TTAB provides explicit requirements for pleading fraud claims post-Bose

United States of America
In Asian and Western Classics BV v Selkow (Case 92048821, October 22 2009), in a precedential decision, the Trademark Trial and Appeal Board (TTAB) has set forth the proper elements for pleading fraud following the decision of the US Court of Appeals for the Federal Circuit in In re Bose Corp. The TTAB reiterated the application of Rules 9(b) and 11 of the Federal Rules of Civil Procedure, as well as its own rule (USPTO Rule 11.18), to fraud claims, particularly where the claims are alleged on information and belief. Relying on King Automotive Inc v Speedy Muffler King Inc (667 F 2d 1008 (CCPA 1981)), the TTAB reaffirmed that the “the pleadings [must] contain explicit rather than implied expression of the circumstances constituting fraud”.
Asian and Western Classics BV sought to cancel Lynne Selkow's registration for the KL mark on the grounds of fraud. It alleged, on information and belief, that Selkow did not have use of the KL mark either at the time of filing of the application, or at the time of registration, for all the goods covered by the mark. Further, Western Classics alleged that Selkow knew, or should have known, that her statements in connection with the application for registration were false. On that basis, Western Classics sought to cancel the registration in its entirety.
In holding the motion for summary judgment as moot, the TTAB characterized the pleading of fraud on information and belief as defective. Only properly pleaded issues may be the subject of a grant of summary judgment. Moreover, the TTAB held that even on the merits, the motion was defective because genuine issues remained, at the very least, as to the intent to commit fraud.
In pleading fraud “on information and belief”, the TTAB held it necessary to state specific facts upon which the belief is reasonably based, citing the recent Federal Circuit decisions in Exergen Corp v Wal-Mart Stores Inc and In Re Bose Corp. Under Rule 11.18, the factual grounds for a fraud claim requires either that the pleader “knew” of facts that support the pleading, or that evidence showing the factual basis was “likely” to be obtained through discovery or investigation. Thus, the TTAB held that any pleading of fraud on information and belief must set forth the facts on which the belief is premised. Here, Western Classics failed to specify the facts on which it grounded its belief of fraud. 
The TTAB also expressly noted that the pleading lacked a key element of a fraud claim post-Bose - the intent to deceive. The TTAB pointed out that even though intent may be alleged generally, the pleadings must contain sufficient allegations of facts from which the decision maker may reasonably infer that a party acted with the requisite state of mind. Allegations that a declarant “should have known” that a material statement was false do not meet this standard. Thus, the pleading for fraud needed to be amended to proceed. In a footnote, the TTAB noted that Western Classics may want to limit its claim to non-use (which is narrower than the fraud claim initially pled).
In preparing, prosecuting and defending fraud claims post-Bose, the parties must focus on the facts available and the need for fraud to be pleaded with particularity. Bald allegations on information and belief of the elements of the cause of action will not withstand scrutiny and will be subject to dismissal. Overall, fraud claims in most instances will need to await discovery, because the controlling facts - particularly the facts supporting an intent to deceive - will be in the possession of the alleged trademark owner. To begin the process, a claim for cancellation on the grounds non-use, if accurate, appears to be much more likely to survive a motion to dismiss.

For further details on the Bose decision please see "Federal Circuit resoundingly rejects Medinol fraud standard"
Rochelle D Alpert, Morgan Lewis & Bockius LLP, San Francisco

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