“Underhanded” Settlement Tactics Did Not Constitute Fraud

The Southern District of Indiana recently issued a decision reiterating the “steep mountain” plaintiffs must climb to successfully allege common law fraud or cancel a trademark registration based upon fraud.

The parties in Heckler & Koch, Inc. v. German Sports Guns GmbH, No. 1:11-cv-01108-SEB-TAB (S.D. Ind. Dec. 24, 2014), each gun manufacturing firms, have a contentious history. In 2009, Heckler & Koch USA brought a trademark infringement and trade dress suit against defendants based upon a trademark that was subsequently assigned to Heckler & Koch Germany. Heckler & Koch USA failed to inform the defendants of the assignment, or to record such assignment with the USPTO until eight months after the litigating parties reached a final settlement.

In 2011, Heckler & Koch’s American and German gun manufacturing firms initiated a second suit against the same defendants for trademark and trade dress infringement. In defending against the case, defendants alleged that Heckler & Koch committed fraud during the 2009 settlement negotiations by representing that Heckler & Koch USA owned the trademark then at issue, when it had, in fact, been assigned to Heckler & Koch Germany. The defendants also counterclaimed for cancellation of Heckler & Koch’s registration alleging fraud in the filing of the Section 8/9 declaration of use and renewal.

While sympathetic to defendants’ outrage, the court ultimately granted summary judgment in plaintiffs’ favor concluding that plaintiffs’ “underhanded misrepresentations” both to the defendants and to the PTO failed to rise to the level of fraud sufficient to satisfy the high burden necessary for either of its two fraud claims. Relative to the earlier settlement agreement, the court emphasized defendant’s inability to show reliance on Heckler & Koch’s misrepresentations as the 2009 settlement agreement terms expressly disavowed any such reliance: “Defendants make no admission of liability . . . or otherwise acknowledge the existence of any rights claimed by [Heckler & Koch USA.]” Defendants also failed to provide affirmative evidence that Heckler & Koch USA’s misrepresentations, rather than other considerations, prompted it to enter into the settlement agreement.

The court also rejected defendants’ attempts to cancel Heckler & Koch’s trademark registration on fraud grounds. Defendants had alleged fraud in the filing, by Heckler & Koch USA, of Section 8/9 declarations nearly a year after that mark was assigned to Heckler & Koch Germany. Noting that declarations not filed by the registration owner may be corrected after receiving notification of the deficiency, the court therefore reasoned that such statements of ownership were not material to the USPTO’s review and thus could not qualify as “material misrepresentations” sufficient to satisfy a claim of fraud.

The court’s opinion reconfirms the high threshold required to prove a claim of fraud in the post Bose world.