Fraud on the Trademark Office

1. Fraud on the Trademark Office

2. Fraud on the USPTO:In re Bose • At the TTAB • Opposition: Bose Corp. v. Hexawave Inc., 88 USPQ2d 1332 (TTAB 2007) • Hexawave counterclaimed to cancel Bose’s WAVE registration for fraud • 2001 renewal ID of goods: Radios, clock radios, audio tape recorders and players, portable radio and cassette recorder combinations, compact stereo systems and portable compact disc players. • not made or sold under mark since 1997

3. Bose v. Hexawaveat the TTAB • Bose argued it was using the mark in commerce because it was transporting repaired WAVE-branded units back to customers • 15 U.S.C. § 1127 definitions: • The term “trademark” includes any word, name, . . . – (1) used by a person . . . to identify and distinguish his or her goods . . . from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown. • The term “use in commerce” means the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark. For the purposes of this Act, a mark shall be deemed to be in use in commerce – (1) on goods when – . . . (A) It is placed in any manner on the goods . . ., and (B) the goods are sold or transported in commerce

4. Bose v. Hexawaveat the TTAB • TTAB found fraud • Followed Medinol line of cases and applied Torres “knew or should have known” test • Medinol Ltd. v. Neuro Vasx Inc., 67 USPQ2d 1205 (TTAB 2003) Inquire not into subjective intent, but objective manifestations • Torres v. Cantine Torresella s.r.l., 808 F.2d 46, 48 (Fed Cir. 1986) “Fraud in procuring a trademark registration or renewal occurs when an applicant knowingly makes false, material representations of fact in connection with his application.” “If a registrant files a verified renewal application stating that his registered mark is currently in use in interstate commerce . . . when, in fact, he knows or should know that he is not using the mark as registered . . . he has knowingly attempted to mislead the PTO.” Torres, 808 F.2d at 49 (emphasis added)

5. Bose v. Hexawaveat the TTAB • By stating in the Section 8/9 renewal that the WAVE mark was in use with audio tape recorders and players, Bose made (1) a false statement or misrepresentation (2) that was material to the maintenance of the registration (3) that it knew or should have known was false • Bose knew it no longer made or sold the goods • Bose offered no case law to support its use interpretation • Bose didn’t own the goods it transported • General Counsel’s belief was unreasonable “We do not find it reasonable to believe that an application of a mark at some point in the past to goods which have been sold, still serves to constitute use when those goods, now owned by another, are subsequently shipped again in connection with a repair service.”

6. The Bose Appeal to the Federal Circuit: Grounds and USPTO Involvement Bose’s grounds of appeal: It was using the WAVE mark in commerce Original source of the goods No evidence of intent to deceive GC signed aware of warnings and testified to truth under oath AIPLA filed amicus curiae brief Argued for 5-element common law fraud test (False, material fact, intent to deceive, reliance, injury) Hexawave did not participate in appeal Federal Circuit granted USPTO Director permission to defend Board decision Changed style of case to In re Bose

7. Bose: USPTO’s Response TTAB applied the correct fraud test Bose did not challenge the test; amicus arguments re: materiality and injury are beyond scope of appeal Intent properly found if declarant knew or should have known use statement false – Torres Intent can be inferred from circumstantial evidence Absence of sufficient inquiry; reckless disregard Bald assertions of inadvertence/mistake should not automatically negate deceptive intent Substantial evidence supported fraud finding Bose’s statement of use was false Its use theory contravenes purposes of Lanham Act False statement made “knowingly” because belief was unreasonable Sullivan knew Bose was completely out of the business of making or selling audio tape players and recorders Deposition testimony –paralegal discredited Sullivan

8. Bose: Oral ArgumentChief Judge Michel’s Comments • Fraud is a different regime from tort negligence. • “It seems to me the PTO has crossed a very, very fundamental line in using negligence phraseology [“reasonableness”, “should have known”], even though some of it is quoted from cases, in a regime that all will have to agree involves civil fraud.” • You have to have some kind of balancing; you need some proportionality. • “The question involves balancing different competing interests. Of course you want to have maximum accuracy in the submissions to the Patent Office. On the other hand, you don’t want to cancel registered marks unless something pretty bad has happened. That’s why Congress chose fraud rather than negligence or some lesser showing.”

9. Bose: Federal Circuit Decision • Elements of fraud: • Knowingly • False statement • Material fact • Intent to deceive USPTO “[W]e hold 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.” In re Bose Corp., 580 F.3d at 1245

10. Bose: Burden of Proof • Elements of fraud proven “to the hilt” by clear and convincing evidence • Intent to deceive may be inferred from indirect and circumstantial evidence, but such evidence must be clear and convincing • "no room for speculation, inference or surmise" • "any doubt must be resolved against the charging party” • “[T]he involved conduct, viewed in light of all the evidence ... must indicate sufficient culpability to require a finding of intent to deceive.” “Unless the challenger can point to evidence of an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence standard required to establish a fraud claim.”

11. Bose (cont.) • Intent to Deceive: • By equating “should have known” with intent to deceive, TTAB erroneously lowered standard to simple negligence • “[T]he standard for finding intent to deceive is stricter than the standard for negligence or gross negligence” • TTAB “read Torres too broadly” • “[O]ne should not unduly focus on the phrase ‘should know’ and ignore the facts of the case.” • “[D]eception must be willful to constitute fraud.” • “There is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” • “Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the [fraud] analysis”

12. Bose (cont.) • Bose’s statement that WAVE mark was in “use in commerce” for all goods was a material, false misrepresentation • But, counsel testified under oath that he believed that repairing previously sold goods satisfied “use in commerce” • Whether such belief was reasonable “is not part of the analysis”

13. Bose (cont.) • Reckless Disregard • Court declined to address whether “reckless disregard” of the truth satisfies the intent to deceive requirement – FN2. • Even assuming reckless disregard qualifies, there is no basis for finding the conduct reckless in this case • Neither USPTO nor any court had interpreted “use in commerce” to exclude repairing and shipping previously sold goods

14. Bose: Reckless Disregard • Consider AIPLA Amicus Brief Examples: • Applicant A - carefully reviews the statement and confirms use of mark, but inadvertently overlooks one of the recited goods • Applicant B - makes no attempt to investigate use of the mark and in fact was not using the mark on most of the goods or never manufactured many of the goods listed • “Grossly insufficient” investigations of use may rise to the level of recklessness, but not honest mistakes, inadvertence • Standard Knitting v. Toyota (TTAB 2006): “Opposer is charged with knowing what it is signing and by failing to make any appropriate inquiry, Mr. Yarnell signed the statement of use with a ‘reckless disregard for the truth.’”

15. Can Reckless Disregard Qualify? • “The civil law generally calls a person reckless who acts ... in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known.” In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc) (quoting Farmer v. Brennan, 511 U.S. 825, 836-837 (1994) (citing Prosser and Keeton § 34, pp. 213-14; Restatement (Second) of Torts § 500 (1965)) • U.S. v. Puente, 982 F.2d 156, 159 (5th Cir. 1993) – criminal case • defendant failed to read HUD form, which contained averment that he had not been convicted of a felony • “Reckless indifference has been held sufficient to satisfy §1001’s scienter requirement so that a defendant who deliberately avoids learning the truth cannot circumvent criminal sanctions. . . . Likewise, a defendant who deliberately avoids reading the form he is signing cannot avoid criminal sanctions for any false statements contained therein. Any other holding would write §1001 completely out of existence.”

16. Vitality of use-based system after Bose? • An Applicant’s duties to the Office survive Bose: • Statute requires affidavit for use averments • Subject to criminal penalties (18 U.S.C. § 1001; Rule 2.20) • Before signing, filing, submitting, or later advocating any paper to the Office, rules impose duty of candor and a reasonable inquiryto confirm: • allegations and other factual contentions have evidentiary support (37 C.F.R. § 11.18(b)(2)(iii)) • Legal contentions warranted by existing law (37 C.F.R. §11.18(b)(2)(ii)) • Rule 2.193 signature requirements references Rule 11.18 • Duffy-Mott still good law(Duffy-Mott Co. v. Cumberland Pkg. Co., 424 F.2d 1095 (CCPA 1970) • disfavors cavalier attitude towards use declarations • Naming goods on which the mark has not been used “can scarcely be characterized as mere carelessness or misunderstanding to be winked at as of no importance.”

17. TTAB balancing: limitations on fraud • Zanella Ltd. v. Nordstrom Inc., 90 USPQ2d 1758 (TTAB 2008) • opposer’s deletion of the goods on which it had never used the mark prior to any actual or threatened challenge to the registrations created a rebuttable presumption that opposer did not intend to deceive the Office • University Games Corp. v. 20Q.net Inc., 87 USPQ2d 1465, 1468 (TTAB 2008) • the deletion during examination of goods on which an applicant was not using the mark created a rebuttable presumption of no intent to commit fraud on the Office

18. TTAB balancing: limitations on fraud • Enbridge, Inc. v. Excelerate Energy, 92 USPQ2d 1537 (TTAB 2009) • Class 39: Applicant admitted non-use. • But not intent to deceive. • Class 40: Applicant questioned meaning of “production of energy” such as to make statement false. • Result: no fraud “as a matter of law.”

19. TTAB balancing: limitations on fraud • Asian and Western Classics B.V. v. Selkow, 92 USPQ2d 1478 (TTAB 2009) • Sufficiency of pleading fraud after Bose. • “With particularity.” • Not “mere possibility.” • “Include an allegation of intent.” • “The factual question of intent is particularly unsuited to disposition on summary judgment.”

20. TTAB balancing: limitations on fraud • DaimlerChrysler Corp and Chrysler, LLC. v. American Motors Corp., Cancellation 92045099 (TTAB 2010) • Petitioner has sufficiently pleaded fraud. • Direct or circumstantial evidence. • Must be clear and convincing. • “Reckless disregard”? • “Still open.” (Note 5) • “Petitioner has not carried its burden of establishing the absence of GIMF as to respondent’s intent to deceive.”