MPC Franchise, LLC v. Tarntino, 826 F.3d 652 (2d Cir. 2016)
In a recent decision affirming the district court’s finding that Defendant-Appellant Brent Tarntino (“Tarntino”) committed fraud on the United States Patent and Trademark Office (“USPTO”), the Court of Appeals for the Second Circuit clarified the scienter required to establish fraudulent trademark procurement.
The case arose out of a dispute among cousins over the ownership of the name “Pudgie’s” for pizza restaurants. In the early 1960s, three Cleary brothers opened two Pudgie’s pizza parlors in Elmira, New York. See MPC Franchise, LLC v. Tarntino, 826 F.3d 652, 655 (2d Cir. 2016). The pizza parlors were a success and, in 1973, the brothers formed Pudgie’s Pizza Franchising Corporation (“PPFC”) to sell franchises for additional Pudgie’s pizza parlors. Id. PPFC also registered the trademark PUDGIE’S with the USPTO. Id.
Shortly after the formation of PPFC, a sister of the three brothers, Bernadette Tarntino, purchased a Pudgie’s franchise and opened a Pudgie’s pizza restaurant several miles from the original pizza parlors in Elmira. Id. Bernadette Tarntino formed Pudgie’s Pizza Corporation Horseheads (“PPCH”) to manage the new location. Id.
In 1985, the USPTO cancelled PPFC’s registration for the PUDGIE’S mark after PPFC failed to file certain maintenance documents. Id. Then, in 1993, after one of the brothers passed away, PPFC dissolved. Therefore, the franchisee restaurants became independently-run operations. Id. at 656. Over fifteen years later, in 2009, two sons of one of the Cleary brothers formed MPC Franchise, LLC (“MPC Franchise”) to start franchising Pudgie’s pizza restaurants again. Id.
Meanwhile, in 2007, Bernadette Tarntino passed away, leaving a one-third interest in PPCH to each of her three children, one of whom was Defendant-Appellant Tarntino. Id. In 2010, Tarntino applied to register the mark PUDGIE’S with the USPTO for “pizza parlors” and “restaurant services featuring pizza, pasta, and subs.” Id. As is required of all applicants, Tarntino certified in his application that “to the best of his  knowledge and belief no other person, firm, corporation, or association has the right to use the mark in commerce, either in  identical form  or in such near resemblance  as to be likely . . . to cause confusion, or to cause mistake, or to deceive.” Id. The specimen that Tarntino submitted with his application was a photograph of a pizza box from the Pudgie’s location that his mother had opened, which displayed under the PUDGIE’S mark the words “® Pudgie’s Pizza Franchising Corporation 1972.” Id at 657. The USPTO issued Tarntino a registration for the PUDGIE’S mark. Id.
In 2011, MPC Franchise and MP Cleary, Inc. (“MP Cleary,” and together with MPC Franchise, “Appellees”), an entity that owned one of the original Pudgie’s pizza restaurants, filed suit against Tarntino in the District Court for the Western District of New York, asserting various causes of actions, including that Tarntino had fraudulently obtained the PUDGIE’S trademark registration. Id. The district court granted the Appellees’ motion for summary judgment on the fraud claim, finding that Tarntino “knew that [Appellees] were already franchising pizzerias, using the very same mark that he was attempting to register for that same purpose.” Id. Tarntino appealed to the Second Circuit.
The Second Circuit first explained that “[f]raud in procuring a trademark registration occurs when an applicant knowingly makes false, material, representations of fact in connection with his application.” Id. at 658 (quoting In re Bose Corp., 580 F.3d 1240, 1243 (Fed. Cir. 2009)). Tarntino argued that the district court had not properly applied this standard under the Federal Circuit’s 2009 decision in Bose. In Bose, the Federal Circuit held that the scienter standard for fraud on the USPTO is met only when an applicant actually knew that material statements in the application were false, and that it is not enough that the applicant should have known about such falsity. Bose Corp, 580 F.3d at 1244-45. According to Tarntino, the district court held him liable for misstatements that he should have known were false, not that he actually knew were false. MPC Franchise, LLC, 826 F.3d at 658.
The Second Circuit agreed with Tarntino that negligence was not enough, and that the scienter standard for a fraud claim requires that the person making the representation to the USPTO knows that the representation is false. Id. at 659. That mere negligence was not sufficient was consistent with Second Circuit precedent, as well as decisions by other Courts of Appeal. Id. at 659-60.
However, Tarntino’s arguments about the requisite degree of scienter did not aid him. Id. at 660. Not only did the district court not use the incorrect standard, but it was “beyond question” that Tarntino knew that his representations to the USPTO were false. Id. at 660-61. He admitted that he had never individually used the PUDGIE’S mark, despite applying for the mark in his individual capacity. Id. at 661. Moreover, there was abundant evidence that he knew others had the right to use the mark. He was aware of the other Pudgie’s locations, and he knew that his mother operated her restaurant as a franchisee. Id. Further, he conceded in his deposition that the trademark proprietary notice on the pizza box that he submitted as his specimen meant that someone else claimed the rights to the mark along with him. Id. The Second Circuit therefore affirmed the district court’s decision.
It is generally difficult for a plaintiff to prevail on a claim of fraud in the trademark application because, as made clear by the Second Circuit in this decision, a plaintiff must prove that the trademark applicant had actual knowledge that his representations were false. But in this case, there was direct evidence that Tarntino knew that his representations were false, and therefore summary judgment for Appellees was appropriate.