Thursday, April 30, 2015

De Novo Review of a Trademark Registration Rejection Imposes BIG Penalties

The U.S. trademark office is an administrative agency and not a court. Yet it makes judicial decisions by accepting or rejecting a trademark for registration. If a trademark applicant desires that a "real judge", a judge appointed and confirmed under Article III of the Constitution, determine whether a trademark should be registered, the applicant has an important choice to make.

If a trademark is denied registration, and if the applicant seeks a judicial determination as to the correctness of this decision, the applicant can either appeal the refusal to register to the Federal Circuit or the applicant can sue the PTO Director in a de novo proceeding in federal district court.

In either case, the denial of registration by the trademark office is examined by an Article III judge. But the consequences are different, as is made clear in last week's decision from the Fourth Circuit in Shammas v. Focarino. The Fourth Circuit pointed out that an appeal to the Federal Circuit will overturn a registration rejection only if the PTO's refusal to register is not supported by substantial evidence. On the other hand, the applicant's institution of a new lawsuit in federal district court will permit the applicant to introduce new evidence, will force compliance with the federal rules of evidence, and will permit the Article III trial judge to review the issues de novo.

So, why would an applicant not want de novo review, rather than substantial evidence review, by an Article III judge? Because the Fourth Circuit explains that the Lanham Act imposes a significant financial penalty on the applicant in doing so. That is, the applicant is required to pay the PTO's expenses, including reimbursement of the costs of PTO lawyers and staff, whether the applicant wins or loses in district court.

The Federal Circuit explains that --
"... §1071(b)(3) imposes a unilateral, compensatory fee, including attorneys fees, on every ex parte applicant who elects to engage the resources of the PTO when pursuing a de novo action in the district court, whether the applicant wins or loses ..."
The Fourth Circuit underscores that the Lanham Act penalizes an applicant who seeks to have a judicial determination made de novo by an Article III judge as opposed to an Article II appointed administrator. So, even if the federal trademark office is completely wrong in its refusal to register a trademark, the right of the applicant to seek de novo review pursuant to the federal rules of evidence will cause the imposition of a substantial financial burden -- even if the applicant wins!

In the Shammas case cited above, the penalty imposed on the applicant amounted to some $36,000, representing the time incurred by the PTO's staff attorneys and paralegal. This was the price imposed on the applicant who merely wanted de novo review pursuant to the federal rules of evidence by an Article III judge. 

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