Trademark Trolls Causing Menace Around The World: How To Tackle The Problem?

“Trolls” in the trademark industry around the world are a menacing force taking undue advantage of the trademark registration process by registering trademarks without any intention of actually using them. They exploit their registrations against legitimate parties with the aim of extracting profits by either filing lawsuits as a means to begin negotiations for settlement or to attain licenses from trademark holders. What makes matters concerning is the fact that there is no legislation or law per se that makes “trademark trolling” illegal.

First to file

The “first to file” system for registration is used in various jurisdictions around the world, including China. As per Article 31 of the Trademark Law of People’s Republic of China 1993, “Where two or more applicants apply to register identical or similar trademarks for use on the same kind of goods or similar goods, the trademark office shall first conduct examination of, give approval to and announce the trademark whose registration is applied for earlier than the rest”. This allows trademark registrants who have filed for registration of their trademarks first to claim priority and be the lawful owners over trademark users who may even have been actually using the mark before them. The problem of trademark trolling lies herein because these “trolls” take advantage of this “first to file” system and file for trademark registration with no actual intention of ever using the trademark.

What’s surprising is that even large multinational companies and corporations have fallen prey to these practices. For instance, in 2012, Apple paid $60 million to a Chinese company for their trademark “iPad” after the matter was taken to court for numerous rounds of back and forth.[1] In another classic example of trademark trolling in China, Tesla, the American car manufacturing mega brand was forced to settle with a Chinese company and even purchase domain names including tesla.cn and teslamotors.cn from them before it could start using the mark and selling their products in China.[2]

The point to note here is that these cases highlight the importance of trademarks and their value as assets for businesses, as well as the lengths to which trademark owners are willing to go to protect their intellectual property. It is also worth mentioning that the Chinese Supreme Court has taken a strong approach to deter trademark trolling in a recent case where two Chinese companies had registered the mark “UL” in China, a mark which is used by the famous clothing brand Uniqlo. The Lower Court identified that the mark had been registered in bad faith and there was no commercial use of the same. Further, the Supreme Court held that ‘malicious litigation will not be supported’ and that ‘honesty and credibility should be the baseline for market participants.’[3] It should also be noted that the Court identified that the plaintiff in this case had 2600 trademark applications in its name. Therefore, it is clear that they were blatantly conducting registrations to take undue advantage and exploit legitimate trademark holders for profits. Such opportunistic trademark trolls generally rise to the occasion in jurisdictions which follow the “first to file” rule.

First to Use

The “first to use” system is procedurally better placed than the “first to file” system but still, it is not a watertight system and trademark trolls seem to have still found their way around. For instance, in the United States, use must be proved in order to claim priority and the date of first use needs to be provided along with filing documents for registration. Section 45 of the Lanham Act identifies the importance of use of the mark in commerce. Procedural barriers such as non-use abandonment and cancellation of registrations (if the mark has not been used for 3 consecutive years)[4] also deter these trolls from filing for frivolous registrations of marks.

However, despite these provisions, trademark trolling is still not uncommon. For instance, in the United States, this year many applicants filed for registration of Covid-19 related marks including “COVIDFREE”. The United States Trademark and Patent Office (USPTO) claimed that there has been a surge in fraudulent activity as a result of the Covid-19 outbreak and that “this is an immediate and growing concern, as criminals seek to take advantage of the high demand for healthcare and other consumer products.”[5] A U.S based company, 47/72 Inc., is believed to have filed for more than 600 trademark applications targeting famous brands and trademarks, including the mark “OH SNAP! CHAT” in class 35, which was an obvious reference to the famous trademark “SNAPCHAT”.[6]

India

India follows the “first to use” system and this is one of the factors that reduces trademark trolling. However, applications can be filed on a “proposed to be used” basis and this is where “trolls” have found a loophole. They may file for registration of a trademark and because non-use cancellation is subject to non-use for a continuous period of 5 years, there is a window of opportunity here when trolls may be able to exploit their position. Also, when marks are applied for on a “proposed to be used” basis with future use, the application that was filed first is given priority. Thus, these procedural loops allow for a certain section of trademark applicants and registrants to take unfair advantage of their position against other legitimate users.

However, Indian courts have time and again acknowledged the issue and have been very supportive of legitimate right holders. In the case of Manish Vij & Ors. v. Indra Chugh & Ors.[7], with regards to trademark infringement and domain name squatting, the Delhi High Court explained that, “In law, the term "bad faith" does not simply mean bad judgment, but it implies the conscious doing of a wrong with a dishonest purpose. It contemplates a dishonest state of mind.” In the case of Reddy Pharmaceuticals Ltd. v. Dr. Reddy'S Laboratories Ltd.[8], the Delhi High Court stated that, “The law does not permit any one to carry on his business in such a way as would persuade the customers or clients in believing that the goods or services belonging to someone else are his or are associated therewith. It does not matter whether the latter person does so fraudulently or otherwise. The reasons are two. Firstly, honesty and fair play are, and ought to be, the basic policies in the world of business. Secondly, when a person adopts or intends to adopt a name in connection with his business or services which already belongs to someone else it results in confusion and has the propensity of diverting the customers and clients of someone else to himself and thereby resulting in injury.” Therefore, it can be observed that trademark registrations made in bad faith are considered dishonest and shall not be favoured by the courts. They may even be subject to cancellation, as per section 47 of the Trademark Act.

Furthermore, it is worth mentioning that the principle of ‘transborder reputation’ ensures the protection of international brands and this also helps in the fight against “trademark trolls” or illegitimate squatters. In the case of H&M; Hennes & Mauritz Ab & Anr v. Hm Megabrands Pvt. Ltd. & Ors.[9], the Swedish clothing brand H&M sued HM Megabrands for trademark infringement and the Delhi High Court issued an interim injunction in this case, observing that not doing so would cause the defendants to gather goodwill in their mark and hence cause further damage and economic loss to the Plaintiffs. This judgement is a welcome decision and shows that the courts shall not entertain any sort of “trademark trolling” and that despite registration in India, foreign marks and their well-known status can be granted equal protection.

In another recent case of trademark trolling in India, the Respondent had filed for registration of a mark, just a few months after Sony announced its release of the PS5 in class 28.[10] Although this trademark application was later withdrawn by the Delhi-based individual, it was clear that the intention behind such a registration was to extract profits from Sony.

With the above provisions and the position of the courts in mind, it should still ultimately be noted that as trademark applications can be filed on an “intent to use” basis, such intent can be honest or dishonest, regardless, this allows for these “trolls” to operate as “legitimate” trademark holders in the market for a certain period. Even though there are procedural safeguards in place and the courts favour legitimate right holders, opportunistic trademark trolls can still find some wiggle room to exploit their trademark registrations. Therefore, in order to prevent such activity, it is advisable for right holders looking to come to India to take advantage of the registration process and apply early for trademark registrations to assert their proprietary rights as soon as possible.

How to Tackle the Problem?

Intellectual property is one of the most important assets for a business and when goodwill and reputation is attached to it, it becomes essential to protect a trademark. It is unfortunate that many times brand owners must succumb to the pressure of certain elements, identified as “trademark trolls” who manipulate the law to utilize it against rightful brand owners.

In order to avoid trademark trolling, the best way forward would be to enhance the procedure of registration, especially in jurisdictions where the “first to file” rule applies. Companies should be quick to file for registration and conduct vigilant searches and maintain a trademark watch over journals to remain proactive and fight infringers at the initial stages itself. Another important piece of this puzzle is to maintain a “use log” per se, which builds up on “use”, especially in jurisdictions where trolling is common. This can be done by keeping a track, including invoices, commercial documents, etc. to establish legitimate use with a prior claim. It may also be helpful to file marks with translations in the local language, including logos, in jurisdictions where English is not the first language.

Furthermore, legislative amendments to trademark law may also be helpful in this regard. Along with this, a judicial backing with a stern approach could help combat the problem even more. For instance, the H&M case and the Delhi High Court’s decision has shown that the courts shall not entertain frivolous and bad faith registrations and this case leaves a positive message for international investors and corporations looking to come to India. Similarly, the Chinese Supreme Court’s decision in the Uniqlo case shows that the courts are not willing to accept any kind of bad faith registrations looking to maliciously exploit trademark owners for profit. With a strong judicial approach, one can hope that such trademark trolls would be deterred from engaging in bad faith registrations.

For any questions, please contact the author, Ms. Vrinda Sehgal, Associate, at vrinda@iprattorneys.com.

[1]https://arstechnica.com/gadgets/2012/07/apple-shells-out-60-million-settlement-for-ipad-trademark-in-china/?comments=1&post=23019891 [2] https://www.mondaq.com/india/trademark/808562/the-menace-of-trademark-trolls [3] A Crushing Defeat for Trademark Trolls (dechert.com) [4] https://www.ny-trademark-lawyer.com/abandonment-and-nonuse-of-a-trademark.html [5]https://www.uspto.gov/coronavirus/trademark-counterfeiting-and-consumer-fraud-related-covid-19-outbreak [6] https://www.ipzen.com/beware-of-trademark-trolls/ [7] Manish Vij & Ors. v. Indra Chugh & Ors.AIR 2002 Delhi 243, 97 (2002) DLT 1 [8] Reddy Pharmaceuticals Ltd. vs Dr. Reddy'S Laboratories Ltd. MIPR 2007 (3) 389, 2007 (35) PTC 868 Del [9] H&M; Hennes & Mauritz Ab & Anr vs Hm Megabrands Pvt. Ltd. & Ors on 31 May, 2018 (indiankanoon.org) [10] https://www.thequint.com/tech-and-auto/tech-news/sony-playstation-5-launch-in-india-could-be-delayed