In a political environment in which even a global virus pandemic cannot seem to foster bipartisan legislative cooperation, the growing surge in fraudulent trademark applications – many of which are maturing into issued trademark registrations – has done just that.
On March 11, 2020, House Judiciary Chairman Jerrold Nadler, D-N.Y., and Ranking Judiciary Member Doug Collins, R-Ga. – less than two months ago embroiled in vituperative combat over presidential impeachment – jointly introduced the Trademark Modernization Act of 2020. They are joined by Rep. Hank Johnson, D-Ga., Rep. Martha Roby, R-Ala., Sen. Tom Tillis, R-N.C., and Sen. Chris Coons, D-Del. The bill seeks to protect legitimate brand owners, as well as consumers, from the consequences of trademark registrations based on applications, largely emanating from China, that falsely “prove” actual use of the given mark in commerce – the sine qua non for an enforceable trademark – using falsified specimens purporting to prove use. For example, the specimen of use submitted by the trademark applicant may be a manipulated digital image that adds the applicant’s trademark hang tag to a stock photo of the goods claimed in the application.
There is universal agreement that consumers have a right to rely on trademarks as trustworthy indicators of the source of the products and services that they choose to buy. Similarly, all recognize the importance of an effective trademark to the success of a new venture or a new product line. Legitimate market entrants, often small businesses, should not be blocked from adopting and enforcing a fairly selected trademark by fraudulent claims of prior use by entities purposefully abusing the registration system.
To better protect legitimate trademark claimants against the consequences of the dramatic increase in fraud in the registration process, and also to better protect consumers against deception caused by trademark infringement, the proposed legislation has three main components:
- It would create expedited, ex parte procedures (expungement or reexamination) to cancel registrations of marks that can be shown never to have actually been used in commerce.
- It would give third parties an inexpensive ex parte procedure to alert the U.S. Patent and Trademark Office (USPTO) to potentially fraudulent trademark applications before the application has proceeded to registration, and also give trademark examiners additional authority to investigate dubious evidence of use submitted by the trademark applicant.
- It would reinvigorate the rebuttable presumption of irreparable harm warranting injunctive relief on proof of trademark infringement placed in doubt by the decision in eBay, Inc. v. MercExchange.
Under current law, the USPTO takes at face value the representations submitted under oath by the applicant for registration. If an application otherwise meets all the prerequisites for registration, a digital image that appears on its face to display the mark on or in connection with the marketing of the goods or services claimed, accompanied by the applicant’s sworn statement that the image is genuine and shows use of the mark in commerce as of the claimed date, will be accepted. The application will then be “published for opposition.” Unless a third party claiming prior rights in the subject mark files a timely Notice of Opposition – a relatively expensive and time-consuming adversary proceeding between the applicant and the opposer, typically involving attorneys on both sides – the application will proceed to registration.
The proposed legislation would create a relatively inexpensive procedure for a third party that has evidence supporting refusal of registration to intervene before the mark registers. Specifically, the third party may submit its evidence with a concise description of why it supports denial of registration and request that the submission be included in the examination record. No further action by the third party is required. If the USPTO director concludes that the submission shall be included in the record, the examining attorney assigned to the file will then pursue further investigation.
Say, for example, a startup enterprise has conceived a trademark for its new product – often after considerable effort and expense – and discovers that a trademark application for the same or a very similar mark on similar goods is already pending and headed for registration. But after running internet searches and other inquiries, the startup cannot find any evidence that the trademark applicant is a real operating business or that it has actually used the claimed mark in commerce. The startup then need only collect and summarize the evidence produced by its investigation and submit it to the USPTO. It appears that this filing could be done even without disclosing the identity of the entity raising the challenge. If the USPTO finds the submission warrants further inquiry, the examining attorney will investigate, and registration will be denied if the specimen is shown to be false.
For marks that have already been registered, the legislation creates two new ex parte procedures to challenge the registration. First, it introduces a third-party expungement procedure, pursuant to which “[a]ny person may file a petition to expunge a registration on the basis that the mark has never been used in commerce on or in connection with some or all of the goods or services recited in the registration.” Second, it provides that “[a]ny person may file a petition to reexamine a registration on the basis that the mark was not in use in commerce on or in connection with some or all of the goods or services recited in the registration on or before the relevant date.” (For applications initially filed on an “in use” basis, the “relevant date” is the application filing date. For “intent-to-use” applications, it is the date of filing of the Statement of Use.)
In both cases, the law also allows the director on his or her own initiative to initiate either an expungement proceeding or a reexamination proceeding if the director discovers information warranting that procedure. An expungement proceeding may be initiated after the registration has been in effect for three years. A reexamination proceeding may be initiated not later than five years after registration.
These new ex parte procedures will be available in parallel with the much more cumbersome and expensive adversary petition for cancellation. The expungement option will clear the trademark registry of marks that have never been used on the given goods or services. Reexamination will result in cancellation of registrations as to goods or services for which the mark was not truly in use as of the relevant date, even though later use may have occurred.
Assuming this proposed legislation becomes law, it would appear most useful to weed out the mind-boggling litany of “similar” goods that are often included in applications for registration. A company that actually intends to market only T-shirts and baseball caps will often claim use of the mark on every conceivable type and category of garment (and often other classes of goods or services as well), and the registration may issue on all those goods. If it is shown that the only use has been on T-shirts and baseball caps, the registration as to the other products will be expunged or canceled, as the case may be.
The final contribution of the Trademark Modernization Act would be to clarify that, notwithstanding the Supreme Court’s decision in eBay, Inc. v. MercExchange (finding that a prevailing plaintiff in a patent infringement case is not automatically entitled to a permanent injunction), any plaintiff who establishes trademark infringement by the defendant (or in a preliminary injunction context, who establishes a likelihood of success on its infringement claim) is entitled to a rebuttable presumption that the infringing activity will cause irreparable harm.
A fundamental purpose of trademark law is to ensure that when a consumer chooses a product or service based on the brand with which it is associated, that consumer gets what he or she bargained for. Trademark infringement defeats this expectation. Particularly in a marketplace flooded by counterfeit goods that may be unsafe, contaminated or otherwise defective, trademark infringement exposes the consumer to significant and unjust harm. Where infringement has been shown, an injunction is typically needed to protect consumers from such risks. To receive injunctive relief, the plaintiff must show that unless enjoined, the infringing activity will cause the plaintiff irreparable harm. Reaffirming the rebuttable presumption of irreparable harm in such cases is both appropriate and necessary.
Time will tell whether this sensible bipartisan effort to improve the trademark registration system for both legitimate mark owners and for the consuming public will bear fruit. We will report on further developments.