In one of the most closely watched trademark-related appeals in recent memory, In re Bose Corp., No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009), the United States Court of Appeals for the Federal Circuit has overturned the central holding of the Trademark Trial and Appeal Board’s decision in Medinol Ltd v. NeuroVasx Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003). Specifically, the Federal Circuit has disapproved of the Board’s practice of finding fraud if a registrant or applicant merely “should have known” that a material representation to the U.S. Patent and Trademark Office (“PTO”) was false. In the wake of the Federal Circuit’s opinion:

  1. a federal application or registration can be successfully attacked “only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO”;
  2. the record evidence and testimony necessary to support a successful fraud-based challenge to an application or registration must be “clear and convincing”; and
  3. in contrast to the Board’s practice of invalidating applications and registrations either in their entirety or with respect to entire classes of goods and services based on a finding of fraud, a more appropriate remedy may be to “restrict” those filings based on the non-use of the mark at issue in connection with individual goods and services.  

Medinol

Although not the first opinion to address the circumstances under which a finding of fraud on the PTO will lie, the Board’s decision in Medinol Ltd v. NeuroVasx Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B 2003), has held the attention of trademark owners and practitioners alike since its issuance. In Medinol, the registrant filed a single-class intent-to-use application to register a mark for neurological stents and catheters. The registrant later filed a statement of use averring that the mark was being used in connection with all of the goods identified in the application, and the resulting registration covered both stents and catheters. In a subsequent cancellation action, the petitioner for cancellation alleged that the registrant had not used the mark in connection with stents as of the date of the statement of use. The petitioner argued that the registrant’s inaccurate averment to the contrary amounted to fraud in the procurement of the registration that could not be cured by any post-petition amendments to the registration. In sua sponte entering summary judgment in the petitioner’s favor, the Board found as a matter of law that the registrant knew, or should have known, that the mark was not in use on all of the recited goods when the statement of use was filed:

The undisputed facts in this case clearly establish that respondent 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. Neither the identification of goods nor the statement of use itself were lengthy, highly technical, or otherwise confusing, and the President/CEO who signed the document was clearly in a position to know (or to inquire) as to the truth of the statements therein

Id.at 1209-10. The Board then canceled the registration in its entirety, despite the registrant’s (successful) request to amend the registration to delete stents. As the Board explained, “deletion of the goods upon which the mark has not yet been used does not remedy an alleged fraud upon the Office. If fraud can be shown in the procurement of a registration, the entire resulting registration is void.” Id. at 1208.

Although the Board’s application of Medinol since 2003 has more often than not resulted in the invalidation of applications and registrations in their entirety, two of the Board’s most recent opinions on the subject have departed from the more draconian aspects of the original decision. First, in G&W Labs v. GW Pharma Ltd., 89 U.S.P.Q.2d 1571 (T.T.A.B. 2009), the Board held that fraud in connection with particular classes of goods and services covered by a multi-class registration will not result in the cancellation of the entire registration; rather, cancellation is appropriate only as to the affected classes. See id. at 1573. Second, in Zanella Ltd. v. Nordstrom, Inc., 90 U.S.P.Q.2d 1758 (T.T.A.B. 2008), the Board held that the voluntary deletion of individual goods and services from an application or registration may create a presumption of good faith, provided that the deletion is made prior to a challenge to the application or registration being brought. See id. at 1762-63. Significantly, however, neither decision altered the “known or should have known” standard underlying Medinol itself or offered hope to applicants or registrants seeking to delete individual goods or services from their filings on a post-challenge basis.

Bose

In Bose, the Board applied Medinol to invalidate a registration covering, among other things, “audio tape recorders and players.” See Bose Corp. v. Hexawave, Inc., 88 U.S.P.Q.2d 1332 (T.T.A.B. 2007) (nonprecedential), rev’d sub nom In re Bose Corp., No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009). In contrast to the claim of fraud at issue in Medinol, which centered on the registrant’s conduct during the application process, the Board’s finding of fraud in Bose was based on the maintenance of a registration through the filing of a declaration of continued use required under Section 8 of the Lanham Act, 15 U.S.C. § 1058 (2006). It was undisputed that, at the time of the declaration’s execution, the registrant was not selling audio tape recorders and players under the registered mark. The declaration’s signatory, however, testified that he believed the mark remained in use as to those goods because consumers continued to return the goods to the registrant for repairs, after which the goods were transported back to their owners in interstate commerce.

Rejecting this argument on the merits, the Board went on to conclude that the registrant had defrauded the PTO because:

“[P]roof of specific intent to commit fraud is not required, rather, fraud occurs when an applicant or registrant makes a false material representation that the applicant or registrant knew or should have known was false.” . . . . . . . [The registrant] knew it had not manufactured or sold audio tape recorders and players for at least three years prior to filing the Section 8/9 renewal and [the registrant’s] asserted belief that the return of a repaired audio tape recorder and player to its owner after rendering repair services was sufficient to support use in connection with goods to maintain a registration for such goods was not reasonable. . . . Therefore, we find that [the registrant] committed fraud on the USPTO.

Id.at 1338 (emphasis added) (quoting Gen. Car & Truck Leasing Sys., Inc. v. Gen. Rent-A-Car Inc., 17 U.S.P.Q.2d 1398, 1400 (S.D. Fla. 1990)).

On the registrant’s appeal from this decision, the Federal Circuit took issue with the Board’s willingness to find fraud based on what the registrant should have known. Reviewing both its past case law and that of other circuits, it held that:

By equating “should have known” of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard.

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. 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.

Bose, slip op. at 6-7 (citations omitted).

With respect to the nature of the proof required to satisfy this standard, the court then held that:

Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the analysis. Of course, “because direct evidence of deceptive intent is rarely available, such intent can be inferred from indirect and circumstantial evidence. But such evidence must still be clear and convincing, and inferences drawn from lesser evidence cannot satisfy the deceptive intent requirement.”

Id. at 7 (quoting Star Sci., Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008)).

Turning to the issue of whether clear and convincing evidence of fraud appeared in the case before it, the court acknowledged the Board’s finding that the signatory’s belief that the mark remained in use was unreasonable. Nevertheless, it held that “[w]e do not need to resolve the issue of . . . reasonableness as it is not part of the analysis. There is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at 10. It then observed that “[the signatory] testified under oath that he believed the statement was true at the time he signed the original application. Unless [a] challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence required to satisfy a fraud claim.” Id. Because no such evidence appeared in the record, the Board’s finding that the registrant had acted fraudulently was reversible error.

In addition to leaving unresolved the issue of whether applications or registrations invalidated during the Medinol years can be restored, the court left open the question of what the appropriate consequences of the Bose registrant’s false (but not fraudulent) sworn averment of continued use should be. Although holding that the Board had erred in invalidating the registration in its entirety, the court agreed with the Board that the registration should be “restricted to reflect commercial reality.” Id. at 11. Rather than a finding of fraud, the basis of that restriction properly should be the Board’s finding that “the [registered] mark is no longer in use in connection with audio tape recorders and players.” Id. The ultimate fate of the registration therefore remains to be determined on remand.

Conclusion

The Federal Circuit’s decision in Bose is likely to bring to a close an era in which the threat of a finding of fraud on the PTO has greatly altered the behavior of trademark owners and their counsel alike. In overturning the Board’s “known or should have known” standard for finding fraud, the court has restored the rules governing allegedly fraudulent filings to those in place prior to 2003; it also has brought the doctrine governing averments of fraud in the trademark registration context into conformity with that extant in other areas of the law. Although certain consequences of the court’s opinion remain to play out, the ultimate result is likely to be greater certainty in the litigation of fraud-based claims.