On August 31, 2009, the United States Court of Appeals for the Federal Circuit, ruling in In re Bose Corp., issued a muchanticipated decision on an issue of great concern to many trademark owners: Under what circumstances is the owner of a federal trademark registration at risk of having its registration cancelled, in its entirety, for fraud because the owner filed a declaration of use stating that the mark was in use on all of the goods covered by the registration when that was not the case? The Federal Circuit significantly limited those circumstances in Bose, allowing owners of registered trademarks to breathe a bit easier, at least for the time being.
Some Background and the Medinol Decision
In order to obtain a federal trademark or service mark registration, or maintain a registration after it has issued, a trademark owner is required to file a declaration with the Patent and Trademark Office (PTO) stating that the registered mark is in use in connection with all of the goods or services identified in the application or registration, unless goods or services on which the mark is not being used are deleted. Verification of use of a mark is usually a simple matter when applications or registrations cover only one or a few goods or services. But when applications or registrations cover numerous goods or services, some trademark owners have been inattentive to the use issue and have not always determined correctly whether or not the mark is in use on all the listed goods or services. As a result, those trademark owners have filed use declarations that are not entirely accurate.
A registration can be cancelled if it was obtained or maintained by fraud. In the context of a use declaration, an applicant or registrant commits fraud when it knowingly makes a false and material representation that its mark is in use on all the recited goods or services when that is not the case. Traditionally, inaccurate statements regarding use based on sloppiness, inattention, or inadvertence did not rise to the level of fraud because they were not made “knowingly,” e.g., with the deliberate intent to deceive the PTO into granting or maintaining a registration for goods for which the mark was not in use.
That changed with the decision of the PTO’s Trademark Trial and Appeal Board (“Board”) in Medinol Ltd. v. NeuroVasx Inc., 67 USPQ2d 1205 (TTAB 2003). In that case, the owner of an intent-to-use application to register its mark for stents and catheters filed a statement of use stating that the mark was in use on both goods, when it was actually in use only on catheters. After the registration issued for both goods, a competitor sought to cancel the registration on the ground that the registrant had obtained the registration by fraud. The registrant conceded that its mark had not been used on stents, but argued that its claim of use regarding stents was an innocent mistake, not a deliberate attempt to mislead the PTO, and that its registration should be cancelled only as to stents. The Board disagreed, finding that the registrant’s admittedly false statement to the PTO was made with the intent to deceive and was thus fraudulent because the registrant knew or should have known at the time of filing that the mark had been used only on one good. The Board held that the issue was not the registrant’s subjective intent, but rather the “objective manifestations of that intent.” Because the registration covered only two clearly-identified goods, the registrant’s statement that the mark was in use with both, when it was actually in use with only one, was objectively fraudulent even if it was made without the subjective intent to deceive the PTO. The Board cancelled the registration in its entirety.
In a series of cases in the six years since Medinol, the Board has frequently, indeed almost routinely, upheld fraud claims of the sort in Medinol. The Board has rejected various excuses that inaccurate statements regarding use were not made with the intent to deceive the PTO, effectively making fraud a strict liability claim whose elements, including intent, were proven whenever non-use of a mark on any goods or services was shown. Fraud claims, traditionally found to be particularly unsuitable for disposition on motions for summary judgment because they involved the issue of intent, were regularly decided in that manner. Because proof of Medinol-type fraud resulted in the cancellation of a registration in its entirety, even if the fraud was shown only as to a single good or service, Medinol and its progeny struck fear into the hearts of trademark owners whose registrations contained multiple goods and whose statements of use or maintenance declarations (often filed years ago) might not have been entirely accurate when made.
The Federal Circuit’s decision in Bose appears to have significantly reduced the circumstances in which Medinol-type fraud will be found. The registrant, Bose, had filed a declaration of use of its “WAVE” mark for various goods, including audio tape recorders and players, to maintain its registration of the mark for all the identified goods. Production of audio tape players and recorders under the “WAVE” mark had ceased several years before the declaration, but Bose’s general counsel, who signed the declaration, later testified that he believed at the time of filing that Bose’s continuing repair of previously-sold “WAVE” audio tape recorders and players, and its shipment of the goods to their owners following repair, were sufficient to support Bose’s claim of use in commerce on those goods. At the time of filing of the declaration, there was no legal authority on the issue of whether Bose’s repair-related activities constituted use in commerce.
Bose later opposed an application by a company called Hexawave to register “HEXAWAVE” for various goods, and Hexawave counterclaimed to cancel Bose’s registration of “WAVE” for Medinol-type fraud. The Board granted judgment to Hexawave on its counterclaim, finding that Bose’s counsel’s belief about the use of the “WAVE” mark on audio tape recorders and players was unreasonable and that the claim of use was thus fraudulent under Medinol and its progeny. Bose appealed that ruling to the Federal Circuit.
The Federal Circuit reversed, finding that Medinol’s “knew or should have known” standard for fraud was improper and inconsistent with the traditional notion that fraud involved deliberate intent to deceive because “the Board erroneously lowered the fraud standard to a simple negligence standard.” The court held that 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.” Under this standard, a registration “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. Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the analysis.” There “is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.”
Because there was no proof in the record that Bose’s general counsel did not honestly believe that the “WAVE” mark was in use in commerce on audio tape recorders and players by virtue of Bose’s repair-related activities when he signed the use declaration, his statement was not fraudulent, even if it might have been unreasonable to believe that shipment of “WAVE” goods following their repair was use in commerce. The court found that it did not need to reach the issue of the reasonableness of that belief under the circumstances.
The Federal Circuit reversed the Board’s decision cancelling the “WAVE” registration in its entirety, but remanded the case to the Board for restriction of the registration to the goods other than audio tape players recorders and players. The court found that such a restriction was consistent with the use requirements of the Lanham Act and furthered the policy of having the marks listed on the federal trademark Register conform as closely as possible to the marks that are in actual use in the marketplace.
The Bose decision leaves open a number of important questions:
- What type of proof will be necessary to show a “subjective” or “willful” intent to deceive the PTO when a declarant denies such intent?
- Will ignorance (intentional or otherwise) of the specific facts about use of a mark permit a declarant to claim that he or she made a use declaration without a “subjective intent to deceive,” or will such an ostrich-like state of mind itself permit an inference of such a subjective intent?
- How much proof will be required to show fraud by “clear and convincing evidence,” the standard of proof that Bose resuscitated?
These questions will surely be sorted out in future cases, and it is possible that the legal pendulum in fraud cases may swing for a time from the relative ease with which fraud was shown under the Medinol line of cases to the relative difficulty with which fraud may be shown following Bose. For now, however, Bose permits trademark owners to breath a collective sigh of relief as their registrations now appear to face much less of a prospect of cancellation in their entireties for fraud.