In 2009, the Federal Circuit ruled that a plaintiff is required to show an intent to deceive the United States Patent & Trademark Office (USPTO) in order to succeed in a claim to cancel a trademark registration. In re Bose Corp., 580 F.3d 1240 (Fed. Cir. 2009); 91 U.S.P.Q.2D (BNA) 1938 (2009).
The lower authority, the Trademark Trial and Appeal Board (“Board”) found that Bose Corporation (“Bose”) committed fraud on the USPTO in renewing Registration No. 1,633,789 for the trademark WAVE. Bose Corp. v. Hexawave, Inc., 88 USPQ2d 1332, 1338 (T.T.A.B. 2007). Bose appealed the Board’s order cancelling the trademark registration in its entirety. The Federal circuit reversed reasoning that there was no substantial evidence that Bose intended to deceive the PTO in the renewal process.
HISTORY – Bose initiated an opposition against the HEXAWAVE trademark application by Hexawave, Inc. (“Hexawave”), alleging, inter alia, likelihood of confusion with Bose’s prior registered trademarks, including WAVE. Bose, 88 USPQ2d at 1333. Hexawave counterclaimed for cancellation of Bose’s WAVE mark, asserting that Bose committed fraud in its registration renewal application when it claimed use on all goods in the registration while knowing that it had stopped manufacturing and selling certain goods.
The fraud alleged by Hexawave involved Bose’s combined Section 8 affidavit of continued use and Section 9 renewal application (“Section 8/9 renewal”), signed by Bose’s general counsel (GC), and filed on January 8, 2001. In the renewal, GC stated that the WAVE mark was still in use in commerce on various goods, including audio tape recorders and players. The Board found that (1) Bose stopped manufacturing and selling audio tape recorders and players sometime between 1996 and 1997; and (2) GC knew that Bose discontinued those products when he signed the Section 8/9 renewal in January 2001.
At the time GC signed the Section 8/9 renewal, Bose continued to repair previously sold audio tape recorders and players. GC testified that in his belief, the WAVE mark was used in commerce. The Board concluded that the repairing and shipping back did not constitute sufficient use to maintain a trademark registration for goods. It further found GC believed that transporting repaired goods constituted use was not reasonable. Finally, the Board found that the use statement in the Section 8/9 renewal was material. As a result, the Board ruled that Bose committed fraud on the PTO in maintaining the WAVE mark registration and ordered the cancellation of Bose’s WAVE mark registration in its entirety, and denied a rehearing.
DISCUSSION – A third party may petition to cancel a registered trademark on the ground that the “registration was obtained fraudulently.” 15 U.S.C. § 1064(3). “Fraud in procuring a trademark registration or renewal occurs when an applicant knowingly makes false, material representations of fact in connection with his application.” Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986). A party seeking cancellation of a trademark registration for fraudulent procurement bears a heavy burden of proof. W.D. Byron & Sons, Inc. v. Stein Bros. Mfg. Co., 377 F.2d 1001, 1004, 54 C.C.P.A. 1442 (CCPA 1967). Indeed, “the very nature of the charge of fraud requires that it be proven ‘to the hilt’ with clear and convincing evidence. There is no room for speculation, inference or surmise and, obviously, any doubt must be resolved against the charging party.” Smith Int’l, Inc. v. Olin Corp., 209 USPQ 1033, 1044 (T.T.A.B. 1981).
The Court of Customs and Patent Appeals (“CCPA”) in 1961 stated that, absent the requisite intent to mislead the PTO, even a material misrepresentation would not qualify as fraud under the Lanham Act warranting cancellation. See also King Auto., Inc. v. Speedy Muffler King, Inc., 667 F.2d 1008, 1011 (CCPA 1981).
Mandated by the statute and caselaw, the Board had consistently and correctly acknowledged that there is “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.” Kemin Indus., Inc. v. Watkins Prods., Inc., 192 USPQ 327, 329 (T.T.A.B. 1976). In other words, deception must be willful to constitute fraud. Smith Int’l, 209 USPQ at 1043; see also Woodstock’s Enters. Inc. (Cal.) v. Woodstock’s Enters. Inc. (Or.), 43 USPQ2d 1440, 1443 (T.T.A.B. 1997).
The Board stated in Medinol v. Neuro Vasx, Inc. that to determine whether a trademark registration was obtained fraudulently, “[t]he appropriate inquiry is … not into the registrant’s subjective intent, but rather into the objective manifestations of that intent.” 67 USPQ2d 1205, 1209 (T.T.A.B. 2003). The Board’s emphasis on the “objective manifestations” means that “intent must often be inferred from the circumstances and related statement made.” (internal quotation marks omitted) (quoting First Int’l Servs., 5 USPQ2d at 1636).
By equating “should have known” of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard. See Ileto v. Glock, Inc., 565 F.3d 1126, 1155 (9th Cir. 2009) (“Knowing conduct thus stands in contrast to negligent conduct, which typically requires only that the defendant knew or should have known each of the facts that made his act or omission unlawful. . . .”).
The Federal Circuit has previously stated that “[m]ere negligence is not sufficient to infer fraud or dishonesty.” Symbol Techs., Inc. v. Opticon, Inc., 935 F.2d 1569, 1582 (Fed. Cir. 1991). The Federal Circuit even held that “a finding that particular conduct amounts to ‘gross negligence’ does not of itself justify an inference of intent to deceive.” Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (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. San Juan Prods., 849 F.2d at 474 (quoting Anheuser-Busch, Inc. v. Bavarian Brewing Co., 264 F.2d 88, 92, 84 Ohio Law Abs. 97 (6th Cir. 1959)).
The Federal Circuit in this case holds 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.” Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the analysis. Of course, “because direct evidence of deceptive intent is rarely available, such intent can be inferred from indirect and circumstantial evidence. But such evidence must still be clear and convincing, and inferences drawn from lesser evidence cannot satisfy the deceptive intent requirement.” Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008).
in Torres (Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986)), the court cited various precedents–some persuasive, others binding on the court–and reemphasized several times that (1) fraud in trademark cases “occurs when an applicant knowingly makes false, material representations,” (2) the Lanham Act imposes on an applicant the obligation not to “make knowingly inaccurate or knowingly misleading statements,” and (3) a registrant must also “refrain from knowingly making false, material statements.” Id. at 48. The “should know” language, if it signifies a simple negligence or a gross negligence standard, is not only inconsistent with the framework set out elsewhere in Torres, but would also have no precedential force as it would have conflicted with the precedents from CCPA. See Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757, 765 (Fed. Cir. 1988).
The purpose of the Section 8/9 renewal is “‘to remove from the register automatically marks which are no longer in use.’” Torres, 808 F.2d at 48 (quoting Morehouse Mfg. Corp. v. J. Strickland & Co., 407 F.2d 881, 887, 56 C.C.P.A. 946 (CCPA 1969)). When a trademark registrant fulfills the obligation to refrain from knowingly making material misrepresentations, “[i]t is in the public interest to maintain registrations of technically good trademarks on the register so long as they are still in use.” Morehouse, 407 F.2d at 888. Because “practically all of the user’s substantive trademark rights derive” from continuing use, when a trademark is still in use, “nothing is to be gained from and no public purpose is served by cancelling the registration of” the trademark.
So, in short, as long as individuals and companies submit statements that can be reasonably considered true, under this case, In re Bose, it is difficult to commit fraud at the USPTO in terms of acquiring and renewing trademark registrations.