China’s fraudulent trademark grab in the U.S. Will the elimination of subsidies put an end to it?

In mid-March, Hodgson Russ discovered something suspicious during one of its clients’ regular trademark maintenance checks: a new trademark application that the client had never filed appeared in the U.S. Patent and Trademark Office (USPTO) system.

Neil Friedman, an intellectual property attorney and partner at the firm, told Voice of America, “We looked at those files [in the system] and saw that the client’s name and address were correct, but the contact information listed on the application was false.”

Friedman then filed a complaint with the U.S. Patent and Trademark Office to report the trademark application fraud.

Information made public by the USPTO revealed that the applicant for the fraudulent trademark registration was from China, used QQ email as his contact information, and appropriated the name of a U.S. attorney to sign the application. The USPTO received similar complaints from other U.S. companies during its investigation and found that the Chinese applicant had also falsely applied for 10 trademarks involving other U.S. companies under false pretenses.

The Office of Commissioner for Trademarks (OCT) subsequently issued an Order to Show Cause to the Chinese applicant, and in May of this year, ultimately issued an order terminating the trademark application process and permanently barring the applicant from filing trademark applications with the USPTO. In May of this year, an Order to Show Cause was issued against the Chinese applicant, resulting in an order terminating the trademark application and permanently prohibiting the applicant from filing trademark applications with the U.S. Patent and Trademark Office.

Fortunately for Friedman and his client, the false trademark had only recently been filed when the problem was discovered. Friedman said that if they had discovered it later or if the application process had gone further, they would have been able to remedy the situation with the USPTO, but “the damage that the fraudster could have caused would have been unknown.”

Spike in applications

Fraudulent trademark registrations from China are not a new problem. The surge in the number of U.S. trademark applications filed by Chinese companies in recent years, and the accompanying malicious and fraudulent registrations not for use, has raised some concerns.

Data from the U.S. Patent and Trademark Office shows that the number of trademark applications from China jumped 1,264 percent between 2013 and 2017, skyrocketing from less than 5,000 to more than 76,000. And that number has continued to climb since then. According to Barton Beebe, a professor of intellectual property law at New York University School of Law, the U.S. Patent and Trademark Office received 171,000 trademark applications from China in 2020, the equivalent of one in four new applications coming from China.

U.S. Senator Thom Tillis of North Carolina, the senior Republican member of the U.S. Senate Judiciary Committee’s Subcommittee on Intellectual Property, noted in 2019: “I am concerned that trademark applications from China are leading to a situation where fraudulent trademarks are clogging the registration system, preventing legitimate American businesses and brand holders from obtaining trademarks, affecting their ability to protect and promote their reputations.”

Cai Jingming, an attorney with San Jose, California-based Tianhua Law Firm, cites the growth of e-commerce businesses such as Amazon as the reason for the huge increase in trademark applications from China. He told Voice of America, “With the increase in trade between the U.S. and China, the increase in e-commerce, that’s the main factor I can see. And Amazon is becoming more and more important, and it requires merchants to register their brands.” He said some of his clients are required to register their trademarks just to sell on Amazon.

The percentage of Chinese sellers among Amazon’s top-selling merchants rose from 11 percent in May 2016 to 42 percent by the end of 2020, according to a report by e-commerce analyst Marketplace Pulse.

Merchants who have registered trademarks are eligible to join the Amazon Brand Registry program, giving them more protection for their brands and making their products more trusted by users.

China Subsidies

But while Professor Bibby, a longtime researcher of trademark law and related issues, believes that e-commerce platforms are a factor, China’s subsidy policy is a more significant driver of the large number of U.S. trademark applications filed by Chinese companies by comparison, and contributes in part to fraudulent filings.

Over the past decade, to encourage the development of independent brands and brand innovation, several Chinese provinces and municipalities have introduced relevant support policies to support Chinese companies in registering trademarks both within and outside of China. For overseas registered trademarks, subsidies range from a few thousand RMB per successful registration, and in some cases, partial reimbursement of registration fees.

For example, Shenzhen has provided a subsidy of 5,000 RMB per piece to enterprises that obtain a registered trademark in a single country, such as the United States, since 2013. Shenzhen adjusted the rules in 2019, reducing the subsidy to 1,000 yuan per piece. Some other Chinese cities, however, still have high subsidies. For example, Beijing’s trial measures for managing intellectual property funding, released in late 2019, provide for subsidies of up to 5,000 yuan for obtaining a registered trademark in a single country.

These subsidies are often higher than the $250 (about RMB 1,600) cost of filing a trademark application online. (The U.S. Patent and Trademark Office had lowered the fee to $225 in 2015.)

Bibby told Voice of America, “It makes sense that some entrepreneurs in China see that the subsidies are higher than the cost of filing a trademark, so they want to take the difference and make a profit. It’s understandable that they’re trying to take advantage of these subsidy programs. But the downside is that the Patent and Trademark Office is now flooded with fraudulent applications.”

The U.S. Patent and Trademark Office has also noticed the problems. In its report “Trademarks and Patents in China: The Impact of Non-Market Factors on Filing Trends and the IP System,” released in January, the federal agency said that Chinese government subsidies and bad faith (BAD FAITH) filings are major factors in the influx of patent and trademark applications from China. The report also notes that the U.S. Patent and Trademark Office has also experienced a significant increase in the number of fraudulent trademark applications from China since Chinese provinces and cities began providing subsidies for foreign trademark registrations.

Fraudulent Registrations

Under U.S. federal trademark registration regulations, applicants must prove that the trademark has commercial use within the United States. Some trademark applications from China, Bibby said, are fraudulent and have questionable use information that is evident from the images submitted of sample goods, because the images show pictorial evidence or the trademarks on the goods in the images are not original but were later transposed.

The USPTO has not released data on how many of the trademark applications from China were fraudulent or how many were rejected for containing such false information. As of press time, the U.S. Patent and Trademark Office had not responded to an email inquiry from Voice of America.

Bibby and colleagues did a sample survey of trademark registrations from China in 2017 in the apparel category and found that about two-thirds of those applications contained false sample images, and that about 60 percent of those fraudulent trademark applications subsequently made it to the public stage and about 39 percent were eventually approved.

When the sampling results are viewed in the context of the total number of applications, Bibby believes that “an estimated 15 to 20 percent of the trademarks from China registered in the U.S. Patent and Trademark Office are currently fraudulent.”

He said the U.S. faces the problem of depleted trademark resources, with almost all English words already trademarked, and now even making up words or using any combination of letters for a trademark may appear to have been registered. Fraudulent trademark grabbing from China makes the problem worse, he said, and hurts legitimate businesses and trademark holders in the United States and even China.

The overall result for U.S. businesses and global businesses is that fraudulent trademark registrations from China prevent legitimate businesses from finding good brand names for their products,” he said. This impact is currently mild, but each year we see a significant increase in impact. …… This is not only to the detriment of the Patent and Trademark Office, but also to the many quality Chinese businesses that hold authentic registered trademarks. They too are suffering the damage of these fraudulent registrations.”

Investigating Enforcement

In response to these issues, starting in August 2019, the USPTO requires foreign trademark applications to be filed under the signature of an attorney licensed to practice law in the United States. Judging from the number of applications in 2020, however, this measure will have limited success.

Attorney Jingming Cai said he has not encountered many cases of bad faith or fraudulent trademark registration, but since last year, his firm did receive inquiries from China asking if it was possible to pay a small fee to use his signature and email address in trademark applications. This is a violation, he said, and his firm has never accepted it.

Along with the increased filing requirements, the U.S. Patent and Trademark Office is stepping up its investigations and enforcement against fraudulent trademark applications and irregularities. Information made public by the agency shows that in 2020, the Office of the Trademark Commissioner issued more than 500 Orders to Show Cause against problematic trademarks, the vast majority of which involved Chinese applicants.

In June, the U.S. Patent and Trademark Office also issued an Order to Show Cause to an intellectual property agency in Shenzhen, China, for allegedly filing irregularities, including multiple use of the application account, misappropriation of U.S. attorney information, and forged attorney signatures. If the firm cannot present convincing evidence that no irregularities were committed, all 14,000 trademarks represented by the firm will face revocation penalties.

Late last year, Congress also passed the Trademark Modernization Act of 2020, which makes it easier for legal owners of trademarks and those who want to register them to challenge fraudulent trademarks. The U.S. Patent and Trademark Office has said that it will implement the Act by adjusting rules to enhance the integrity of the U.S. trademark registration system, including providing new tools for U.S. businesses to request cancellation of registered trademarks that are not in use in the United States.

On the other hand, Chinese officials have acknowledged that China’s subsidy policy has also subjected the country to “malicious trademark hoarding and abnormal patent applications. Last month, China’s Intellectual Property Office issued a notice requiring all parts of China to completely eliminate subsidies and incentives at the patent and trademark application stage by the end of June.

It remains to be seen how this will be implemented across China and whether the policy changes will have a positive impact. Professor Bibby of New York University welcomed the Chinese government’s policy change. He said, “I hope this will have a good effect on solving this problem.”