Trademark Disclosure and Fraud, Part II – Legal Framework

Disclosure by a trademark applicant

In Part I of this 2-part series, I pointed out that the Trademark Law (Lanham Act) requires a trademark (including service mark) registration applicant to provide the following specific info to USPTO (US Patent & Trademark Office) in the registration application[1]:

  • Applicant’s domicile & citizenship;
  • The date of applicant’s first use of the mark;
  • The date of the applicant’s first use of the mark in commerce;
  • The goods / services in connection with which the mark is used;
  • A drawing of the mark;
  • One or more specimens of the mark as used.

Additionally, the Lanham Act also requires the applicant to submit a verified statement, certifying, among others, that he/she is entitled to use the mark, that he/she has a bona fide intention to use the mark, that (to his/her best knowledge and belief) the facts recited in the application are accurate, and that (to his/her best knowledge and belief) no other person has the right to use the mark without causing confusion or mistake, or to deceive.[2] In the USPTO trademark application form, the pre-prepared texts of the verified statement specifically warns that “willful false statements and the like are punishable by fine or imprisonment, or both, under 18 U.S.C. § 1001, and that such willful false statements and the like may jeopardize the validity of the application or submission or any registration resulting therefrom”[3].

The required verified statement makes it plenty clear that submitting “willful false statements” is prohibited by the Lanham Act (besides constituting a federal criminal offense under 18 USC 1001). Many questions, however, remain. – What actions constitute a “willful false statement”? What if the applicant makes a mistake, or omits to submit certain info. Does the applicant have an affirmative duty to provide certain info, even if not specifically required to register a mark? What may be the punishments?

Statutory prohibitions – Lanham Act

The Lanham Act sets forth the specific statutory language that defines prohibited violations of the disclosure requirements with respect to a USPTO trademark application, and the respective punishments. Specifically, it prescribes 3 types of punishments: Cancellation of registration; denial of incontestability; and civil action liabilities. Below is the language adopted in the Lanham Act prescribing such prohibitions.

  1. Cancellation of registration (15 USC 1064(3)): “A petition to cancel a registration of a mark […] may […] be filed […] [a]t any time if […] its registration was obtained fraudulently”. (Emphasis added.)
  2. Denial of incontestability (15 USC 1115(b)(1)): “To the extent that the right to use the registered mark has become incontestable […], the registration shall be [incontestable,] subject to the [defense or defects] [t]hat the registration or the incontestable right to use the mark was obtained fraudulently”. (Emphasis added.)
  3. Civil damages (15 USC 1120): “Any person who shall procure registration […] of a mark by a false or fraudulent declaration or representation […] or by any false means, shall be liable in a civil action […] for any damages sustained thereof”. (Emphasis added.)

Under the Lanham Act, therefore, a trademark registration “obtained” or “procured” “falsely” or “fraudulently” may be subject to punishments[4]. The law, however, does not define these terms. It is then up to the USPTO or courts to define them, and thus to define the scope of trademark disclosure required of a trademark applicant before USPTO.

Scope of prohibition – “Fraudulently”

It is beyond the scope of this writing to extensively discuss the court and USPTO cases addressing the definition of the term “fraudulently”[5]. I will only summarize the following 2 holdings.

  1. No affirmative duty to disclose. In the 1961 case, Bart Schwartz v. FTC[6], the Court of Customs & Patent Appeals[7] held that a trademark applicant has no affirmative duty to disclose unrequired info to USPTO, and that “[t]he mere withholding of information” does not constitute a fraudulent act punishable under the Lanham Act. Rather, the Court determined that the Lanham Act only requires that an applicant “will not make knowingly inaccurate or knowingly misleading statements”.  (Emphasis original.) There, the Court held that the mere withholding of the meaning of the mark (FIOCCO) in a foreign language (Italian) was not a fraudulent withholding of info, without more.
  2. Willful intent to deceive required. Addressing the question of whether a trademark registration was obtained fraudulently, the Court of Appeals for the Federal Circuit pronounced in 2009 in the seminal case, In re Bose[8], 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 USPTO. (Emphasis added.) Particularly, the Court held that “the standard for finding intent to deceive is stricter than the standard for negligence or gross negligence”, and that “[t]here is no fraud if a false misrepresentation is occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive”. In the case, the counsel of the registrant (Bose) represented to USPTO that the mark (WAVE) was in use in commerce for audio tape recorders and players, even though Bose had stopped manufacturing and selling audio tape recorders and players prior to the time of the counsel’s representation. The Bose counsel testified that Bose had continued to repair previously sold recorders & players and that in his belief such repairing activities constituted valid use of the trademark in commerce. The Court held that the Bose counsel’s statement was false but not fraudulent, because it was “not uttered with the intent to mislead” the USPTO. As a result, the WAVE mark avoided the fate of cancellation and remains registered.

In summary, a trademark owner does not have an affirmative duty to disclose unrequired information to USPTO and may be held to have obtained / procured a trademark registration “fraudulently” only if he/she has the intent to deceive the USPTO.

Of course, we are now left wondering what constitutes an “intent to deceive”. But that will wait for another day and another write-up!

Scope of prohibition – “Falsely”

As discussed previously, pursuant to the Lanham Act (15 USC 1120), if a trademark registration is obtained “falsely” (as a separate cause of action from “fraudulently”), the trademark owner may be liable to other persons in a civil lawsuit. (See Footnote 4.)

Therefore, even an honest mistake, a misunderstanding, or a careless omission in communications with USPTO may subject a trademark registrant to civil liabilities, even if it is not considered “fraudulent”. Such undesirable civil liabilities have prompted the courts to hold that “[a]n applicant for registration of a trademark is required to exercise uncompromising candor in his communications with the United States Patent and Trademark Office, lest any registration he obtains will be invalid and/or unenforceable. He must not only refrain from making false representations to the United States Patent and Trademark Office, but must make full disclosure of all facts to his knowledge which might bear in any way on the Office’s decision to grant the registration sought.”[9] (Emphasis added.)

Conclusion – Uncompromising candor

In Daesang Corp. v. Rhee Bros[10], the trademark owner did not inform the USPTO that the English translation of the registered mark, “Soon Chang”, was the name of a Korean province famous for producing the goods (Korean hot bean paste) associated with the mark. Did the non-disclosure of the association constitute a fraud on USPTO? Did the registrant have an affirmative duty to disclose the association? What knowledge must the registrant have possessed about the association for the non-disclosure to constitute intent to deceive? What knowledge must the registrant have possessed about the application requirements?

A trademark applicant or registrant pondering over these questions is best to heed the advise of the court to “exercise uncompromising candor” and “make full disclosure of all facts to his knowledge which might bear in any way on the Office’s decision to grant the registration sought.”

[1] 15 USC 1052(a)(1) & (2).

[2] 15 USC 1051(a)(3). The verified statement described in this paragraph is for an in-use application (under 1051(a)), which is slightly different from that for an intent-to-use application (under 1051(b)).

[3] Pursuant to the US criminal code under 18 USC 1001(a), it is a federal criminal offense to provide a “willful false statement” to any US government branch or agency, including USPTO. (“[W]hoever, in any matter [before the Federal government], knowingly and willfully — (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; shall be fined under this title, imprisoned not more than 5 years or […].”) (Emphasis added.)

[4] The phrase “false or fraudulent” has been interpreted by some courts to provide for 2 separate causes of action. See, eg, Citibank N.A. v. Citibanc Group, 215 USPQ 884 (ND Ala 1982) (“’[F]alse’ and ‘fraudulent’ as used in 15 USC §1120 are not synonymous, and that damages are recoverable thereunder where the registration is procured either by a declaration which was incorrect or by a declaration which was a willful attempt to mislead and injury has resulted as a consequence thereof.”), aff’d 724 F.2d 1540 (11th Cir 1984); In re Bose Corporation, 580 F.3d 1240 (Fed Cir 2009) (“the latter involv[es] an intent to deceive, whereas the former may be occasioned by a misunderstanding, an inadvertence, a mere negligent omission, or the like.”)

[5] For more in-depth discussions, see, eg, here.

[6] Bart Schwartz v. FTC, 289 F.2d 665 (CCPA 1961).

[7] The court of Customs & Patent Appeals was the predecessor the Court of Appeals for the Federal Circuit, which was established in 1982 and has nationwide jurisdiction over trademark cases, among others.

[8] In re Bose Corporation, 580 F.3d 1240 (Fed Cir 2009).

[9] T.A.D. Avanti, Inc. v. Phone-Mate, Inc., 199 USPQ. 648 (CD Cal 1978).

[10] Daesang Corp. v. Rhee Bros., 77 USPQ.2d 1753 (D Md 2005).

Trademark Disclosure and Fraud, Part I – Impact and Implications of Surging Chinese Trademark Applications

This Part I of a 2-part series explores the recent exponential growth of the number of trademark applications at USPTO (US Patent & Trademark Office) that originated from China, and its impact and implications with respect to the disclosure by trademark applicants and registrants to USPTO. In Part II, I will review the legal standards and liabilities for trademark disclosure and the importance of “uncompromising candor” in all communications with USPTO.

Incentives for fraud – Attractive benefits of a federal trademark registration

In US, trademarks (including service marks) are protected under both federal and state laws. These protections are predicated on actual use. That is, once a mark is in actual use as an indicator of the source of goods / services, the mark can be protected without having to register the rights with the governments. Federal registration of a trademark, nonetheless, provides several benefits to the trademark owner (see, eg, here.), such as:

  • Presumption of validity and ownership of the trademark;
  • Nationwide priority in the trademark;
  • Public notice of the claim of ownership of the trademark;
  • Listing in USPTO’s online database;
  • Right to use the federal registration symbol “®”;
  • Use of US registration as a basis to obtain foreign registrations;
  • Ability to stop import of goods at the border;
  • Ability to bring a lawsuit in federal courts;
  • Ability to demand statutory damages;
  • Etc.

In the age of e-commerce, the benefits of a federal trademark registration can be even more attractive. A registered trademark owner can request an e-commerce platform, such as, to take down listings that the owner believes to be infringing on the trademark, by presenting the trademark registration as proof of senior rights to use the trademark. To avoid their own liability, e-commerce platforms generally comply with the takedown request relatively quickly, hampering the alleged infringer’s ability to profit from the e-commerce platforms, which have become a critical sale channel for nearly all retail businesses.

Such benefits vested in federal trademark registrations, however, also can serve as a perverse incentive for bad actors to abuse the system, particularly when coupled with the relative ease at present to register a trademark in US. As the rest of this article discusses, in recent years, the number of trademark applications submitted by applicants located in China has risen phenomenally. Unfortunately, the number of fraudulent Chinese applications has also increased proportionally. These growing fraudulent applications pose a serious threat to the integrity of the federal trademark registration system and commercial activities in US. They have also prompted USPTO to scrutinize more carefully all trademark registrations and applications for potential fraud, affecting all trademark owners interested in registering their trademarks.

Vulnerability to abuse – Relatively simple application process

Compared with patents, registration of a trademark at USPTO appears relatively simple and straightforward. The registration application process is prescribed under the Lanham Act. (15 USC 1051 et seq.) Particularly, §1 of the Lanham Act requires a trademark registration applicant to provide the following key info (15 USC 1051(a)(1) & (2)):

  • Applicant’s domicile & citizenship;
  • The date of applicant’s first use of the mark;
  • The date of the applicant’s first use of the mark in commerce;
  • The goods / services in connection with which the mark is used;
  • A drawing of the mark;
  • One or more specimens of the mark as used.

There are a few other info that may also be required, if applicable, such as foreign translation of the trademark wording, special meaning of the trademark in the industry, geographical meaning, use by a licensee, etc. For many applications, however, the key info above is all that is required to register a trademark. Moreover, except for the “one or more specimens”, USPTO generally does not verify the authenticity of the info submitted by the applicant. Even for the specimen(s), although USPTO does examine them for any obvious deficiencies, it does not affirmatively verify their authenticity. Therefore, the trademark registration process adopts a largely honor system, relying primarily on the participants’ voluntary disclosure and the threat of penalty for false or fraudulent disclosure. Given the attractive benefits vested on a federal trademark registration, however, such an honor system may be vulnerable to abuses.

Increasing fraudulent applications and heightened alert at USPTO

In 2019, Ms. Mary Denison, then Commissioner for Trademarks at USPTO, presented a statement to the Congress titled “Counterfeits and Cluttering: Emerging Threats to the Integrity of the Trademark System and the Impact on American Consumers and Businesses.” (See here.) In the statement, Ms. Denison testified that trademark “filings from China have increased exponentially since 2014, jumping from approximately 5,161 applications in fiscal year 2014 to approximately 54,064 in fiscal year 2018. This dramatic rise in applications coincides with the rise in inaccurate and fraudulent claims of use”. In a report dated January 2021, USPTO further extended the timeframe to 2019, which continued to show exponential growth of Chinese applications. (See here and the Figure below.)

Furthermore, in a recent paper, Profs Barton Beebe & Jeanne Fromer examined a sub-set of 345 trademark applications randomly sampled from the set of use-based applications in Class 25 (Clothing) that originated from China and were filed to USPTO in 2017. Based on their analysis, they concluded that more than 2/3 (66.9%) of the applications examined included “fraudulent specimens”. (See here.)

Alarmed and alerted by this exponential rise in the number of potentially false, inaccurate, or fraudulent trademark applications, and the consequential harm to the trademark registration system and commerce, USPTO has implemented several measures to arrest this rising tide, including (derived from 2019 Denison Statement):

  • Requiring foreign-domiciled applicants to be represented by US counsel (effective 8/31/2019);
  • Auditing post-registration maintenance filings (initiated in 2012; made permanent in 2017);
  • Updating examination guidance and issuing refusals based on lack of evidence of use in commerce (2019); and
  • Piloting programs to allow third parties to provide evidence in examination and expedite inter partes non-use challenges (2018).

Furthermore, Congress has introduced bipartisan bills that would make it easier for the public or USPTO to expunge or re-examine a trademark registration that has not been in-use or has been abandoned. (See, eg, here.)

Trademark owners required to exercise “uncompromising candor”

All these agency and legislative actions and changes mean that all communications between trademark owners and USPTO will likely be scrutinized more closely than before, not only by USPTO but also by courts, competitors, opponents, and even the general public. Even before these changes, the courts have consistently required a trademark registration applicant to exercise “uncompromising candor” in communications with USPTO. With the new measures and changes, this “uncompromising candor” will likely be subject to scrutiny under an even stronger magnifying glass. All trademark owners should carefully review all their past and future disclosures to USPTO to make sure they have satisfied the “uncompromising candor” requirements.

In Part II, I will discuss the legal framework governing trademark disclosure and liabilities for violations.