark fraud cases. After all, an allegation of fraud in a trademark case, as in any other case, should not be taken lightly. San Juan Prods., 849 F.2d at 474 (quoting Anheuser-Busch, Inc. v. Bavarian Brewing Co., 264 F.2d 88, 92 (6th Cir. 1959)). Thus, we hold 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.

In re Bose, at p. 6-7.

In the Bose case, the registrant's general counsel and corporate officer, Mark E. Sullivan, signed a joint Sects. 8/9 renewal filing declaring that Bose's mark WAVE was in use on all goods, when in truth this was not the case. The Federal Circuit reversed the TTAB's decision to cancel Bose's WAVE registration for all goods and remanded the case to the TTAB to restrict the registration to goods for which the mark is in use.

It is difficult to quarrel with the fairness of the restated fraud definition applied in the Bose opinion. It is unfair to cancel a registration when the registrant's mistatement was based on mere error, as with the Montelvini Venegazzu mark. The degree of fault by the farmer-registrant in the Montelvini Venegazzu case is much less than appears to exist in the Honda v. Wilkelmann case. But it seems that the Bose decision lies between these two extremes. A finding that the false declaration of a corporate general counsel and assistant corporate secretary, trained in the law and guided by experience, is a far cry from the type of innocent mistatement made by an Italian farmer. If a registrant is permitted to rely on false legal analysis provided by counsel, thereby benefitting from an innocent mistatement defense, then the number of false filings that directly lead to trademark registration is certain to increase. And since the fraud standard is now based on an intention to deceive, keeping a blind eye to the law allows a registrant to practice deceipt while arguing that the fraud standard has not been met.

It is difficult for the average trademark applicant to fight over a registration when the mark appears not in use on all described goods. The lack of challenge over a non-use registration supports a registration in gross and reduces the number of available marks to good faith users. If the answer does not lie in a broadened definition of fraud, as reasoned by the Federal Circuit, then perhaps the PTO must examine the level of detail required in trademark application filings under Sects. 1(a) and 1(b), in Section 44 filings, maintenance filings under Sects. 8, 9 and 15, and Madrid filings. Perhaps the PTO must require more detail in the statement of use and in the statement of bona fide intent to use in the future. Perhaps the PTO must require that specimens for all listed goods must be submitted, rather than submitting only one specimen for any one of multiple goods in one class, as in now the standard.

Perhaps, further, applicants and registrants must be mindful of what is achieved by making a false statement, deliberate or not, in a PTO filing. Any resulting registration may come at high risk. That is, if a mark is to be licensed or assigned, the applicant or registrant of the mark may be required as part of the license or assignment transaction to provide warranties of title, use, registrability and noninfringement. If the mark owner is a public reporting entity covered by the Sarbannes-Oxley Act, it may be required to provide a heightened level of investigative due diligence and reporting detail to its equity owners, acquirers or other parties relating to its trademarks.

While the PTO's lower statement of use standard may suffice presently for registration purposes, the heightened standard of a contract warranty or in SOX may require an applicant or registrant to re-examine its entire registration basis, including all filings and supporting documentation.

"Rather fail with honor than success by fraud." Sophicles