United States: Proving Trademark Fraud: Intent Is The Question

Last Updated: September 2 2013
Article by Scott J. Slavick

Law360, New York (August 21, 2013, 12:58 PM ET) -- Is fraud dead? Not likely. Is proving fraud before the U.S. Patent and Trademark Office dead? Now that's a question.

Before 2002, proving fraud committed against the USPTO was considered incredibly difficult. From 2003 through 2009, it became all the rage - due to the Trademark Trial and Appeal Board's ruling in Medinol Ltd. v. Neuro Vasx Inc. In 2009, all changed again with the Federal Circuit's reversal of the decision in Bose Corp. v. Hexawave Inc.

And just this year, two further decisions point to the fineness of a distinction in proving fraud committed against the USPTO - showing that if claims of fraud are not entirely dead, they're at least on a respirator.

In Medinol, 67 USPQ2d 1205 (TTAB 2003), Neuro Vasx had registered the NEUROVASX mark for "medical devices, namely, neurological stents and catheters." Medinol petitioned to cancel that registration on the ground that at the time Neuro Vasx had obtained it, the NEUROVASX mark was not in use on stents.

Thus, contended Medinol, Neuro Vasx had knowingly made false or fraudulent statements to the USPTO in obtaining its registration. In response, Neuro Vasx requested that the reference to stents be deleted from its registration, but Medinol argued that Neuro Vasx's requested amendment after the fact of filing could not undo the fraud it had already perpetrated on the USPTO.

The TTAB agreed with Medinol that merely deleting the unused goods did not remedy the fraud that had already occurred and held that if fraud is shown as to some of the registered goods, then the entire registration is void.

The TTAB further observed that in almost all cases, a party caught making a false statement will argue that there was no intent to defraud. Therefore, to cover those situations, the board explained that: "[t]he appropriate inquiry is not into the registrant's subjective intent, but rather into the objective manifestations of that intent." Id. at 1209.

The board went on to hold that "[a] trademark applicant commits fraud in procuring a registration when it makes material representation of fact in its declaration, which it knows or should know to be false or misleading." Id.

In the case, the board suggested, Neuro Vasx had signed a sworn statement, under penalty of fine or imprisonment or both, that the trademark was in use on both stents and catheters when it was not. As a result of the fraud, the board ordered the NEUROVASX registration canceled.

Medinol and its progeny caused widespread concern among trademark owners. Many trademark registrations list numerous goods; it is possible and perhaps even likely that some of these goods will have been dropped from a product line prior to the time when the registration is granted or renewed.

For example, whether through inattentiveness or simple error, a product may not have been deleted when a filing is made to renew a subject registration. Because of that failure, the TTAB's Medinol decision meant that the registration of the mark for all products listed was in jeopardy. Somewhat predictably, a number of eager challengers took the TTAB's cue. From 2003 through early 2009, litigants brought successful cancelation actions against a myriad of trademark registrations - triumphantly arguing fraud committed against the USPTO. Not until the U.S. Court of Appeals for the Federal Circuit reversed the TTAB's decision in Bose Corp. v. Hexawave Inc., 88 USPQ2d 1332 (TTAB 2007), could trademark owners breathe a slight sigh of relief.

In the original Bose decision, the TTAB had canceled Bose's WAVE trademark, finding that Bose had committed fraud in its 2001 renewal of its WAVE registration in failing to delete a reference to "audio tape recorders and players" from the registration, even though Bose had stopped using its WAVE mark for those goods.

In In re Bose Corp., 580 F.3d 1240 (Fed. Cir. 2009), the CAFC disagreed, ruling that the TTAB's standard for determining whether fraud existed was too low. The CAFC explained that "by equating 'should have known' with a subjective intent," the TTAB had "erroneously lowered the fraud standard to a simple negligence standard." Id. at 1244.

The CAFC found no substantial evidence that Bose intended to deceive the USPTO in the renewal process and reversed the TTAB's decision to cancel Bose's WAVE trademark registration.

The CAFC then emphatically stated that proof of intent to deceive is required to establish fraud against the USPTO: "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 [US]PTO." Id. at 1245.

In re Bose Corp. established that to establish fraud, the petitioner had to prove:

1. The applicant/registrant made a false representation to the USPTO;

2. The false representation is material to the registrability of the mark;

3. The applicant/registrant had knowledge of the falsity of the representation; and

4. The applicant/registrant made the representation with intent to deceive the USPTO.

With this as background, we get to the fascinating case of Nisa Santiago. On April 11, 2013, the U.S. District Court for the Southern District of New York decided Melodrama Publishing LLC v. Santiago, Civil Action No. 12-Civ. 7830 (S.D.N.Y. April 11, 2013). In its decision, the court granted a book publisher's motion for judgment on the pleadings, ordering cancelation of a registration of Nisa Santiago for the mark NISA SANTIAGO for a series of novels, on the grounds that the registrant had obtained her trademark registration fraudulently.

It is hard to be confused about the CAFC's fraud standard, since the court was so deliberate in its In re Bose Corp. ruling. And if said ruling is seen correctly, it bears asking, "How did Ms. Santiago accomplish such a difficult task, namely, allowing a court post-Bose to find fraud against her?"

Santiago made it helpfully easy. First, she admitted that she never used the mark NISA SANTIAGO in commerce - a good start. Second, she admitted that she used the plaintiff's books as specimens of use to support her own NISA SANTIAGO trademark application - another good one.

Third, she argued that she used the NISA SANTIAGO mark in two ways:

(1) in her negotiations and on contracts with the plaintiff; and

(2) in some draft chapters and plot synopses that she sent to the plaintiff for consideration to be published.

Unfortunately for her, her negotiations, contracts, draft chapters and synopses were not sent to anyone but the plaintiff, and thus never reached the public.

The court then detailed how hard it is to find fraud against the USPTO, reiterating that the plaintiff must establish that the defendant made misstatements that "indicate a deliberate attempt to mislead the [USPTO]" and was with respect to a material fact "one that would have affected the [US]PTO's action on the application."

The court then went on to cite In re Bose Corp. directly in agreeing with the defendant that a claim for cancelation cannot rest on mere negligence or even gross negligence, but rather requires a deliberate intent to deceive.

Not a low bar by any means. But Santiago managed to hurdle it with flying colors. She argued that she believed in good faith that she had used the NISA SANTIAGO marks in commerce in her negotiations and on contracts with the plaintiff, and in draft chapters and plot synopses she sent to the plaintiff for consideration to be published.

The court disagreed, pointing to a fatal flaw in her argument. In her trademark application to USPTO, Santiago never referred to the negotiations, contracts and writing samples. Instead, she sought registration based on use of the mark in commerce for a series of books and articles.

In addition, the court went on to hold, "most damningly," that she submitted images of the covers of three of the plaintiff's books to the USPTO as supposed examples of her own use of the mark, without ever mentioning that she had not written the books and had no connection to them beyond her then-terminated publishing contracts with the plaintiff.

Accordingly, the district court held that Santiago had perpetrated a fraud against the USPTO. It ordered her registration canceled and the case returned to the magistrate for an inquest into damages. The court went even further to hold that because she had perpetrated fraud against the USPTO, her conduct necessitated a finding of exceptional circumstances, entitling the plaintiff to attorney's fees.

Contrast poor Santiago's fumble with the court's pass in C. & J. Clark International Ltd. v. Unity Clothing Inc. Cancelation No. 92049418 (April 24, 2013). In this case, Clark moved to cancel Unity Clothing's registration, alleging solely that the latter had committed fraud against the USPTO. It should be noted that prior to commencement of the case, Unity Clothing amended its registration to delete five clothing items from its identification of goods. After commencement of the case, and without opposition from Clark, Unity Clothing deleted a sixth. During discovery, Unity Clothing admitted that it falsely stated that it was using its mark on the deleted goods when it filed its underlying application, and that it knew at that time that it was not using its mark on those goods. Thus, the first and third elements for proving fraud from the CAFC's Bose reversal were satisfied.

Furthermore, there was no dispute that this was a material representation because the USPTO relied upon that statement in issuing the challenged registration. Consequently, the second element from Bose was also satisfied.

The question, then, was whether Unity Clothing had an intent to deceive the USPTO when it made the false statement. In response, Unity Clothing asserted that it "acted under a mistaken belief that it was proper to list related goods that were as yet unused together with related goods that were already in use."

It pointed to the fact that it deleted the "unused goods" as soon as it learned that inclusion of those goods was improper. In its own argument, plaintiff C. & J. Clark had nothing to offer other than Unity Clothing's own testimony.

The TTAB found Unity Clothing's explanation "plausible in that it mistakenly believed that it could list goods for which it was not using its mark already so long as it was making use of its mark on other goods identified in the application at the time."

The board felt that it lacked clear and convincing evidence to suggest the false statements were the result of a fraudulent intent rather than Unity' Clothing's simple misunderstanding of the requirement that all identified goods, and not just some of them, must be used in commerce at the time of filing a use-based application.

While Unity's admissions were certainly relevant, the board noted, it also felt that Unity had not admitted that its false statement entitled it to a registration that it did not otherwise deserve.

The TTAB saw "some probative value in Unity's actions in promptly amending its registration upon learning of its error." It recognized that principals of companies, and even counsel, sometimes overlook or misinterpret averments made in documents submitted to the USPTO.

"Without more, we do not find a fraudulent intent simply based on mistakes or oversights." The board dismissed the petition for cancelation.

How to reconcile these two cases? Is it simply a matter of different courts, different outcomes? It's not that easy.

Both decisions center on the registrant's intent. In Santiago's case, the court felt that she intended to deceive the USPTO because she submitted images of the covers of three of the plaintiff's books to the USPTO as supposed examples of her own use of the mark, without ever mentioning that she had not written the books and had no connection to them beyond the defendant's then-terminated publishing agreement.

That goes directly to her intent. If she had submitted the negotiations, contracts and writing samples as specimens of her use, she might have been able to rely on her mistaken understanding of what a specimen is to avoid a finding of fraud.

But when she intentionally submitted specimens that were not hers without explaining their context to the USPTO, she had no way back. Her actions only served to confirm her intent to deceive because they were inconsistent with her explanations.

In Unity Clothing's case, the defendant's actions supported and confirmed its intent, even if the reasoning behind it was flawed. Unity's actions were consistent with its explanations and thereby solidified its argument that it had no intent to deceive.

What to take away from these two cases? Is fraud against the USPTO dead? Not necessarily, but it is most likely on life support. Arguably, even if a company is 180 degrees wrong in its understanding of trademark law, as long as it acts consistently with that misunderstanding it may be able to avoid a finding of fraud.

However, if an organization or individual gets a little sneaky or its actions and its explanation differ, it could find itself standing with Santiago, holding nothing but a canceled trademark registration.

Best practice? Evaluate sua sponte all existing registrations and delete any goods that are not currently in use in connection with the registered mark. If one does find an error in fact or in intent, consider in light of Santiago and C. & J. Clark how to act consistently with one's historical misrepresentations - a statement near absurd on its face and one only the eternal subtleties of the law could invite.

Previously published by Law360 on August.21, 2013.

This article is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. Brinks Hofer Gilson & Lione does not intend to create an attorney-client relationship by offering this information and review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention. For further information, please contact a Brinks Hofer Gilson & Lione lawyer.

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Scott J. Slavick
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