Fraud on the United States Patent and Trademark Office (USPTO) always has been an important consideration for trademark owners. Owners should be aware, however, that in the last several years, the Trademark Trial and Appeal Board (Board) systematically has been tightening its views on the subject, issuing more stringent rules and harsher penalties.
Fraud on the USPTO first jumped into the spotlight in 2003 with the decision in Medinol Ltd. v. Neuro Vasx, Inc., 67 U.S.P.Q. 2d 1205 (T.T.A.B. 2003). In that case, the Board cancelled the registration of a trademark because the Statement of Use filed in connection with the application listed goods for which the registered trademark was not actually used. Since then, the Board has issued numerous decisions addressing fraud; as a result, fraud is now commonly alleged as a ground for opposition and cancellation. In fact, the Board has issued three precedential decisions on the issue of fraud in only the first six months of 2008 (discussed below), compared to four in each of 2007 and 2006, and one in 2005. These decisions are in addition to many other non-precedential decisions that provide some general guidance to trademark owners in this area.
Knowingly + False + Representation = Fraud
Fraud occurs during trademark prosecution when the applicant knowingly makes false, material representations of fact in connection with a registration. The Board has interpreted "knowingly" to include information that the applicant knew or should have known; thus, the applicant's specific intent to make false statements is not required. A representation is "material" if the USPTO would not have published or registered the trademark but for the false representation.
An applicant can commit fraud on any sworn document submitted to the USPTO, including Notices of Allowance, Certificates of Registration and Notices of Acceptance of § 8 Declarations. A majority of the fraud cases issued to date have involved false Statements of Use or Statements of Continuous Use and Renewals under Sections 8 or 9 of the Trademark Act, where the applicant/registrant swears under oath that it is using the mark in connection with every item listed in the application or registration. See, e.g. Hachette Fillipacchi Presse v. Elle Belle, LLC, 85 U.S.P.Q.2d 1090 (T.T.A.B. 2007) (fraud found based on applicant's allegation of use of its mark for a wide variety of clothing items for men, women and children when mark had not been used for any identified items for men or children and only for a limited number of items for women); Sinclair Oil Corp. v. Kendrick, 85 U.S.P.Q.2d 1032 (T.T.A.B. 2007) (fraud found based on applicant's allegation of use of its mark in connection with retail store services when mark had only been used on a small number of product samples, which were given away four years prior to the filing of the application); Hurley Int'l LLC v. Volta, 82 U.S.P.Q.2d 1339 (T.T.A.B. 2007) (fraud found based on applicants' allegation of use of their mark for various entertainment services and production services, when mark had not been used anywhere in the world for some of the services and had not been used in commerce with or in the United States for other services).
Recent cases have confirmed that fraud may occur in connection with other parts of the application—including statements claiming to be the legal owner of a trademark, see, e.g., Febal Cucine, S.p.A v. Mariner Ventures, Inc., Can. No. 92,042,704 (Dec. 18, 2007) (not precedential) and statements denying that anyone else had the right to use the requested trademark, see Twiggy v. TJX Companies, Inc., Cancellation No. 92044369 (April 22, 2008) (precedential).
Fraud? But That Was Not My Final Answer
An applicant must be careful of all statements made in its submissions to the USPTO. The Board now has confirmed that, even if a statement is amended before allowance, the application or registration may be vulnerable to a fraud claim. In University Games Corp. v. 20Q.net Inc., Opp. Nos. 91,168,142 & 91,170,668 (T.T.A.B. May 2, 2008) (precedential), the Board addressed the issue of whether fraud is avoided if an applicant corrects a false statement as to use of the goods or services in a use-based application before the application is published. The Examining Attorney refused to grant the registration for certain of the listed goods, in part because they fell into a separate class; the applicant amended the application to remove those goods and the application was published for opposition. In fact, the removed goods had been distributed only at trade fairs. The Opposer alleged that, because the amendment was made not to correct an innocent mistake but rather in response to an examination requirement, the original application was fraudulent. The Board denied the applicant's motion for summary judgment, but held that the amendment created a rebuttable presumption that the applicant lacked the willful intent to deceive the USPTO Interestingly, Judge Walsh issued an opinion partially concurring and partially dissenting, in which he opined that timely correction of a false statement prior to opposition or registration should completely defeat a claim of fraud. Obviously, the entire panel did not share this more permissive view.
The University Games ruling provides some measure of protection against fraud claims when the mistake is corrected prior to publication; however, it also highlights the necessity to meticulously review and confirm all statements made to the USPTO throughout the registration process: even with applications that are subsequently corrected, an applicant could be vulnerable to a fraud claim.
This Fraud Claim May Have Some Legs—What Now?
Trademark owners accused of fraud have tried a number of arguments in an attempt to prevent an adverse ruling from the Board. Recent decisions from the Board reveal the effectiveness of defenses to a fraud claim.
The best defense to alleged fraud in a Statement of Use, of course, is to show that the trademark actually was in use at the time of the assertion, even if the use was extremely minimal. In Bass Pro Trademarks L.L.C. v. Sportsman's Warehouse, Inc., Can. No. 92,045,000 (Apr. 4, 2008) (precedential) the holder of the trademark convinced the Board that when it applied for the trademark, the holder was operating "wholesale stores." Although the holder of the trademark was never a wholesaler, it did from time to time sell goods at wholesale prices to select customers. This minimum use satisfied the Board that no fraud had occurred. The Board went further to note that the holder was under no obligation to immediately amend its description of services when it ceased offering those services, but instead could wait to amend until it filed its declaration of use in a § 8 maintenance filing. This decision reveals that the Board appears less focused on having a registration reflect the most current use than on deterring the submission of false filings.
More creative defenses have also been tried, with limited success. For example, in the recent case of Herbaceuticals Inc. v. Xel Herbaceuticals, Inc., 86 U.S.P.Q.2d 1572 (T.T.A.B. Mar. 7, 2008) (precedential), the registrant in the cancellation proceeding claimed that the signatory on the application simply signed "on information and belief." The Board quickly rejected the argument, holding that a signatory must thoroughly investigate all issues prior to submitting the application to the USPTO. In this same case, the applicant also argued that Statements of Use may be divided into sworn and unsworn portions. The sworn portion referred to "the goods/services" as opposed to "all goods and/or services." As such, by signing the Statements of Use, the applicant argued that it was simply swearing that the trademark was being used within the scope of those goods, not for each and every one of the goods. As with the previous argument, the Board quickly rejected this contention because this nuanced reading would not deter applicants from willfully making misrepresentations.
Is the Punishment Too Harsh for the Crime?
The Board recently has confirmed that the remedy for cases of fraud is unforgiving. In the Herbaceuticals case, the Board rejected the registrant's claim that striking the offending goods from the registration is the appropriate remedy for a partially false statement of use, finding that, "[p]artial cancellation would merely place [the registrant] in the same position in which it would have been had it filed statements of use which accurately reflected the goods on which the marks were being used. Rather, if fraud can be shown in the procurement of a registration, the registration is void in the international class or classes in which fraud based on nonuse has been committed." Thus, although the unaffected classes may be safe from cancellation, the entire affected class will fall.
With the Board's recent focus on fraud, parties will continue to include fraud claims when challenging registrations. Because the Board has shown an unwillingness to forgive misrepresentations, even unintentional mistakes, applicants must closely prepare, review and investigate all filings prior to submission for accuracy. This underscores the tenet that there is no such thing as a "routine" filing in the USPTO. Trademark owners should be aware that, even where the verification they sign does not explicitly list every good and service individually, they are under an obligation to double check use of each and every good and service listed in the application or registration. As has been demonstrated by the case law, the Board will take the investigation conducted by the signatory to confirm the accuracy of statements into consideration in determining whether s/he "should have known" about any falsity. See Herbaceuticals, supra (finding that to the extent the applicant did inquire about the truthfulness of his statements, the inquiries were "grossly insufficient").
Trademark owners also should consider conducting an audit of their current portfolios, particularly those key to the company's business, such as house marks or brands for key product lines. If mistakes are found, the applicant should consult with counsel to determine whether to file fresh applications for the marks to replace registrations that are vulnerable to cancellation.
Possible counterclaims for cancellation also should be considered prior to initiating any opposition, cancellation or infringement action based on a registered mark. A trademark owner should scrutinize any registration that it plans to rely upon in such a proceeding for possible vulnerabilities, and be prepared to produce evidence of the registration's validity if attacked.
In sum, proper and careful attention to filings in the USPTO can strengthen the value of a trademark portfolio, as well as decrease the costs of enforcing and maintaining trademark rights in years to come. It is clear that the Board has little tolerance for applicants and registrants who do not properly investigate the claims in their sworn statements and will exact a very high price for mistakes.