Precedential No. 28: Claim Preclusion Inapplicable To Fraud Claim Due To Different Transactional Facts

The Board entered summary judgment in favor of petitioner on the issue of claim preclusion in this proceeding seeking cancellation of a registration for the mark DANTANNA'S for "steak and seafood restaurant." Respondent contended that petitioner's sole claim, based on the allegedly fraudulent filing of a Section 15 declaration, could have been raised in an earlier cancellation proceeding brought by petitioner and dismissed for failure to prosecute, and therefore the claim was barred in this second proceeding. The Board, however, ruled that the claim of fraud in this proceeding was not based on the same transactional facts as the earlier fraud claim, and therefore was not barred. Chutter, Inc. v. Great Concepts, LLC, Cancellation No. 92061951 (August 30, 2016) [precedential].

The earlier petition for cancellation was based on Section 2(a) false association and on fraud, the latter claim being founded on the allegation that respondent, while prosecuting the underlying application, failed to inform that examining attorney that the mark identified a living individual. That earlier proceeding was suspended pending the outcome of a lawsuit between the parties, and during the suspension respondent filed its combined Section 8 and 15 declaration, stating that there was "no proceeding involving the rights [to register the same or keep the same on the register] pending and not disposed of either in the U.S. Patent and Trademark Office or in the courts."

When the lawsuit ended, the Board sua sponte reviewed the petition for cancellation and found both claims insufficiently pleaded. It allowed petitioner to file an amended petition, but petitioner did not do so, and so the Board dismissed the proceeding with prejudice.

Respondent argued that petitioner is now barred from raising the issue of fraud vis-a-vis the Section 15 declaration because that claim could have been raised in the prior proceeding, but was not.

Under the doctrine of claim preclusion (f/k/a res judicata), a judgment on the merits in a prior suit bars a second suit involving the same parties (or their privies) and based on the same cause of action. "A valid and final judgment rendered in favor of the defendant bars another action by the plaintiff on the same claim and encompasses claims that were raised or could have been raised in the earlier action."

In short, a second suit will be barred by claim preclusion if :  (1) there is identity of the parties (or their privies); (2) there has been an earlier final judgment on the merits of a claim; and (3) the second claim is based on the same set of transactional facts as the first.

Here there was no dispute as to the first and second requirements. As to the third, however, respondent maintained that petitioner could have brought the fraud claim based on respondent's Section 15 filing before the first cancellation proceeding was dismissed.

The Board observed, however, that the phrase "could have been raised" does not refer to any claim whatsoever that was ripe at the time of or during the prior proceeding, but only to "a different cause of action or theory of relief" based on "the same transactional facts" as earlier involved.

The Restatement of Judgments refers to a "common nucleus of operative facts." "[R]elevant factors include whether the facts are so woven together as to constitute a single claim in their relatedness in time, space, origin, or motivation, and whether, taken together, they form a convenient unit for trial purposes." The precedents caution against readily extending claim preclusion to claims that were not before the court, particularly when the prior action was dismissed on procedural grounds.

The Board noted that here the first fraud claim concerned a failure to reveal during ex parte examination of the underlying application, that the mark identified a living individual. In contrast, the second proceeding involves alleged fraud based on a different representation made at a time removed by six years from the ex parte issue involved in the prior proceeding. The earlier claim involved communication with the examining attorney, while the later claim involved communication with the Post Registration Section of the USPTO. "These are very different fact sets, and the transactions are unrelated; they are not "so woven together as to constitute a single claim in their relatedness in time, space, origin, or motivation ...."

Therefore the Board denied respondent's motion for summary judgment and instead entered summary judgment sua sponte in favor of petitioner on the defense of claim preclusion.

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TTABlog comment: Query: is the Section 15 declaration material to the validity of the registration? Fraud requires materiality. A Section 8 declaration must be filed, and so it is material to the continued viability or maintenance of the registration. But the Section 15 declaration is voluntary.

Section 15 incontestability refers to the exclusive right to use the mark. It has nothing to do with maintenance of the registration, nor is it needed to invoke the Section 14 five-year statute of limitations on cancellation petitions. Can fraud on the USPTO be found where the false statement is not material to the viability or maintenance of the registration? Where is the materiality here?

Text Copyright John L. Welch 2016.