Now Trademark Attorneys Can Sleep Easier at Night: Federal Circuit Raised Standard on Proving “Fraud” in Trademark Renewals

For years, trademark attorneys had to be super-careful because a simple mistake could lead to a finding of fraud and subsequent cancellation of a trademark registration. There are two reasons for this. First, under federal law, a third party may file a petition to cancel a registered trademark if the registration was obtained fraudulently. See 15 U.S.C. § 1064. Second, and more importantly, the United States Patent and Trademark Office (“PTO”) was tough regarding fraud in trademark registration. The Trademark Trial and Appeal Board (“TTAB”) of PTO set the “fraud” standard as low as negligence: “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.” Medinol v. Neuro Vasx, Inc., 67 USPQ2d 1205, 1209 (T.T.A.B 2003). This means even an accidental mistake could lead to cancellation of a trademark.

The recent ruling of In re Bose Corp. (the “Bose case”) has changed this landscape. In re Bose Corp., Opposition No. 91/157,315, 2009 WL 2709312 (Fed. Cir. Aug 31, 2009). On August 31, 2009, the Federal Circuit decided that, in order for a trademark registration to be canceled on the basis of fraud, the party challenging the registration must prove that the registrant had actual intent to deceive the PTO.

The Bose case involves a claim by Hexawave Inc. that Bose made fraudulent representation in it trademark renewal application. The application stated the trademark “WAVE” was still in commerce on audio tape recorders and players at a time when it was no longer manufacturing these products. When signing the renewal application, Mr. Mark E. Sullivan, general counsel to Bose, knew those products had been discontinued, however, he believed that “WAVE” mark was still being used in commerce because Bose continued to accept the devices for repair and then return them to customers. The TTAB initially decided that the registration was obtained fraudulently. See Bose Corp. v. Hexawave, Inc., 88 U.S.P.Q.2d 1332 (T.T.A.B. 2007).

On appeal, the Federal Circuit ruled that a line must be drawn between “false” and “fraudulent” representations. Fraudulent representations require actual intent to deceive. The Court held that the TTAB’s standard, which equates fraud to “knew or should know” erroneously lowered the burden of proof to mere negligence, and that “subjective intent, however difficult to prove, is an indispensable element in analysis.”

The new standard, on its face, makes it easier to commit fraud in trademark renewal application because it is difficult to challenge. However, the standard merely reinforces past case law. In 1986, the Federal Circuit held that “fraud in procuring a trademark registration or renewal occurs when an applicant knowingly makes a false, material misrepresentation of fact in connection with his application.” Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986).

The Bose standard also provides more stability to registered trademarks. Some commenters have stated that the reason that the TTAB adopted a more stringent standard is lack of resources. The PTO does not have enough resources to verify all statements of use by applicants in their initial registrations or their renewal applications. By lowering the standard of proof, the TTAB was trying to deter fraud and add more ad hoc remedy. However, this also creates more instability of a registered trademark and raises the transaction cost. Moreover, the potential threat of a third party challenge to a registered trademark still deters fraud on the PTO in trademark application to a certain extent.

So far, the TTAB declines to comment on the case. It will be interesting to see how the PTO responds to the more lenient standard. Potentially, the application review process may become more thorough and stringent in the future. Regardless, “trademark attorneys can sleep easier at night,” at least for now.