CAFC Makes it More Difficult to Prove Fraud on USPTO

At the beginning of August 2009 the United States Court of Appeals for the Federal Circuit issued its decision in Exergen Corp. v. Wal-Mart Stores, Inc., et al., Case Nos. 2006-1491, 2007-1180 (Fed. Cir. 2009), a decision that changed the playing field with respect to charges of inequitable conduct in patent litigation. Essentially, the Federal Circuit decided that since inequitable conduct is in essence a fraud based theory there needs to be highly specific information plead in the pleadings in order for the defendant to be entitled to raise the defense. It is still to early to state definitively how this will turn out over the long haul, but based on the test announced it seems like it could become very difficult if not impossible to plead inequitable conduct as a defense unless there is real factual evidence to suggest that there has in fact been inequitable conduct. As simple as this seems it is rather revolutionary, which is sad in and of itself.  Gone are the days where inequitable conduct can be plead as a defense without any support and only to enable a fishing expedition during discovery. Likewise, as a result of In re Bose, which was decided on August 31, 2009, the days may be numbered for the loose application of fraud theories on the other side of the building at the USPTO. Specifically, the Federal Circuit has made it harder for there to be a finding of fraud on the Trademark Office, which could mean we are in for a complete reconstitution of fraud based theories. To the extent that means fraud actually requires intentional deception the Exergen and Bose cases are indeed very welcome and long overdue.

In the Bose case, Bose initiated an opposition against the HEXAWAVE trademark application by Hexawave, Inc., alleging likelihood of confusion with Bose’s prior registered trademarks, including WAVE. Hexawave counterclaimed for cancellation of Bose’s WAVE mark, asserting that Bose committed fraud in its registration renewal application when it claimed use on all goods in the registration while knowing that it had stopped manufacturing and selling certain goods. The fraud alleged by Hexawave involved Bose’s combined Section 8 affidavit of continued use and Section 9 renewal application signed by Bose’s general counsel, Mark E. Sullivan, and filed on January 8, 2001. In the renewal, Bose stated that the WAVE mark was still in use in commerce on various goods, including audio tape recorders and players. The Board found that (1) Bose stopped manufacturing and selling audio tape recorders and players sometime between 1996 and 1997; and (2) Mr. Sullivan knew that Bose discontinued those products when he signed the Section 8/9 renewal. Sullivan explained, however, that Bose continued to repair previously sold audio tape recorders and players, some of which were still under warranty and that he believed the WAVE mark was used in commerce because “in the process of repairs, the product was being transported back to customers.” The Board concluded that the repairing and shipping back did not constitute sufficient use to maintain a trademark registration for goods, and further found that the use statement in the Section 8/9 renewal was material. As a result, the Board ruled that Bose committed fraud on the PTO in maintaining the WAVE mark registration and ordered the cancellation of Bose’s WAVE mark registration in its entirety.

The Federal Circuit ultimately agreed with the Board that the Sullivan statement was false and material, but that it did not constitute fraud on the Trademark Office. The Federal Circuit concluded that there is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive. Because Sullivan testified under oath that he believed the statement was true at the time he signed the renewal application there can be no finding of fraud unless the challenger can point to evidence to support an inference of deceptive intent. While proving subjectively what one knew or believed is difficult, and while the requisite deceptive intent can be proven by circumstantial evidence, there still needs to be at least some evidence. Absent any evidence to contradict Sullivan’s testimony there is simply no way to satisfy the clear and convincing evidence standard required to establish a fraud claim.

In reaching this determination the Federal Circuit went through great deal and discussion of cases dealing with fraud, pointing out that deception must be willful to constitute fraud. The CAFC also explained very directly that the Board erred because it is inappropriate to conclude that a trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration which it knows or should know to be false or misleading. The Federal Circuit then went on to cite several patent cases, saying:

We have previously stated that “[m]ere negligence is not sufficient to infer fraud or dishonesty.” Symbol Techs., Inc. v. Opticon, Inc., 935 F.2d 1569, 1582 (Fed. Cir. 1991). We even held that “a finding that particular conduct amounts to ‘gross negligence’ does not of itself justify an inference of intent to deceive.” Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc). The principle that the standard for finding intent to deceive is stricter than the standard for negligence or gross negligence, even though announced in patent inequitable conduct cases, applies with equal force to trademark fraud cases. After all, an allegation of fraud in a trademark case, as in any other case, should not be taken lightly.

This should be considered to be extremely positive.  In the patent world the Federal Circuit has for years chipped away at Kingsdown, even at times seemingly ignoring the case altogether and finding that gross negligence or recklessness is enough to prove inequitable conduct.  This was even openly recognized during oral arguments in the GSK/Tafas case relating to the claims and continuations rules, when PTO General Counsel Toupin cited Kingsdown and Judge Rader asked him if he had read recent CAFC rulings.  The clear implication was that Rader was simply recognizing that over the years virtually none of the Kingsdown case remained relevant even though it had never been overruled en banc.  So to see the Federal Circuit cite Kingsdown and reach the obviously correct conclusion in Bose, together with Exergen, signals the dawning of a new era for inequitable conduct jurisprudence both on the patent side and the trademark side of the USPTO.

Now, the shameless commerce plug.  On Friday, September 25, 2009, at 1pm ET, PLI will be hosting a 1 hour briefing on the Federal Circuit’s decision in In re Bose.  If the Federal Circuit is going to cite patent cases in trademark ruling, this suggests that the concepts are one and the same.  Given the importance of this decision and what appears to be a new direction for the Federal Circuit with respect to allegations of fraud, it would make sense for anyone who does either patent or trademark work to tune in.  For more information see Practising Law Institute CLE Program Fraud on the Trademark Office after In re Bose.  Unfortunately, I will not be able to attend this briefing live because I will be at the podium here in New York City teaching in the PLI Patent Bar Review Course.  I will definitely download it once it is available for downloading and will continue to follow this and related matters.


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Join the Discussion

6 comments so far.

  • [Avatar for Gena777]
    September 26, 2009 06:45 pm

    This is a significant ruling in the world of patent litigation, though I’m not completely sold on the “inequitable conduct = fraud” theory. Guess I’ll have to read the opinion. Thanks for bringing us this story, GQ.

  • [Avatar for Tom Hammonds]
    Tom Hammonds
    September 26, 2009 08:18 am

    I recently became a party to a similar law suit (patent infringement not trademark infringement). In this case we are the small company facing a giant corporation. In the end, it is going to be interesting to see how our case plays out but I really appreciate being able to get information like this on the Internet to help keep us more informed as we go through this process (of course, it’s pretty easy to get confused by some of these cases). Anyway, thank you for publishing this, it is appreciated by people going through similar cases.

  • [Avatar for mengembalikan jati diri bangsa]
    mengembalikan jati diri bangsa
    September 26, 2009 08:06 am

    is this a good thing or a bad thing?

  • [Avatar for EG]
    September 25, 2009 10:15 am


    I’m fine with FRCP 11 being applied to plaintiffs, but the circumstances are a bit different from when a fraud/IC allegation is made. First, in making an infringement charge, the plaintiff has to make a sufficient investigation to at least arguably support the allegation that there has been infringement. There is usually sufficient time prior to the filing of the complaint to carry out that investtigation and to develop the supporting facts. By contrast, it’s rare that an allegation of fraud/IC can be made in a responding answer that has any factual support until after there hs been some discovery to develop the facts to support both prongs of froud/IC, especically the “intent to deceive” prong. Second, unless willful infringement is alleged (which may be should also be subject to FRCP 9 requiements), simply asserting that a patent has been “infringed” doesn’t necessarily impune the integrity of the alleged infringer. By contrast, an allegation of fraud/IC does impune the integrity of those against whom this charge is made and can, in the case of the prosecuting attorney/agent lead to disciplinary action. Net, there’s a huge difference between alleging patent infringement and alleging fraud/IC.

  • [Avatar for Alan McDonald]
    Alan McDonald
    September 25, 2009 07:56 am


    How about requiring plaintiffs to comply with Rule 11 in their initial infringement charge – facts (not speculation)?

  • [Avatar for EG]
    September 24, 2009 01:22 pm


    The Exergen case is definitely fresh air from the Federal Circuit on removing or at least minimizing the “plague” of fraud/inequitable conduct allegations in patent infringement suits. If litigators are going to make this serious charge that impunes the integrity of a patent prosecutor, they should have facts (not speculation) to support it to comply with FRCP 9 and 11. Otherwise, don’t make an unsubstantiated allegation in the pleadings.