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“Clearly Canadian” — Fraud on Trademark Office Analysis

By David Lilenfeld on January 30, 2016

In this blog post, David Lilenfeld breaks down the fraud section of the "Clearly Canadian" trademark infringement opinion. Defendant, Top Shelf, alleged that Plaintiff committed fraud on the Trademark Office, and therefore Plaintiff's trademark registration is not valid.  As discussed below, the Court rules that this is a jury question.

D.         Fraud

Top Shelf contends that Clearly Canadian’s trademark registration should be cancelled for fraud. (Mot. at 12-14.) A party who believes it has been harmed by a trademark’s registration may seek the cancellation of that trademark’s registration on certain specified grounds, including that the trademark was obtained by the commission of fraud on the United States Patent and Trademark Office (“Trademark Office”).  U.S.C. § 1064; see also 15 U.S.C. § 1119 (David Lilenfeld: This is a Cancellation Proceeding). “In any action involving a registered mark the court may . . . order the cancelation of registrations . . . .”). “When a trademark’s registration is cancelled, its owner is no longer entitled to the rights that flow from federal registration, including the presumption that the mark is valid.” Hokto Kinoko Co. v. Concord Farms, Inc., 738 F.3d 1085, 1097 (9th Cir. 2013)

(David Lilenfeld: here are the prima facie elements of a fraud claim) To succeed on a claim for cancellation based on fraud, Top Shelf “must adduce  evidence of (1) a false representation regarding a material fact; (2) the registrant’s  knowledge or belief that the representation is false; (3) the registrant’s intent to induce reliance upon the misrepresentation; (4) actual, reasonable reliance on the misrepresentation; and (5) damages proximately caused by that reliance.” Id. (citing Robi v. Five Platters, Inc., 918 F.2d 1439, 1444 (9th Cir. 1990)). (David Lilenfeld: A false representation in the original trademark application or an affidavit accompanying a renewal application may be grounds for cancellation if all five requirements are met. Id. Top Shelf, however, “bears a heavy burden of demonstrating that a trademark should be cancelled.” Id.see also Robi, 918 F.2d at 1444).

Top Shelf bases its fraud claim on the declaration by Clearly Food’s Chief Executive Officer, Robert Kahn, that accompanied the June 28, 2012, application to  renew the Clearly Canadian trademark. (See Mot. at 12-14.) (David Lilenfeld: As required by Section 8 of the Lanham Act, Mr. Kahn declared that the Clearly Canadian trademark “is in use in commerce on or in connection with the goods and/or services identified above, as evidenced by the attached specimen(s) showing the mark as used in commerce.”) (Request Ex. F (“Renewal”).) Mr. Kahn attached as a specimen a photograph of an empty plastic bottle of Clearly Canadian peach-flavored sparkling water. (See id.) This beverage had been purchased in Michigan in 2011 by an affiliate of Mr. Khan. (Khan Dep. 58:5-60:25.)

For the same reasons discussed in the preceding section, the court finds that questions of fact preclude a finding as to whether the Clearly Canadian trademark was in fact in use in commerce as of June 2012. See supra § III.C. Because Top Shelf cannot prove the first element—namely, that Mr. Kahn’s declaration contained a false representation regarding a material fact—summary judgment is inappropriate on this claim. See Celotex, 477 U.S. at 324. (David Lilenfeld: The Court isn't convinced yet).

Even assuming that the statement that the Clearly Canadian trademark was in use in commerce in June 2012 was false, Top Shelf fails to establish the second and third elements of fraud. “Deception must be willful to constitute fraud.” In re Bose Corp., 580  F.3d 1240, 1243 (Fed. Cir. 2009); see also Far Out Prods., Inc. v. Oskar, 247 F.3d 986, 996 (9th Cir. 2001) (holding that a trademark owner “can only be adjudicated to have filed a fraudulent [incontestability affidavit] if he acted with scienter”). (David Lilenfeld: again, a high burden for defendant to reach).

Mr. Kahn testified in deposition that, although he knew Clearly Food itself was not manufacturing  (David Lilenfeld: federally registered trademarks remain in force for 10 years; between the 9th and 10th year of registration, an owner must file a renewal application under Section 9 of the Lanham Act, which must be accompanied by a Section 8 declaration that the mark is in use in commerce.  See 15 U.S.C. §§ 1058) plastic bottles of Clearly Canadian beverages at the time he signed the declaration, he believed that the Clearly Canadian product was still being sold by third parties in commerce through 2011 (as shown by his affiliate’s then-recent purchase of the specimen bottle), and understood that such sales were sufficient to satisfy the Section 8 standard of use in commerce. (Khan Dep. 23:25-24:7; 61:1-25; 69:13-72:13.) As such, there are questions of fact as to whether Mr. Kahn knew the trademark was not being used in commerce as required by Section 8 and intended to mislead the Trademark Office as to that fact. (David Lilenfeld: sounds like the deposition of Mr. Kahn is in order). See In re Bose Corp., 580 F.3d at 1246 (finding that the registrant did not commit fraud when it filed a combined Section 8 and Section 9 affidavit stating that the trademark was in use in commerce where the registrant erroneously believed that the repairing of damaged previously sold goods and returning the repaired goods to the customers constituted use in commerce).

Top Shelf puts forth evidence suggesting that Mr. Kahn understood that Clearly Canadian itself needed to use the trademark in commerce in 2012 in order to avoid abandonment. (See, e.g. 10/2/12 Khan Email; 3/15/12 Khan Email; 12/22/11 Khan Email; Khan Dep. at 51:20-52:6.) The court, however, is not permitted to weigh the evidence or make credibility determinations at this stage. See Reeves, 530 U.S. at 150. (David Lilenfeld: the jury is supposed to decide questions of fact while the court decides questions of law).  Although deceptive intent may be inferred from indirect and circumstantial evidence, see In re Bose Corp., 580 F.3d at 1246, the court cannot say that a jury considering Top Shelf’s evidence could only reasonably find a willful intent to deceive. See Far Out Prods., Inc. v. Oskar, 247 F.3d 986, 996 (9th Cir. 2001) (finding that the defendants “did not even meet their initial burden in moving for summary judgment” because they “did not present any evidence of the affiant’s state of mind, including whether he acted in bad faith or with knowledge”). At trial, a jury may well find that Top Shelf has carried its “heavy burden” to show fraud. See Hokto Kinoko Co., 738 F.3d at 1097. (David Lilenfeld: there would need to be a number of helpful facts developed for Top Shelf to carry this burden). At this  juncture, however, the court finds that summary judgment is inappropriate. See Celotex,477 U.S. at 324; Hokto Kinoko Co., 738 F.3d at 1097 (declining to cancel a trademark for fraud where the challenger “adduced no evidence that [the registrant] knew of the misstatement . . . or intended to defraud the [Trademark Office]”).


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