In its recent decision in In re Bose Corporation, 2009 U.S. App. LEXIS 19658 (Fed. Cir.), the Federal Circuit rewrote the fraud standard that the Trademark Trial and Appeal Board (TTAB) has been following for several years. In contrast to the rule of Medinol v. Neuro Vasx, Inc., 67 USPQ2d 1205, 1209 (T.T.A.B. 2003) 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" (emphasis added), the court in Bose 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." Bose, 2009 U.S. App. LEXIS 19658 at *10.
By way of background, Bose initiated an opposition against the HEXAWAVE trademark application by Hexawave, Inc., alleging a likelihood of confusion with Bose's prior registered trademarks, including the mark WAVE. Hexawave counterclaimed for cancellation of Bose's WAVE mark, asserting that Bose had committed fraud in its renewal application when it claimed use on all goods in the registration. In fact, Hexawave claimed, Bose had stopped manufacturing and selling audio tape recorders and players, which were listed among the goods in the registration. Hexawave further aledged that Bose's general counsel, Mark Sullivan, knew that Bose had discontinued those products when he signed the renewal application. Id. at *2-*3.
Bose admitted that it had stopped selling the products in question, and further admitted that Mr. Sullivan had been aware of this fact when he signed the renewal declaration. However, Bose submitted that at the time the declaration was signed, Bose was continuing to repair previously sold audio tape recorders and players, some of which were still under warranty. Mr. Sullivan evidently was under the impression that this constituted use in commerce of the WAVE mark because "in the process of repairs, the product was being transported back to customers." Id. at *3. The TTAB concluded that Mr. Sullivan's belief that the repairs constituted use in commerce was not reasonable and that his false representation that the mark was in use was material, and therefore ordered the cancellation of the WAVE mark. Id. at *4. Bose appealed.
The Federal Circuit stated that a party seeking cancellation of a trademark registration based on fraud allegations bears a heavy burden of proof and that fraud must be proven "to the hilt" with clear and convincing evidence, with any doubt resolved against the charging party. Id. at *5. The court further stated that deception must be willful, not merely negligent, to constitute fraud. Id. at *6. It cited its previous opinion in Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986) wherein it held that "fraud . . . occurs when an applicant knowingly makes false, material representations of fact in connection with his application," and stated that its opinion in that case was based upon previous CCPA decisions and on the Lanham Act. Id. The court stated that the TTAB had read the Torres case too broadly in deciding its 2003 Medinol case. Id. at *11.
Addressing the TTAB's decision in Medinol which had set forth the prior fraud standard, the court held that "[t]he appropriate inquiry is . . . not into the registrant's subjective intent, but rather into the objective manifestations of that intent." The court agreed with the TTAB that intent must often be inferred from the circumstances; however, the court stated that the TTAB erred in then holding that fraud occurs when the applicant knew or "should have known" that its representations were false. Such a holding erroneously lowered the fraud standard to a negligence standard. Id. at *8-*9. The court stated that the standard for intent to deceive is stricter than the standard for negligence or even gross negligence. Therefore, it held, the standard for fraud is 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." Id. at *10. Even though subjective intent to deceive might be difficult to prove, the evidence still must be clear and convincing. Id.
Because there was no evidence in this case that Mr. Sullivan willfully intended to deceive the PTO, the court held that the TTAB erred in cancelling the WAVE mark in its entirety. However, it agreed with the TTAB that the registration should be restricted to goods other than audio tape recorders and players, on which the WAVE mark was no longer in use. It therefore remanded the case to the TTAB for appropriate proceedings.
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