Thoughts on Welch’s thoughts on PTO fraud

Originally posted 2009-10-23 14:01:03. Republished by Blog Post Promoter

Keeping Tabs on the TTAB®
Keeping Tabs on the TTAB®

The TTABlog®‘s John Welch shares his thoughts from on “fraud on the PTO in the post-Bose era.  Excerpt:

So how does one plead a fraud claim post-Bose? It appears that one must expressly allege that the adversary knew that the statement was false and intended to deceive the USPTO. What specific facts may be alleged to support that allegation? One might set forth the facts surrounding the pleader’s investigation into the use or non-use of the mark in question, but that would not seem to fit the bill.

Indeed, a party may have to refrain from pleading a fraud claim until after discovery has revealed sufficient facts to satisfy the pleading requirement. . . .

It seems clear that proving a fraud claim on summary judgment may have become an historical relic. In Medinol, the TTAB entered summary judgment sua sponte on the ground of fraud. But in the post-Bose era, one will need to find the proverbial “smoking gun” before the TTAB will enter summary judgment for fraud.

This sounds a lot like the standard the rest of the world has to meet before proceeding with a claim of civil fraud. Under Federal Rule of Civil Procedure 9(b), “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”  I imagine John’s response would be that we are not talking here about common-law fraud where a defendant is, as a matter of policy, entitled to know what particular actions or omissions, in the course of potentially complex transaction or series of transactions, was the one constituting the knowingly untruthful statement or omission.  Here there is merely an application listing goods and services for a trademark, one or more of which, it turns out, is not really being used with the trademark.  That is objectively ascertainable, as it was pre-Bose.

Now, however, the way John reads Bose, a smoking evidentiary gun of intent must be found if there is to be summary judgment and, he seems to say, even an allegation of fraud.  He cites Enbridge Inc v Excelerate Energy Limited Partnership, where the TTAB denied a summary judgment motion because there were genuine issues of material fact regarding whether Excelerate “knowingly made this representation of use with the intent to deceive the USPTO.”

Actually, yes:  This sounds a lot like the standard the rest of the world has to meet before proceeding with a claim of fraud.  But I do not agree that it is necessary to meet this standard in order to plead fraud.  That would be contrary to the concept of notice pleading.  There is certainly nothing in Enbridge to suggest that. In fact, the only thing needed to allege a Rule 9(b)-compliant fraud claim is to allege with reasonable particularity the statements alleged to be fraudulent, the identity of the speaker, where and when the statements were made, and why they were fraudulent (i.e., false, reasonably relied upon, and intended to be relied upon).  See, Acito v. IMCERA Group, Inc., 47 F.3d 47, 51 (2d Cir. 1995).  It is not necessary to plead a state of mind, merely a state of mind that gives rise to a reasonable inference of fraud — such as a motive or other circumstantial facts.

All these facts are at hand, and convenient, in a PTO fraud claim.  In fact, they are so readily available that it is very much, at the pleading stage, unlike the standard the rest of the world has to meet before proceeding with a claim of fraud.  It is hard to imagine a situation where anything akin to a 9(b)-based motion to dismiss a fraud claim could succeed in an inter partes action.

As to summary judgment, John is surely right.  Short of that holy grail of a smoking gun where the registrant admits, pre-discovery, to having made a false statement to the PTO (or presumably one it reasonably should have known was false), both sides will have to slug it out.  And, as he points out in his article, procedural and particular aspects of the trademark practice quite unlike what happens in civil litigation could make it far harder for lawyers to operate or, for that matter — where the PTO is, unlike in most civil cases, both the tribunal and an interested party — make settlement far more difficult.  Perhaps that prospect will result in some new PTO rule-making or “judicial creativity”; for now, however, there will be no easy fraud judgments — a prospect whose desirability John and I have not agreed in the past.  But, as John says, that’s history.

By Ron Coleman

I write this blog.

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10 thoughts on “Thoughts on Welch’s thoughts on PTO fraud”
  1. In the common law fraud case, the party pleading fraud is also the victim, and so had first-hand knowledge of the facts constituting and surrounding the fraud. At the TTAB the party pleading fraud will likely not have first-hand knowledge of the facts, and therefore it seems to me that meeting the heightened pleading requirements for fraud may be more difficult at the TTAB, unless the TTAB allows some leeway in pleading under the circumstances.

    1. No more than inferentially, John — as I explain in the post. It is of course never possible to plead a third person’s state of mind on anything more than information and belief.

  2. Even if the party pleasing fraud has first hand knowledge, it’s difficult to prove someone else’s intent. In any case, I think it’s a move in the right direction… but I also still think there are cases where fraud can be shown at the time of summary judgment, e.g. prove a Specimen submitted was made in Photoshop and not a real product.

  3. Michael: I agree with you that there are situations in which a fraud claim may be won on summary judgment. But not a Medinol-type case, where the fraud claim is based on non-use of the subject mark for one item in the identification of goods.

    One final (?) comment. Contrary to Ron’s assertion, I have never been a proponent of the Board’s adoption of fraud as the cure for the Medinol-type case. As I have said many times, I think the Board got off on the wrong track when it took the fraud approach to this problem. What has been, and remains, my concern is how to ensure that the verification of use is truthful. I have suggested that the PTO concentrate on the front end of the process, perhaps by requiring a specimen of use for each item listed in the application or declaration.

  4. The matter is not so simple. (As it happens we are publishing an article on the NYLJ on the topic. The thoughts below are from that article.)

    Rule 9(b) of the Federal Rules governs allegations of fraud: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Although the second sentence of that rule appears to state that there is no need to make particularized allegations as to state of mind when making a claim of fraud, the majority of Circuits have not taken that approach. Rather, they require a party alleging fraud to make specific factual allegations which permit an inference of fraudulent intent. (Acc. to Moore’s Federal Practice, the 2d, 3d and 7th Circuits take this approach. Only the 9th reads the rule in its simple meaning, i.e. no particularity requirement for intent.)

    The Federal Circuit – whose rulings control in the PTO –is among the majority of Circuits that take that position. See Exegen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (2009), a patent case involving a charge of “inequitable conduct,” which the CAFC construes as the equivalent of fraud on the Patent Office and hence applies Rule 9(b). In fact, the Exegen ruling relied in part on trademark precedent from the Court of Customs and Patent Appeals (the Federal Circuit’s predecessor) which dealt with cancellation of trademark registrations for fraud.

    Under Exegen, a party must plead “sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind.” Id., 575 F.3d at 1328. At the pleading stage, these specific facts must lead to a “reasonable inference” of fraudulent intent. “A reasonable inference is one that is plausible and that flows logically from the facts alleged, including any objective indications of candor and good faith.” Id. n. 5.

    So I am afraid that Welch is correct. The particularity requirement is not merely for the circumstances of the fraud (which, as you rightly point out, are fairly easy to set forth in a trademark case) but also for intent — not very easy, especially before discovery.

    1. But of course John is correct. He is always correct! So am I; you are echoing what I said — you need merely allege a factual basis from which intent may reasonably be inferred.

      My point is, so what? Who said it has to be easy? And why should it be?

  5. First of all, I think the standard is harder than your original post suggests. Pleading motive is not enough — everyone has motive to ask the Trademark Office for more than they deserve. I think that you are going to see quite a few 9(b) type motions in inter partes proceedings.

    Second, in my opinion the Medinol standard is better in terms of policy, although I agree in terms of statutory interpretation it was wrong (as Bose indeed held).

    A party applies for a trademark. It is supposed to certify that it is using the mark for the specified goods/services. The Applicant is in a better position than anyone to know for what goods and services it is or is not using the mark. Is it too much to ask for just a bit of due diligence — about one’s own business!?!

    In Medinol, the Applicant applied and got a mark for two listed goods. IT NEVER USED THE MARK FOR ONE OF THEM. NEVER. NEVER EVER.

    What’s the penalty for that after Bose? Nothing. The PTO just narrows the registration to exclude those goods you never should have gotten in the first place. You still get to keep the rest of the registration, unless someone bears the now very heavy burden of proving fraud.

    The PTO relies on the certification of the Applicant to hand out registrations — which are valuable in terms of exclusive rights. If you ask the govt. for something valuable, at least take a reasonable stab at making sure that the representations that entitle you to that benefit are true.

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