Federal Circuit Overturns Central Component of TTAB's Medinol Doctrine

In one of the most closely watched trademark-related appeals in recent memory, In re Bose Corp., No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009), the Federal Circuit overturned the central holding of Medinol Ltd v. NeuroVasx Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003). Specifically, the Federal Circuit disapproved of the Board's practice of finding fraud if a registrant or applicant “should have known” that a material representation to the U.S. Patent and Trademark Office (“PTO”) was false. According to the court:

1. a federal application or registration can be successfully attacked “only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO”;
2. the record evidence and testimony necessary to support a successful fraud-based challenge to an application or registration must be “clear and convincing”; and
3. in contrast to the Board's practice of invalidating applications and registrations either in their entirety or with respect to entire classes of goods and services based on a finding of fraud, a more appropriate remedy may be to “restrict” those filings based on the non-use of the underlying mark in connection with individual goods and services.

Medinol

Although not the first opinion to address the standard for a finding of fraud on the PTO, Medinol has held the attention of trademark owners and practitioners alike since its issuance. In Medinol, the registrant filed a single-class intent-to-use application to register a mark for neurological stents and catheters. The registrant's statement of use averred that the mark was used in connection with all of the recited goods, and the resulting registration covered stents and catheters. In a subsequent cancellation action, the petitioner alleged that the registrant had not used the mark with stents as of the date of the statement of use. The petitioner argued that the inaccurate averment to the contrary constituted fraud not curable by any post-petition amendments. In entering summary judgment in the petitioner's favor, the Board found as a matter of law that the registrant knew, or should have known, that the mark was not in use on all of the recited goods. See 67 U.S.P.Q.2d at 1209-10. The Board then canceled the registration in its entirety, despite a successful request to amend the registration to delete stents. As it explained, “deletion of the goods upon which the mark has not yet been used does not remedy an alleged fraud upon the Office. If fraud can be shown in the procurement of a registration, the entire resulting registration is void.” Id. at 1208.

Although the Board's application of Medinol has more often than not resulted in the invalidation of applications and registrations in their entirety, two of the Board's more recent opinions have departed from the more draconian aspects of the original decision. First, in G&W Labs v. GW Pharma Ltd., 89 U.S.P.Q.2d 1571 (T.T.A.B. 2009), the Board held that fraud in connection with particular classes of goods and services covered by a multiclass registration will not result in the cancellation of the entire registration; rather, cancellation is appropriate only as to the affected classes. Second, in Zanella Ltd. v. Nordstrom, Inc., 90 U.S.P.Q.2d 1758 (T.T.A.B. 2008), the Board held that the voluntary deletion of individual goods and services may create a presumption of good faith, provided it occurs prior to a challenge to the application or registration. Significantly, however, neither decision altered the “known or should have known” standard or offered hope to those seeking to delete individual goods or services from their filings on a post-challenge basis.

Bose

In Bose, the Board applied Medinol to invalidate a registration covering, inter alia, “audio tape recorders and players.” See Bose Corp. v. Hexawave, Inc., 88 U.S.P.Q.2d 1332 (T.T.A.B. 2007) (nonprecedential), rev'd sub nom In re Bose Corp., No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009). In contrast to Medinol, which centered on the application process, the Board's finding of fraud in Bose was based on the maintenance of a registration through the filing of a declaration of continued use required under Section 8 of the Lanham Act, 15 U.S.C. ' 1058 (2006). It was undisputed that, at the time of the declaration, the registrant was not selling audio tape recorders and players under its mark. The declaration's signatory, however, testified that he believed the mark remained in use for those goods because consumers returned the goods to the registrant for repairs, after which they were transported back to their owners in interstate commerce.

Rejecting this argument on the merits, the Board concluded that the registrant had defrauded the PTO because:

“[P]roof of specific intent to commit fraud is not required, rather, fraud occurs when an applicant or registrant makes a false material representation that the applicant or registrant knew or should have known was false.”

'

[The registrant] knew it had not manufactured or sold audio tape recorders and players for at least three years prior to filing the Section 8/9 renewal and [the registrant's] asserted belief that the return of a repaired audio tape recorder and player to its owner after rendering repair services was sufficient to support use in connection with goods to maintain a registration for such goods was not reasonable. ' Therefore, we find that [the registrant] committed fraud on the USPTO.

Id. at 1338 (quoting Gen. Car & Truck Leasing Sys., Inc. v. Gen. Rent-A-Car Inc., 17 U.S.P.Q.2d 1398, 1400 (S.D. Fla. 1990)).

On appeal, the Federal Circuit declined to consider what the registrant should have known:

By equating “should have known” of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard.

' 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. Thus, we 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.

Bose, slip op. at 6-7 (citations omitted).

With respect to required proof under this standard, the court held that:

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.”

Id. at 7 (quoting Star Sci., Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008)).

Examining whether clear and convincing evidence of fraud existed, the court acknowledged the Board's finding that the signatory's belief that the mark remained in use was unreasonable. Nevertheless, “reasonableness ' is not part of the analysis. There is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at 10. The court then observed that “[the signatory] testified under oath that he believed the statement was true at the time he signed the original application. Unless [a] challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence required to satisfy a fraud claim.” Id. Because there was no such record evidence, the finding of fraud was reversible error.

Beyond not addressing whether applications or registrations invalidated under Medinol can be restored, the court left open the question of what the appropriate consequences of the Bose registrant's false (but not fraudulent) sworn averment of continued use should be. Although holding that the Board had erred in invalidating the registration in its entirety, the court agreed with the Board that the registration should be “restricted to reflect commercial reality.” Id. at 11. Rather than fraud, the basis of that restriction properly should be the finding that “the [registered] mark is no longer in use in connection with audio tape recorders and players.” Id. The ultimate fate of the registration therefore remains to be determined on remand.

Conclusion

Bose may close out an era in which the threat of a finding of fraud has altered the behavior of trademark owners and their counsel alike. In overturning the “known or should have known” standard, the court has restored the rules governing allegedly fraudulent filings to those in place prior to 2003; it also has brought the doctrine governing averments of fraud in the trademark registration context into conformity with that extant in other areas of the law. Although certain consequences of the court's opinion remain unresolved, the ultimate result is likely to be greater certainty in the litigation of fraud-based claims.

Ted Davis, a partner in the Atlanta office of Kilpatrick Stockton LLP, divides his practice between domestic and international litigation and client counseling in the fields of trademark, copyright, false advertising, and unfair competition law, and has particular experience in trade dress disputes and with large-scale trademark clearance and registration projects. He can be reached at [email protected].

In one of the most closely watched trademark-related appeals in recent memory, In re Bose Corp., No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009), the Federal Circuit overturned the central holding of Medinol Ltd v. NeuroVasx Inc. , 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003). Specifically, the Federal Circuit disapproved of the Board's practice of finding fraud if a registrant or applicant “should have known” that a material representation to the U.S. Patent and Trademark Office (“PTO”) was false. According to the court:

1. a federal application or registration can be successfully attacked “only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO”;
2. the record evidence and testimony necessary to support a successful fraud-based challenge to an application or registration must be “clear and convincing”; and
3. in contrast to the Board's practice of invalidating applications and registrations either in their entirety or with respect to entire classes of goods and services based on a finding of fraud, a more appropriate remedy may be to “restrict” those filings based on the non-use of the underlying mark in connection with individual goods and services.

Medinol

Although not the first opinion to address the standard for a finding of fraud on the PTO, Medinol has held the attention of trademark owners and practitioners alike since its issuance. In Medinol, the registrant filed a single-class intent-to-use application to register a mark for neurological stents and catheters. The registrant's statement of use averred that the mark was used in connection with all of the recited goods, and the resulting registration covered stents and catheters. In a subsequent cancellation action, the petitioner alleged that the registrant had not used the mark with stents as of the date of the statement of use. The petitioner argued that the inaccurate averment to the contrary constituted fraud not curable by any post-petition amendments. In entering summary judgment in the petitioner's favor, the Board found as a matter of law that the registrant knew, or should have known, that the mark was not in use on all of the recited goods. See 67 U.S.P.Q.2d at 1209-10. The Board then canceled the registration in its entirety, despite a successful request to amend the registration to delete stents. As it explained, “deletion of the goods upon which the mark has not yet been used does not remedy an alleged fraud upon the Office. If fraud can be shown in the procurement of a registration, the entire resulting registration is void.” Id. at 1208.

Although the Board's application of Medinol has more often than not resulted in the invalidation of applications and registrations in their entirety, two of the Board's more recent opinions have departed from the more draconian aspects of the original decision. First, in G&W Labs v. GW Pharma Ltd. , 89 U.S.P.Q.2d 1571 (T.T.A.B. 2009), the Board held that fraud in connection with particular classes of goods and services covered by a multiclass registration will not result in the cancellation of the entire registration; rather, cancellation is appropriate only as to the affected classes. Second, in Zanella Ltd. v. Nordstrom, Inc. , 90 U.S.P.Q.2d 1758 (T.T.A.B. 2008), the Board held that the voluntary deletion of individual goods and services may create a presumption of good faith, provided it occurs prior to a challenge to the application or registration. Significantly, however, neither decision altered the “known or should have known” standard or offered hope to those seeking to delete individual goods or services from their filings on a post-challenge basis.

Bose

In Bose , the Board applied Medinol to invalidate a registration covering, inter alia , “audio tape recorders and players.” See Bose Corp. v. Hexawave, Inc. , 88 U.S.P.Q.2d 1332 (T.T.A.B. 2007) (nonprecedential), rev'd sub nom In re Bose Corp. , No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009). In contrast to Medinol, which centered on the application process, the Board's finding of fraud in Bose was based on the maintenance of a registration through the filing of a declaration of continued use required under Section 8 of the Lanham Act, 15 U.S.C. ' 1058 (2006). It was undisputed that, at the time of the declaration, the registrant was not selling audio tape recorders and players under its mark. The declaration's signatory, however, testified that he believed the mark remained in use for those goods because consumers returned the goods to the registrant for repairs, after which they were transported back to their owners in interstate commerce.

Rejecting this argument on the merits, the Board concluded that the registrant had defrauded the PTO because:

“[P]roof of specific intent to commit fraud is not required, rather, fraud occurs when an applicant or registrant makes a false material representation that the applicant or registrant knew or should have known was false.”

'

[The registrant] knew it had not manufactured or sold audio tape recorders and players for at least three years prior to filing the Section 8/9 renewal and [the registrant's] asserted belief that the return of a repaired audio tape recorder and player to its owner after rendering repair services was sufficient to support use in connection with goods to maintain a registration for such goods was not reasonable. ' Therefore, we find that [the registrant] committed fraud on the USPTO.

Id. at 1338 (quoting Gen. Car & Truck Leasing Sys., Inc. v. Gen. Rent-A-Car Inc. , 17 U.S.P.Q.2d 1398, 1400 (S.D. Fla. 1990)).

On appeal, the Federal Circuit declined to consider what the registrant should have known:

By equating “should have known” of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard.

' 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. Thus, we 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.

Bose, slip op. at 6-7 (citations omitted).

With respect to required proof under this standard, the court held that:

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.”

Id. at 7 (quoting Star Sci., Inc. v. R.J. Reynolds Tobacco Co. , 537 F.3d 1357, 1366 (Fed. Cir. 2008)).

Examining whether clear and convincing evidence of fraud existed, the court acknowledged the Board's finding that the signatory's belief that the mark remained in use was unreasonable. Nevertheless, “reasonableness ' is not part of the analysis. There is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at 10. The court then observed that “[the signatory] testified under oath that he believed the statement was true at the time he signed the original application. Unless [a] challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence required to satisfy a fraud claim.” Id. Because there was no such record evidence, the finding of fraud was reversible error.

Beyond not addressing whether applications or registrations invalidated under Medinol can be restored, the court left open the question of what the appropriate consequences of the Bose registrant's false (but not fraudulent) sworn averment of continued use should be. Although holding that the Board had erred in invalidating the registration in its entirety, the court agreed with the Board that the registration should be “restricted to reflect commercial reality.” Id. at 11. Rather than fraud, the basis of that restriction properly should be the finding that “the [registered] mark is no longer in use in connection with audio tape recorders and players.” Id. The ultimate fate of the registration therefore remains to be determined on remand.

Conclusion

Bose may close out an era in which the threat of a finding of fraud has altered the behavior of trademark owners and their counsel alike. In overturning the “known or should have known” standard, the court has restored the rules governing allegedly fraudulent filings to those in place prior to 2003; it also has brought the doctrine governing averments of fraud in the trademark registration context into conformity with that extant in other areas of the law. Although certain consequences of the court's opinion remain unresolved, the ultimate result is likely to be greater certainty in the litigation of fraud-based claims.

Ted Davis, a partner in the Atlanta office of Kilpatrick Stockton LLP, divides his practice between domestic and international litigation and client counseling in the fields of trademark, copyright, false advertising, and unfair competition law, and has particular experience in trade dress disputes and with large-scale trademark clearance and registration projects. He can be reached at [email protected].