Client Alert: Congressional Hearing: Trademarks & Counterfeiting

CLIENT ALERT: United States Congressional Hearing on Counterfeits and Cluttering: Emerging Threats to the Integrity of the Trademark System and the Impact on American Consumers and Businesses

The U.S. House Subcommittee on Courts, Intellectual Property, and the Internet has jurisdiction over the administration of the U.S. Courts, the Federal Rules of Evidence, Civil and Appellate Procedure, judicial ethics, patent, trademark law and information technology. On July 18, 2019, the Subcommittee met with the United States Patent and Trademark Office (USPTO) and other IP industry professionals to discuss the current and ongoing challenges and threats.

The Commissioner for Trademarks of the USPTO, Mary Boney Denison, testified before this Subcommittee. The USPTO, which focuses on ensuring the integrity and credibility of the patent trademark system, remains challenged with the notable increase in the number of trademark applications that appear to have been filed with the intent of contributing to the proliferation of counterfeit goods.  Commissioner Denison stated, “The USPTO increasingly has been receiving trademark application and registration maintenance filings involving false or inaccurate use claims and submission of fake or digitally altered specimens that do not actually show use of the mark in U.S. commerce in the ordinary course of trade as required by law. Many of these applicants appear to be filing these questionable applications on the advice, or with the assistance of, foreign individuals and entities who are not authorized to practice law in the U.S. and therefore should not be representing trademark applicants before the USPTO.”

Since 2014, the United States has seen a notable annual increase in the number of trademark applications filed.  Currently, following the United States, China is the leading filer of U.S. trademark applications (e.g., in 2018, 60,000 of the 400,000 applications filed in the United States were from Chinese applicants).  An ever-increasing number of government-supported Chinese applications appear to be bad faith submissions, containing inaccurate or potentially fraudulent claims and/or submission of fake or altered specimens of use. 

Commissioner Denison also discussed the following USPTO challenges:

1.       Lack of out of new trademarks that could be perceived at strong marketable marks;

2.       Reluctance of the U.S. Courts to provide injunctive relief, resulting in similar marks to those opposed remaining active; and

3.       Misuse of trademarks on counterfeit goods, particularly by sellers on online marketplaces.

Unfortunately, the majority of consumers are not aware when they are acquiring counterfeit goods, particularly when they are purchasing from online marketplaces. Commissioner Denison advised that, due to the direct threat to the trademark system (which negatively impacts all U.S. commerce from small businesses to large corporations), this is an issue deserving of urgent attention from Congress. The Chairman of the Subcommittee, Mr. Hank Johnson (D-Georgia), and Ranking Member, Ms. Martha Roby (R-Alabama), challenged the USPTO to provide a response when posed with the question, “Does the USPTO need additional statutory authority in order to combat these challenges?” The USPTO seemed to be open to ideas, including:

1.       Partnering with large online marketplace providers such as Alibaba, Amazon and eBay in enforcement efforts; 

2.       Issuing fines associated with bad faith trademark filings; and

3.       Enabling the USPTO to cancel a trademark registration if deemed to be associated with fraudulent and/or counterfeit goods

Commissioner Denison cited several likely reasons for the increased number of US. trademark applications, including:

1.       Incentives are being provided by regional and local governments, including to Chinese trademark registration factories;

2.       The significant rise of Internet purchases is creating greater business demand; and

3.       A U.S. trademark registration is perceived to be prestigious in the global business community.

Commissioner Denison discussed specific actions the USPTO is taking to address these challenges in order to maintain the integrity of the trademark system. These actions, which received strong praise from the Subcommittee, include:

1.       Every non-U.S. trademark applicant must be represented by U.S.-licensed attorney, and associated Bar membership information is required;

2.       Starting on October 5, 2019, the USPTO will be mandating use of their electronic platform for all trademark-related filings and related communications;

3.       Formulation of a USPTO Task Force to assist with expanded auditing processes to ensure marks are being used accurately, post-filing;

4.       Increased education for trademark examiners, and updates to the Examining Guide incorporating fake goods discovery processes and procedures;

5.       Implementation of the USPTO database system that will track illegitimate specimens; including reverse imaging search capabilities; and

6.       Examiners are urged to issue a refusal to an application if something seems suspicious.

Next, the Subcommittee welcomed a panel of additional witnesses to further discuss the commercial and law enforcement challenges that plague the economic health of various industries. Key witnesses for this portion of the hearing included  Robert Barchiesi, President of the International Anti-Counterfeiting Coalition (IACC), and Rebecca Mond, Vice President, Federal Government Affairs, of the Toy Association.

All hearing participants recognized these issues are bipartisan and have a clear negative impact on the U.S. marketplace. In particular, Mr. Barchiesi stated that the growth of the sale of counterfeit goods in recent years has had a devastating effect on our consumers’ health and safety, as well as further losses to jobs and the growth of U.S.-based small businesses. Partners of IACC, including e-commerce companies, Internet registries and registrars, along with shipping companies, have helped to reduce the number of transactions in connection with counterfeit goods, but there is much more work to be accomplished.

Rebecca Mond, Vice President of the Toy Association, informed the Subcommittee that their members represent over 1100 businesses, of which 95% are small businesses.  These members bring more than $27 billion in annual sales into the U.S. economy.  Currently, the Toy Association has been focused on curbing the flow of counterfeit goods sold, due to the safety concerns associated with such goods being in the hands of children. For example, counterfeit goods are far less likely to meet U.S. safety standards in connection with such areas as flammability, choking hazards, non-toxic materials, and more. 

Under the current third party marketplace system, illicit sellers frequently offer  inferior and unsafe counterfeit toys that put children at risk in exchange for profit. According to Ms. Mond, by U.S. law,  all domestic-based toy companies must meet the same strict safety standards to ensure the protection of children. The U.S. Government needs to create and enforce laws to ensure all manufacturers are accountable and adhere to the same strict obligations and maintain the highest level of safety standards and certifications. By bypassing these safety steps and the related overhead costs, manufacturers and sellers of counterfeit goods can appear to be offering merchandise at lower prices. Those shopping in online marketplaces may be looking for the lowest price on what appears to be a name-brand item, without recognizing that such items may be counterfeit. Significant changes must occur to the current framework so everyone benefits from a safe and trusted e-commerce marketplace.

In closing, the Chairman and Members of the Subcommittee publicly stated their appreciation to Commissioner Denison and the employees of the USPTO, as well as to the other witnesses that provided helpful testimony. All parties look forward to working together to address the ongoing abuse of U.S. trademark laws and to continue to reduce the incidents of counterfeiting that cause harm to U.S. businesses of all sizes and consumers alike.