The trademark front

Why Chinese filings are swamping the PTO

Grant's Take on IP Law

Grantland Drutchas

Grantland Drutchas, a founder and current managing partner of McDonnell Boehnen Hulbert & Berghoff, currently serves as chair of the firm’s patent trial and appeals board trials practice group and of the litigation  and appeals practice group. He also teaches in the IP program at IIT Chicago-Kent College of Law.
drutchas@mbhb.com

August 2019

In spite of the talk about China not respecting U.S. intellectual property rights, that dialogue has been focused on patents and trade secrets, and almost completely absent on trademarks in China, where the country has instituted several programs to strengthen trademark protection. But there is a new trademark frontier for Chinese entities: the United States. And Chinese trademark application filings, many of them potentially fraudulent, have reached an all-time high.

The extensive concerns about the lack of viable trademark protection in China have largely disappeared. And for good reason: China seems to be doing pretty well on ramping up trademark protections. In 2018 alone, China conducted more than 31,000 trademark misuse investigations; China’s Supreme Court issued a leading decision invalidating registrations where owners were hoarding them without intending to put them to genuine commercial use; China enacted a new e-commerce law with IP notice-and-takedown procedures; and China opened new cyberspace courts in Beijing and Guangzhou to prosecute online counterfeiting.

In April of this year, China’s legislature approved amendments to its trademark law making further inroads against bad faith registration and hoarding of trademarks. The China National Intellectual Property Administration is also working on new regulations designed to address bad faith registrations.

Chinese entities have been working mischief in the U.S., however, with a huge surge in trademark applications filed with the U.S. Patent and Trademark Office. Many of them are potentially fraudulent. From 6,323 applications in FY 2014 and 14,144 in FY 2015, the number of applications filed by Chinese entities has exploded to 28,770 in FY 2016, 50,942 in FY 2017 and 57,879 in FY 2018. Much of this growth appears to be subsidized by a Chinese government policy of payments to Chinese entities for making foreign intellectual property filings, including trademarks.

The Patent and Trademark Office, which is facing this onslaught of applications, has expressed significant concern over the extent to which it is fueled by fraudulent trademark applications. In particular, they are considering requiring foreign trademark applicants and registrants to be represented by a U.S. licensed attorney. The point? To ensure that the office can effectively use available mechanisms to enforce foreign applicant compliance with statutory and regulatory requirements in trademark matters.

So it seems that China has taken the battle to new fronts, including here in the U.S., particularly for fraudulent trademark applications.

For those of you who are not trademark experts, a little primer. A trademark is any word, name, symbol or device, or any combination thereof that distinguishes a particular artisan’s goods from those of others and helps consumers identify goods and services that they wish to purchase, as well as those they want to avoid. Trademarks foster competition and the maintenance of quality by securing to the producer the benefits of good reputation.

Contrary to popular belief, the federal registration scheme for trademarks — created in 1870 and administered by the Patent and Trademark Office — is not a requirement for protecting your trademarks; trademarks are almost unique in intellectual property law in that regard. Trademark rights have long been the subject of state common law protection, and even unregistered trademarks can be the subject of federal statutory protection (under Section 43(a) of the Lanham Act and the Anticybersquatting Consumer Protection Act, 15 U. S. C. Section 1125(d)). So if someone is legitimately using a product with a trademark in the U.S., a federal registration of a trademark is certainly not an absolute requirement.

So why fraudulent trademarks? In order to obtain a registered trademark (validly) the applicant must file a declaration of use, or intent to use within six months, the mark in interstate commerce in the United States. Thus, if an applicant is only using a mark in a foreign country, with no legitimate intent to introduce a marked product in the U.S. within six months, the application would be fraudulent.

But a federal trademark registration can allow you to obtain damages for trademark infringement, provides national protection, and carries with it statutory presumptions of the validity and ownership of the mark and of the exclusive right to use the mark nationwide on or in connection with the goods or services listed in the registration. Fraudulent marks allow the applicant to capitalize on this presumption of validity, hoard the mark and threaten to assert the mark against later users, or extort them for remuneration.

As to why this is such a potential problem, the supply of English language trademarks is not inexhaustible. In 2015, the Chicago Tribune noted the dilemma facing a vitally important U.S. industry — craft beers. “Craft Beer Makers Running Out of Names. How About Flip Donkey Doodleplunk?”

The New York Times decried this problem more generally. “Almost every naturally occurring word has been claimed, which is why namers so often arrive at portmanteaus (Accenture derives from ‘accent’ and ‘future’) or drop vowels (Flickr and Tumblr) or change letters (Lyft).”

One Harvard Law Review article that conducted an empirical study of potential trademarks confirmed these fears. A systematic review of 6.7 million U.S. trademark applications filed from 1985 through 2016 together with the 300,000 trademarks already registered at the Patent and Trademark Office as of 1985 confirmed that the “supply is already severely depleted, particularly in certain sectors of the economy, and levels of depletion continue to rise.”

The authors concluded that “new trademark applicants are increasingly being forced to resort to second-best, less competitive marks and the trademark system is growing increasingly — perhaps inordinately — crowded, noisy, and complex.” Are We Running Out of Trademarks? An Empirical Study of Trademark Depletion and Congestion, 131 Harv. L. Rev. 945 (Feb. 9, 2018).

In short, in this increasingly global economy, where English language marks proliferate on products sold throughout the world, China has brought the new battleground for protection of trademark rights right here, to our home turf.