The Federal Circuit Court Of Appeals Issues Long-Awaited Opinion Regarding Fraud Before The U.S. Patent And Trademark Office In Trademark Cases

On August 31, 2009, the Federal Circuit Court of Appeals issued its long-awaited decision in In re Bose Corporation, holding 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.”

In re Bose originated from Bose’s opposition against the application of Hexawave, Inc. to register the mark HEXAWAVE. Bose’s opposition was grounded upon trademark priority and likelihood of confusion with Bose’s prior registered marks including WAVE. Hexawave counterclaimed for cancellation of Bose’s WAVE registration on the grounds that Bose committed fraud when it renewed the registration, claiming use on all the goods in the registration while knowing that it had stopped manufacturing and selling certain of the goods (audio tape recorders and players).

While Bose had stopped manufacturing and selling audio tape recorders and players sometime between 1996 and 1997, Bose continued to repair these items, some of which were still under warranty. Bose’s General Counsel, who signed the renewal application, believed that the WAVE mark still was in use in commerce in connection with audio tape recorders and players because, in the process of repairs, the product was being transported back to customers. The Trademark Trial and Appeal Board (“Board”) found General Counsel’s belief not to be reasonable, and that his statement of continuing use in commerce was fraudulently made. As a consequence, the Board cancelled Bose’s WAVE registration in its entirety.

On appeal, the Federal Circuit stated that there is a material legal distinction between a false representation and a fraudulent one, “the latter involving an intent to deceive, whereas the former may be occasioned by a misunderstanding, a mere negligent omission or the like.” The Federal Circuit further stated that for intent to deceive to be shown, the “deception must be willful to constitute fraud.” This willful intent to deceive cannot be predicated upon proof of simple negligence or even gross negligence. “Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the [fraud] analysis.” “[S]uch 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.”

The Federal Circuit’s decision in In re Bose thus overrules the Board’s holding in Medinol v. Neuro Vasx, Inc., 67 USPQ2d 1205 (TTAB 2003) and its progeny that a finding of fraud can be supported by a false declaration of trademark use wherein the declarant “should have known” the true facts. The Federal Circuit stated that “[b]y equating ‘should have known’ of the falsity with a subjective intent [to deceive], the Board erroneously lowered the fraud standard to a simple negligence standard.”

In the end, the apparent belief of Bose’s General Counsel that repairing damaged, previously-sold WAVE tape recorders and players, and returning the repaired goods to customers, met the “use in commerce” requirement for renewal may have resulted in a materially false representation being made to the PTO, but it was not fraudulent. To the contrary, the Federal Circuit stated that “[t]here is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive. … Unless the challenger can point to evidence of an inference of deceptive intent, it has failed to satisfy the clear and convincing evidence standard required to establish a fraud claim.” The Federal Circuit remanded the case “for appropriate proceedings,” which it suggested would include restricting the WAVE registration by deleting those goods with which the mark is no longer in use.

In future cases, the Board’s regular practice of sustaining fraud claims (and thus canceling entire registrations or classes of goods/services in registrations) on summary judgment based upon an “objective standard” for proof of intent to deceive likely will be a thing of the past. Indeed, it will be more difficult to successfully challenge a use-based application or issued registration on grounds of fraud unless proof of willful subjective intent to deceive can be shown. While such intent can be inferred from indirect and circumstantial evidence, it cannot be the result of an honest misunderstanding or inadvertence.

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