The New Standard Of Fraud And The Importance Of Trademark Audits

Sunday, February 1, 2009 - 01:00

Introduction

Trademark audits are important to the proper maintenance of any trademark portfolio.They have become even more vital as a result of a series of recent cases decided by the Trademark Trial and Appeal Board (TTAB) of the U.S. Patent and Trademark Office.These decisions have made clear that trademark owners now face a new standard for fraud, one under which the TTAB has become increasingly willing to cancel federal trademark registrations obtained or maintained based on misstatements.Trademark owners therefore cannot afford to be careless with respect to factual representations made regarding use of their marks on particular products or services.If during the course of obtaining or maintaining a registration a trademark owner makes a declaration that the Trademark Office deems fraudulent, the entire registration (or at least the pertinent class) is vulnerable to cancellation.Accordingly, it is incumbent on a trademark owner to thoroughly review the goods and services and confirm use (or non-use) for each item listed in the registration.Where problems are located, corrective action should be taken, and in some cases may involve filing of substitute applications.Since cancellation is a harsh penalty, it is important for trademark owners to be aware of the new standard and to conduct periodic audits of their trademarks to prevent such pitfalls from arising in the future.

"Material Representations"

In order to obtain or maintain a trademark registration, a trademark owner must make a number of representations to the U.S. Patent and Trademark Office (PTO) about the use of its mark.In particular during the course of the registration process most applicants1must identify the specific goods and services in connection with which the mark is being used.Subsequent to registration, an owner must periodically file declarations attesting to continued use of the mark for the goods and services in order to maintain its registration.

Fraud occurs when the applicant or registrant knowingly makes false, material representations of fact in connection with a registration. A representation is "material" if the PTO would not have published or registered the mark but for the false representation. Such representations are typically misstatements found in the descriptions of goods and services and in the dates of first use.2 If a trademark owner claims use for multiple goods and services in its application or statement of use, but fails to make use of the mark in connection with even one of the listed items, the entire registration (or at least the relevant class) may be subject to cancellation based on fraud.3

The New Standard

The current line of cases was ushered in when the TTAB handed down a decision in 2003 that changed what had been the previous thinking. In Medinol Ltd. v. Neuro Vasx, Inc .4 , the TTAB found that a trademark registrant committed fraud by filing a declaration claiming use for goods that it had not actually used.5Medinol had petitioned to cancel Neuro Vasx's registration alleging that Neuro Vasx fraudulently obtained its registration by making knowingly false statements regarding one of the items - stents - on which the mark was used.In response to Medinol's petition, Neuro Vasx attempted to amend its registration to delete "stents" from the list of goods.Neuro Vasx further claimed that the error in its Statement of Use and accompanying declaration was an unintentional oversight.6

The TTAB held that the appropriate inquiry into whether Neuro Vasx had the requisite "intent" for a finding of fraud was not its subjective intent, but rather the objective manifestations of that intent.It held that intent could be established either through knowledge of false statements or "reckless disregard for the truth", and further, that the declaration accompanying the Statement of Use "should beinvestigated thoroughly prior to signature and submission to the USPTO."Therefore the Board held that there were objective manifestations of the intent to fraud. Moreover, Neuro Vasx's attempt to amend its registration to delete the goods that were not in use was held insufficient to cure the fraud and, as a result, the entire registration, including those goods for which the mark was actually in use, was cancelled.7

Medinol represented a significant departure from earlier TTAB decisions which held that a false misrepresentation which resulted from an honest misunderstanding or inadvertence, rather than one made with an intent to deceive, does not constitute fraud. Medinol articulated the general elements for establishing fraud (1) a false representation; (2) regarding a material fact; and (3) the person making the representation knew or should have known that it was false or misleading.It was originally uncertain whether Medinol would be limited to the facts of that case, or if it might be extended to other cases where trademark owners made erroneous declarations. However, since Medinol , the TTAB has made it clear that it is not concerned with subjective intent, but with any false statement made with respect to actual use. Thus, the TTAB is willing to find fraud based solely on an incorrectly checked box on a trademark form.

The force behind this new trend appears to be the TTAB's mounting intolerance for mistakes in applications and other filings.According to the TTAB, trademark owners have a duty to know how their marks are used and to accurately relay such information to the PTO.Declarations are straightforward documents in which trademark owners state, under oath, that all material information contained in the filing is accurate.The TTAB takes this pledge very seriously and is more than disposed to find fraud where the filing contains material errors because the trademark owner failed to do its due diligence.

The TTAB has also held that amending the registration at a later date (even before a proceeding is brought to cancel it) will not cure the original fraud.The only time that the TTAB is likely to sanction such an amendment is prior to the mark being published during the original application process.

Post- Medinol

Since the Medinol decision, the TTAB has issued a number of decisions on the issue of fraud, including notably: Sinclair Oil Corp. v. Kendrick 8 , Hachette Filipacchi Presse v. Elle Belle, LLC 9 and Hurley Int'l LLC v. Volta 10 .In these three cases, the TTAB extended the Medinol fraud standard to an assortment of factual circumstances and has unambiguously rejected a number of defenses asserted by trademark owners, including errors caused by a misunderstanding of the law, faulty legal counsel and even language considerations pertaining to foreign applicants.

One of the unanswered questions is to what extent voluntarily narrowing the list of goods or services would help to avoid a fraud claim or otherwise cure fraud.For the time being, the logical conclusion of Medinol is that fraud cannot be undone.Additionally, an amendment to an existing registration to delete goods may raise a red flag to an infringer, potential buyer or competitor that the registration may be open to attack.

Best Practices

What does all of this mean for trademark owners?This shift in the reading of fraud is essential for trademark owners to recognize in order to successfully protect, maintain, and enforce trademark rights.Audits are now more vital than ever to uncover discrepancies in coverage, as well as other gaps or deficiencies. Attention to detail, due diligence, and effective communication with legal counsel are key when protecting, maintaining and enforcing trademark rights.

The Application Process- During the application process, it is imperative to make sure that the mark is in fact used in connection with every product and service listed when proof of use is submitted.In addition, it is similarly imperative to make certain the dates of first use are correct for item listed.If possible, goods and services should be defined broadly, to anticipate change in use of the mark. For example, listing "fruit juice" is safer than "fruit juice, namely orange juice, pineapple juice and apple juice."If for example proof of use is submitted with the latter identification, but the mark is not actually used with apple juice, in spite of original intentions, this may constitute fraud. Filing multi-class applications is also laden with possible issues.A sound practice is to file separate trademark applications for each class of goods and services.The filing fees are the same, and any errors or discontinuation of uses of one class will not affect the registration of the mark in other classes.

Intent-to-Use Applications - With intent-to-use (ITU) applications, the TTAB clarified that an application to register a trademark based on intent to use may be deemed invalid if the applicant does not have objective evidence of its intent to use the mark at the time of filing.11The lack of documentation on the part of an applicant to show that it had clear plans to use the mark can result is sufficient for an opposer to prove that applicant lacked the requisite bona fide intention12 , unless the Applicant can come forward with an explanation as to why no such documents exist. Accordingly, when filing an ITU application, it is essential to document all plans to use a mark in the future.

Review and Document - At the time of signing any declaration, thoroughly review the identification of goods and services, including for applications, amendments to allege use, statements of use, declarations of use under Section 8 and renewals under Section 9.Make an itemized checklist of the goods and services identified in the filing, and then obtain documentation (e.g., photograph, invoice, advertisement, webpage) showing the mark in connection with the relevant services for each individual item specified in the identification of goods and services that are in use in commerce as of the signing date of the declaration .

Conduct an Audit - An audit of the trademark portfolio is therefore recommended.Going forward, fraud issues should be an important component of litigation strategy in prosecuting or defending TTAB proceedings.Therefore, at least until there is a decision explicitly permitting such post-registration amendments to avoid vulnerability to a fraud claim, the safer practice would be to re-register important marks that may be vulnerable to a fraud claim.

Look for Vulnerable Registrations - Some hints for finding potentially vulnerable registrations that may be lurking in your portfolio include looking for:

• Registrations with long listings of goods/services;

• Registrations based on filings (including maintenance filings) made before 2003 (before there was a heightened awareness of the fraud issue); and

• Registrations obtained based on a foreign registration (where use was not originally required to obtain the registration) and later maintained via a declaration of continued use.

1 The exception is an applicant basing its filing on a foreign application or registration.

2See, e.g. Hachette Fillipacchi Presse v. Elle Belle, LLC , 85 U.S.P.Q.2d 1090 (TTAB 2007).

3Hurley Int'l LLC v. Volta, 82 U.S.P.Q.2d 1339 (TTAB 2007) (fraud found based on applicant's allegation of use of its mark for various entertainment services and production services, when mark had not been used anywhere in the world for some services).

4 67 USPQ2d 1205 (TTAB 2003); Note: the Neuro Vasx registration covered only two items (catheters and stents) and only one item (stents) was found to be inaccurate.

5 Neuro Vasx filed a Statement of Use, signed by its CEO, declaring that "Applicant is using the mark in commerce on or in connection with the following goods/services: Those goods/services identified in the Notice of Allowance in this Application" (catheters and stents), but at the time the Statement of Use was filed, Respondent was using the mark only on catheters.

6 Respondent's excuse was that the electronic check-box for "those goods/services identified in the Notice of Allowance" was inadvertently checked, and the fact that stents was still included was "apparently overlooked." 67 U.S.P.Q.2d at 1209.

7 "[D]eletion of the goods upon which a mark has not been used does not remedy an alleged fraud upon the Office;" The Board then, sua sponte, entered summary judgment against Neuro Vasx, and indicated that it would cancel the registration in total. 67 USPQ2d at 1209.

8Sinclair Oil Corp. v. Kendrick , 85 U.S.P.Q.2d 1032 (TTAB 2007).

9Hachette Filipacchi Presse v. Elle Belle LLC, 85 U.S.P.Q.2d 1090.

10Hurley International LLC v. Volta, 82 U.S.P.Q.2d 1339 (TTAB 2007).

11In Intel Corp. v. Emeny , Opp. No. 91-123,312 (TTAB May 15, 2007), Applicant failed to produce any objective evidence of an intent to use the mark, and therefore failed to overcome Opposer Intel Corp.'s prima facie case that Emeny lacked the requisite bona fide intention to use his mark in connection with the recited services.

12 Commodore Electronics Ltd. v. CBM Kabushiki Kaisha 1238991v1 07512 9999-000 1/8/2009

Jeffrey C. Katz is a Partner and David A. Weems is an Associate in the Intellectual Property Practice Group of Davis & Gilbert LLP in New York.

Please email the authors at jkatz@dglaw.com or dweems@dglaw.com with questions about this article.