Wednesday, April 16, 2008

Guest Comment: Pamela Chestek on the TTAB's Bose v. Hexawave Ruling re "Use in Commerce"

In an April 9, 2008 ruling (here), the Board denied Opposer Bose Corporation's request for reconsideration of the decision of November 6, 2007 in Bose Corp. v. Hexawave, Inc., Opposition No. 91157315 [not precedential]. [TTABlogged here]. In that decision, the Board found that Bose had committed fraud when it renewed one of its trademark registrations because the alleged use of the subject mark consisted of transporting the goods back to their owners after repair. In a comment below (following the TTABlog summary of the case) Pamela S. Chestek provides her thoughts regarding the potentially far-reaching impact of the Board's ruling regarding "use in commerce."

In its request for reconsideration, Bose argued that the Board had erred in holding that a trademark owner must "own" the goods at the time it transports them in commerce with the mark affixed in order to satisfy the "use in commerce" requirement of the Lanham Act. Bose claimed that transporting a repaired product constituted use.

The Board looked again at the "plain language of the statute," and particularly the definition of a trademark, to find that "[t]he goods must belong to the trademark owner and indicate source, not belong to the trademark owner or indicate source."

"Opposer's interpretation would permit a party to exclude others indefinitely from use of a term in connection with goods that they no longer manufacture, sell or keep in inventory. Put simply, this result is not the intention of the Lanham Act."

Bose next argued that it was reasonable to believe that use of the mark in connection with repair service was sufficient use (and therefore that Bose did not commit fraud when it renewed its registration). The Board, however, found Opposer's interpretation of the statute "strained," giving support, along with Bose's conflicting testimony regarding its investigation prior to signing the renewal papers, to applicant's assertion that Bose was "merely engaging in post-hoc rationalization." In short, the Board found no error in its prior ruling that Bose's belief was not reasonable.

And so, the decision of November 6, 2007 stands.
Pamela Chestek comments as follows:

In Bose Corp. v. Hexawave, the TTAB has inadvertently put the validity of hundreds of thousands of trademark registrations in doubt. On the way to deciding that transportation of used goods after repair is not a use in commerce, the TTAB stated without limitation that a use in commerce requires "title and ownership which bestows upon the person possessing such attributes the unhampered right or freedom to dispose of his products." (here, at p. 13). The Board affirmed the same standard in this reconsideration, stating "[t]he goods must belong to the trademark owner" (quoted above). The reality of modern commerce, however, is that a trademark owner may never have legal title to goods on which its mark is used and, if Bose is followed, its registrations will therefore be invalid.

The simplest scenario showing that this rule is unworkable is the licensor/licensee relationship. In its basic form, the trademark owner authorizes another entity to place the mark on goods manufactured by the licensee, in exchange for payment of a royalty for use of the mark. The trademark owner never takes title to the goods and thus, under the standard stated in Bose, it will not have "use in commerce" of its marks. This is contrary to the Lanham Act's ratification under section 5, 15 U.S.C. § 1055, of licensing as a valid use ("Where a registered mark or a mark sought to be registered is or may be used legitimately by related companies, . . . such use shall not affect the validity of such mark or of its registration . . . .").

Consider also a business model where the trademark owner manufactures in a foreign country and transfers title outside of the United States. In this case, the trademark owner will never have had sale or transportation of goods it owns in commerce that can be regulated by Congress, and thus no valid registration. Similarly, even if goods were originally transported or sold in the U.S., a trademark owner may not be able to maintain a registration for new goods still available in stores because it is the retailer who now has "title and ownership."

This standard is also too simplistic for today's modern corporate enterprise. A company selling branded goods may be made up of hundreds or thousands of separate entities in complex organizational structures. It may be that the trademark owning company's only role is trademark management and licensing, not manufacturing, sale or transportation of goods. If "title and ownership" has to be with the named trademark owner, few large corporate enterprises, domestic or foreign, will own valid U.S. trademark registrations.

The TTAB could have decided Bose by differentiating new and used goods, but instead it started down a perilous path for trademark owners by relying on "title and ownership" as the basis for establishing trademark use. As the Bose decision shows, there is currently no clear standard and establishing one would be beneficial. Many factors could be relevant – it may be appropriate to have different standards for first use and continuing use if policy bases are different at those points in time; there may be value in maintaining consistency with the "discontinued use" prong of abandonment doctrine; residual goodwill could be taken into account; product shelf life might be a factor; and there are undoubtedly many more possible considerations. Whatever the ultimate standard, however, "title and ownership" should not be it.

Of course, the opinions above are only my own and not those of my employer.


Pamela S. Chestek is Senior Intellectual Property Counsel at Progress Software Corporation, Bedford, Massachusetts.


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