HAPYFSHMI, ARUPKEER, SKIKYAN? The Influx of US Trademark Applications from China

By Laura J. Winston, Offit Kurman, P.A.

Most jurisdictions allow entities and individuals to register trademarks and thus claim exclusive rights without having used or even having any intention to use the marks.  While these countries eventually allow third parties to challenge registrations on grounds that the marks are not in use, they do not require the registrants to proactively demonstrate use in the absence of such a challenge.  The United States is an outlier because even absent a third-party challenge, it requires, with limited exception, ongoing proactive evidence of use to obtain and maintain the registration and that such use is for all the goods and services listed in the registration.  Because the use requirement is fundamental to trademark protection in this country, the United States Patent and Trademark Office (USPTO) has been concerned by the number of U.S. trademark registrations that remain active despite the absence of use for all or some of the goods and by the massive influx of new applications primarily from China and elsewhere outside of the country, a substantial proportion of which are based on claims of actual use in U.S. commerce and include arguably fraudulent evidence of use.

While greater numbers of registrations and applications generate revenues for the USPTO, they increase the burden on the agency and slow its processes.  They discourage or even block other parties that are truly interested in adopting and registering similar marks in the United States from doing so.  In the face of a growing population of so-called “dead wood” and overly expansive registrations and applications, interested parties can have less confidence in the trademark register and thus less certainty in the results of clearance searches, and they often expend greater efforts and fees in investigating and challenging prior-filed registrations and applications.  Legitimate applicants also encounter increased requirements and refusals of their own applications and registrations arising from the USPTO’s attempts to address the problem of the cluttered register. Moreover, the USPTO’s efforts to address these problems require more resources as it develops new programs and proceedings, adopts new technological tools, and trains its staff.  Brand owners bear the burden of rising costs associated with these activities through payment of increased official (i.e., government) fees.

In trying to address the problems arising from the massive influx of new U.S. trademark applications from abroad, much focus has been placed on the motivation behind these applications.  In order to properly evaluate the motivation, we consider the nature of at least a significant proportion of the marks sought to be registered.

A quick review of several of the recent U.S. applications filed by Chinese individuals and entities suggests that many cover a single class with about 15 different goods or services and are based on claims of actual use in U.S. commerce.  The scope of the goods and services, as well as the filing basis, seem a departure from earlier practices in which Chinese and numerous other foreign applicants would seek registration, often based on intent to use and/or a home country application or registration, for substantially more extensive lists of goods and services.

The majority were single applications, each by a different applicant, though there are still significant numbers of applicants that filed more than one application.

Also, many of the U.S. applications filed by Chinese applicants in 2020 are for marks comprising odd combinations of a relatively small number of characters that frequently form unpronounceable terms.  A substantial majority comprised 6 or 7 letters.  For example, we identified approximately 3,000 applications for marks comprising up to 7 letters and commencing with the letter A, such as AWNEVZU, AVULZGD, and ASVZUNY, and 2,000 applications for such marks commencing with the letter B, such as BLLATTA and BNUWQYU, all coming from China.  While under principles of U.S. trademark law, these terms would generally be considered fanciful and thus protectable and strong on the spectrum of distinctiveness, their nonsensical nature and the fact that there are so many of them suggests that the applicants care more to have an application or registration on file regardless of the mark than to establish a particular brand.

At first glance, it seems unlikely that such unpronounceable marks would be the names of products or sellers’ e-commerce storefronts.  E-commerce and social media platforms such as Amazon, Facebook, WeChat, and AliBaba require trademark registrations for some of their respective programs.  While requiring submission of a trademark registration appears to be a growing trend on e-commerce platforms, and it undoubtedly encourages brand owners to apply to register their trademarks if they have not already done so, we doubted that the brand protection aspects of these platforms are the driving force behind the influx of U.S. trademark application filings.  We considered that, to the extent that the Amazon Brand Registry is the motivator, we would have seen a large proportion of these applications for seemingly nonsensical marks filed through one of the limited numbers of firms or attorneys in Amazon’s IP Accelerator program, which provides a competitive advantage to a selection of legal representatives by allowing them to secure their clients’ brands in the Amazon Brand Registry well before the issuance of registrations.  However, an analysis of the correspondents of record in these cases does not reveal that the most significant proportions of them were filed by Amazon’s selected firms.  Furthermore, we did not identify a corresponding IP Accelerator program in China.  We, therefore, considered that while e-commerce platforms would be welcome to have a role in decluttering the USPTO trademark register, they were not the cause of the problem.

This led us to consider that the motivation for the numerous U.S. application filings has been derived primarily from local government subsidies.  In January 2021, the USPTO issued a report examining non-market factors, including Chinese government subsidies in the form of direct payments from local governments in enterprise zones to trademark registrants and mandates, bad-faith and defensive registrations, and their impact on trademark filings. It concludes that the inflated statistics that result from non-market factors may overstate the intensity of China’s brand creation efforts, perhaps creating a misperception that the country or its major industry centers are doing more business than is actually the case.  The report points to 77 sub-national trademark subsidies in municipalities and special economic zones in China, including in Shanghai and Shenzhen, though several have since expired.  It further mentions a January 6, 2020 announcement by the China National Intellectual Property Administration of plans to eliminate large subsidies for trademarks.  In fact, according to the Shenzhen government website, www.sz.gov.cn, the subsidy offered by it was lowered in October 2019 from 5,000 RMB to 1,000 RMB, which equals about $150. This is less than half of the official filing fee for a single-class trademark application in the United States.  It, therefore, appears that it is not the subsidies that are driving the influx, at least in Shenzhen, where one of the most significant proportions of Chinese applicants is based.

So what is the driving force?  According to Maggie Wang, the Chief Representative in China for Ladas & Parry LLP, the main motivators are the buying and selling of Amazon storefronts accompanied by their corresponding trademark registrations.  Amazon has two kinds of seller accounts, an individual account which is free to register and maintain but has a fee associated with each sale, and a professional account which has a monthly fee regardless of the number of sales.  Professional sellers with one or more trademarks in the Amazon’s Brand Registry are entitled to branded storefronts and other advertising and sales-bolstering perks at no additional cost. Others have described Amazon’s active efforts to recruit professional sellers in China, and recent estimates of 200,000 to 250,000 of such sellers and efforts by a substantial proportion of them to take advantage of U.S. consumers by manipulating Amazon’s platform in several different ways.  The sale or transfer of control of these storefronts is often accomplished through brokers, who negotiate fees of as much as $100,000 each with buyers who want easy and immediate access to the U.S. market for their products.  The actual branding is of much less consequence than the ability to be positioned to sell the storefront.  This creates an incentive for individuals and businesses to file applications while bypassing efforts at brand development and their corresponding costs.  This also helps to explain why so many of the filings are based on claims of actual use, which often proceed to registration more quickly and cheaply because there is no need to wait for allowance and pay for a Statement of Use before registration can issue.  Given the prospect of extensive revenues from a single sale and the relatively minimal costs of applying, combined with the disinterest in brand development, it seems like only a minor leap to arrive at the concept of using an algorithm to come up with marks like those in the examples above to use in applications.

Using an algorithm to generate a trademark that the applicant legitimately puts to use before filing its application does not necessarily run afoul of U.S. trademark laws.  If the applicants for registration are setting up storefronts from which they are actually selling goods bearing the marks, this is a legitimate use even if their intentions are to sell the trademark and business to the highest bidder as fast as possible. However, if the applicant simply goes for that one sale into the United States in order to file an application or statement of use and get a registration, there could be a challenge that it is a mere “token use.”  Some proportion of these applicants have not used their marks at all and instead support their applications with fraudulent evidence.  But it seems that Chinese applicants view the U.S. trademark application as an investment and one that is relatively inexpensive in comparison to the significant income it can produce from the sale of the storefront.

Efforts by the USPTO to address the cluttered register have been piecemeal and not completely successful.  In part, the agency has, at least until recently, been limited in its authority and in its resources to tackle the problem.  Its  fee increases from earlier this year will help it in implementing technology to better identify fraudulent specimens and in expanding its use audit program to narrow or cancel registrations for marks for which there is insufficient evidence of use.  It has released guidelines surrounding the examination of allegedly digitally altered specimens, though many U.S. practitioners, including the authors, have received refusals contending that real, legitimate specimens were somehow falsified, and our clients have borne the resulting costs.  The USPTO has also placed some of the burdens of addressing the cluttered register on legitimate brand owners, requiring our clients to challenge applications and registrations that serve as obstacles.  The Trademark Modernization Act of 2020, for example, will equip parties to inform the USPTO of certain registrations that should be expunged or reexamined due to non-use or to directly seek cancellation on similar grounds. If stakeholders utilize these new options against even a significant portion of the concerning registrations, it will undoubtedly place a major burden on the USPTO and will be costly for the stakeholders.  Of course, the new law does not address the influx of applications apart from formalizing the procedures for filing letters of protest and setting a requirement for the USPTO to take action within a time limit.  So, there seems little hope in the short term of achieving a clean trademark register consisting only of marks that are or at least will soon be in use in relation to all of the goods and services listed.

While reaching a consensus on what should be done has been a challenge, we have the following suggestions for the USPTO and the trademark bar:

• Gather more information about use in commerce: The USPTO’s requirements for use specimens are essentially limited to showing that the applied-for mark is used as a source indicator. It has traditionally relied on the applicant’s declaration under penalty of perjury that the mark is in actual use in U.S. interstate commerce.  It has done so purportedly because it did not have the resources to examine these aspects.  We consider that recent increases in official fees should enable the USPTO to begin to address these aspects of use, though it would be burdensome on legitimate applicants to have to provide additional evidence.  Accordingly, we suggest that the USPTO require each applicant to include a statement attesting to how its use qualifies as use in interstate commerce when the use shown in the specimen and described in the statement occurred, and how much use has occurred as of the relevant date (the date of filing the claim of use, whether as a use-based application or a Statement of Use).  These statements would equip examining attorneys to raise refusals and third parties to challenge the application or registration more easily.
• Gather more information about subsidies: While subsidies do not appear to be the current driving force, we believe that they have been in the past and that they could be in the future. By proactively gathering information about subsidies, the USPTO would be better positioned to determine whether these subsidies impact the quality of applications and registrations on the register. The USPTO should include a Request for Information in all applications in order to learn from applicants about whether they have received or will become entitled to receive one or more governmental subsidies for their application or registration and the amounts, limitations, and requirements of each.  An affirmative and honest answer should not be grounds for refusal or objection, but a false answer should be considered a fraud on the USPTO and raise a presumption of a lack of bona fide use.
• Provide an incentive for disinterested parties: In establishing implementing rules for the Trademark Modernization Act of 2020, the USPTO could consider refunding some or all official fees in successful expungement and reexamination cases or even providing a small reward as an incentive – not enough to encourage a flood of specious claims, but possibly enough to encourage people to invest some time and money into a claim they believe is appropriate and likely to succeed. The USPTO might also be able to mobilize the various USPTO Intellectual Property Clinics in law schools to make these kinds of submissions.

Even as of this writing, with an increase in official fees that came into effect at the beginning of this year, there is no slowdown in the number of U.S. trademark applications coming from China. As long as there is an economic advantage, these will continue, and some will be ill-gotten and detrimental to legitimate filers and brand owners. But these disadvantages can be mitigated if brand owners, trademark practitioners, and the USPTO work together to ensure they are addressed at the policy level.

The authors would like to thank Chris Frangiosa of Eckert Seamans Cherin & Mellott LLC, Eric Perrott of Gerben Perrott PLLC, and Maggie Wang of Ladas & Parry LLP for their useful insights in contribution to this article.

An earlier version of this article first appeared in the WTR Special Report “The rise of mass filers and register clutter: challenges and possible solutions,” published by Law Business Research. To view the report in full, please go to www.WorldTrademarkReview.com.