Federal Circuit Rejects "Should Have Known" Standard in Proving Fraud on the PTO in Trademark Cases
The Federal Circuit succinctly and decisively rejected a lower standard of proof for proving fraud on the PTO in obtaining or renewing a trademark registration in In re Bose Corp., Opposition No. 91/157,315 (Fed. Cir. Aug. 31, 2009).
In the opposition proceeding before the TTAB, the trademark applicant--Hexawave--counterclaimed for cancellation of Bose's WAVE mark on the ground that Bose had committed fraud in connection with its combined Section 8 affidavit of continued use and Section 9 renewal application, which was signed by Bose's general counsel. In this filing, Bose stated that the WAVE mark was still in use in commerce on, among other things, audio tape recorders and players but the TTAB found that Bose had stopped manufacturing and selling those particular goods between 1996 and 1997 and that Bose's general counsel knew that when he signed the filing.
Bose's general counsel testified that, at the time he signed the filing, Bose continued to repair previously sold audio tape recorders and players and he believed that the WAVE mark was still in use in commerce because "in the process of repairs, the product was being transported back to customers." The TTAB concluded that such repair and shipment back did not constitute sufficient continued use of the mark and found that the belief of Bose's general counsel to the contrary was not reasonable. Apparently following the standard that a trademark owner commits fraud on the PTO in procuring or renewing a registration when it makes material representations of fact which it knows "or should know" to be false or misleading, the TTAB found that Bose had committed fraud and ordered cancellation of its registration for the mark.
The Federal Circuit reiterated the heavy burden of proof the party claiming fraud on the PTO bears, requiring that such fraud be proven "to the hilt" by clear and convincing evidence. The Federal Circuit then painted a brief history of the cases recognizing a "material legal distinction" between a "false" representation and a "fraudulent" one, in that the latter requires an intent to deceive. The Court thus rejected the TTAB's decision in Medinol Ltd. v. Neuro Vasx Inc., 67 U.S.P.Q.2d 1205 (TTAB 2003), to the extent it adopted a negligence standard for fraud by approving of a "knew or should have known" test. In rejecting the "should have known" standard, the Federal Circuit 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 PTO."
As applied to the facts of the case, the Federal Circuit found that Bose had made a material misrepresentation to the PTO but that the challenger had not pointed to clear and convincing evidence to support an inference of deceptive intent in light of the testimony of Bose's general counsel that he believed the statement in the filing was true at the time he signed it. Notably, the Federal Circuit rejected the relevance of the TTAB's conclusion that Bose's counsel's belief as to the sufficiency of use of the mark in commerce was not reasonable, stating that reasonableness was "not part of the analysis" because there "is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive."
The Federal Circuit thus concluded that Bose had not committed fraud in renewing its registration for the WAVE mark and that the TTAB had erred in canceling the registration in its entirety (although the Court did acknowledge that the registration needed to be restricted to "reflect commercial reality").
