Licensing. Journal THE. Use It or Lose It: The Risk to Licensing Trademarks in a Post-Medinol World V O L U M E 2 5 N U M B E R 8

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1 THE Licensing Journal V O L U M E 2 5 N U M B E R 8 Edited by the Law Firm of Grimes & Battersby Use It or Lose It: The Risk to Licensing Trademarks in a Post-Medinol World Elizabeth Buckingham and Johanna Sistek Liz Buckingham is a partner at Dorsey & Whitney, LLP, and chairs the Trademark, Copyright, and Brand Management practice group. She practices exclusively in the areas of trademark, copyright, entertainment, unfair competition, and domain name law. Her work includes brand management, counseling, prosecution, transactional work, implementation of enforcement strategies, and litigation before courts and the Trademark Trial and Appeal Board. Johanna Sistek is an associate at Dorsey & Whitney, LLP, in the Trademark, Copyright, and Brand Management practice group. Her practice concentrates on trademark and copyright protection, including counseling clients regarding adoption and use of trademarks, filing domestic and international trademark applications, and handling inter partes disputes relating to trademarks and domain names. She has experience in counseling clients in a variety of industries, including financial services, food and wine, computer software, entertainment, publishing, and pharmaceuticals. Trademark licensors, how closely do you review the use information your licensees provide you about your brands so that you can obtain and maintain US trademark registrations? Trademark licensees, how carefully do you review this use information before providing it the licensor? If the answer to either question is not very, you could be risking not only your US trademark registrations, but in some cases underlying rights to the marks. A line of recent trademark administrative decisions highlights the importance of verifying the use of a trademark before making filings with the US Patent and Trademark Office (USPTO). This article will discuss the Medinol Ltd. v. Neuro Vasx case and the subsequent unpublished decisions following Medinol. It will offer practical tips to trademark licensors and licensees on how to satisfy use requirements, as well as on how to apply the teaching of Medinol to trademark enforcement matters and transactions. The Medinol Case: Sloppiness Proves Fatal The cancellation proceeding in the USPTO s Trademark Trial and Appeal Board (TTAB) case of Medinol Ltd. v. Neuro Vasx provides the starting point for our discussion. 1 The case revolved around whether a trademark registrant, Neuro Vasx (NV), filed an accurate statement of use in support of its application and what effect that should have on the proceeding. The petitioner in the case, Medinol, filed an application after NV, and when its application was blocked by NV s registration, Medinol challenged NV s allegation of trademark use. Exhibit 1, page 5, lists the chronology of important events. The key issues in the case were (1) whether the statement of use filed by NV in support of its application was fraudulent, and (2) what the penalty should be for the fraud. The statement of use, signed by NV s president, stated that the NEUROVASX trademark had SEPTEMBER 2005 T h e L i c e n s i n g J o u r n a l 1

2 Exhibit 1 Date NV Action Medinol Action July 1997 June 1999 Nov Jan Aug Oct May 2002 Sept NV files intent-to-use application for NEUROVASX mark covering stents and catheters NV begins using NEUROVASX mark for catheters NV files statement of use of NEUROVASX mark for stents and catheters NV receives registration for NEUROVASX for stents and catheters NV s registration for NEUROVASX cancelled for filing a fraudulent statement of use Medinol files intent-to-use application for NIROVASCULAR mark for stents Medinol s application for NIROVASCULAR for stents refused Medinol petitions to cancel NEUROVASX registration been used on both stents and catheters. However, NV admitted that the NEUROVASCULAR mark had only been used on catheters, not stents. Upon realizing that its registration was in jeopardy, NV attempted to correct the inaccurate statement of use by simultaneously requesting that stents be deleted from the registration and moving for summary judgment. 2 The TTAB decided that NV s sudden honesty did not cure the earlier fraud and that the fraud on the USPTO tainted the entire registration. 3 The TTAB stated that when NV s president signed the statement of use, he knew or should have known that the mark was not in use on all of the goods covered by the application, especially because it was a short list of goods (two items). The TTAB noted that NV s president signed the statement of use, with a declaration acknowledging that false statements might jeopardize the validity of the application or any resulting registration. 4 The TTAB accepted but dismissed as irrelevant NV s argument that it had no intent to commit fraud by including stents in its statement of use, stating: The appropriate inquiry is therefore not into the registrant s subjective intent, but rather into the objective manifestations of that intent. 5 The TTAB admonished trademark applicants to take such oaths seriously and investigate facts thoroughly prior to submission of a statement of use to the USPTO. Finding that NV had committed fraud on the USPTO during the application process, the TTAB granted summary judgment sua sponte for Medinol, the nonmoving party on the issue of fraud. The TTAB cancelled NV s entire registration for NEUROVASX, clearing the way for Medinol to register the later-filed NIROVASCULAR mark. Not only did NV lose its registration, it became a junior user, now second in line behind Medinol. NV s common law trademark rights (the date of actual first use in commerce) did not begin until after the filing date of Medinol s intent-touse application, the latter s constructive use date. Are There Exceptions to Medinol? To date, there have been no exceptions to the hardline approach of Medinol and its progeny. The TTAB consistently has rejected trademark owners attempts to explain why their inaccurate use filings do not constitute fraud. In Hawaiian Moon, Inc. v. Rodney Doo, 6 for example, an individual registrant admitted in discovery that the contested mark had only been used on one of the seven items of clothing listed in the trademark application. The registrant argued that his amendment to allege use swearing that all seven items were in use was not fraudulent, because he did not intend to commit fraud did simply not have the list of goods in front of him at the time the amendment to allege use was filed. 7 In granting summary judgment for the petitioner on this issue, the TTAB firmly rejected this excuse, stating that the applicant s failure to consult either his application or the notice of allowance listing the goods equaled a reckless disregard for the truth of the statements regarding those goods on which he had used the mark. 8 Likewise, the TTAB has rejected other excuses focused on the subjective intent of the applicant. In the opposition case of Tequila Cazadores S.A. de C.V. v. 2 T h e L i c e n s i n g J o u r n a l SEPTEMBER 2005

3 Tequila Centinela S.A. de C.V., 9 the applicant had filed a use-based application claiming use of its mark with a long list of alcoholic beverages when in fact the mark had only been used with five of the products. When its application was opposed, Tequila Centinela attempted to amend its application, claiming that the mistaken statement was due to the fact that it did not have legal advice when the application was prepared. 10 The TTAB rejected that excuse, granted the opposer s motion for summary judgment based on fraud, and advised the owner and other trademark owners that it should not sign documents with a reckless disregard for the truth. 11 Can Fraud Be Cured by Amendment? Consistent with its approach in rejecting excuses to fraud, the TTAB, both in Medinol and thereafter, has rejected trademark owners attempts to cure fraud by amending the lists of goods and services for their applications or registrations. In the opposition proceeding in This Little Piggy Wears Cotton v. Toes, 12 the applicant sought leave from the TTAB to amend its application during the opposition to accept substitute specimens or, in the alternative, to amend its filing basis to intent to use. The TTAB did not reach a decision on the motion because of other procedural issues, but it noted that such an amendment would not cure any fraudulent act that the opposer might be able to prove the applicant committed during the application process. 13 The TTAB has taken a similar position regarding amendments to cure misstatements in declarations of use filed to maintain trademark registrations. In Jimlar Corporation v. Montrexport S.P.A., 14 the applicant/petitioner filed a cancellation proceeding against an earlier registration blocking registration of its mark. During discovery, it became clear that the declaration of use filed by the respondent, Montrexport, to maintain its registration inaccurately stated that the mark was in use on all the clothing items listed in the registration when in fact it was not. In seeking to amend the registration being challenged, the president of Montrexport, who signed the inaccurate declaration of use, attempted to excuse the misstatements regarding trademark use by informing the TTAB that he did not oversee US operations and would not have known whether the mark was in use on certain goods in the United States. 15 His counsel argued that the president thought the declaration he signed requiring truthfulness covered only willful false statements, not honest mistakes. The TTAB rejected that argument, stating that fraud on the USPTO covers the act of making a false material representation that the applicant/registrant knew or should have known was false. The TTAB denied Montrexport s motion to amend its registration, warning that it is not possible to cure an earlier fraud on the USPTO by a later amendment. 16 The TTAB then granted summary judgment and cancelled the entire registration. Are there any circumstances in which a correction to the list of goods or services or their use dates could prevent the cancellation of a registration or the abandonment of an application? If a registrant discovers the mistake on its own and then corrects it, would this cure the fraud? Medinol uses the registrant s failure to correct the challenged registration as evidence that the registrant intentionally misstated the facts. 17 Hawaiian Moon uses the registrant s failure to correct the challenged registration as evidence of the registrant s reckless disregard for the truth. 18 The language of both cases can be read to suggest that a corrective filing might be accepted if made prior to any litigation and soon after an applicant or registrant learned of the problem. Given the language of the This Little Piggy and Jimlar decisions that subsequent corrective actions cannot mitigate fraud in the application process, it appears that corrective filings are unlikely to cure earlier inaccurate statements if challenged during an inter partes proceeding. The cases to date have not discussed how the TTAB or a court would treat a registrant s attempt to correct an inaccurate earlier declaration regarding use of a mark when the registration is not the subject of a trademark dispute. Perhaps the TTAB would be more lenient toward a trademark owner who recognized postregistration that an inaccuracy was made at an earlier stage in the registration process and promptly made a good-faith effort to clarify the goods in its registration that were in use when the declaration was signed. Based on the case law to date, however, the TTAB might consider such a corrective filing irrelevant and the original registration subject to cancellation based on the fraudulent statements made during the registration process. The Impact of Medinol These cases are important because if a trademark licensor who has applied for registrations or who is maintaining registrations does not take the time to confirm that a trademark is in use on all the goods in a statement of use, a use-based application, or a declaration of use filed postregistration, it could lose the entire registration. If the application or registration becomes involved in a dispute and discovery shows that the mark was not in use on all the goods or SEPTEMBER 2005 T h e L i c e n s i n g J o u r n a l 3

4 services claimed in the signed declaration, the TTAB will not allow the applicant/registrant a chance to clean up its sloppiness; it will cancel the application or registration. Defining Trademark Use This discussion leads to an important question raised by many trademark owners and their licensees: What kind of trademark use will support a US registration? Because the Medinol case highlights the importance of confirming whether a trademark is being used in connection with all the goods or services covered by an application prior to filing of a statement of use or maintaining a registration, a review of the formal definitions and requirements may be helpful. The statute regulating trademark registration defines use in commerce of a trademark to mean the goodfaith use of a mark in the ordinary course of trade, not merely to reserve a right in a mark, which is called token use. A mark is considered in use in commerce by a trademark owner or its licensee with goods when (1) the mark is placed on the goods, labels, tags, and their containers or on displays associated with the goods (or if the nature of the goods makes the placement of the mark impractical, then on documents associated with the goods or their sale); and (2) the goods are sold or transported in interstate commerce. A mark is considered in use in commerce in connection with services when (1) the mark is used or displayed in the sale or advertising of services, and (2) the services are rendered in interstate commerce or in more than one state. A mark generally is not considered in use in commerce when it is placed on business cards or letterhead without reference to the underlying services or on presentations to investors and possible business partners. Intrastate and Interstate Commerce: What Counts as Use A purely intrastate use of a trademark is not considered use in commerce for federal registration purposes unless that use affects a type of commerce Exhibit 2 Trademark Use Checklist for US Trademark Application Owner: Surfs Up Inc. (a Minnesota corporation) SURFALIRIUM Mark: Our File: 12,345 Filing Deadline: December 15, 2005 Class 25 Specimen: Please send a digital photo of each item that clearly displays the mark on the goods. Goods Is the Mark currently used on the goods? If no, will the Mark be used in the next 6 months? If yes, date of first sale in Minnesota (e.g., 11/15/04) If yes, date of first sale outside Minnesota (e.g., 11/15/04) Wetsuits Yes No Yes No Swimsuits Yes No Yes No Shorts Yes No Yes No Hats Yes No Yes No Shirts Yes No Yes No Completed by: Name and Title Date 4 T h e L i c e n s i n g J o u r n a l SEPTEMBER 2005

5 that Congress regulates. A mark used to promote restaurant services rendered at a single location, for example, would be considered use in commerce, because the restaurant may serve interstate customers. Similarly, services offered via the Internet constitute use in commerce, because the services are available to a national audience who must use interstate telephone lines (regulated by Congress) to access the Web site. When completing a use-based application, statement of use, or amendment to allege use, a trademark owner must provide two dates: the date of first use anywhere and the date of first use in commerce. The date of first use anywhere would be the date that the goods were first sold or transported on an intrastate basis. If the first sale or shipment was interstate, the date of first use anywhere and the date of first use in commerce would be the same. The same applies to services. The date of first use anywhere can never be later than the date of first use in commerce. For companies located outside the United States, the date of first use in commerce may be the date that the products were first sold or shipped between a foreign country and the United States, if not between two US states as discussed above. The date of first use anywhere would be the date that the owner first began using the mark in its own country or elsewhere. When the Trademark Is Not Used on Everything Often, a trademark owner will file an application with the intent to use, or license others to use, a new mark on a broad range of goods say, apples, grapes, tangerines, mangoes, oranges, and bananas. As the business plans for the product line evolve, the mark is only used on apples and oranges. When the time comes to file a statement of use, the owner would simply file a statement of use covering the apples and oranges, with a request that the remaining goods be deleted from the application. Or, if the owner intends to use the mark at a later time for the remaining goods, it is possible to divide the application into two applications, with the goods that are in use proceeding to registration and the other goods remaining in a pending application until use can be shown. The Medinol Legacy: Suggestions for Trademark Licensors and Licensees The following guidelines can help trademark licensors and licensees ensure that they comply with trademark use requirements and avoid the consequences of not doing so. 1. Make sure that use declarations are completed accurately. In order to avoid the fate of the registrant in the Medinol case and the cases following, it is important for trademark licensors to review thoroughly the use information for all of the goods and services covered by a US application or registration. Some tips for trademark licensors and other owners are: Create a checklist of all of the goods or services listed in an application or registration. Exhibit 2 is a sample checklist. Circulate the checklist to the appropriate licensee marketing or other in-house personnel with firsthand knowledge of sales of products or services, and have them sign and date the checklist. Have the appropriate licensee personnel provide the date of first use of each product or service listed (for an application), or confirm the current use of each product or service (for a registration). Have the licensee provide a photograph or sample package for each licensed product covered by an application or registration. For long-standing, reliable licensees, simply providing one photograph and SKU number for the remaining items may be enough. Keep documentation of the date of first use of a mark (e.g., a purchase order). If the person signing the use declaration knows whether the goods and services are in use, give that person the completed checklist to review along with the use declaration. 2. Review key registrations and file new ones if necessary. If, upon reviewing this article, you have concerns about the accuracy of past filings for key marks, consider having your marketing personnel verify use of each item now rather than waiting for the next trademark filing deadline. This way, if you discover a problem, you can fix it by filing new applications with updated and accurate lists of goods and services. This strategy is too expensive to implement for all marks, but it is highly recommended for any key registrations that may be vulnerable to a Medinol-type challenge. By adding new products or services as well as removing no longer (or never) used ones, you will achieve better protection for your marks as well as camouflaging one of the reasons for the filings. 3. Avoid laundry lists of goods and services. The longer a list of goods and services, the more items there are that can be challenged for nonuse. By starting with realistic lists of goods and services, trademark licensors can minimize the risks of inaccurate filings. Additionally, the individual items included should SEPTEMBER 2005 T h e L i c e n s i n g J o u r n a l 5

6 not be unduly detailed. In clothing applications, for example, simply use jackets rather than down jackets, ski jackets, parkas, anoraks, and windbreakers. If laundry lists cannot be avoided, consider filing single-class applications to eliminate the possibility of a problem in one class tainting multiple classes of goods and services. 4. Have license agreements address issues. Incorporate a clause in your license agreements requiring the licensee to provide the licensor with accurate information on trademark use. Failure to do so should be a material breach of the license agreement. If you have the leverage to obtain it, require the licensee to provide first use information and documentation as a part of its periodic licensee royalty reports on an ongoing basis. 5. Impact on litigation for the plaintiff. Before starting trademark litigation or even sending a cease and desist letter, thoroughly review the accuracy of the applications and registrations that you will cite against the defendant. If there are accuracy issues but you still have priority based on common law rights, file accurate replacement applications before challenging your competitor s mark, and do not rely on the tainted applications or registrations. You should consider withdrawing the tainted ones, because a savvy opposing counsel will counterclaim to petition to cancel them to discredit you. If you are challenging a laundry list application or registration, verify that each product and service it covers was in use prior to the use declaration, even if that product or service is not sufficiently related to your own mark to be confusingly similar. If you discover fraud that will invalidate the entire application or registration, you can obtain summary judgment on the issue of fraud without the need of proving likelihood of confusion. 6. Impact on litigation for defendants. If you find yourself as a defendant in litigation, do not wait until 1. Medinol Ltd. v. Neuro Vasx, 67 U.S.P.Q.2d 1205, TTAB, May Id. at Id. at Id. at Id. at Hawaiian Moon, Inc. v. Rodney Doo, 2004 TTAB LEXIS 274 (TTAB 2004). 7. Id. at * Id. at * Tequila Cazadores S.A. de C.V. v. Tequila Centinela S.A. de C.V., 2004 TTAB LEXIS 109 (TTAB 2004). 10. Id. at *10. discovery to determine if your challenged applications and registrations are vulnerable to attack for fraud. If possible, you should determine this before responding to the first demand letter. If there is vulnerability, settle before discovery. Do not waste time and show weakness by attempting to amend your application or registration to cure the inaccuracy. 7. Impact on transactions for buyers. If initial due diligence shows that the seller is not using a key mark on all the goods and services for which it is registered or has a pending use-based application, ask the seller to explain why not. If there are potential fraud issues concerning key marks, determine whether the seller remains the senior user or whether its rights are now junior to those of a competitor. You may need to reduce the purchase price to take account of the lower value, reserve some of the purchase price to defend an infringement challenge, or, in extreme cases, walk away from the deal. You should also require the seller to warrant and indemnify that its registrations are valid and not subject to cancellation. 8. Impact on transactions for sellers. If the value of the deal rests on key trademarks, verify the use of those marks prior to offering the company for sale and file new applications if necessary. Either withdraw the tainted applications and registrations or identify their weaknesses to potential buyers at the beginning and in disclosure schedules. Conclusion By following the suggestions outlined above, trademark licensors will obtain accurate use information from trademark licensees and avoid having their registrations cancelled or applications invalidated for fraud. Likewise, by applying these suggestions to enforcement and transactional matters, trademark licensors can prevent ugly surprises and possibly even benefit from the Medinol line of cases. 11. Id.at * This Little Piggy Wears Cotton v. Toes, 2004 TTAB LEXIS 447 (TTAB 2004). 13. Id. at *19. See also Orion Elec. Co., Ltd. v. Orion Elec. Co., Ltd., 2004 TTAB LEXIS 147 (rejecting post-opposition amendment to identification of goods in use-based application). 14. Jimlar Corp. v. Montrexport S.P.A., 2004 TTAB LEXIS 333 (TTAB 2004). 15. Id. at * Id. at *17, Medinol, supra n.1, at 1210 n Hawaiian Moon, supra n.6, at *12. Reprinted from The Licensing Journal September 2005, Volume 25, Number 8, pages 5-10, with permission from Aspen Publishers, Inc., A WoltersKluwer Company, New York, NY, , 6 T h e L i c e n s i n g J o u r n a l SEPTEMBER 2005