Monday, May 11, 2009

TTABlog Comment: Fraud and the Digital Camera

Since its seminal decision in Medinol Ltd. v. Neuro Vasx, Inc., 67 USPQ2d 1205 (TTAB 2003), the TTAB has been slowly developing its fraud jurisprudence, adding a new snapshot to the album every year or so. That is not meant to be a criticism of the Board. That's just the way decisional law works: case by case. It's like taking a photograph in the old days: a lot of time spent in the dark, waiting for the film to develop. Recent Board cases have focused on the issue of how and when a false statement regarding use may be cured; as a result practitioners are scurrying to conduct "fraudits" to ferret out potential problems in their clients' trademark portfolios. The purpose of this essay, however, is to look at the problem from a different point of view and ask how the false verification of use may be avoided in the first place.

In last year's precedential decision in University Games Corp. v. Inc., 87 USPQ2d 1465 (TTAB 2008), the panel majority held that correction of a false statement prior to publication of an application gave rise to a rebuttable presumption that the applicant lacked the intent to commit fraud on the PTO. Judge Walsh, in his concurring opinion, went farther: he opined that such a correction removed the fraud altogether, because the false statement was no longer material to the approval of the application by the Examining Attorney.

Last fall, in a nonprecedential decision, Zanella Ltd. v. Nordstrom, Inc., Opposition No. 91177858 (October 23, 2008), another Board panel ruled that correction of a false statement after registration but before challenge creates a rebuttable presumption that the registrant "did not intend to deceive the Office." The Board had previously suggested this same approach in dictum in Hachette Filipacchi Presse v. Elle Belle, LLC, 85 USPQ2d 1090 (TTAB 2007) [precedential].

And so, more than five years after Medinol, the case law has developed to a point where we can see a picture of the TTAB's view of fraud and how to cure it: an amendment to correct a false statement filed before the application or registration has been challenged gives rise to a rebuttable presumption that the owner lacked the requisite intent to commit fraud on the PTO. Judge Walsh would take this a step farther, saying that, prior to approval for publication, the correction wipes out any materiality and therefore eliminates the possibility of fraud altogether.

But what about the supposed "solemnity" of the verification? If false declarations of use may be cured later, unless an adversary is able to uncover a "smoking gun," why worry about the correctness of the original declaration? Why bother to make the effort to ensure that the mark has indeed been used with all the goods and services? [One might even ask, why require the verification at all?]

Perhaps more practically, how can the PTO increase the likelihood that the original declaration will be correct?

One way might be to impose a "correction fee" on an applicant or registrant who deletes goods or services. That might have some deterrent effect depending on the size of the fee, but it is unlikely that anything but a large fee would have an appreciable effect, and it seems doubtful that a large "correction fee" would be palatable to the trademark community.

But how about this idea: require the applicant (and the registrant submitting a Section 8 Declaration) to submit a specimen of use for each and every good or service identified in the application (or registration)? Would that be so onerous in this day and age, when virtually everyone has a digital camera? Most trademark and service mark applications are filed electronically: in FY 2008 the figure was 96.9%. How difficult would it be for an applicant to provide a digital image for each product showing the mark on the product itself, or on packaging or a hangtag, or on a promotional piece for each service, etc.?

From the Examining Attorney's point-of-view, perusing a series of digital images would not seem to be an overwhelming chore. Unlike the old days, the PTO would not have to store physical samples. [The new rule might be relaxed a bit to allow an applicant to submit a catalog as a specimen of use for goods, provided that at least one specimen shows the mark on one of the products in the catalog and the mark in question appears on the catalog cover.]

Under this proposed new specimen-of-use rule, false verifications would be less frequent. Applicants and their counsel would have to take their time in considering the identification of goods or recitation of services. Foreign registrants submitting their Section 8 Declarations would be forced to comprehend that in this country continued registration requires actual use of the mark on all the goods and services in the registration.

Would this new approach result in the return of that old bugaboo, "token use"? Possibly in some cases, but it seems more likely that with the new focus on specimens for each good and service, trademark practitioners, applicants, and registrants will be more interactively involved in confirming that the verification of use is complete and correct.

Not only would this approach decrease the number of false verifications, but in cases where the verification is still false, the fraud would be well defined and seldom defensible. In this author's opinion, part of the dissatisfaction with the Board's fraud doctrine stems from the use of the term "fraud" in the first place. The pejorative connotation of the term "fraud" raised the hackles of many, particularly when the false statement may have resulted from mere carelessness or innocent misunderstanding. With the new rule in place, there would be much less room for carping over the "fraud" label.

In sum, now that there seems to be a light at the end of the fraud tunnel for trademark owners and practitioners (hopefully, it is not an oncoming train), this writer believes that our critical lens should now be turned to the verification of use, and particularly how to preserve its meaning and solemnity. Perhaps the digital camera will help us see the way.

TTABlog postcript: A loyal reader suggests that I have been too easy on the Board in this comment, and that the common law of fraud has in fact been well developed for decades. I don 't disagree that the Board got off on the wrong foot in Medinol when it first set off down the strict liability path and applied the "fraud" label. The Board has been slowly charting a new course out of that quagmire. The purpose of this essay, however, was not to bash the Board, but to consider the other end of the problem: the false declaration and how to avoid it.

Text Copyright John L. Welch 2009.


Post a Comment

<< Home