1. Copyright © 2013 by K&L Gates LLP. All rights reserved. Ethical Considerations In Trademark Practice Frank L. Politano Partner, Newark September 10, 2013

2. 1 What Is Ethics? ETHICS (from Greek ethos, “character”) is the systematic study of the nature of value concepts, “good,” “bad,” “ought,” “right,” “wrong,” etc., and of the general principles which justify us in applying them to anything; also called “moral philosophy” (from Latin mores, “customs”). - Encyclopaedia Britannica

3. 2 What Is Legal Ethics? “In one sense, the term ‘legal ethics’ refers narrowly to the system of professional regulations governing the conduct of lawyers. In a broader sense, however, legal ethics is simply a special case of ethics in general, as ethics is understood in the central traditions of philosophy and religion. From this broader perspective, legal ethics cuts more deeply than legal regulation:

4. 3 What Is Legal Ethics? It concerns the fundamentals of our moral lives as lawyers. As Socrates noted about the subject of ethics, it ‘is not about just any question, but about the way one should live.’*” Legal Ethics (3 rd Edition) Deborah L. Rhode David Luban *Plato, The Republic of Plato 31 (Allan Bloom Translation. 1908, 352D).

5. 4 Trademark Rules On Candor And Disclosure Are Not As Rigorous As Patent Rules Trademark Fraud vs. Patent Fraud 1.)Patent prosecution is essentially a “non-adversarial” process and therefore a higher degree of candor is required. a.) Patent prosecutors are held to “the highest standards of honesty and candor.” Norton v. Curtiss, 433 F.2d 779, 793 (C.C.P.A. 1970).

6. 5 Trademark Rules On Candor And Disclosure Are Not As Rigorous As Patent Rules Trademark Fraud vs. Patent Fraud 2.) See 37 C.F.R. §1.56(a) which requires inventors, their agents and attorneys to “have a duty of candor and good faith toward the [PTO]” and obliges practitioners to disclose all information they are aware of “material to the examination of the application.”

7. 6 Trademark Rules On Candor And Disclosure Are Not As Rigorous As Patent Rules Trademark Fraud vs. Patent Fraud Note: Patent Fraud has been euphemized to “inequitable conduct” – but the name change “does not make the thing itself smell any sweeter.” Burlington Industries v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988).

8. 7 Trademark Duty Of Disclosure Is Lower 1.) Patent is a government grant of exclusive rights. Without the grant, no rights. Candor is thus more important because the PTO is induced to issue the grant based upon what is disclosed or not disclosed by the applicant during the prosecution of the patent application.

9. 8 Trademark Duty Of Disclosure Is Lower 2.) Contrast Trademark Rights: Trademark registration generally confers no substantive rights. It only allows procedural advantages based upon pre-existing common law rights.

10. 9 Trademark Duty Of Disclosure Is Lower 3.) Note: There are several advantages to having a federal trademark registration. Most of these are procedural or evidentiary. See listing attached at end of this presentation. But: Recent developments in trademark law have conferred what may be called substantive registration rights:

11. 10 Trademark Duty Of Disclosure Is Lower ITU and Use Applications: Constructive Use: Section 7(c) of Lanham Act, 15 U.S.C. §1057(c), confers nationwide right of priority as of filing date:  For ITU application if the mark is ultimately used and registered; and  For use application if the mark is ultimately registered.

12. 11 Trademark Duty Of Disclosure Is Lower Incontestability: Section 33(b) of Lanham Act, 15 U.S.C. § 115(b), confers “conclusive presumption” of ownership, validity, exclusive right to use on goods or services stated in the registration. Eliminates most defenses, except for those listed in Lanham Act Section 33(b) and Section 15(4) (genericness).

13. 12 Trademark Duty Of Disclosure Is Lower Another Reason: Registration rights are subject, not only to examination by the PTO, but also to publication, opposition and cancellation proceedings brought by adversaries. - Corrective mechanisms to keep applicants honest.

14. 13 What Is Impact Of Less Stringent Standard? The following have been held NOT to constitute fraud: 1.) Failure to disclose merely descriptive or merely misdescriptive nature of a mark. Robert B. Vance & Associates, Inc. v. Baronet Corp., 487 F.Supp. 790 (ND.Ga. 1979)

15. 14 What Is Impact Of Less Stringent Standard? 2.) Failure to disclose that mark is a surname. DesDomaines Dourthe Freres v. S.A. Consortium Vinicole De Bourdeaux, 6 USPQ2d 1205 (TTAB 1988) 3.) Defects in ownership of mark. Kemin Industries, Inc. v. Watkins Products, Inc., 192 USPQ 327 (TTAB 1976)

16. 15 What Is Impact Of Less Stringent Standard? 4.) Failure to state use of mark was by a licensee firm. Airport Canteen Services, Inc. v. Farmer’s Daughter, Inc., 184 USPQ 622 (TTAB 1974) 5.) Reliance on a “borderline” transaction to establish use in commerce. Pennwalt Corp. v. Sentry Chemical Co., 219 USPQ 542 (TTAB 1983)

17. 16 What Is The Current Applicable Standard In Trademark Matters? The “Bose” Standard: Knowing (Actual Knowledge) + False + Material Representation + Intent to Deceive = Fraud

18. 17 What Was The Applicable Standard In Trademark Matters Before Bose? “Medinol” Standard: Knowing (Knew or Should Have Known) + False + Material Representation = Fraud

19. 18 What Is The Applicable Standard In Trademark Matters? Standard Applies To: Applications - Use - ITU Section 8 – Statements of Continued Use Section 15 – Affidavits of Incontestability Section 9 - Renewals

20. 19 What Is The Applicable Standard In Trademark Matters? Any other papers filed in trademark cases before USPTO: - Affidavits to prove secondary meaning; - Consent Agreements; and - Assignments.

21. 20 Bose Decision In an opposition proceeding, Opposer asserts a registered mark against an applicant. The registered mark covered many goods still being marketed by the Opposer at the time a Section 8 declaration was filed in connection with renewing the registration, and also audiotape recorders which had not been marketed for years.

22. 21 Bose Decision Opposer’s General Counsel signed the Section 8 declaration and argued that he believed he acted in good faith and thus without making a knowingly false statement because Opposer repaired audiotape recorders and “transported” them in commerce by shipping them back to their owners. The General Counsel argued it was reasonable for him to believe this constituted “use.” Is this Section 8 statement “fraudulent”?

23. 22 Bose Decision HELD: T.T.A.B. decision finds Fraud. Used more restrictive “Medinol” Standard. Bose Corporation v. Hexawave, Inc., 88 USPQ2d 1332 (T.T.A.B. 2007) It was not reasonable for Opposer’s General Counsel to believe that repair services constituted use of WAVE mark on tape recorders:

24. 23 Bose Decision General Counsel knew Bose no longer manufactured tape recorders and had ceased distributing them for many years. Opposer’s General Counsel relied on his interpretation that “transportation” constituted “use in commerce,” but: a.) did not seek trademark counsel’s opinion; b.) had no case law to support his position; and c.) made no inquiries to confirm if his interpretation was warranted.

25. 24 Bose Decision Note:Fraud portion of decision appealed to CAFC and reversed on August 31, 2009. 580 F.3d 1240 (Fed. Cir. 2009). Bose initially appealed to CAFC, but Hexawave did not contest the TTAB decision. The PTO intervened to defend Medinol standard.

26. 25 Bose Decision CAFC reversed and remanded the T.T.A.B. decision because it believed there was no substantial evidence that Bose intended to deceive the USPTO. CAFC noted that there is a material legal distinction between a “false” representation and a “fraudulent” one: A “fraudulent” misrepresentation involves an intent to deceive; and A “false” representation is occasioned by a misunderstanding, an inadvertence, or a negligent omission.

27. 26 Bose Decision For CAFC, mere negligence is not enough to infer fraud or dishonesty. Finding intent to deceive is a stricter standard than finding negligence or even gross negligence: “Thus, we hold 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.”

28. 27 Bose Decision Note 1: This standard applies to patent inequitable conduct, but CAFC now says it also applies to trademark cases. Note 2: See discussion of Therasense, Inc. v. Becton, Dickinson and Company, (CAFC May 25, 2011) infra.

29. 28 CAFC Views On Inequitable Conduct The CAFC, en banc, has in a patent case, recently recognized that the expansion and overuse of the inequitable conduct defense has created problems, and has limited the applicability of the doctrine. See Therasense, Inc. v. Becton, Dickinson & Co., (CAFC May 25, 2011).

30. 29 CAFC Views On Inequitable Conduct CAFC recognizes that inequitable conduct standard has become the “atomic bomb” of patent law:  inequitable conduct regarding a single claim renders the entire patent unenforceable (validity defenses are claim specific);  inequitable conduct has lead to a flood of litigation and has become a litigation strategy of choice increasing costs and complexity; and  inequitable conduct cannot be cured by re-issue (other deficiencies can be cured).

31. 30 CAFC Theories On Inequitable Conduct  Taint of inequitable conduct can spread from one patent to an entire portfolio in the same product family.  Inequitable conduct expands and lengthens the discovery process and disqualifies the prosecuting patent attorney from the litigation team.  Inequitable conduct may engender antitrust claims, may lead to awards of attorney’s fees, and could vitiate the attorney/client privilege.  Compels patent prosecutors to bury the PTO with prior art references and thus clogs the patent prosecution system.

32. 31 New Therasense Standard: To succeed with an inequitable conduct defense:  Accused infringer must prove by clear and convincing evidence that the applicant:  knew of the reference;  knew the reference was material; and  made a deliberate decision to withhold it.

33. 32 Therasense Standard Note: Intent and Materiality are separate requirements:  Each must be proved by clear and convincing evidence.  No more “sliding scale” analysis (i.e. where a weak showing of intent combined with a strong showing of materiality (vice versa) are used to find inequitable conduct.  Materiality requirement is generally “but for” materiality (i.e. undisclosed prior art is “but for” material if the PTO would not have allowed the claim if it had been aware of it).

34. 33 Examples By equating the “should have known” of the falsity with a subjective intent, the TTAB erroneously lowered the fraud standard to a simple negligence standard. A trademark registration is obtained or maintained fraudulently only if the applicant or registrant “knowingly makes a false, material representation with intent to deceive the PTO.” Note: New subjective standard. Harder to show subjective intent.“Should know” standard is eliminated.

35. 34 Implications Of “Bose” Decision: Negligence is permissible. Gross negligence does not of itself justify an inference of intent to deceive. Reckless disregard of truth or falsity is not an issue in this case so CAFC leaves that conduct open for another decision.

36. 35 Implications Of “Bose” Decision The general counsel’s belief that shipping refurbished goods met the “use in commerce” requirement, though incorrect, is not fraud. The general counsel believed this was true at the time of the renewal. Challenger must be able to point to evidence to support an inference of deceptive intent. Here, it failed to satisfy the clear and convincing evidence standard required to establish a fraud claim. Note: Board did require the registration to be restricted to delete audio tape recorders and players. Case was remanded to TTAB.

37. 36 Implications Of “Bose” Decision After “Bose:” it will be difficult for challengers to expunge registrations. They must meet the subjective standard of knowing intent to deceive with clear and convincing evidence. Burden on applicants and registrants is eased, but knowing misstatements still expose registrations to risk.

38. 37 Remediation It may be possible to correct certificates of registration and avoid fraud claims. See Zanella, Ltd. v. Nordstrom, Inc., 90 U.S.P.Q. 2d 1758 (TTAB 2009), a decision rendered before the CAFC Bose decision, where corrective action taken before the applicant’s use of its mark and prior to the institution of the opposition proceeding was sufficient to defeat summary judgment.

39. 38 Remediation In Zanella, the Opposer owned three registrations covering a wide variety of clothing items. The marks involved were not used on some of the items. The Opposer, when it filed its Section 8 and 15 affidavits, deleted clothing items not in use. Opposer also rectified one registration by filing a Section 7 request to amend the certificate of registration to delete the goods on which it had never used the mark. Note: All of these actions were undertaken before Applicant had used its mark and before the Opposition was lodged.

40. 39 Remediation T.T.A.B.: “We find that Opposer’s timely proactive corrective action with respect to these registrations raises a genuine issue of material fact regarding whether Opposer had the intent to commit fraud. In particular, Opposer’s action in correcting any false statements prior to any actual or threatened challenge to the registrations creates a rebuttable presumption that Opposer did not intend to deceive the Office.”

41. 40 Remediation Zanella is particularly significant because in October 2008 the decision was designated “non-precedential,” but this was changed in May 2009 so the decision is now a precedent of the T.T.A.B.

42. 41 Practice Tips Practice Tips: 1.) Be extremely careful in obtaining evidence that mark is in use on all goods and services. a.)have the client complete a form or averment; and b.) get evidence of use (specimens, internet evidence) and place in file; and

43. 42 Practice Tips c.)have the client execute all filings, requests for extension of time, maintenance papers. (This is relatively easy to do today by using electronic signatures). Note:This may take more time but it helps prevent the argument that attorney is a fact witness in litigation or that attorney committed the fraud.

44. 43 Practice Tips 2.) Be extremely careful with foreign applications filed in the U.S. Foreign practice tends to have inclusive specifications because use need not be shown in most countries to obtain registration rights. Note: Foreign applicant under Section 44(e) must have bona-fide intention to use even though registration may issue without showing use.

45. 44 Ethical Issue Your client owns a well-known registered mark that has been heavily advertised over the course of several decades. It is time for renewal and you must prove use. Unfortunately, the mark is not in use, and has not been used for over five years. The client is eager to maintain the registration. What do you do?

46. 45 Ethical Issue Section 45, Lanham Act “A mark shall be deemed to be ‘abandoned’ when … 1.) … its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances. Non-use for three consecutive years shall be prima facie evidence of abandonment. ‘Use’ of a mark means bona fide use of that mark made in the ordinary course of trade, and not made merely to reserve a right in a mark.”

47. 46 Effect Use Convince the client to resume bona fide use. Use the mark in a dual-branding situation with a product that is currently in the marketplace. Effect use through different marketing channels (e.g. mail order, internet sales)

48. 47 Effect Use Note: Use is effective even if first occurs during 6 month “grace” period provided by Section 8(c)(1). See 37 CFR §§2.160 and 2.161(b) (Registrant must attest to continued use … within the periods set forth in Section 8 of the Act), which provides grace period. See also TMEP Section 1604.10(3) “if the §8 affidavit or declaration was filed during the grace period, the substitute affidavit or declaration must state that the mark was in use in commerce on or in connection with the goods/services before the expiration of the grace period, if accurate.”

49. 48 Effect Use Note: Filing after expiration or grace period is not a deficiency that can be cured, even with a deficiency surcharge. 37 CFR §§2.164(b), 2.182 and 2.185(b).

50. 49 License The Mark Use by licensee inures to benefit of licensor. Section 5, Lanham Act. See also, Section 45, Lanham Act, definition of “Related Company” – any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods.

51. 50 Non-Use Due To Special Circumstances Section 8(b)(2), Lanham Act. Excusable Non-Use = Due to special circumstances which excuse such non-use (not due to any intention to abandon mark). What Works? TMEP 1604.11 Retooling Trade embargoes War Illness Sale of business with temporary non-use Fire Retooling Awaiting regulatory approval

52. 51 Non-Use Due To Special Circumstances What Does Not Work: Business decision; Decreased demand for product; or Use of Mark on other products or in another format.

53. 52 Consider Filing A New Intent To Use Application

54. 53 Addendum A Advantages of Federal Trademark Registration on the Principal Register* * Items marked with an asterisk also apply to Supplemental Register registrations.

55. 54 Advantages of Federal Trademark Registration on the Principal Register 1.Comprehensive Protection A principal register trademark registration offers the registrant nationwide protection against infringement from the date on which the application was filed. For an intent to use application, as well as for a use based application, a registration confers a nationwide, constructive, first use date as of the filing date.

56. 55 Advantages of Federal Trademark Registration on the Principal Register 2.Incontestability A trademark registered on the principal register that is used continuously for five years may become incontestable if certain other conditions are met. An incontestable registration may only be challenged on limited grounds, such as it has become generic, was abandoned, was obtained through fraud, is deceptive, scandalous, or disparages a person, institution, belief or national symbol, or brings a person into disrepute. Incontestability eliminates certain defenses in trademark litigation, including the defense that a mark is merely descriptive. See also Item 6 below.

57. 56 Advantages of Federal Trademark Registration on the Principal Register 3.Fair Warning A principal register trademark registration serves as constructive notice to potential infringers of registrant’s claim of ownership in a trademark. It should be revealed in any competent search and acts as a deterrent to potential subsequent users. Furthermore, if a trademark is registered, the United States Patent and Trademark Office will refuse to register what it believes to be any confusingly similar trademarks.*

58. 57 Advantages of Federal Trademark Registration on the Principal Register 4.Infringing Imports A principal register trademark registration gives the registrant the right to file the registration with the United States Customs Service to prevent importation of infringing foreign goods. 5.Counterfeiting A principal register trademark registration gives federal courts jurisdiction over infringement and related unfair competition claims. Federal law provides unique remedies against counterfeiters, such as the possibility of obtaining punitive damages and attorney fees against willful infringers.

59. 58 Advantages of Federal Trademark Registration on the Principal Register 6.Evidence A principal register trademark registration initially acts as prima facie evidence of: (1) the validity of the trademark and its registration; (2) the registrant's ownership of the trademark; and (3) the registrant's exclusive right to use the trademark in commerce for the goods or services included in the registration. Once a registration becomes incontestable, it acts as conclusive evidence of each of the above rights.

60. 59 Advantages of Federal Trademark Registration on the Principal Register 7.Use of the ® Symbol, “Registered in U.S. Patent Office” or “U.S. Pat. Off.” to Denote Federal Registration A principal register trademark registration gives the registrant the ability to inform the public that proprietary rights are recognized in the trademark by using the ® Symbol, “Registered in U.S. Patent and Trademark Office” or “U.S. Pat. and Tmk. Off.” in connection with the trademark.*

61. 60 Advantages of Federal Trademark Registration on the Principal Register 8. Confirms Ownership and Validity A principal register trademark registration may simplify the process of auditing and clearing title in connection with the sale of a product line or a company. 9. Preemption of State Regulation A principal register trademark registration protects trademarks against certain types of state regulation. For example, state truth-in- labeling laws are preempted when they require alteration of a federally registered trademark or service mark.

62. 61 Advantages of Federal Trademark Registration on the Principal Register 10. Defense to State Law Anti-Dilution Claims The registrant of a principal register trademark registration may use it as a complete bar to any claim brought against the registrant under state common or statutory laws that seek to prevent dilution. 11. Basis For Foreign Filing A federal registration may serve as the sole basis for filing abroad under the Madrid Protocol, other filing conventions and local law.