United States: Board Bursts Broker’s Bubble: TTAB Sustains Opposition On Fraud Grounds For First Time In Five Years

Last Updated: November 15 2014
Article by Elizabeth Cohen and Anthony Peluso

For the first time since 2009, the Trademark Trial and Appeal Board (TTAB) of the US Patent & Trademark Office (USPTO) has sustained an opposition on the grounds that the applicant committed fraud on the USPTO. See Nationstar Mortgage LLC v. Mujahid Ahmad, Opp. No. 91177036 (T.T.A.B. Sept. 30, 2014). Specifically, after scrutinizing the parties' evidence, including a deposition of the applicant, the Board found that the applicant had made material misrepresentations in his application by falsely claiming that he was using the applied-for mark, NATIONSTAR, in connection with all of the designated services at the time he filed his application. In reaching this conclusion, the Board emphasized its "extreme skepticism regarding the credibility of the applicant's testimony," as well as the applicant's utter failure to introduce or identify any corroborating evidence showing that he had offered any of the services identified in his application at the time he filed it.

An applicant commits fraud in procuring a trademark registration when he or she knowingly makes false, material representations of fact in connection with the application with an intent to deceive the USPTO. When an application or registration is challenged on this basis, the opposing party bears the burden of proving fraud with clear and convincing evidence. This is a heavy burden, and it is not enough to merely show that the applicant made a false statement. Rather, the challenger must demonstrate that the applicant "inten[ded] to mislead the USPTO into issuing a registration to which the applicant was not otherwise entitled," and that the applicant did not have a reasonable and honest belief that the statement was true at the time he or she made it.

In April 2005, the applicant, a Virginia real estate agent named Mujahid Ahmad, registered several NATIONSTAR-formative domain names, including NationstarMortgage.com and NationstarMortgage.net, but did not begin posting any content on the corresponding websites until February 2007. In the interim, counsel for the opposer, Nationstar Mortgage LLC, contacted the applicant in April 2006 with an offer to purchase these domain names, which the applicant promptly declined. Instead, within days of receiving opposer's letters, and without the assistance of counsel, the applicant prepared and filed a use-based application to register NATIONSTAR in connection with "real estate brokerage; rental of real estate; real estate management services, namely, management of commercial and residential properties; real estate investment; residential and commercial property and insurance brokerage; mortgage brokerage; and business finance procurement services," claiming that he had begun using the NATIONSTAR mark in commerce in connection with all of the applied-for services since at least as early as April 2005. The application was ultimately published in January 2007, and Nationstar Mortgage, LLC initiated the opposition proceedings in May 2007.

Significantly, the NATIONSTAR application did not cover "real estate agency services," nor was the applicant licensed as a real estate broker, insurance broker, or mortgage broker — each of which engages in distinct, highly regulated activities in the real estate industry — as of the filing date of the application. Further, the applicant did not file to incorporate NationStar Mortgage, Inc. in Virginia until May 2006, despite later testifying that this company had been in business since the beginning of 2005. The applicant also ultimately admitted that as of the date of his deposition in 2010, his company did not have a bank account, had never rendered a payment of any kind, had not filed any tax returns, did not have an office, had never been listed in any telephone directory, and had not otherwise done any business in any way.

Notably, while the opposition was pending, the applicant moved to amend the filing basis of his application from Section 1(a) (use in commerce) to Section 1(b) (intent to use the mark in commerce). While the Board granted that motion, it was careful to note that the amended filing basis did not protect the application from the opposer's fraud claim. Rather, as it later explained in its final order sustaining the opposition, "once an opposition has been filed, fraud cannot be cured merely by amending the filing basis for those goods or services on which the mark was not used at the time of the signing of the use-based application." Interestingly, the applicant filed this motion on the advice of counsel, whom he had retained for the opposition, but later denied knowledge of why the change to the filing basis was made. Shortly after filing that motion, the applicant's initial counsel filed a request to withdraw, and proceedings were suspended until the applicant retained alternate counsel in March 2009.

In addressing the opposer's fraud claim, the Board began its analysis "by expressing [its] grave concerns about the credibility of the applicant's testimony regarding his use of NATIONSTAR for the identified services at the time he filed the use-based application," noting that it was "particularly struck by the applicant's evasiveness and his failure to respond directly to straightforward questions asked by opposer's counsel." The Board went on to highlight numerous inconsistencies, contradictions, and dodges in the applicant's testimony, including his claim that he did not know whether his company earned any income, his initial refusal to directly confirm whether his company had done any business or filed tax returns, and his "inability or unwillingness" to identify when and by whom certain business cards, postcards, and flyers displaying the NATIONSTAR mark were created and printed — "information which goes to the authentication of the very documents on which the applicant relies to corroborate his testimony."

The numerous faults in the applicant's testimony led the Board to conclude that it was "so lacking in conviction and credibility as to be virtually incapable of corroboration," and that the Board could "accord virtually no probative value to the documents" the applicant had submitted, given the absence of any reliable information about who had created them and when. Accordingly, finding that the applicant's testimony was "not at all credible," the Board concluded that the applicant had not, in fact, used the NATIONSTAR mark in commerce in connection with the designated services prior to filing, and that he had therefore made false, material representations in his application regarding his use of the mark. While the Board acknowledged that the applicant may have rendered real estate agency services under the mark prior to the filing date, these services were not listed in the application, and such use was therefore irrelevant.

The Board next considered whether the applicant made these false statements knowingly and with the intent to deceive the USPTO. In reaching the "inescapable" conclusion that the applicant had the requisite intent, the Board explained that the "record does not support a finding that the applicant's misrepresentation was occasioned by mere inadvertence or reasonable mistake or misunderstanding." Rather, it reasoned, "[t]he record clearly establishes that the applicant knew he was not rendering all of the identified services as of the filing date of his application, and nevertheless he swore that he was using the mark NATIONSTAR in commerce in connection with all of the services." The Board also noted that "the law does not require 'smoking gun' evidence" of deceptive intent, and because direct evidence is rarely available, "deceptive intent may be inferred from the surrounding facts and circumstances." In this case, the Board concluded that "[t]he surrounding facts and circumstances provide clear and convincing evidence that the applicant did not have a good faith reasonable basis for believing that he was using the NATIONSTAR mark in commerce for all the services identified in the application."

In reaching this conclusion, the Board distinguished the Nationstar case from In re Bose Corp., 580 F.3d 1240, 1245 (Fed. Cir. 2009), where the Board had found that it was not unreasonable for the applicant's corporate representative, in signing a sworn declaration of use, to believe that the applicant's activities — namely, repairing damaged, previously-sold products and returning them to its customers — satisfied the "use in commerce" requirement. As the Board explained, the present case is distinguishable from Bose because it does not involve "a nuance of trademark law that the applicant may have incorrectly interpreted"; instead, "this case involves the applicant making false statements about his own industry and his own activities, knowing the requirements regarding what he was allowed to do and not do if he did not have the appropriate licenses."

Although successful fraud claims are relatively rare in this context, this case is a reminder that there are consequences for applicants who file false declarations in connection with federal trademark applications. Indeed, not only does an applicant jeopardize the validity of its application or resulting registration by making material, false statements, but it could also subject itself to possible penalties in the form of fines and/or imprisonment. The Board's ruling therefore illustrates the importance of ensuring that new trademark applications are accurate, and that any related statements are truthful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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