In re Bose: Fed. Cir. Rejects Medinol and Requires Intent to Establish Trademark Fraud

The Federal Circuit held that trademark fraud can only be found when the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO. The opinion in In re Bose, ___ F.3d ___, No. 2008-1448, 2009 WL 2709312 (Fed. Cir. Aug. 31, 2009), specifically rejects a line of cases established by the USPTO’s Trademark Trial and Appeal Board that set forth a negligence standard for trademark fraud, finding fraud if the applicant “know or should have known” of the falsity of its trademark filing.

BACKGROUND

Bose filed a renewal application for its WAVE trademark, claiming that the mark was in use in commerce on all goods recited in the registration, including audio tape recorders and players that the company stopped manufacturing and selling in the mid-1990’s. Bose subsequently filed an opposition against Hexawave Inc.’s application to register the HEXAWAVE mark. Hexawave asserting a counterclaim for cancellation of Bose’s WAVE trademark, asserting that Bose committed fraud in its renewal application when it claimed use on all goods in the registration when it knew that it no longer manufactured some of those goods.

At proceedings before the USPTO’s Trademark Trial and Appeal Board (the “Board”), Bose presented evidence that while it no longer manufactured the audio tape recorders and players, it continued to service those products under warranty. Bose’s general counsel claimed that it was “his understanding that ‘transporting’ goods in connection with repair services constitutes use in connection with the goods,” though he could not recall the basis for his understanding.

Following its Medinol line of decisions, discussed in detail below, the Board found that Bose had committed fraud in its renewal application by falsely stating that the mark was used in commerce regarding all recited goods. The Board cancelled the WAVE registration in its entirety. Bose appealed.

Medinol and Board precedent before Bose

Fraud can serve as the grounds to cancel a trademark registration at any time, and one who procures a registration by fraud may be liable in damages to anyone injured as a result. 15 U.S.C. sections 1064(3) and 1120. Prior to 2003, numerous federal circuit courts, including the Federal Circuit, had established a strict standard for finding fraud, requiring proof of intent to deceive before cancelling a trademark registration. See discussion and list of cases at In re Bose, ___ F.3d ___, No. 2008-1448, 2009 WL 2709312, *2 (Fed. Cir. Aug. 31, 2009).

But in 2003, the Board established a different standard in Medinol Ltd. v. Neuro Vasx Inc., 67 U.S.P.Q.2d 1205, 2003 WL 21189780 (TTAB 2003). In Medinol, the Board determined that Neuro Vasx had to forfeit a trademark because it had incorrectly listed a product to be covered by the mark that the company did not manufacture. The Board determined that Neuro Vasx’s representation constituted fraud because the company “knew or should have known” about the false representation. Medinol and its progeny presumed fraud merely upon a showing of a material mistake made in a statement to the PTO that resulted in a registration even if there was no proof of intent to deceive.

Medinol left trademark practitioners and registrants nervous because it indicated that any trademark application or registration that was not 100% accurate was in danger of total cancellation for fraud, despite good faith intentions. Indeed, the Board relied upon Medinol to find fraud in Bose’s renewal application due to its false statement that all recited goods used the mark in commerce, even though there was no proof that Bose intended to deceive the PTO.

The Federal Circuit rejects the Medinol standard for fraud

In its Bose decision, the Federal Circuit explicitly rejected the Medinol standard relied upon by the Board. The Court said: “By equating ‘should have known’ of the falsity with a subjective intent, the TTAB erroneously lowered the fraud standard to a simple negligence standard.” In re Bose, ___ F.3d ___, No. 2008-1448, 2009 WL 2709312, *3 (Fed. Cir. Aug. 31, 2009). Dismayed to recognize that the Board had been following the lesser fraud standard of Medinol, the Court reiterated that its own precedent should stand, that “[m]ere negligence is not sufficient to infer fraud or dishonesty” and even gross negligence does not often rise to that level. Id.

The Court clarified that under the Lanham Act, a trademark is obtained fraudulently only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO. Id. That intent to deceive must be established by clear and convincing evidence. Id. at *4. The Court specifically instructed that there is not fraud if a false misrepresentation is caused by “an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at *5.

Applying the stricter standard to the Bose facts, the Court determined that while Bose’s misrepresentation was material, Bose did not commit fraud since there was no clear and convincing evidence that the false misrepresentation was made with an intent to deceive the PTO. Id. Accordingly, the Court vacated the Board’s order cancelling registration and remanded the case back to the Board to amend the registration in order to delete the goods no longer in use in commerce. Id. at *5-6.

CONCLUSION

Trademark owners and practitioners can breathe a sigh of relief as the Circuit Court has officially struck the Board’s Medinol negligence standard for fraud as improper under the Lanham Act. Bose ensures that the standard for fraud in trademark cases is consistent with the standard applied in other areas of law. The Court has reassured registrants and practitioners that an honest misunderstanding or inadvertent error will not lead to a finding of fraud that will cancel a registration.

However, the decision does not conclusively answer every question regarding the standard for fraud. The Court accepted the Bose general counsel’s claim that he “understood” – incorrectly—that shipping repaired goods under warranty would constitute use of the mark in commerce, but he offered no basis for that “understanding” and cited no precedent to support it. The mere statement of that incorrect understanding was enough to label the false representation in the renewal application an “inadvertent error” and not fraud, thereby saving the trademark from cancellation.

At some point, a trademark owner has an obligation to ensure in good faith that the facts alleged in its application are true and accurate to the best of its ability.  The Bose decision, while clarifying that “inadvertence” is not enough, nonetheless leaves open the question of specifically what conduct constitutes intent to defraud – and whether a plain failure to inquire further in the face of ambiguity constitutes a clear and convincing evidence of fraud.

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Yuri Mikulka

Laura D. Castner

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