Record TM filings at the USPTO—but do they conceal a darker picture?

Amid the turmoil wrought by the COVID-19 pandemic, the US Patent and Trademark Office (USPTO) has been experiencing another unexpected upheaval—an unparalleled growth in the number of trademark applications.

According to IP data firm Clarivate, trademark filing activity at the USPTO has been growing by 10% per month since April. In a speech at the Intellectual Property Owners Association’s 2020 Virtual Annual Meeting in September, USPTO director Andrei Iancu revealed that August was the office’s biggest filing month yet, with 76,400 classes.

Meanwhile, the office is on track to file more than 700,000 classes for the year, compared to 673,233 in 2019. According to Clarivate, Chinese applicants accounted for 30% of all US trademark applications; in September this soared to 43%.

At first glance, this is excellent news for the US. According to the USPTO, while patent filings tend to be a lagging indicator of economic health, trademark applications are more closely correlated with economic activity.

Iancu noted: “This year, trademark filings at the USPTO have exhibited a healthy V-shaped recovery ... moving in parallel with the general economic recovery we are experiencing as a nation.”

But look closer, and the picture gets increasingly murky and complex. Some have begun to question whether this increase, nearly half of which is driven by applicants from China, will ultimately erode the quality of trademarks.

Bucking the global trend

“On the face of it, this trend is surprising,” says Robert Reading, director, government and content, IP group, at Clarivate. “At the moment, most countries are in an uncertain place economically, and trademark filings usually reflect this.

“In Europe in particular, we saw a big fall with trademark applications decreasing in March and April. The US, however, has been very stable and steady. It didn’t have a COVID-19 dip, which obviously leads us to ask why,” Reading says.

The febrile political and social situation in the US this year is one explanation for the surge.

“The pandemic, quarantine, social justice concerns, racial inequities, elections—everything that has occurred in 2020—have resulted in an uptick of filings incorporating ‘COVID-19’, ‘Black Lives Matter’, ‘social distancing’, ‘2020’, ‘vote’, and other keywords emblematic of these times,” says Purvi Patel Albers, partner at Haynes and Boone.

A complex picture

This trend could forecast unprecedented challenges to the traditional role and perception of brands and trademarks. As Reading notes, for more than 100 years it has been considered good practice for brand owners to create a memorable, easy-to-pronounce name, but online commerce is challenging this norm.

As online retail platforms including Amazon and Alibaba increasingly favour sellers with registered trademarks in a bid to tackle counterfeiting, some sellers have realised that random letters are unlikely to collide with an existing trademark and are a relatively safe investment.

“Vendors just need to tick a box to file a US trademark and it costs them a few hundred dollars. Some of the marks are nonsense, just random letters, but they meet the criteria. It’s all legitimate, but it’s a weird way of using trademarks—to get past a hurdle on an online platform,” says Reading.

This trend, he explains, may create a sea-change in how consumers perceive and value brands.

“The whole move towards online retail means that consumers increasingly make a decision based on reviews rather than their knowledge of brands. They may never have heard of the company but may think that 5,000 people can’t be wrong,” he says.

“On an online retail platform the actual brand name is a minor consideration for many buyers who are driven first by price and second by reviews—they will never need to pronounce the brand,” he adds.

Julia Anne Matheson, partner at Potomac Law Group, agrees that this trend could lead to a marked transformation in the way brands and trademarks are perceived by companies looking to carve market territory online.

“Our clients have seen a wave of emails and texts from Chinese companies/individuals seeking to buy existing US registrations,” she says.

“We are speculating this is due to the Amazon brand registry and/or requirements implemented by Alibaba and other online platforms requiring registrations—and the fact that buying is easier than going through the process.”

Matheson adds that obtaining a high-quality trademark is no longer a priority for many.

“For these companies, branding is not a key concern and it is much easier to buy an existing registration at low cost,” she says.

The China factor

Some US attorneys have argued that the surge of trademark applications from China has been driven by a determination within China to spur its citizens to apply for and own US trademarks.

Within the country, regional and city governments, most notably that of Shenzhen, subsidise US trademark filing by reimbursing companies for expenses relating to securing overseas trademark rights.

According to Matheson, these incentives have markedly reduced the quality of trademarks filed at the USPTO.

“The Chinese government is financing this wave through subsidies that essentially pay their citizens to obtain foreign trademark registrations regardless of their legitimacy,” says Matheson.

“China obviously wants to be able to be able to point to numbers. It is important for the Chinese government to be able to say that it is an important player on a global stage and that it values IP by pointing to the number of US trademarks it has.

“It is a matter of national prestige,” says Reading.

As tensions between the US and China continue to mount, some have speculated that political motives are also at play.

Josh Gerben, founder of Gerben Law, has written about the problematic questions posed by the trend in Chinese provinces offering cash incentives for local businesses who are able to obtain trademark registrations in foreign jurisdictions.

“China may be encouraging or adopting policies designed to undermine the US trademark registration system,” he wrote in a blog post on Gerben Law’s website.

“In response to an influx of trademark applications, the US government may struggle to meet predictable examination schedules. Delays in the examination process can lead to harm and uncertainty for US companies trying to decide how to proceed with investing in a brand, ultimately affecting commercial progress,” he added.

However, these viewpoints have been disputed.

“As for whether ‘China may be encouraging or adopting policies designed to undermine the US trademark registration system’, I think this might be an underestimation of how much squatters, and not just Chinese squatters, are driven by profit and greed,” argues George Chan, partner and head of Simmons & Simmons’ Beijing IP Agency.

“If a person can sell a trademark for a significant amount more than the filing costs, this is more than enough to incentivise US trademark applications by squatters,” he adds.

Furthermore, Chan points out, the issue of trademark squatting is not confined to the US, but is instead a global problem.

“We have been contending with trademark squatting in China since the promulgation of China’s modern trademark law, and trademark squatting, until now, continues to be a huge burden for legitimate businesses as well as for the China National Intellectual Property Administration,” he adds.

Brand revolution

The surge in filings will lead to significant ramifications over the coming months for brand owners and the USPTO.

“The increased burden on trademark office resources means that US prosecution time may lengthen and registration may become more challenging and costly due to increased potential of third party citations during the examination process,” says Matheson.

It will also mean that brand owners and their attorneys will have to be increasingly vigilant when it comes to safeguarding IP, and warding off fraudsters and counterfeiters.

In June 2019, the US Commissioner for Trademarks Mary Boney Denison told a US Congress sub-committee that filings from China had increased exponentially since 2014, jumping from 5,161 applications in 2014 to 54,064 in 2018.

“This dramatic rise in applications coincides with the rise in inaccurate and fraudulent claims of use that threaten to undermine the reliability of the trademark register,” she said.

Furthermore, according to Barton Beebe, professor of IP Law at New York University School of Law, and co-author of the article, “Are We Running Out of Trademarks? An Empirical Study of Trademark Depletion and Congestion”, two-thirds of the applications filed in 2017 in the US class 25 (apparel) were fraudulent in nature, yet 60% of those were approved for publication by the USPTO, and 39% proceeded to registration.

To curb this surge of bad faith filings, the USPTO announced that starting on August 3, 2019, all foreign-domiciled trademark applicants, registrants and participants in USPTO trademark proceedings must be represented by US counsel.

But Josh Reisberg, partner at Axinn’s IP group, believes that, despite such steps, this trend may be expected to continue.

“To the extent trademark filings remain high and to the extent that such a trend is attributable to increased online activity, consumers and trademark filers alike need to be cognisant of increased fraud and counterfeiting and take the necessary steps,” he says.

If this trend continues in the long term, it could ultimately pose unsettling questions about the purpose of trademarking itself—and whether the traditional role of a trademark is under threat.

“The fundamental issue is whether this will change what a trademark actually is. It is getting to the point now where a trademark is just a form,” argues Reading.

“If nobody remembers what the brand is, then it’s not a brand at all. It’s separating trademark registrations from the whole concept of brands.”

Image: Shutterstock.com / vvoe