On August 31, 2009, in In re Bose Corp., No. 2008-1448 (Fed. Cir. Aug. 31, 2009), the U.S. Court of Appeals for the Federal Circuit rejected the standard of fraud applied by the Trademark Trial and Appeal Board (TTAB, or Board) since its 2003 Medinol decision. Bose appealed the decision of the TTAB cancelling its WAVE trademark registration because of Bose’s allegedly fraudulent renewal of the registration.1 The Federal Circuit reversed the Board’s decision because there was not substantial evidence that Bose intended to deceive the U.S. Patent and Trademark Office (USPTO).
In 2003, the TTAB held that a registration is subject to cancellation for fraud when the identification of goods and services in the application as filed covers goods on which the mark was not used, even if included inadvertently. Medinol Ltd. v. NeuroVasx, Inc., 67 U.S.P.Q.2d 1205, 1209 (TTAB 2003). The Board explained that the intent element of a fraud claim is satisfied when it can be shown that the applicant knew or “should have known” that the identification of goods was materially incorrect. While accepting the registrant’s explanation for the error, inadvertence, the Board held that the mere submission of incorrect information satisfied the intent requirement. Id. at 1210. The Board explained in a case following Medinol that an applicant or registrant is charged with knowing what it is signing, and failing to make an appropriate inquiry is a “reckless disregard for the truth.” Std. Knitting Ltd. v. Toyota Jidosha Kabushiki Kaisha, 77 U.S.P.Q.2d 1917, 1928 (TTAB 2006). Thus, after Medinol, any incorrect statement material to registrability could potentially be the basis of a fraud claim and subject the registration to cancellation.
Fraud After Bose:
The alleged fraud on the USPTO committed by Bose involved submission of a combined Section 8 affidavit of continued use and Section 9 renewal application, which was signed by Bose’s general counsel in 2001. In the renewal, Bose stated that its WAVE mark was still in use in commerce on various goods, including audio tape recorders and players. However, when the renewal was filed, Bose was not actively producing and selling audio tape recorders and players, but was servicing and repairing such products. The Board found, and Bose did not contest, that its general counsel knew these facts when he signed the combined Section 8/9 application.
Bose’s general counsel explained that he believed the transportation to customers of the repaired tape players was use of the WAVE mark in commerce sufficient to maintain the WAVE registration. The Board disagreed and found that Bose’s belief was unreasonable, the statement incorrectly alleged continuing use of the mark for all goods identified in the registration, and the allegation of use was a material misrepresentation. Accordingly, the Board ordered the cancellation of the WAVE registration in its entirety for fraud on the USPTO.
On appeal by Bose, the Federal Circuit today reversed the Board’s decision to cancel the registration. The Court criticized the Board’s application of fraud to cases where the applicant/registrant “should have known” that material statements were false or misleading. “By equating ‘should have known’ of the falsity with a subjective intent [to deceive], the Board erroneously lowered the fraud standard to a simple negligence standard.” In re Bose, slip op., at 6. While sympathetic to the Board’s concern that subjective intent to deceive may be difficult to prove, the Court held that a registration may be cancelled for fraud only if there is clear and convincing evidence that an applicant or registrant knowingly made a false, material representation with the intent to deceive the USPTO. The Court held that the Board’s practice, following Medinol, to automatically presume an “intent to deceive” when it was shown that a material, false representation was made, misapplied the law of fraud.
As applied to the facts in Bose, Bose knew at the time it filed the renewal application that it no longer manufactured audio players and recorders. Thus, Bose’s statement was false, and Bose and the Board agreed that it was material. However, Bose’s general counsel explained that he believed the transport of repaired units bearing the mark was “use in commerce.” No evidence was presented that the false representation was anything other than an honest misunderstanding of the law or inadvertence and the Federal Circuit clarified that there can be no fraud in such situations without an accompanying willful intent to deceive. “Unless a challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence standard required to establish a fraud claim.” In re Bose, slip op., at 10.
The long-awaited decision in Bose is welcome relief to the trademark community. Since Medinol, there has been substantial criticism of the Board’s treatment of fraud and of the drastic results of such a finding. The Federal Circuit’s decision validates this criticism and aligns the Board’s treatment of fraud with standards for fraud applied in other areas of the law. Trademark owners and practitioners should be relieved that registrations will no longer be in jeopardy of cancellation simply because of inadvertence or mistake.