Friday, June 11, 2010

Fraud and Lack of Bona Fide Intent: Some Thoughts on Remedies

Several TTABlog readers and I have been trying to crystallize our understanding of the remedies available under a claim of fraud (based on non-use) and those available under a claim of lack of bona fide intent. The bottom line is that fraud is the "nuclear" option, while a false statement that falls short of fraud may not be, unless the false statement pertains to all the goods or services in a class.

Fraud: If one proves fraud based upon a false verification of use, even as to one item in a list of items, the Board will hold the challenged application or registration void as to the entire class of goods or services involved. This was recently confirmed by the Board in Meckatzer Löwenbräu Benedikt Weiß KG v. White Gold, LLC, 95 USPQ2d 1185 (TTAB 2010) [precedential]. ("In re Bose did not change the consequences of fraud, when it is proved. A finding of fraud with respect to a particular class of goods or services renders any resulting registration void as to that class.") See also, Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., 86 USPQ2d 1572 (TTAB 2008) [precedential] [dictum] ("the registration is void in the international class or classes in which fraud based on nonuse has been committed.") [Note that the Xel decision was subsequently vacated (here) because the grant of partial summary judgment on the fraud claim was based on a pre-Bose standard.]

In short, Bose raised the barrier for proving fraud, but it did not affect the severity of the remedy (at least according to the TTAB).

Lack of Bona Fide Intent: Nearly every TTAB decisions on this issue has involved the lack of bona fide intent as to all the goods in an application. The application is deemed void ab initio. See, e.g., The Saul Zaentz Company dba Tolkien Enterprises v. Joseph M. Bumb, Opposition No. 91170589 (May 18, 2010) [not precedential].

However, in contrast to fraud, a successful claim of lack of bona fide intent knocks out only the particular goods or services as to which there was no intent, not the entire class. See The Wet Seal, Inc. v. FD Management, Inc., 82 USPQ2d 1629 (TTAB 2007) [precedential]. ("contrary to opposer's contention, an application will not be deemed void for lack of a bona fide intention to use absent proof of fraud, or proof of a lack of bona fide intention to use the mark on all of the goods identified in the application, not just some of them. Thus, we will decide this issue in terms of whether the items, if any, for which opposer has shown applicant's lack of bona fide intention to use the mark should be deleted from the application.").

Non-use Without a Fraud Claim: In a use-based application or registration, a false declaration will not result in the application being declared void ab initio unless fraud has been claimed and proven. Otherwise, just as in Bose, where the fraud claim ultimately failed, the application or registration may be amended to remove the particular "non-used" goods or services. See Grand Canyon West Ranch, LLC v. Hualapai Tribe, 78 USPQ2d 1696 (TTAB 2006) [precedential]. )"... in the absence of a fraud claim, an applicant who bases its application on Section 1(a) (use in commerce) but who did not use the mark on some or all of the goods or services identified in the application may 'cure' this problem by amending its basis to Section 1(b) (intent to use)."

[You may recall that in the Grand Canyon West case, the Board granted Applicant's motion to deleted the "unused" services. Opposer then obtained leave to add a fraud claim, and the Board sustained the opposition on that ground. Grand Canyon West Ranch, LLC v. Hualapai Tribe, 88 USPQ2d 1501 (TTAB 2008) [precedential].]

Combining Fraud with Lack of Bona Fide Intent: What about alleging that an Applicant's or Registrant's lack of bona fide intent amounts to fraud? Why not? I'm not aware of a decision on point, but I don't know of any to the contrary either. [In the recent White Gold vodka case, cited above, the Petitioner alleged fraud based on lack of bona fide intent (since Registrant had allegedly put the mark into use on only one of thirty items in its identification of goods), but that fraud claim was knocked out on summary judgment due to the inadequacy of the pleading in light of Bose.]

So that's my summary of the remedies situation as I understand it. Comments and corrections welcome.

Text Copyright John L. Welch 2010.


At 9:50 AM, Anonymous Rob P. said...

The Board is correct that In re Bose did not change the consequences of fraud, but that case was not an appropriate vehicle to review consequences. The Federal Circuit found there was no fraud, and so there was no opportunity to review that issue.

However, that decision's closing paragraph suggests the Board's confidence may be misplaced. There the Fed. Cir. emphasized the purpose of a Declaration of Use is to remove from the register marks not in use and no public purpose is served by removing registrations otherwise in use. Granted that statement is now subject to the condition that the misrepresentation not be knowing. But the Board should wonder if the Federal Circuit could be persuaded to apply a less stringent consequence for fraud for the same reason.

At 11:42 AM, Blogger John L. Welch said...

But there surely must be some consequence from fraud beyond just knocking out the particular "unused" item? With the higher standard for fraud required by Bose, the TTAB's view of the appropriate remedy seems not unreasonable.

At 12:22 PM, Anonymous Anonymous said...

Let's face it. There are no trademark police enforcing a trademark code. Leo Stoller is still out there. For some reason, the intellectuals of today cannot come up with a better system of valid use.

At 1:30 PM, Anonymous Orrin A. Falby said...

We must remember that trademark fraud jurisprudence has a foundation in the patent laws concerning inequitable conduct, where the consequences for committing fraud is quite serious. Is Rob suggesting that we consider something different for trademark cases? Its a good point, given that you maintain your common law rights after cancellation anyway.

I think the strict remedy functions an incentive for practioners to act ethically, since no wants to be on the opposing side of a legal malpractice claim because the attorney did not give proper advice and the TM owner loses some of the statutory remedies during enforcement due to cancellation of the registration??

At 5:11 PM, Anonymous Rob said...

Preliminary note: "Rob P." and I are two unrelated people.

Thanks for the summary. Two notes of my own:

1. Does this summary suggest that when it is shown that no bona fide intent existed, the application would be deemed void ab initio, and yet registration of the remaining goods in the affected class would remain valid? That would certainly be an odd result.

2. John, are you suggesting the possibility of alleging fraud for lack of bona fide intent, as opposed to alleging fraud for applicant's declaration that they had such intent? If so, what would be meaningful difference between the two?

At 6:46 PM, Blogger John L. Welch said...

1) no, the application is void ab initio only if there is no bona fide intent for all the goods. Otherwise, the application is fixable by removing the goods for which there was no bona fide intent.
2) I think the fraud is in stating that the applicant has a bona fide intent when the applicant does not and willfully intends to deceive (or has a reckless disregard for the truth). Fraud comes from a false statement of a material fact, knowingly made, with intent to deceive, which was relied upon the injured party to its detriment.

At 7:30 PM, Anonymous Rob said...


Wouldn'tthis interpretation to #1 defeat the purpose of using the void ab initio doctrine? So far the doctrine has only been used to order a class-wide cancellation where a ground for cancellation was only applicable to some of the goods within a certain class.

But if a plaintiff can otherwise show that a pleaded ground relates to each and every type of goods listed in the class, why would they seek application of the ab initio doctrine?

At 9:13 PM, Blogger John L. Welch said...

I don't know what you mean by the "ab initio" doctrine. Ab initio just means from the beginning. Sometimes an application is void ab initio, and sometimes it is just void, depending on whether the false statement was made at the original filing, or in some later filing. So, for example, if the false statement is made in a Statement of Use, the application or registration may be void, but I wouldn't say it was void ab initio, because in the beginning it was ok.

At 10:28 AM, Anonymous Paul Reidl said...

John, part of the justification for the lower Medinol standard of fraud was the Board's belief that there should be consequences to filing applications/declarations/statements of use/renewals in which it is alleged that the mark is in use when, in fact, it is not. That is very different than the patent concept of "fraud" in procuring a patent So I would not be surprised if the Board ultimately built a doctrine around the "lower standard", i.e., "if the mark is not in use on the goods and it should have been, the registration is invalid." Otherwise, there are absolutely no consequences to submitting a false declaration to the USPTO, and the register will be cluttered with registrations that never satisfied the statutory standard for being there. It would be a reversion to the "token use" concept without the "token use."

At 3:49 PM, Blogger John L. Welch said...

In Medinol, which involved a false Statement of Use, the Board said "If fraud can be shown in the procurement of a registration, the entire resulting registration is void." It did not say "void ab initio," since the SOU was filed later than the initial filing.
Of course, in Medinol, there were only two goods and one class, so the entire registration meant the entire one class.

At 10:53 PM, Anonymous mike h said...

These issues are most interesting in the context of filings from non-US companies under Sections 44 and 66.

Many (if not most) of these filings are mirrors of the home country registrations/applications, which usually contain vast, multi-class laundry lists of goods/services, many of which are completely untethered from the actual business of the applicant.

If the rules about fraud and bona fide intent are not strong enough, then there will be no adequate way to clean the registry of these registrations, which serve no public purpose and only clog the registry against the interests of more legitimate applicants.

At 11:27 AM, Anonymous Paul Reidl said...

John, your summary suggests that 1 (a) and 1 (b) applications/registrations will be treated differently and I am not sure that will ultimately be the case. Conceptually, at least to me, a 1 (b) application where there is no bona fide intention to use and a 1 (a) application where there is no use are the same. In both cases a necessary and material predicate to the application is absent. If the application is for a single good, say beer in Class 32, and there is no bona fide intention to use the mark on beer (in the case of a 1 (b)) or there is no use (in the case of a 1 (a)) the consequences should be identical without having to prove fraud (which is virtually unprovable these days anyway.) In both cases the application/registration should be kaput (which is a technical term used to avoid the distinction between void and void ab initio.)I can see where amending an application to 1 (b) might "cure" the defect in an opposition proceeding but once the mark is registered (such as in a cancellation action) it would seem to me that the option does not exist.

Having said that, I am still troubled by the Grand Canyon case post-Bose and I wonder if it is still a correct statement of law given the lower pleading/proof requirements for fraud at the time of the decision. Given today's very strict pleading and proof requirements for fraud, a strict application of the holding might well result in a "well, you lied and we know you lied but no harm no foul because you can amend to 1 (b) and be OK" approach. That's not a very big incentive to be four-square honest with the PTO.


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