Opinion ID: 507446
Heading Depth: 1
Heading Rank: 2

Heading: San Juan's Trademark

Text: 15 The district court had jurisdiction to entertain Lien's challenge to San Juan's trademark. When an action involves a trademark registration, the district court may determine the right to registration, order the cancellation of registrations, in whole or in part, restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action. 15 U.S.C. Sec. 1119; see Windsurfing Intern. Inc. v. AMF Inc., 828 F.2d 755 (Fed.Cir.1987). Of course, the parties must properly plead the relief sought under 15 U.S.C. Sec. 1119. 16 As previously noted, only after rancorous discovery Lien became aware that San Juan apparently did not hold the exclusive right to use the SAN JUAN trademark. The court permitted Lien to amend its answer to assert the affirmative defenses that San Juan had abandoned and forfeited any rights in and to the SAN JUAN mark and that the SAN JUAN mark was void from the outset because it was fraudulently procured. 3 The pretrial order includes defendants' contention that U.S. Trademark Registration No. 888,124, SAN JUAN, should be canceled and, pursuant to 15 U.S.C.A. Sec. 1120, defendants should be awarded their damages, including attorney fees, in defending this action. 17 Our review is complicated by two concerns. First, although the district court had jurisdiction over the counterclaim, it is not clear that the defendants properly invoked this jurisdiction. Second, in declaring the trademark void, the court qualified, For the purpose of this decision, the plaintiff's trademark is a nullity and in this Court's view should be stricken from the record of the Trademark Office. (Emphasis added.) This conclusion was based on a finding that San Juan never had the exclusive use of the SAN JUAN mark because of the agreement with the Starks, and that in failing to communicate its nonexclusive use to the PTO, San Juan perpetrated fraud on the PTO. 18 The district court's finding fraud in the procurement of the registration is undercut by Lien's failure to properly plead fraud in the counterclaim. Rule 9(b) of the Federal Rules of Civil Procedure 4 appears to have been entirely overlooked or ignored. Nevertheless, fraud in the procurement must be alleged with specificity as required by Rule 9(b), both in federal court and in PTO administrative proceedings. 2 J. McCarthy, Trademarks and Unfair Competition Sec. 31:21(D), at 616 (hereinafter J. McCarthy). Indeed, the pleader must state[ ] with sufficient specificity the factual bases for its allegation. King Automotive, Inc. v. Speedy Muffler King, Inc., 667 F.2d 1008, 1010 (C.C.P.A.1981). Rule 9(b) requires that the pleadings contain explicit rather than implied expression of the circumstances constituting fraud. Id. (citations omitted). 19 Even were this procedural flaw overlooked, we could not overcome the weight of authority adverse to the district court's finding on the merits. As discussed in Trademarks and Unfair Competition, the allegation of failure to disclose use by others spawns the greatest number of fraud in the procurement cases but remains a serious charge which is not easily proven. 2 J. McCarthy, Sec. 31:21, at 614. The oath an applicant signs requires only that the declarant state to the best of his knowledge and belief no other person, firm, corporation, or association has the right to use said mark in commerce. The statement questions the declarant's subjective, honestly held, good faith belief. 2 J. McCarthy, Sec. 31:21, at 612 (citation omitted). 5 The Court of Appeals for the Federal Circuit has stated that 15 U.S.C. Sec. 1051 and 37 C.F.R. Sec. 2.33(b) require the statement of beliefs about exclusive rights, not their actual possession. American Sec. Bank v. American Sec. & Trust Co., 571 F.2d 564, 568 (C.C.P.A.1978). 20 Thus, to prove that San Juan committed fraud in the procurement of its federal trademark, Lien was required to plead and prove (1) the false representation regarding a material fact; (2) the registrant's knowledge or belief that the representation is false (scienter); (3) the intention to induce action or refraining from action in reliance on the misrepresentation; (4) reasonable reliance on the misrepresentation; and (5) damages proximately resulting from such reliance. 2 J. McCarthy, Sec. 31:21, at 602. The knowing misrepresentation must be material. [I]t is probably the law that in the trademark context, a material misrepresentation arises only if the registration should not have issued if the truth were known to the examiner. Id. at 606. 6 21 In a similar case, the Federal Circuit held the trademark applicant had not committed fraud in its unrestricted nationwide registration despite its agreement not to use the mark in a limited geographical area. Rosso and Mastracco, Inc. v. Giant Food Inc., 720 F.2d 1263 (Fed.Cir.1983). Appellants sought to cancel Giant Food's registration on the ground that Giant had a duty, which it failed to carry out, to continuously review and amend the oath filed with its application for registration.... Id. at 1265. While the court recognized a duty of truthfulness, the statutory exceptions and case law we have already noted were cited to qualify that disclosure duty. The court observed, however: 22 On the other hand, the oath in an application for registration must be truthful. Thus, in some instances a senior user would be making a false oath where he fails to acknowledge conflicting rights of a junior user which are clearly established, for example, by a court decree, by the terms of a settlement agreement, or by a registration. However, the rights of a junior user must be clearly established and must be in an identical mark or one so similar as to be clearly likely to cause confusion. 23 Id. at 1266. The Federal Circuit then concluded Giant Food's settlement agreement is not one in which the parties acknowledged that use of the respective marks would be likely to cause confusion. The parties agreed to a division of trade territory regardless of confusion. Id. In our case, there is nothing in the 1970 Stark settlement agreement which qualifies the original transfer of the trademark to San Juan on the basis of confusion. The record is silent on the state of use and state of mind that underlay the mark transfer. 24 The only testimony in the record on the signing of the trademark application was elicited from Erv Parent on cross-examination. Defense counsel asked Parent (1) if he signed the 1969 application, and (2) if he signed it after the 1968 agreement with the Starks. This proof falls short. There is no testimony to establish the objective falsity of the statement in light of the application's requirement that the declarant aver a good faith belief and the weight of authority on the burden of disclosure. See Money Store v. Harriscorp Fin., Inc., 689 F.2d 666 (7th Cir.1982). 7 25 Nevertheless, the district court found that [c]learly Mr. Parent knew, or is conclusively presumed to have known when he executed the affidavit of continuous use ... that plaintiff had no right whatever to use the mark SAN JUAN, but he did not so inform the U.S. Patent and Trademark Office. (Emphasis added.) The court reached that conclusion on the evidence of Parent's signing the respective agreements with Stark and Harman. The court did not consider the original settlement agreement which gave Parent all right, title, and interest in the marks and patents of SAN JUAN. The court's conclusion presumes the existence of an applicant's affirmative duty to disclose all other uses of the mark. See King Automotive, 667 F.2d at 1011. 8 Moreover, the court's conclusion presumes facts about the Starks' right to use that are not in the record. Contrary to the court's explicit finding, there is no testimony whether Mr. Parent actually knew others had a legal, contractual right to use the mark. 9 In light of this factual setting, no clear and convincing evidence satisfies the strictures for proving fraud or provides any basis for cancellation or damages. Money Store, 689 F.2d at 670. [F]raud is not lightly to be presumed.... Anheuser-Busch, Inc. v. Bavarian Brewing Co., 264 F.2d 88, 92 (6th Cir.1959). 26 Unlike the registration of a patent, a trademark registration of itself does not create the underlying right to exclude. 2 J. McCarthy, Sec. 31:21, at 604. Nor is a trademark created by registration. While federal registration triggers certain substantive and procedural rights, the absence of federal registration does not unleash the mark to public use. The Lanham Act protects unregistered marks as does the common law. 27 For these reasons, we find the evidence insufficient to conclude the oath signed by Mr. Parent was knowingly false. Consequently, San Juan's federal registration of the SAN JUAN mark remains valid.