Trademark Squatting

Trademarks are relied upon by businesses to identify their products and distinguish them from those of their competitors. The public also relies on the brand to distinguish among competing manufacturers and to determine authenticity. Trademark rights are territorial, and protection is accorded to the mark only within the country whose laws granted the rights. ‘Trademark squatting’ is when one party intentionally files a Trademark Application for a second party’s registered trademark in a country where the second party does not currently hold a trademark registration. Most often, it occurs in countries that follow the ‘first-to-file’ trademark system. However, it is also seen in ‘first-to-use’ countries since marks can also be registered based on the intention to use.

Understanding the Motive behind Trademark Squatting

A trademark squatter’s intent is usually to get the bona fide trademark owner to purchase the Trademark Registration from him or her. The profit received from this amount is a lot more than the amount they spend on a bad-faith trademark application. It can be difficult, costly, and time-consuming to have a bad-faith registration canceled. In first-to-file countries, a trademark squatter can even enforce his or her rights against the actual owner for trademark infringement. He or she can also ask the customs officials to detain products of the bona fide owner that were manufactured in that country for export. Any business, whether large or small, can be a target of trademark squatting.

Certain trademark squatters focus on trademarks in a specific field or category. Based on their exhaustive study in this domain, they plan the squatting, even monitor the bona fide owner’s actual advancement of the trademark application, and then file timely additional applications to create more hindrances. Few trademark squatters will turn to registered trademarks of other owners to find gaps in their registration, seeking bad-faith filing for related trademarks, and setting a trap for the business expansion of the target company. For attaining the final goal of trademark squatting, the squatters also manage and maintain their trademark registrations after they are granted the corresponding rights, and even consciously produce and hold the evidence of trademark ‘use’ as a defense against the cancellation action.

Some Instances of Trademark Squatting

  • In 2012, Apple faced an issue with its trademark registrations due to trademark squatting and had to pay a hefty amount of $60 million to the owner of the ‘iPad’ trademark in China.
  • Michael Jordan, the basketball player, obtained a favorable verdict from the Supreme Court of China that rose from the legal battle against a Chinese sportswear company using the Chinese translation of Jordan’s name as its trademark.
  • The burger giant, Burger King, had to fight a legal battle for the removal of a trademark against a fast-food restaurant called Burger King India. It was finally held that the US-based chain’s trademark is a well-known trademark.
  • When Tesla Motors was seeking to expand its business to the China market, it found out that a person named Mr. Zhan had already registered the trademark application of ‘TESLA’ in class 12, in which the designated goods were motors and other similar goods. Tesla Motors filed a non-use as well as an invalidation application to cancel the mark. In retaliation, Mr. Zhan filed a trademark infringement lawsuit against Tesla Co. and requested Tesla Co. to stop selling infringing products and related promotional activities and pay compensation of 23.94 million RMB. Finally, after five years, the parties settled. Mr. Zhan gave up all usage of TESLA marks, and at the same time, Tesla Co. removed all claims for damage against Mr. Zhan.
  • Most recently, when Sony PlayStation sought to launch the PS5 gaming console in India, it was found that a Delhi resident, Hitesh Aswani, had already filed a trademark for the PS5 name in India back in October 2019. At present, both Aswani and Sony’s marks show an ‘Opposed’ status. It is likely to delay the PS5 launch in India.

Risks for Businesses

Trademark squatting is a niche area in trademark disputes. It has been seen that trademark registration is a major obstruction for foreign companies as once they obtain international reputation and goodwill, many domestic infringers try to register their trademarks to sell their products and make enormous profits. The risks of trademark squatting for the bona fide owners of trademarks are:

  • There are delays in launching brands in foreign countries. Time is of the utmost importance, specifically in industries such as electronics and gaming.
  • Going through the litigation route can be costly and time-consuming, sometimes taking months to obtain an order.
  • There is a risk of trademark dilution in case the trademark squatter uses or sells the mark to another party for use, with the potential to cause massive harm to the reputation and goodwill of the bona fide owner.
  • In first-to-file jurisdictions, it may even happen that the brand is never able to obtain a registration for its mark if there is already a bad faith registration in place since prior use does not matter.

Protection Strategy

Despite the existence of various international conventions targeting the protection of trademarks that are ‘well-known’ such as the Paris Convention, the TRIPS Agreement, the Madrid Protocol as well as the WIPO Joint Recommendation Concerning Well Known Marks, these are not enough to put an end to this problem. In India, the Trade Marks Act, 1999, has provided for protection of foreign trademarks following the ‘Trans-border Reputation’ principle. This principle allows the unregistered trademarks in India to maintain an action for passing off without the requirement of having commercial use in India.

Even though trademark squatters use complex and innumerable methods for trademark squatting, bona fide prior owners are not completely deficient in retaliatory strategies. It is critical to outline a complete strategy with precise actions. Since it is expensive and tough to cancel bad-faith trademarks, prevention is the best strategy for countering them. It is not always realistic for businesses to register their trademarks in every nation around the world; however, companies should take active steps to discourage bad-faith trademark squatters and make informed decisions on where to file for trademark registrations.

Businesses should consider registering their mark in countries where:

  • Their goods or services are sold;
  • Products or parts for their products are manufactured;
  • Research and development facilities are located;
  • Their products pass through during shipping;
  • They may expand their business in the future; and
  • Counterfeiting is likely to be a problem.

In the administrative and judicial proceedings related to trademarks, the prior and bona fide owners must produce sufficient, objective evidence to convince trademark examiners and juries. The best practice for international brands is to file trademark applications on the ‘intent to use’ basis, specifically in jurisdictions such as India, which allow such applications and protect marks based on the intention to use the mark in the country.