Monday, October 04, 2021

Precedential No. 24: TTAB Rules that Reckless Disregard for the Truth Is Sufficient for Proving Fraud

In the seminal fraud case of In re Bose, the CAFC left open the question of whether "reckless disregard" for the truth is sufficient for a finding of fraud on the USPTO. The Board has now answered that question in the affirmative, granting a petition for cancellation of a registration for the mark DANTANNA'S for "steak and seafood restaurant" on the ground of fraud. By no longer requiring proof of an intent to deceive the USPTO, the Board has significantly lowered the bar for proof of fraud. In a much less consequential ruling, the Board also sustained Plaintiff Chutter's opposition to registration of the marks DANTANNA'S for "spices and spice rubs" and DANTANNA'S TAVERN for "restaurant and bar services" in view of Chutter's previously used mark DAN TANA'S for restaurant services and marinara sauce. Chutter, Inc. v. Great Management Group, LLC and Chutter, Inc. v. Great Concepts, LLC, 2021 USPQ2d 1001 (TTAB 2021) [precedential] (Opinion by Judge Marc A. Bergsman).
Fraud: Plaintiff Chutter's fraud claim was founded on Defendant Great Concepts' filing of a Section 15 Declaration of Incontestability in which its counsel, Mr. Taylor, stated that there were no civil actions or USPTO proceedings pending against the DANTANNA'S mark and registration. Chutter alleged that this statement was knowingly false (because there were pending a cancellation proceeding and a civil action involving the DANTANNA'S mark) and was made with intent to deceive the USPTO into "accepting" the declaration.

The Board observed that it is "well-settled that the inclusion of false statements in a Section 15 affidavit/declaration is material, and if made with the relevant degree of intent constitutes fraud warranting cancellation of the involved registration under Section 14(3) of the Trademark Act."

A false Section 15 affidavit/declaration, when relied on by the USPTO, allows a registrant to obtain a new right which it would not otherwise have, specifically, the right to have its registration, in litigation, accepted as conclusive evidence, rather than merely prima facie evidence, of the registrant’s exclusive right to use the registered mark in commerce. See Trademark Act Section 33, 15 U.S.C. § 1115(b).

The Board noted that the USPTO does not "accept" a Section 15 affidavit or declaration, but merely reviews the documents for compliance with the statute and rules (signature, timeliness, and proper terminology) and then acknowledges receipt.

It was undisputed that, at the time the declaration was filed, Mr. Taylor knew of the pending legal proceedings involving the DANTANNA'S mark and registration, that he was not aware of the legal requirement for filing a Section 15 declaration, and that the USPTO acknowledged receipt of his declaration. Mr. Taylor testified that he did not review the document "carefully enough to see that the statement is in [t]here incorrectly." Neither he nor Great Concepts ever notified the USPTO about the false statement, though they were aware of same since 2015. Great Concepts admitted that the statement was false.

Chutter charged that the false statement was made with "willful blindness" as to the contents of the declaration or, alternatively, with "reckless disregard" as to the truth of the declaration because Mr. Taylor did not know what he was signing and failed to inquire as to its accuracy. The Board agreed with the latter allegation.

“Reckless disregard” is defined as the “conscious indifference to the consequences of an act.” See BLACK’S LAW DICTIONARY (11th ed. 2019) under “Disregard.” The Board observed that "[a] declarant is charged with knowing what is in the declaration being signed, and by failing to make an appropriate inquiry into the accuracy of the statements the declarant acts with a reckless disregard for the truth."

Mr. Taylor paid little, or no, attention to the document he was signing under oath and thereby disregarded the significance of the benefits he was obtaining for his client. By failing to ascertain and understand the import of the document he was signing, far from conscientiously fulfilling his duties as counsel, Mr. Taylor acted in reckless disregard for the truth; nor did he take any action to remedy the error once it was brought to his attention.

If the Board were to find that Mr. Taylor's conduct did not constitute fraud, that could "encourage declarants to conclude that such disregard carries no consequence and they can fail to read documents they are signing without penalty. 'Statements made with such degree of solemnity clearly are or should be investigated thoroughly prior to signature and submission to the USPTO.'"

The Board pointed out that in Bose the CAFC held that the intent to deceive must be willful. The Supreme Court and various circuit courts of appeal have ruled that "willful" includes reckless behavior. Therefore, the Board held:

In matters of trademark registration and maintenance, where the USPTO relies on declarations to be complete, accurate, and truthful ... reckless disregard is equivalent to intent to deceive and satisfies the intent to deceive requirement. [Emphasis supplied].

And so. the Board granted the petition for cancellation of the DANTANNA'S registration on the ground of fraud. 

Likelihood of Confusion: The Board's likelihood of confusion analysis was straightforward: the marks are highly similar; the goods are related and travel in the same trade channels to the same classes of consumers; and the services are identical in part and are offered in the same trade channels to the same classes of consumers. 

Therefore, the Board sustained the opposition to both applications. 

Read comments and post your comment here.

TTABlogger comment: So will we see more allegations of fraud? It seems that, to prove reckless disregard, one would need to take the testimony of the declarant, just as in the straight "intent to deceive" case. Are we in effect back to the old "knew or should have known" standard of Medinol?

Does this ruling make the failure to delete goods of services in a Section 8 Declaration a more serious problem? Can it be "fraud" to sign a Section 8 declaration that includes "unused" goods and services?

Text Copyright John L. Welch 2021.


At 10:25 AM, Anonymous Anonymous said...

Why should this "fraud" lead to cancellation? Why not just nullify the incontestability status?

At 11:59 AM, Blogger M.Smith said...

I'm also curious why the Board didn't deal with the Section 15 issue separately from the Section 8 renewal. Did the Board not have the option to nullify the Section 15 incontestability request and leave in place the registration (as renewed) because of the joint 8/15 filing? Would there be a different result if the Section 8 was filed separately from the Section 15?

At 11:39 AM, Blogger Tal Benschar said...

"Are we in effect back to the old "knew or should have known" standard of Medinol?"

No, because recklessness is more than negligence, which was the standard under Medinol. Reckless means you are affirming something with no real knowledge of whether it is true or false. Not bothering to review the document you are signing is reckless. That's what happened here, and that is reckless behavior that gives rise to fraud.

If he had reviewed it and believed it true, but had been careless in failing to research the facts, then that would be negligent. Not enough under Bose.

(I wrote a long article about this some time ago, which was reviewed on this blog.

At 7:40 AM, Anonymous Anonymous said...

I agree that the remedy was too harsh. Just deny incontestability, do not cancel the registration. The proceeding that the attorney failed to disclose was a TTAB proceeding. Shouldn't the USPTO be aware of its own records? The attorney wasn't trying to hide the ball. The ball was in plain sight. The false filing wasn't related to obtaining a registration, and the USPTO took not action other than to file the Section 15 declaration.


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