Judges: Michel (author), Dyk, Moore

[Appealed from TTAB]

In In re Bose Corp., No. 08-1448 (Fed. Cir. Aug. 31, 2009), the Federal Circuit held that a trademark is obtained fraudulently under the Lanham Act only if the applicant or registrant knowingly makes a false, material representation with intent to deceive the PTO.

Hexawave, Inc. (“Hexawave”) filed a use-based application to register the mark HEXAWAVE for a variety of electronic goods it claimed to be using in commerce. Bose Corporation (“Bose”) opposed Hexawave’s application based on fraud and likelihood of confusion with Bose’s registered WAVE marks for a variety of electronic goods. Hexawave filed a counterclaim to cancel Bose’s registration on the ground of fraud and presented evidence that Bose obtained a renewal of its registration for the mark WAVE in 2001 by claiming that it was still using the mark in connection with the goods listed in its registration, despite knowing that it had not manufactured or sold two of the goods listed in the registration (audio tape recorders and players) since 1997. Bose insisted that its renewal application was based on its honest, good-faith belief that its receipt, repair, and return of its previously sold audio tape recorders and players bearing the WAVE mark in 2001 was sufficient to support renewal of its registration. Bose did not relabel or make any alterations to the products, apart from the technical repairs.

Relying on the Federal Circuit’s decision in Torres v. Cantine Torresella S.r.l., 808 F.2d 46 (Fed. Cir. 1986), and following the decisions in a series of cases beginning with the 2003 decision in Medinol Ltd. v. Neuro Vasx, Inc., 67 USPQ2d 1205 (TTAB 2003), TTAB held that specific intent to commit fraud is not required, and that fraud occurs when an applicant or registrant makes a false, material misrepresentation that the applicant or registrant knew or should have known was false. To avoid a finding of fraud, TTAB explained, Bose must prove that its declaration of continued use, though false, was made with a reasonable and honest belief that it was true. TTAB concluded that it was unreasonable for Bose to believe that its repair services constituted continued use of its mark sufficient to maintain its registration. Additionally, TTAB reasoned that Bose’s repair services did not constitute a trademark use because Bose no longer owned the goods. TTAB ultimately ordered cancellation of Bose’s registration for the WAVE mark in its entirety.

The Federal Circuit reversed TTAB’s fraud decision, signaling a strong limitation to the strict rule of fraud under Medinol. The Court reaffirmed decisions of its predecessor court, the Court of Customs and Patent Appeals, which prohibit an applicant from making knowingly inaccurate or knowingly misleading statements. Absent requisite intent to mislead the PTO, the Court held, “[E]ven a material misrepresentation would not qualify as fraud under the Lanham Act warranting cancellation.” Slip op. at 4.

Analyzing TTAB’s Medinol decision and its progeny, the Federal Circuit acknowledged that TTAB had correctly found a material legal distinction between a false representation and a fraudulent one, the latter involving an intent to deceive, whereas the former may be occasioned by a misunderstanding, an inadvertence, a mere negligent omission, or the like. The Court also agreed with TTAB that, in determining whether a trademark registration was obtained fraudulently, the appropriate inquiry is not the registrant’s subjective intent but rather the objective manifestations of that intent, and that intent must often be inferred from the circumstances and related statement made.

But the Court stressed that evidence of intent to deceive and fraud must be clear and convincing, and that inferences drawn from lesser evidence cannot satisfy the deceptive intent requirement for proving fraud. The Court specifically rejected the principle holding in TTAB’s Medinol line of cases, namely, that a trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration that it knows or should know to be false or misleading.

The Court stated that “[b]y equating ‘should have known’ of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard.” Id. at 6. The Court reiterated its precedent in Symbol Technologies, Inc. v. Opticon, Inc., 935 F.2d 1569, 1582 (Fed. Cir. 1991), holding that “[m]ere negligence is not sufficient to infer fraud or dishonesty.” Slip op. at 6 (alteration in original). Rather, “a finding that particular conduct amounts to ‘gross negligence’ does not of itself justify an inference of intent to deceive.” Id. (quoting Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 876 (Fed. Cir. 1998) (en banc)). 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. After all, an allegation of fraud in a trademark case, as in any other case, should not be taken lightly. Thus, the Court held that “a trademark 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.” Id. at 6-7 (emphases added).

The PTO argued that under Torres, making a submission to the PTO with reckless disregard of its truth or falsity satisfies the “intent to deceive” requirement. The Federal Circuit stated that it did not have to resolve this issue because, before Bose’s counsel submitted the renewal declaration in 2001, neither the PTO nor any court had held that repairing and shipping repaired goods did not satisfy the “use in commerce” requirement.

The Court concluded that even if it were to “assume that reckless disregard qualifies, there is no basis for finding [Bose’s] conduct reckless.” Id. at 9 n.2. The Court also dismissed TTAB’s reliance on Torres to justify the “should have known” standard. Although the Court recognized that Torres did use the phrase “knows or should know” in finding an intent to deceive and fraud before the PTO, it stated that TTAB read Torres too broadly. The Court cautioned that one should not focus on the phrase “should know” and ignore the facts of the case. As the Court noted, Torres admitted that he made false statements to the PTO about trademark usage when he filed his renewal application.

In this case, the Court found that Bose’s general counsel knew that the company had stopped manufacturing and selling audio tape recorders and players at the time the Section 8/9 renewal was filed. Thus, the Court concluded that Bose’s statement in the renewal application that the WAVE mark was in “use in commerce” for such goods was a material, false misrepresentation to the PTO. The Court noted, however, that Bose’s counsel testified under oath that he believed that repairing previously sold audio tape recorders and players under the WAVE mark satisfied the “use in commerce” requirement at the time he signed the renewal application. Whether such belief was reasonable, the Court said, was not part of the analysis. Rather, the Court held that “[t]here is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at 10 (citing Smith Int’l, Inc. v. Olin Corp., 209 USPQ 1033, 1043 (TTAB 1981)).

The Court concluded that Bose did not commit fraud in renewing its registration and that TTAB erred in canceling the mark in its entirety. The Court, however, held that, since Bose no longer used the mark on audio tape recorders and players, the registration had to be restricted to refl ect commercial reality and therefore remanded the case to TTAB for appropriate proceedings.