ABSTRACT

A California district court held that a cognizable injury for fraud under Section 38 of the Lanham Act does not arise until the registration itself issues. Thus, a claim of lack of a bona fide intent to use a mark as of the filing date of an intent-to-use application or a request for extension of time to file a Statement of Use cannot form the basis for a fraud claim under Section 38 of the Lanham Act.

CASE SUMMARY

FACTS

Plaintiffs Zobmondo Entertainment, LLC and Randall Horn (collectively "Zobmondo") and Defendants Falls Media, LLC, Justin Heimberg, and David Gomberg (collectively "Falls Media") both set out to create a board game based on the conversation-starter "WOULD YOU RATHER…?" Falls Media conceived the idea for the board game as early as 1995, and in 1997 filed an intent-to-use application with the PTO for the mark WOULD YOU RATHER…? for "printed matter, namely, books and magazines in the field of humor, calendars, greeting cards, comic strips," and "games, namely, board and card games."

After the PTO published Falls Media's application for opposition in 1999, Zobmondo filed an opposition, which was dismissed with prejudice for failure to prosecute. Following the PTO's issuance of a Notice of Allowance, Falls Media filed five requests for extensions of time to file a Statement of Use. After selling a game under the mark in October 2004, Falls Media filed a Statement of Use with the PTO on November 24, 2004. The PTO issued Registration No. 2,970,830 to Falls Media on July 19, 2005, for the mark WOULD YOU RATHER…? for "printed matter, namely, books and comic strips" in Class 16, and "games, namely, board and card games" in Class 28.

Following issuance of the registration, the parties sued each other in New York and California, alleging trademark infringement and other claims. Among multiple claims and counterclaims, Zobmondo alleged that it was entitled to damages because Falls Media had defrauded the PTO under Section 38 of the Lanham Act, 15 U.S.C. § 1120. Section 38 provides that "[a]ny person who shall procure registration in the [PTO] of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof." The court resolved most of the other claims by granting cross-motions for summary judgment. Falls Media subsequently moved for summary judgment on the remaining fraud claim.

In support of its claim, Zobmondo argued that the TTAB substantially lowered the standard for scienter in a fraud-based cancellation proceeding in Medinol Ltd. v. Neuro Vasx, Inc., 67 USPQ2d 1205 (TTAB 2003). Zobmondo relied on Medinol to argue that Falls Media defrauded the PTO because it did not intend to create a game when it filed its original intent-to-use application or at the time it filed its requests for extensions of time to file a Statement of Use. It also argued that Falls Media's entire registration was tainted because it claimed use of the mark on "comic strips" before it made such use. Invoking Medinol, Zobmondo sought damages under Section 38 for the entire fraudulent registration.

The court declined to consider the question of fraud because Zobmondo failed to proffer sufficient evidence of damages proximately resulting therefrom. In its ruling, however, the court reviewed the Medinol case and the fraud standard. To establish a civil claim for fraudulent procurement under Section 38, the court held that a party must prove: (1) a false representation regarding a material fact; (2) knowledge or belief that the representation is false ("scienter"); (3) an intention to induce the listener to act or refrain from acting in reliance on the misrepresentation; (4) reliance on the misrepresentation ("reasonable reliance"); and (5) damage proximately resulting from such reliance. The party alleging fraud bears a "heavy" burden of proof, i.e., clear and convincing evidence.

The court determined the effect of the Medinol decision "appears to be two-fold: fraud-based cancellation must be measured by an objective, 'reasonable registrant' standard; and one tainted part will invalidate an entire registration." Further, the court stated that Medinol and its progeny were decided in cancellation proceedings, not in the context of Section 38 damages claims. The court inferred that this distinction could be relevant, suggesting that the Medinol holding may not apply to claims under Section 38 of the Lanham Act.

The court also ruled that a Section 38 injury does not arise until the allegedly fraudulent registration actually issues. Thus, for the purpose of determining whether the claimant was injured, any alleged fraud that occurred when the application was filed, or during the examination, allowance, or opposition periods would be irrelevant.

Finally, the court rejected claims of damages in the form of legal expenses incurred from opposing Falls Media's application and subsequent proceedings, explaining that Section 38 damages do not include legal expenses.

CONCLUSION

Under Zobmondo, a claim of a lack of a bona fide intent as of the filing date of an intent-to-use application or requests for extensions of time to file a Statement of Use cannot form the basis for a fraud claim under Section 38 of the Lanham Act. This decision leaves open the question of whether this type of claim constitutes or may rise to the level of fraud in an opposition or cancellation proceeding before the Board under the Medinol standard.