International Society of Primerus Law Firms

Court Relief is Not Enough: Diligent Trademark Management is the Best Defense Against Fraud Attacks

By: Cheryl L. Black

Goodman Allen & Filetti, PLLC

Glen Allen, VA

Why does it take a crisis to get our attention and to make us do what we already know to do? For years, I have tried in vain to get my three sons to practice good hygiene and maintain a healthy diet. Wash your hands before dinner. Cover your mouth when you sneeze. Eat your vegetables, take your vitamins and drink plenty of water. I sounded like a broken record, and they treated me like one. Then the swine flu outbreak occurred. Within one month of the first news coverage, school alerts, and public outcry over the deadly virus, my sons were carrying personalized bottles of hand sanitizer, drinking two to four bottles of water every day and ingesting vitamins like candy.

In the world of trademarks, the deadly epidemic that grabbed the attention of trademark owners was the rise of fraud attacks. A successful claim of fraud in procurement is the death of a trademark registration. But with so few fraud claims raised and the standard for finding fraud high, it was not a matter of concern, at least not until 2003. In that year, a decision by the Trademark Trial and Appeal Board (the Board) lowered the standard for a finding of fraud and sparked a rash of fraud attacks in trademark cases.

In Medinol Ltd. v. Neuro Vasx Inc., Neuro Vasx Inc. (the petitioner) filed a petition to cancel U.S. Registration No. 2,377,883 for the mark NEUROVASX used on medical devices, namely, neurological stents and catheters.[1] The petitioner alleged that Medinol Ltd. (the respondent) had not used the mark in connection with stents when it filed its statement of use nor anytime thereafter. The petitioner claimed that the respondent fraudulently procured the registration by knowingly submitting fraudulent statements with the intent to induce authorized agents of the [US]PTO to grant said registration.[2] In response to the petitioners allegations, the respondent filed, inter alia, a motion to amend the registration to delete stents from the identification of goods.[3] The petitioner objected to the proposed amendment claiming that the fraudulent statement tainted the entire registration and that curing the misstatement by merely deleting the goods would be of no consequence to the registrant.

The Board agreed with the petitioner. The Board, citing Torres v. Cantine Torresella S.r.l., ruled that a trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration which it knows or should know to be false or misleading.[4] Although the Board accepted the respondents explanation that the inclusion of stents in the statement of use was inadvertent, it rejected the argument that an amendment deleting the goods obviated any finding of fraud. The Board determined that the element of intent to deceive is not based on the registrants subjective intent but ratherthe objective manifestation of that intent.[5] The Board, in granting summary judgment to the petitioner, ruled that the inadvertence did not undercut the conclusion that respondent knew or should have known that its statement of use was materially incorrect, and that [r]espondents knowledge that its mark was not in use on stents or its reckless disregard for the truth is all that is required to establish intent to commit fraud in the procurement of a registration.[6]

Without the element of deceptive intent, or rather with intent to commit fraud inferred from the fact that an application, registration or supporting allegation of use contains (1) a false representation (2) of material fact (3) that registrant knew or should have known was false, finding fraud became an easy way to cancel registrations. Thus, it was not only advantageous for third parties to raise fraud as a claim or defense in a trademark dispute, it was expected.

In the line of cases that followed Medinol, the Board sustained oppositions and granted petitions to cancel registrations where at least one product or service for which the mark was not in use was listed in an application,[7] where registrants misrepresented the goods in a statement of use,[8] and where registrants falsely asserted claims of continued use in declarations of use.[9] Once the moving party made a showing of material misrepresentation, a registrant was without recourse. The Board rejected amendments attempting to correct the misrepresentation and arguments that such amendments cured the fraud.[10]

With no foreseeable change in the law, trademark owners were forced to take precautionary measures to safeguard their registrations. Fraud audits (fraudits) emerged as a method of evaluating claims of use and bona fide intent of use. The approach taken by trademark practitioners conducting audits of trademark portfolios varied. Generally, trademark owners were advised to produce physical evidence (1) to demonstrate that the mark was in use in commerce on the products and services identified on the application or registration and (2) to support the dates of use claims. If the trademark owner could not produce the evidence to support ongoing bona fide commercial use from as early as the dates asserted in the registration, counsel would determine if the misrepresentation could be cured by amendment or if it required the filing of a new application.

This sort of self-assessment, intended to be a stop-gap measure to ward against fraud attacks until Medinol was overruled, actually served to bring trademark registrants more in line with the Trademark Law Revision Act of 1988 (TLRA). Prior to TLRA, the Trademark Act of 1946 permitted only use in commerce as a filing basis for U.S. applicants.[11] By definition use in commerce did not require genuine, commercial or even bona fide use. [12] Thus, token use supported a claim of use and did not constitute fraud.[13] TLRA added bona fide intent to use the mark as a basis for filing in an effort to eliminate token use. Collectively, the new bona fide intent to use the mark filing basis, the post-publication option of filing evidence of use in a statement of use with the option to extend the time to file a statement of use, and the amended statutory definition of use in commerce were all intended to encourage and promote legitimate commercial use of the mark before registration.[14] Despite these changes, the practice of token use continued after the implementation of TLRA.[15]

The Boards decision in Medinol did not address token use directly, but it imposed consequences for carelessness in assertions of use in commerce that were unverified and unsubstantiated. Whether or not one approves of the Boards handling of Medinol, one can agree that it raised the consciousness of trademark owners and practitioners that prosecuting and maintaining trademark registrations required a more diligent assessment and accuracy in claiming use of the mark. That outcome benefits everyone.

In 2009, the United States Court of Appeals for the Federal Circuit (the Court) finally brought relief to trademark owners with a decision that essentially eviscerated the Boards lenient standard for a finding of fraud in Medinol. In In re Bose Corp., the Court reversed the Boards holding that Bose committed fraud on the USPTO when it claimed use on all the goods in the registration in its combined declaration of continued use and renewal application (Section 8/9 renewal), even though Bose knew that it was no longer manufacturing or selling some of the goods.[16]

In re Bose began as a proceeding before the Board when Bose Corporation (Bose) initiated an opposition against the trademark application filed by Hexawave, Inc. (Hexawave) for HEXAWAVE.[17] Bose contended, inter alia, that Hexawaves mark was likely to cause confusion with Boses registered marks, including its registration for WAVE. Hexawave filed a counterclaim seeking to cancel Boses registration for WAVE on the ground of fraud.[18] It was undisputed that Boses general counsel knew that Bose had discontinued manufacturing and selling audio tape recorders and players when he signed the Section 8/9 renewal attesting to the continued use of all the goods in the registration.[19] The Board rejected as unreasonable Boses argument that repairing audio tape recorders and players previously sold under the WAVE mark and transporting them back to customers constituted use in commerce and ruled that Bose committed fraud in maintaining the registration.[20]

The Court, in rejecting the Medinol standard for fraud relied upon by the Board, explained that [b]y equating should have known of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard.[21] The Court reasoned that while subjective intent to deceive is difficult to prove it is nevertheless an indispensible element in the finding of fraud and though deceptive intent may be inferred by indirect and circumstantial evidence it must be clear and convincing.[22]

The Court did not address the issue of whether Boses belief that its repair activities constituted sufficient use in commerce to maintain the registration. Instead the Court pointed out that there is a difference between a false misrepresentation [that] is occasioned by an honest misunderstanding or inadvertence and a willful intent to deceive.[23] The Court held 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 [US]PTO.[24]

The In re Bose decision has seemingly curtailed fraud attacks, or at least the cancellation of trademark registrations based on a claim of fraud. However In re Bose will not fully immunize trademark registrations from fraud attacks. Trademark owners should not dispense with preventive measures. Trademark counsel should be involved in evaluating use in commerce for statutory compliance during every stage of the registration and post-registration processes, as well as in assessing whether preliminary activities rise to the level of bona fide intent to use for intent-to-use applications.

Just as good hygiene and a balanced diet are as important as vaccination in the fight against swine flu, some relief from a court decision is not enough to replace a wise and prudent course of action that includes the diligent management of trademark portfolios, including fraudits, for the safeguarding of trademark registrations against any possible future attack.

[1] 67 USPQ2d 1205 (TTAB 2003).

[2] Medinol, 67 USPQ2d at 1206.

[3] Id. At 1207.

[4] 808 F.2d 46, 1 USPQ2d 1483 (Fed. Cir. 1986); Id. at 1209.

[5] Medinol, 67 USPQ2d at 1209.

[6] Id. at 1210. (Emphasis added).

[7] Hurley International LLC v. Volta, 82 USPQ2d 1339 (T.T.A.B. 2007); Standard Knitting, Ltd. v. Toyota Jidosha Kabushiki Kaisha, 77 USPQ2d 1917, 1927 (T.T.A.B. 2006).

[8] Standard Knitting, 77 USPQ2d at 1927; J.E.M. International, Inc. v. Happy Rompers Creation Corp., 74 USPQ2d 1526 (T.T.A.B. 2005)(not precedential).

[9][9] Jimlar Corp. v. Montrexport S.P.A., Cancellation No. 92032471, slip. op. at 18 (T.T.A.B. June 4, 2004).

[10] J.E.M. International, Inc., 74 USPQ2d at 1530; Jimlar, Cancellation No. 92032471, slip. op. at 18.

[11] Pursuant to the Paris Convention, foreign applicants could file an application based on an application or registration in their home country. 15 U.S.C. 1126, Trademark Act 44.

[12] Dreitler, Joseph R., Why the TTAB Got it Right in Medinol 23 Allens Trademark Digest 3 (September 2009). Use in commerce as defined by the Trademark Act prior to TLRA read as follows:

For the purposes of this Act a mark shall be deemed to be used in commerce (a) on goods when it is placed in any manner on the goods or their container or the displays associated therewith or on the tags or labels affixed thereto and the goods are sold or transported in commerce.

[13] Id.

[14] Id.

[15]See Paramount Pictures Corp v. white, 31 USPQ2d 1768 (T.T.A.B. 1994)

[16] 580 F.3d 1240 (Fed. Cir. 2009)

[17] Id. at 1240; Bose Corp. v. Hexawave, Inc., 88 USPQ2d 1332 (T.T.A.B. 2007)

[18] Bose Corp, at 1333.

[19] Id. at 1334-35.

[20] Id. at 1337-1338.

[21] In re Bose, at 1244.

[22] Id. at 1245.

[23] Id. at 1246.

[24] Id. at 1245.

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