This Part I of a 2-part series explores the recent exponential growth of the number of trademark applications at USPTO (US Patent & Trademark Office) that originated from China, and its impact and implications with respect to the disclosure by trademark applicants and registrants to USPTO. In Part II, I will review the legal standards and liabilities for trademark disclosure and the importance of “uncompromising candor” in all communications with USPTO.
Incentives for fraud – Attractive benefits of a federal trademark registration
In US, trademarks (including service marks) are protected under both federal and state laws. These protections are predicated on actual use. That is, once a mark is in actual use as an indicator of the source of goods / services, the mark can be protected without having to register the rights with the governments. Federal registration of a trademark, nonetheless, provides several benefits to the trademark owner (see, eg, here.), such as:
- Presumption of validity and ownership of the trademark;
- Nationwide priority in the trademark;
- Public notice of the claim of ownership of the trademark;
- Listing in USPTO’s online database;
- Right to use the federal registration symbol “®”;
- Use of US registration as a basis to obtain foreign registrations;
- Ability to stop import of goods at the border;
- Ability to bring a lawsuit in federal courts;
- Ability to demand statutory damages;
In the age of e-commerce, the benefits of a federal trademark registration can be even more attractive. A registered trademark owner can request an e-commerce platform, such as amazon.com, to take down listings that the owner believes to be infringing on the trademark, by presenting the trademark registration as proof of senior rights to use the trademark. To avoid their own liability, e-commerce platforms generally comply with the takedown request relatively quickly, hampering the alleged infringer’s ability to profit from the e-commerce platforms, which have become a critical sale channel for nearly all retail businesses.
Such benefits vested in federal trademark registrations, however, also can serve as a perverse incentive for bad actors to abuse the system, particularly when coupled with the relative ease at present to register a trademark in US. As the rest of this article discusses, in recent years, the number of trademark applications submitted by applicants located in China has risen phenomenally. Unfortunately, the number of fraudulent Chinese applications has also increased proportionally. These growing fraudulent applications pose a serious threat to the integrity of the federal trademark registration system and commercial activities in US. They have also prompted USPTO to scrutinize more carefully all trademark registrations and applications for potential fraud, affecting all trademark owners interested in registering their trademarks.
Vulnerability to abuse – Relatively simple application process
Compared with patents, registration of a trademark at USPTO appears relatively simple and straightforward. The registration application process is prescribed under the Lanham Act. (15 USC 1051 et seq.) Particularly, §1 of the Lanham Act requires a trademark registration applicant to provide the following key info (15 USC 1051(a)(1) & (2)):
- Applicant’s domicile & citizenship;
- The date of applicant’s first use of the mark;
- The date of the applicant’s first use of the mark in commerce;
- The goods / services in connection with which the mark is used;
- A drawing of the mark;
- One or more specimens of the mark as used.
There are a few other info that may also be required, if applicable, such as foreign translation of the trademark wording, special meaning of the trademark in the industry, geographical meaning, use by a licensee, etc. For many applications, however, the key info above is all that is required to register a trademark. Moreover, except for the “one or more specimens”, USPTO generally does not verify the authenticity of the info submitted by the applicant. Even for the specimen(s), although USPTO does examine them for any obvious deficiencies, it does not affirmatively verify their authenticity. Therefore, the trademark registration process adopts a largely honor system, relying primarily on the participants’ voluntary disclosure and the threat of penalty for false or fraudulent disclosure. Given the attractive benefits vested on a federal trademark registration, however, such an honor system may be vulnerable to abuses.
Increasing fraudulent applications and heightened alert at USPTO
In 2019, Ms. Mary Denison, then Commissioner for Trademarks at USPTO, presented a statement to the Congress titled “Counterfeits and Cluttering: Emerging Threats to the Integrity of the Trademark System and the Impact on American Consumers and Businesses.” (See here.) In the statement, Ms. Denison testified that trademark “filings from China have increased exponentially since 2014, jumping from approximately 5,161 applications in fiscal year 2014 to approximately 54,064 in fiscal year 2018. This dramatic rise in applications coincides with the rise in inaccurate and fraudulent claims of use”. In a report dated January 2021, USPTO further extended the timeframe to 2019, which continued to show exponential growth of Chinese applications. (See here and the Figure below.)
Furthermore, in a recent paper, Profs Barton Beebe & Jeanne Fromer examined a sub-set of 345 trademark applications randomly sampled from the set of use-based applications in Class 25 (Clothing) that originated from China and were filed to USPTO in 2017. Based on their analysis, they concluded that more than 2/3 (66.9%) of the applications examined included “fraudulent specimens”. (See here.)
Alarmed and alerted by this exponential rise in the number of potentially false, inaccurate, or fraudulent trademark applications, and the consequential harm to the trademark registration system and commerce, USPTO has implemented several measures to arrest this rising tide, including (derived from 2019 Denison Statement):
- Requiring foreign-domiciled applicants to be represented by US counsel (effective 8/31/2019);
- Auditing post-registration maintenance filings (initiated in 2012; made permanent in 2017);
- Updating examination guidance and issuing refusals based on lack of evidence of use in commerce (2019); and
- Piloting programs to allow third parties to provide evidence in examination and expedite inter partes non-use challenges (2018).
Furthermore, Congress has introduced bipartisan bills that would make it easier for the public or USPTO to expunge or re-examine a trademark registration that has not been in-use or has been abandoned. (See, eg, here.)
Trademark owners required to exercise “uncompromising candor”
All these agency and legislative actions and changes mean that all communications between trademark owners and USPTO will likely be scrutinized more closely than before, not only by USPTO but also by courts, competitors, opponents, and even the general public. Even before these changes, the courts have consistently required a trademark registration applicant to exercise “uncompromising candor” in communications with USPTO. With the new measures and changes, this “uncompromising candor” will likely be subject to scrutiny under an even stronger magnifying glass. All trademark owners should carefully review all their past and future disclosures to USPTO to make sure they have satisfied the “uncompromising candor” requirements.
In Part II, I will discuss the legal framework governing trademark disclosure and liabilities for violations.