Sunstein Kann Murphy & Timbers LLP

March 2009 IP Update

Are the Glory Days Gone For Good? Trademark Board Checks Expansion of the Increasingly Popular Fraud Defense

F raud has lately been the defense of choice in trademark litigation, particularly with respect to proceedings before the Trademark Trial and Appeal Board[1] (the "TTAB"). The TTAB's recent holding in G&W Laboratories, Inc. v. G W Pharma Limited, however, is likely to dampen the enthusiasm by curtailing the broader effects of a successful fraud defense.

The Hatch-Waxman Act rewards makers of generic drugs for the risk and expense of litigating challenges to a pioneer drug company's patents: 180 days of exclusive marketing rights, if the patent challenge succeeds. Procedurally, the generic drug maker files an abbreviated new drug application (ANDA) for drugs that are the bioequivalent of previously approved drugs.

When the approved drug is covered by patents still in force, the ANDA filer submits a so-called Paragraph IV certification, declaring that those patents are invalid. This declaration is itself an act of infringement, entitling either party to commence an infringement lawsuit. Increasingly, pioneer drug companies have settled such litigations with reverse payments. See our May 2008 article.

The courts have taken conflicting views of such payments. The FTC and at least one appeals court regards them as per se antitrust violations. Other courts, applying a "rule of reason," believe that, as long as the pioneer drug company does not seek to expand the scope of its patent through the settlement process, reverse payments do not offend the antitrust laws. See our December 2008 article.

When a trademark application is opposed on the basis of a senior registration, one way the applicant can defend against the opposition is by attacking the validity of the opposer's senior registration. In particular, the applicant can try to show that the senior registration was obtained or renewed fraudulently.

Fraud claims before the TTAB have many advantages over more traditional defenses. They are almost never time-barred, are often amenable to summary judgment without much discovery, and may be brought even against incontestable registrations. Also, although fraud claims were historically considered a disfavored defense, TTAB case law over the past few years had made fraud far easier to prove than in decades past.

In a common scenario, registrations claiming many goods may be attacked for fraud where the mark was used with some but not all of the goods in the registration. See, e.g., Medinol Ltd. v. Neuro Vasx, Inc. (TTAB 2003) (finding fraud where applicant swore that mark was being used on all goods in application when mark was not being used with one of the listed goods); Standard Knitting, Ltd. v. Toyota Jidosha Kabushiki Kaisha (TTAB 2006) (cancelling registration on basis of fraud where applicant had not used mark on some listed types of clothing).

There is a veritable pandemic of such overbroad registrations on the U.S. register, all of which are vulnerable to attacks of fraud. Often, the registrant or his attorney simply failed to take the time to compare each item in the list of goods in the registration with the actual uses of the mark at the time the application, statement of use, or renewal was filed. This is particularly true for registrations with long, intricate descriptions of goods and services (many of which are based on foreign applications filed in jurisdictions where laundry-list claiming is common practice).

A fraud defense provides another, more virulent benefit, one squarely at issue in the G&W case: fraud can infect far more than just the goods touched by the fraud itself, even where those other goods are not at issue in the opposition. For example, if I register a MARK for T-shirts and sneakers in class 25, but it later turns out I never used the MARK with sneakers, all the claimed goods will be at risk even if I did use the MARK with T-shirts, and even if the underlying opposition related only to T-shirts.

Previous TTAB cases such as Medinol went so far as to suggest that fraud could infect an "entire registration," leaving the impression that even a multiclass registration could be sunk if just one good was tainted by fraud. This led some attorneys to advise clients to file different applications for each class, in order to hedge against the risk of fraud bringing down one entire registration.

In G&W, however, the TTAB held that a fraud defense necessitates a class-by-class analysis. In the Board's words, "[E]ach class of goods or services in a multiple class registration must be considered separately when reviewing the issue of fraud."

In that case, the applicant raised a viable defense of fraud because the opposer had never used its mark with the suppository distributorship services claimed in class 35 of its registration. However, this was of no help to the applicant with respect to the opposer's actual suppositories in class 5, with which it had duly used the mark. Thus, while the opposer lost class 35 due to fraud, it could continue to assert class 5 of its registration, and the action proceeded to discovery on that basis.

Interestingly, as the applicant had never claimed class 35 in the underlying application at issue, class 5 was far more important to the opposition. Applicant's fraud defense against a less important class achieved a strictly Pyrrhic victory.

With two other significant fraud cases pending before the U.S. Court of Appeals for the Federal Circuit, some expect a continuing retrenchment by the Court. The glory days of the fraud defense might well be behind us.

[1] The TTAB is a tribunal within the United States Patent and Trademark Office (PTO) responsible for hearing and deciding certain cases involving trademarks, such as appeals from decisions by PTO examiners denying registration of marks, and opposition proceedings filed against trademark applications.

	Articles Our Newsletters Speaking/Press Other Useful IP Links	March 2009 IP Update Are the Glory Days Gone For Good? Trademark Board Checks Expansion of the Increasingly Popular Fraud Defense By Peter J. Karol F raud has lately been the defense of choice in trademark litigation, particularly with respect to proceedings before the Trademark Trial and Appeal Board[1] (the "TTAB"). The TTAB's recent holding in G&W Laboratories, Inc. v. G W Pharma Limited, however, is likely to dampen the enthusiasm by curtailing the broader effects of a successful fraud defense. The Hatch-Waxman Act rewards makers of generic drugs for the risk and expense of litigating challenges to a pioneer drug company's patents: 180 days of exclusive marketing rights, if the patent challenge succeeds. Procedurally, the generic drug maker files an abbreviated new drug application (ANDA) for drugs that are the bioequivalent of previously approved drugs. When the approved drug is covered by patents still in force, the ANDA filer submits a so-called Paragraph IV certification, declaring that those patents are invalid. This declaration is itself an act of infringement, entitling either party to commence an infringement lawsuit. Increasingly, pioneer drug companies have settled such litigations with reverse payments. See our May 2008 article. The courts have taken conflicting views of such payments. The FTC and at least one appeals court regards them as per se antitrust violations. Other courts, applying a "rule of reason," believe that, as long as the pioneer drug company does not seek to expand the scope of its patent through the settlement process, reverse payments do not offend the antitrust laws. See our December 2008 article. When a trademark application is opposed on the basis of a senior registration, one way the applicant can defend against the opposition is by attacking the validity of the opposer's senior registration. In particular, the applicant can try to show that the senior registration was obtained or renewed fraudulently. Fraud claims before the TTAB have many advantages over more traditional defenses. They are almost never time-barred, are often amenable to summary judgment without much discovery, and may be brought even against incontestable registrations. Also, although fraud claims were historically considered a disfavored defense, TTAB case law over the past few years had made fraud far easier to prove than in decades past. In a common scenario, registrations claiming many goods may be attacked for fraud where the mark was used with some but not all of the goods in the registration. See, e.g., Medinol Ltd. v. Neuro Vasx, Inc. (TTAB 2003) (finding fraud where applicant swore that mark was being used on all goods in application when mark was not being used with one of the listed goods); Standard Knitting, Ltd. v. Toyota Jidosha Kabushiki Kaisha (TTAB 2006) (cancelling registration on basis of fraud where applicant had not used mark on some listed types of clothing). There is a veritable pandemic of such overbroad registrations on the U.S. register, all of which are vulnerable to attacks of fraud. Often, the registrant or his attorney simply failed to take the time to compare each item in the list of goods in the registration with the actual uses of the mark at the time the application, statement of use, or renewal was filed. This is particularly true for registrations with long, intricate descriptions of goods and services (many of which are based on foreign applications filed in jurisdictions where laundry-list claiming is common practice). A fraud defense provides another, more virulent benefit, one squarely at issue in the G&W case: fraud can infect far more than just the goods touched by the fraud itself, even where those other goods are not at issue in the opposition. For example, if I register a MARK for T-shirts and sneakers in class 25, but it later turns out I never used the MARK with sneakers, all the claimed goods will be at risk even if I did use the MARK with T-shirts, and even if the underlying opposition related only to T-shirts. Previous TTAB cases such as Medinol went so far as to suggest that fraud could infect an "entire registration," leaving the impression that even a multiclass registration could be sunk if just one good was tainted by fraud. This led some attorneys to advise clients to file different applications for each class, in order to hedge against the risk of fraud bringing down one entire registration. In G&W, however, the TTAB held that a fraud defense necessitates a class-by-class analysis. In the Board's words, "[E]ach class of goods or services in a multiple class registration must be considered separately when reviewing the issue of fraud." In that case, the applicant raised a viable defense of fraud because the opposer had never used its mark with the suppository distributorship services claimed in class 35 of its registration. However, this was of no help to the applicant with respect to the opposer's actual suppositories in class 5, with which it had duly used the mark. Thus, while the opposer lost class 35 due to fraud, it could continue to assert class 5 of its registration, and the action proceeded to discovery on that basis. Interestingly, as the applicant had never claimed class 35 in the underlying application at issue, class 5 was far more important to the opposition. Applicant's fraud defense against a less important class achieved a strictly Pyrrhic victory. With two other significant fraud cases pending before the U.S. Court of Appeals for the Federal Circuit, some expect a continuing retrenchment by the Court. The glory days of the fraud defense might well be behind us. [1] The TTAB is a tribunal within the United States Patent and Trademark Office (PTO) responsible for hearing and deciding certain cases involving trademarks, such as appeals from decisions by PTO examiners denying registration of marks, and opposition proceedings filed against trademark applications.