Federal Circuit resoundingly rejects Medinol fraud standard

After six years of uncertainty as to the susceptibility of trademark registrations to a claim of fraud, in In re Bose Corporation (Case 2008-1448, August 31 2009), the US Court of Appeals for the Federal Circuit has ended that uncertainty by reaffirming unequivocally its pre-Medinol fraud standard, holding that “a trademark [registration] 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 Patent and Trademark Office]” (USPTO).

The decision clarifies an issue of great concern for owners of US trademark registrations since the Trademark Trial and Appeal Board (TTAB) cancelled an entire registration based on a claim of fraud in 2003. In Medinol Ltd v Neuro Vasx Inc, the TTAB refused to limit the registration to the goods for which the mark was in use, but instead cancelled the entire registration after determining that the trademark owner had filed its statement of use incorrectly, claiming use for all of the goods listed in the application when it “knew or should have known” that the mark was not in use in commerce for some of the goods (for further details on the Medinol decision please see "Landmark fraud case goes to Medinol").

Consistent with the TTAB’s decision in Medinol, “[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”. Following Medinol, the issue of fraud was litigated with ever-increasing frequency both in federal court cases and in administrative opposition and cancellation proceedings. The TTAB repeatedly imposed the harsh result of cancelling the entire registration or, at the very least, an entire class of goods or services, based on the applicant’s or registrant’s false or inaccurate claim of use in connection with some of the goods or services identified in the application/registration, regardless of whether the false claim related to a small portion of the goods or services listed or even just one item, and even when based on nothing more than mistake or inadvertence.

By eliminating the "intent to deceive the USPTO" requirement for fraud, the TTAB created, in effect, a strict liability standard for any mistakes or inaccuracies. Not surprisingly, many trademark owners and practitioners both feared and disagreed with this approach, arguing that where there was no bad-faith intent to deceive and the inaccurate statements did not apply to all of the goods or services, the penalty of cancelling a registration in its entirety - or even for an entire class of goods or services - seemed too draconian.

The Bose Case provided the Federal Circuit with its first opportunity to address the fraud standard following Medinol. The Federal Circuit expressly disagreed with the TTAB’s decision in Medinol and confirmed that there could be no fraud without “clear and convincing evidence” that the trademark applicant or registrant intended to deceive the USPTO.

In Bose, the TTAB had found that Bose Corporation committed fraud when it renewed its registration for the mark WAVE for audiotape recorders and players, among other goods. During the cancellation proceedings, Bose admitted that it had stopped making and selling audiotape recorders and players during the period from 1996 to 1997, but had not removed those goods from the registration when it filed its renewal. When challenged, the Bose employee who had filed the use affirmation testified that he believed that Bose’s actions in repairing the products for consumers sufficed to fulfil the “use in commerce” requirement, rendering the registration valid.

The TTAB disagreed, holding that the repair and shipment of previously sold products, even as part of warranty repairs, did not constitute use sufficient to maintain the trademark registration for those goods. The TTAB further held that Bose’s belief regarding use was unreasonable and that it should have known that the mark was no longer being used on all the goods covered by the registration. Although Bose truthfully claimed use of its WAVE mark for other goods in the single class identified in the registration, the TTAB cancelled Bose’s WAVE single-class registration in its entirety.

In its review of the TTAB’s decision in Bose, the Federal Circuit expressly rejected the Medinol holding, stating that “subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the [fraud] analysis”. The court further confirmed that the burden of proof in fraud cases is quite high, explaining that:

“the very nature of the charge of fraud requires that it be proven ‘to the hilt’ with clear and convincing evidence [that] there is no room for speculation, inference or surmise and, obviously, any doubt must be resolved against the charging party.”

In support of its conclusion, the Federal Circuit cited its pre-Medinol decisions, the decisions of other courts and the earlier decisions of the TTAB that predated Medinol to demonstrate how inconsistent the Medinol holding was with existing case law. For example, the court cited multiple TTAB decisions between 1976 and 1997, specifically noting that the TTAB had acknowledged consistently and correctly that:

"[there is] a material legal distinction between a ‘false’ representation and a ‘fraudulent’ one, the latter involving an intent to deceive, whereas the former may be occasioned by a misunderstanding, an inadvertence, a mere negligent omission or the like.”

Citing decisions from the US Courts of Appeals for the Fifth, Eighth, Ninth and Tenth Circuits, the Federal Circuit went on to acknowledge that “many of [its] sister circuits have required proof of intent to deceive before cancelling a trademark registration”.

The Federal Circuit concluded that because the declarant testified under oath that he believed the statement regarding use in commerce was true at the time he signed the declaration, there could be no finding of fraud. The court held that:

“unless the challenger can point to evidence to support an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence standard required to establish a fraud claim.”

Using the pre-Medinol fraud standard, the Federal Circuit determined that the registration should be restricted to only those goods for which Bose was actually using the WAVE mark. It thus remanded the case to the TTAB for partial cancellation with respect to the goods for which the mark was no longer in use.

While it is likely that, after Bose, there will be a flurry of successful motions to dismiss or for summary judgment on fraud claims pending in trademark litigation or opposition or cancellation proceedings, Bose does not entirely end the risk of an attack to a registration where it covers goods or services that are not in use. Such registrations will remain subject to partial cancellation. Thus, best practices should continue to involve taking care in reviewing applications and registrations to ensure that the filings comport with the actual offering of the goods and services covered. This basic responsibility remains intact in the United States.

Rochelle D Alpert and Anita B Polott, Morgan Lewis, San Francisco and Washington DC