This was first posted on September 3, 2009.
Big decision, via the TTABlog®: The worm, finally, finally, has turned on the issue of the cancellation of trademark registrations based on “fraud on the PTO,” typically arising where the description of goods and services in a registration application is found to be innacurate.
Trademark practice, says the the Federal Circuit Court of Appeals in overturning the Trademark Trials and Appeals Board, is no different from the rest of Western law — even Canada. Before you punish a party for “fraud” by taking away its valuable “asset” (a trademark registration), you have to prove… fraud (some cites omitted):
It’s a whole new ballgame at the TTAB after the U.S. Court of Appeals for the Federal Circuit yesterday reversed the Board’s decision in Bose Corp. v. Hexawave, Inc., 88 USPQ2d 1332 (TTAB 2007). The Board had found that Bose committed fraud in its 2001 renewal of a registration for the mark WAVE for, inter alia, audio tape recorders and players. The CAFC ruled that the Board, “[b]y equating ‘should have known’ with a subjective intent,” had “erroneously lowered the fraud standard to a simple negligence standard.” The CAFC found “no substantial evidence that Bose intended to deceive the PTO in the renewal process,” and it therefore reversed. In re Bose Corporation, Appeal No. 2008-1448 (Fed. Cir., Aug. 31, 2009). [Oral argument here]. . . .
Subjective intent to deceivrce, 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. When drawing an inference of intent, the involved conduct, viewed in light of all the evidence . . . must indicate sufficient culpability to require a finding of intent to deceive.
In his commentary, John Welch raises a couple of issues, which I can hardly consider resisting taking a shot at:
Looking to the future, how likely is it that a party to a TTAB proceeding will spend the time and effort to try to prove fraud under this “prove it to the hilt” standard?
Pretty darned unlikely, as it should be. Proving fraud in any litigation context is extremely difficult; in this one, with limited discovery (at least in inter partes proceedings) and concerning communications involving attorneys — notwithstanding any waiver of attorney-client privilege, we’re still talking about cagey trademark lawyers, the sneakiest counsel there is, of course — you’d need the kind of smoking-gun proof usually associated with cool stuff like “wearing a wire” and “finking” and “witness protection.” Which while we’re sneaky as all get-out, we trademark lawyers hardly ever get near.
But in a more cerebral vein, the question I would respond back to John with, given his 49 years of TTAB experience, is this: How often is a misdescription of goods or services (which in these cases seems to be the most common false representation, though date of first use may be right up there) a bona fide material issue in inter partes or other proceedings in the PTO, as well as in District Court where fraud is pleaded as a defense to infringement? I posit this “bona fide material issue” in contradistinction to those many cases where an innacurate goods and services description is a mere immaterial, but potentially outcome-changing, “gotcha” asserted an otherwise down-the-middle infringing party? How much this new, higher standard concerns us (and it clearly concerns John) would seem to depend on the answer to that question.
Speaking of sneaky — just look how this guy thinks!:
It might be argued that, in light of this CAFC decision, an applicant or registrant will be better off not bothering to ask any questions or to investigate whether a mark is in use for all the listed goods.
— by which I assume he means “an attorney for an applicant or registrant,” because the applicant himself should already know the answer. And my response to this is, well, this would certainly be the most cynical possible way of looking at it, but that would be a formula for unethical practice, first of all, which in all seriousness is not how most lawyers act professionally. Second, it is still a disservice to the client to file a trademark application that is open to challenge on fraud grounds, for even if it is difficult to prove fraud, its possibililty (as indicated merely by innacuracy) could open up entire vistas of additional discovery, especially in a District Court case — though, I admit, that is only if things get to that level, as opposed to the trademark registration being used as a dumb bomb at the cease-and-desist level. On the other hand, and third, why imperil a registration application itself during the application process itself by exposure to an opposer who could, while not proving fraud, still undermine, and the very least seriously delay, the issuance of the registration?
Probably there are good answers to these questions, however, that the sneaky bar can provide — because, after all, these “fraud” cases didn’t come out of nowhere.
One more point: Yes, this is the same Bose WAVE trademark case I commented on, in light, again, of reporting by John, here. The issue, after all, was, as John explains, “Bose acknowledged that it stopped manufacturing and selling audio tape recorders and players in 1996-97. Nonetheless, it did not delete those goods from the WAVE registration when filing for renewal. Bose contended that the renewal was proper ‘because owners of audio tape recorders and players continue to send their previously purchased goods to opposer for repair services and upon completion of the repair services opposer ‘transports’ them back to the owner.'” The TTAB wasn’t buying that, and cancelled based on fraud. My brilliant solution?
W]here, as here, (1) the trademark is still is very much in use by the company that manufactured the tape recorders and players not so long ago, and (2) consumers still have those machines and, indeed, are shipping them to Bose for repair, the trademark “use” was not the shipping but the repairing itself. The maintenance of the item by Bose to the level of quality deemed appropriate by Bose is certainly trademark use.
Well, that only resulted not only in embarrassing silence from the learned blogosphere, but as far as the Federal Circuit was concerned, the conclusion that this did not constitute trademark use was a chip shot, not worthy of discussion at all:
We agree with the Board, however, that because the WAVE mark is no longer in use on audio tape recorders and players, the registration needs to be restricted to reflect commercial reality. We thus remand the case to the Board for appropriate proceedings.
So my argument, which as far as I can see was, between the TTAB and CFAC, not addressed, lives to fight (or be ignored, as the great ones usually are, right?) another day.
Comments at the original post.