Monday, September 24, 2012

Fraud at the TTAB: Is "Willful Blindness" Enough?

Three years have passed since the CAFC’s decision in In re Bose raised the bar for proof of fraud at the TTAB. The appellate court jettisoned the “knew or should have known” standard, but left open the question of whether something less than proof of deceptive intent – say, reckless disregard for the truth – would suffice to establish fraud. The Board has yet to answer that question. In fact, it has not sustained a single claim of fraud since Bose. In a December 2011 article [TTABlogged here], TTAB Judge Lorelei Ritchie suggested that the concept of “willful blindness” might be borrowed from patent law and applied in the trademark context. The “willful blindness" standard requires less than proof of willful intent, but more than recklessness.

Earlier this year, I offered a beta version of a revised FRAUD-O-METER that included a “willful blindness” wedge, inspired by Judge Ritchie’s article and by a decision by the U.S. District Court for the Southern District of Florida holding that willful blindness is enough for fraud. According to the court, "a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts." Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, Knights of Malta, the Ecumenical Order, Civil Action No. 09-81008 (S.D. Florida, Sept. 28, 2011). Plaintiff SMOM had actual knowledge of Defendant Florida Priory nearly two decades before SMOM filed its applications to register. It had an attorney with no personal knowledge of the Defendant execute the applications.

Finding a parallel with the Supreme Court's ruling in Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060 (2011) [a patent case], the court found the Plaintiff's failure to inform its attorney of the existence of Defendant to be "evidence of willful blindness." Therefore, the court cancelled four registrations owned by Plaintiff SMO on the ground of fraud.

On September 11, 2012, however, the U.S. Court of Appeals for the Eleventh Circuit reversed the district court decision. Emphasizing the subjectivity of the attorney's declaration, the appellate court ruled that, because the attorney had "no awareness that any other organization was using the marks for which Plaintiff Order sought federal protection," that fact alone compelled reversal of the fraud finding, "as [the attorney] could not have intended to deceive the PTO in attesting to an oath that he believed was entirely accurate." Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John of Jerusalem, 104 USPQ2d 1953 (11th Cir. 2012), modified in part, 105 USPQ2d 1001 (11th Cir. 2012).

Moreover, the appellate court asserted that it was error to look to a patent case for the applicable standard to analyze a claim for fraud on the PTO.  "We have been admonished to exercise caution before importing standards from one area of intellectual-property law into another." *** "The Florida Priory has not pointed to any authority to establish the sort of 'historic kinship' that may justify translation of a patent infringement standard into the mark-application context."

TTABlog comment: The appellate court's reasoning raises a number of questions. First, after finding no subjective bad intent, why did the court even reach the issue of whether "willful blindness" applies in a trademark case? In Bose, the CAFC declined to say whether reckless disregard for the truth sufficed to prove fraud: because Bose's employee had not been reckless, there was no need to decide the legal issue.

Second, why is it wrong to rely on patent law decisions in a trademark context? Note that the Bose decision itself relies on patent law cases?

Third, does this case provide an easy way to avoid fraud - keep your attorney in the dark?

Text Copyright John L. Welch 2012.


At 8:38 AM, Anonymous Miriam Richter, Esq. said...

In The Federal Lawyer Nov/Dec 2009 issue, I wrote an article titled "The New Trademark Regime: Don’t Ask, Don’t Tell", based on the premise that Bose swung the pendulum too far. I concluded with the following question: "what is to prevent the development of a walk-in clinic for trademark registrations where one can fill out a simple form, pay an attorney a low, flat fee, and file a trademark application? Just don't ask and they won't tell."

It seems that this idea is catching on, not only as evidenced in this decision but in the rise of the Internet-based trademark filing law firms. I recently filed a case in the Southern District of Florida for cancellation of a trademark that was obtained (through such an Internet law firm) in the name of a non-existent individual, by a known criminal who has been counterfeiting my client’s services for years (allegedly of course).

Has anyone seen our old friend due diligence lately? Where do I send the search party?

At 10:30 AM, Anonymous Joe Dreitler said...

Due diligence left the premises with Bose. Anyone can file a trademark application or renewal for anything with virtual impunity and if challenged just say, "whoops, I didn't know the gun was loaded" (to mix metaphors). The costs to the cheat doing so are tiny, the costs to your legitimate client hiring you to go after them are out of proportion.
What's the likely outcome? Well, it seems to me that we are at a place where we were with domain names 10 years ago. Many legitimate companies gave up trying to stop thieves from registering knock off domains unless they were a real and actual business threat (and that takes in a lot depending upon the company and their business). We are probably approaching the same situation in the US on trademarks. Lots of crooks and cheats registering and maintaining marks that should die or never have been given life. But, unless the client has very deep pockets, or there is some very serious commercial reason, they will not get challenged and those who try to play by the rules are penalized by a system that virtually encourages cheats.


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