On May 13, 2009, the Trademark Trial and Appeal Board (TTAB, or the Board) took the unusual step of re-classifying a non-precedential opinion as precedential in Zanella Ltd. v. Nordstrom, Inc., Opposition No. 91177858 (TTAB Oct. 23, 2008). Zanella addressed the question of whether the amendment of a registration to remove goods for which there was never use before a challenge to the validity of the registrations can avoid a finding of fraud under Medinol Ltd. v. Neuro Vasx, Inc., 67 U.S.P.Q.2d 1205 (TTAB 2003).

Four of the five registrations asserted by the Opposer were the subject of post-registration amendments deleting goods on which the Registrant admitted it had never used the subject marks. The Opposer argued that the registrations were not fraudulently maintained because they were (1) voluntarily corrected prior to Applicant’s use of its mark and (2) made prior to the proceeding wherein their validity was challenged. Zanella, at 9. Applicant responded that such conduct evidenced at least the same reckless disregard for the truth that supports a finding of fraud.

The TTAB denied Applicant’s motion for summary judgment and held that timely proactive corrective action taken to restrict a registration to only those goods on which the mark is actually used raises a genuine issue of material fact regarding whether the Registrant had the intent to commit fraud on the U.S. Patent and Trademark Office (USPTO). Id. The TTAB explained that the Registrant’s action correcting false statement prior to any actual or threatened challenge created a rebuttable presumption that the Registrant did not intend to deceive the USPTO. Id. at 10. Although not explicitly holding that subsequent amendment may cure alleged fraud on the USPTO, the Zanella decision indicates that the Board recognizes that the fraud standard announced in Medinol was too harsh.

Medinol Fraud:

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, 67 U.S.P.Q.2d at 1209. The Board explained that the intent element of a fraud claim is satisfied when it can be shown that 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. As the Board explained in a case following Medinol, 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 registerability could potentially be the basis of a fraud claim and subject the registration to cancellation.

Medinol arguably set the bar for proving fraud very low, and the consequences were severe. Many practitioners worried that their prior practice of broadly claiming goods and services in applications would leave many of their clients’ registrations vulnerable to cancellation and themselves open to the serious charge of committing fraud on a government agency. This worry was particularly acute as Medinol rejected the Registrant’s attempt to amend its application to remove the incorrectly listed goods. The Board explained that if fraud can be shown in the procurement of a registration, the entire resulting registration is void. Medinol, 67 U.S.P.Q.2d at 1208. “Allowing [the] amendment would be beside the point; even if [the goods] were deleted from the registration, the question remains whether or not [Registrant] committed fraud upon the Office in the procurement of its registration.” Id.

Cases following Medinol confirmed the expansive view of fraud taken by the Board. See, e.g., Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., 68 U.S.P.Q.2d 1572, 1577 (TTAB 2008); Hachette Filipacchi Presse v. Elle Belle LLC, 85 U.S.P.Q.2d 1090, 1095 (TTAB 2007); Hurley Int’l LLC v. Volta, 82 U.S.P.Q.2d 1339, 1344 (TTAB 2007); but see University Games Corp. v. 20Q.net, Inc., 87 U.S.P.Q.2d 1465, 1467-68 (TTAB 2008) (holding that amendment of application prior to publication to remove goods, over which there was a dispute as to use, did not rebut the presumption of no intent to deceive).

Fraud After Zanella:

Zanella partially addresses practitioner concern that after Medinol lowered the standard for finding fraud there was no practical way to correct registrations without alerting challengers to the weakness of those registrations. Zanella gives Registrants an option to take proactive steps to correct their registrations and the incentive to do so before an actual or threatened challenge. However, doing so is a very expensive process, especially for companies with big portfolios. At the very least, Zanella lets portfolio owners and practitioners know that this effort may be worthwhile. When deciding whether to invest in an audit, one should consider that the TTAB did not hold that these proactive steps would preclude a successful fraud allegation. It merely held that doing so created a rebuttable presumption that the Registrant did not intend to deceive the USPTO and thereby made a fraud allegation more difficult to prove. A final open question is whether this decision may place a burden on Registrants to audit their records proactively or face a fraud claim. While it may be desirable to audit a portfolio, it would be a heavy burden to require this of trademark owners. Portfolio managers and practitioners should carefully weigh the benefits of securing potentially vulnerable registrations with the expense of auditing their portfolios.