Bauer Bros. LLC (“Bauer”) filed applications for the mark “Don’t Tread on Me” in April 2004 and the mark “DTOM” in January 2006. Both applications claimed a “first use in commerce” date of March 2004 and covered 114 items of apparel. The PTO subsequently registered Bauer’s marks.
Nike, Inc. (“Nike”) first sold apparel and footwear in commerce bearing the phrase “Don’t Tread on Me” in December 2005 and “DTOM” in March 2006. Nike made the decision to use the marks following a trademark consultant’s research showing that Bauer was not using the trademarks in commerce as of late 2005.
In 2009, Bauer filed suit against Nike in the U.S. District Court for the Southern District of California alleging (1) unfair competition under Section 43(a) of the Lanham Act; (2) unfair competition under California law; and (3) common-law trademark infringement. Nike counterclaimed, seeking cancellation of the “Don’t Tread on Me” and “DTOM” registrations, alleging that they were fraudulently procured as, contrary to the declarations accompanying its applications, Bauer was not using the marks in commerce on all of the listed apparel items at the time the use claims were made.
Bauer subsequently amended its “Don’t Tread on Me” registration with the PTO to delete all but one of the 114 items and to cover only T-shirts, but made no similar amendment to its “DTOM” registration. Bauer’s owner stated in his deposition testimony that at the time the trademark applications were filed, the “Don’t Tread on Me” and “DTOM” marks were only being used in commerce for T-shirts. He also testified that Bauer had included a larger number of goods in its PTO applications with the intent of building a brand by protecting a broader scope of goods.
The parties cross-moved for summary judgment. Nike sought summary judgment on the grounds that Bauer’s trademarks were invalid because Bauer could not prove use of the trademarks in commerce at the time of filing its use-based trademark applications nor prior to Nike’s own use of the marks in commerce. Bauer sought summary judgment on Nike’s counterclaims, arguing that its trademarks were not fraudulently procured.
In granting Nike’s motion for summary judgment on Bauer’s unfair-competition and infringement claims, the court held that where, as here, an applicant for a use-based trademark application fails to produce any evidence of bona fide use of the mark, summary judgment is appropriate.
Nike provided sales records, internal e-mails, and marketing materials to establish its first use of the “Don’t Tread on Me” and “DTOM” marks in 2005. Evidence presented by Nike rebutted the presumption of validity established by Bauer’s federal trademark registrations, including evidence from Nike’s trademark consultant showing that Bauer was not using the marks on any goods in commerce as of late 2005.
Bauer failed to counter with evidence of bona fide use of the marks in commerce either at the time it filed its respective applications or at any time before Nike’s dates of first use. Bauer’s tax returns and sales receipts, along with its deposition testimony and declarations, failed to provide “cognizable or probative evidence” of production of marked apparel or sale of that apparel prior to Nike’s use. Thus, Bauer failed to demonstrate bona fide prior use rendering its “Don’t Tread on Me” and “DTOM” registrations void ab initio and incapable of supporting either of the claims asserted against Nike.
The court also denied Bauer’s motion for summary judgment on Nike’s fraud counterclaims. The court noted that, to cancel a trademark registration for fraud on the PTO, the party seeking cancellation must establish the following elements: (1) a false representation regarding a material fact; (2) the registrant’s knowledge or belief that the representation is false; (3) the intent to induce reliance upon the misrepresentation and reasonable reliance theron; and (4) damages resulting from the reliance. The court gave a nod to the Bose decision from the Federal Circuit in emphasizing that there is no fraud where a false representation results from an honest misunderstanding or inadvertence without a willful intent to deceive. An intent to defraud can, however, be inferred from indirect and circumstantial evidence (i.e., from objective manifestations of that intent) and should not focus on a registrant’s subjective intent. Further, because a charge of fraud is a disfavored defense, the party alleging fraud bears a heavy burden and must prove the claim “to the hilt with clear and convincing evidence.”
While Bauer claimed that its inclusion of all 114 items was a mistake due to a layperson’s “misunderstanding of the trademark laws,” that all the information in the application was true to the best of the signatory’s understanding, and that Bauer did not intend to deceive the PTO, the court found otherwise. In particular, the court agreed with Nike that Bauer had made an intentionally false misrepresentation of material fact both in alleging use of the marks on all 114 items and citing a date of first use as a predicate to its applications that was unsupportable. As Bauer expanded its description of goods in an effort to gain broader protection for the “Don’t Tread on Me” and “DTOM” trademarks, the court held that there was sufficient evidence to support the inference that Bauer intended for the PTO to rely on false representations and therefore intended to defraud the PTO such that summary judgment against Nike’s counterclaims was not appropriate.
This case demonstrates that the federal courts have embraced the dictates of the Bose decision that fraud on the PTO be proved to the hilt with clear and convincing evidence, and requires a showing of scienter rather than mere negligence or inadvertence. A determination of scienter should, however, be based upon an objective determination rather than merely relying upon a registrant’s subjective claim of good faith.