CAFC Reverses TTAB's Bose Fraud Ruling, Eviscerates Medinol
Stop the fraudits! It's a whole new ballgame at the TTAB after the U.S. Court of Appeals for the Federal Circuit yesterday reversed the Board's decision in Bose Corp. v. Hexawave, Inc., 88 USPQ2d 1332 (TTAB 2007). The Board had found that Bose committed fraud in its 2001 renewal of a registration for the mark WAVE for, inter alia, audio tape recorders and players. The CAFC ruled that the Board, "[b]y equating 'should have known' with a subjective intent," had "erroneously lowered the fraud standard to a simple negligence standard." The CAFC found "no substantial evidence that Bose intended to deceive the PTO in the renewal process," and it therefore reversed. In re Bose Corporation, 91 USPQ2d 1938 (Fed. Cir. 2009). [Oral argument here].
Bose acknowledged that it stopped manufacturing and selling audio tape recorders and players in 1996-97. Nonetheless, it did not delete those goods from the WAVE registration when filing for renewal. Bose contended that the renewal was proper "because owners of audio tape recorders and players continue to send their previously purchased goods to opposer for repair services and upon completion of the repair services opposer 'transports' them back to the owner." The Board found that "inasmuch as opposer was not using the mark in connection with audio tape recorders and players, the statement in the Section 8/9 renewal was false" and "not reasonable."
The CAFC took strong issue with the Board's seminal ruling in Medinol:
[D]espite the long line of precedents from the Board itself, from this court, and from other circuit courts, the Board [held] that "[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." *** By equating "should have known" of the falsity with a subjective intent, the Board erroneously lowered the fraud standard to a simple negligence standard.
The CAFC then made it clear that proof of intent to deceive is required to establish fraud: "Thus, we hold that a trademark 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 PTO."
Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the analysis. Of course, “because direct evidence of deceptive intent is rarely available, such intent can be inferred from indirect and circumstantial evidence. But such evidence must still be clear and convincing, and inferences drawn from lesser evidence cannot satisfy the deceptive intent requirement.” Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008). When drawing an inference of intent, “the involved conduct, viewed in light of all the evidence . . . must indicate sufficient culpability to require a finding of intent to deceive.” Kingsdown, 863 F.2d at 876.
Bose's general counsel, Mark E. Sullivan, testified that he believed the statement that Bose was still using the mark was true when he signed the renewal application. The appellate court pointed out that "[u]nless 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."
The CAFC held that Bose did not commit fraud in renewing its WAVE mark, and consequently that the Board erred in canceling the registration in its entirety. However it agreed with the Board that "because the WAVE mark is no longer in use on audio tape recorders and players, the registration needs to be restricted to reflect commercial reality." [Subsequent Board order here].
TTABlog comments: Perhaps the test for fraud should be referred to as "knew or must have known" instead of "knew or should have known." Since it is most unlikely that one will catch an applicant red-handed at fraud, and it is highly likely that the applicant or registrant will claim innocence, one will have to prove fraud through convincing circumstantial evidence.
Looking to the future, how likely is it that a party to a TTAB proceeding will spend the time and effort to try to prove fraud under this "prove it to the hilt" standard?
It might be argued that, in light of this CAFC decision, an applicant or registrant will be better off not bothering to ask any questions or to investigate whether a mark is in use for all the listed goods. One way to focus an applicant's or a registrant's attention on the issue of use would be adopt my recent suggestion that the PTO require a specimen of use for every item listed in the application or registration. In other words, attack the problem from the front end, not that back end.
- Michael Hall at his blog, Registration Ruminations (here), ponders the impact of Rule 11.18(b).
- Linda McLeod summarizes at Finnegan (here).
- Jack Clifford of Merchant & Gould comments (here).
- Joe Dreitler's pre-Bose article, entitled "Why the TTAB Got It Right in Medinol" (here).
- Jonathan Hudis of Oblon Spivak comments (here).
- Steve Baird at the DuetsBlog (here).
- Husch Blackwell & Sanders comments (here).
- Wilmer Hale (here).
- Fulbright & Jaworski (here).
Text Copyright John L. Welch 2009.