Fraud on the PTO bars claim
Fraud on the PTO will bar claims for trademark infringement.
In a 2016 decision between Amusement Art v Life is Beautiful LCC, a Federal District Court in California affirmed the principle that Fraud on the PTO will bar claims for trademark infringement:
Between 2011 and 2012, Amusement Art filed eight ITUs for “Life is Beautiful” covering paints, electronics and accessories, jewelry, paper goods and printed matter, rubber goods, leather goods, housewares and glassware, and textiles. AA executives filed Statements of Use, under penalty of perjury, asserting that AA had actually used the phrase “Life is Beautiful” as a trademark to sell approximately 257 categories of goods within the application classes. AA also submitted pictures of various goods with “Life is Beautiful” sales tags attached to them. In September of 2014, one month before suing, AA also filed an application for Life is Beautiful” for festival and community events.
When LIB determined that AA didn’t actually sell many of the goods on which it obtained registrations, it told AA that it was going to seek cancellation on the basis of fraud on the PTO. AA surrendered eight of the registrations, but retained its 2014 registration in connection with festivals and art events.
LIB argued that all of plaintiffs’ “Life is Beautiful”-based trademark claims were barred by unclean hands. This requires clear and convincing evidence “ that the plaintiff’s conduct is inequitable and  that the conduct relates to the subject matter of [Plaintiff’s] claims.” The inequitable conduct here was fraud on the PTO in claiming use. AA argued that there was no evidence that its statements were made knowingly or with intend to defraud the PTO.
Fraud on the PTO in acquiring a patent can give rise to an unclean hands defense. Similar logic bars recovery in trademark. Cancelling a registration for fraud requires: “(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.” The parties didn’t dispute that the statements of use submitted by AA were material false statements nor that the PTO reasonably relied on those misrepresentations.
As for knowledge and intent elements, “no rational jury could credit Plaintiffs’ claim that the false statements were innocent mistakes in light of the extent of the deception.” AA filed eight separate registrations representing use on hundreds of categories of goods. There was no evidence that AA mistakenly believed it actually sold most of the claimed goods. Instead, AA argued that the executives who filed the applications were not native English speakers and that they filed the applications without the assistance of an attorney. “This explanation is implausible given that Plaintiffs have lived in the United States and spoken English for over 30 years and have also affirmed that they have filed trademark applications across the world.” But the bigger problem was that AA didn’t explain the several “deceptive” photos submitted with the applications showing goods staged with “Life is Beautiful” tags though these goods were never actually sold.