The Chinese government is paying its citizens to obtain US trademark registrations — regardless of the legitimacy of the registration.
These payments by the Chinese government amount to nearly $800 per US trademark registration that is obtained (a potential profit per trademark of $525 after filing fees). Given that the median monthly income for a Chinese citizen is around $1,000, the government payments make it possible for someone in China to have a full time income by registering just two US trademarks per month.
The result of this program has been the apparent massive wave of fraudulent filings with the United States Patent and Trademark Office. The filings, from China-based applicants, use fraudulent statements and photographs which attempt to trick the USPTO into issuing a trademark registration. While there is no official study linking the payments to the rise in fraudulent filings, there does not seem to be any other logical explanation.
At the last meeting of the Trademark Policy Advisory Counsel (“TPAC”), the Commissioner of Trademarks had this to say:
“There’s been a dramatic increase on Chinese filings. A lot of seem to be not legitimate. . .
It is a really dramatic increase and expected to continue to go up. But one of the things that hits our examining attorneys on a daily basis is specimens, because people are sending in fake ones. So, they’re filing [a use based] application and sending in a photograph of, say, some shoes with a tag on them. It looks like a great specimen until you see the same pair of shoes with the same shadow in the photograph 10 times filed by different applicants with different marks. And then you realize, gee, somebody’s gaming the system. So, we have an examining attorney on detail full time to try to find these. “
The dramatic increase in Chinese filings have been detailed by the World Trademark Report and the USPTO, and the USPTO has launched a pilot program to allow third-parties to help report fake specimens.
But the real question is, why? Why would Chinese companies and individuals file U.S. trademark applications and submit fake specimens?
This brings us back to the Chinese government payments for obtaining a trademark registration. Since at least as early as 2012, the USPTO has expressed concerns over the Chinese government’s subsidy of foreign intellectual property filings. The focus of these concerns and public discourse have largely been on the patent program, which, at the time, involved the Chinese government reimbursing patent owners who obtain U.S. patents.
However, according to filings with the World Trade Organization and other resources, the subsidies don’t stop at patent law. Several Chinese provinces offer cash “incentives” for local businesses who are able to obtain trademark registrations in foreign jurisdictions.
Are Chinese applicants gaming the U.S. trademark registration system for a pay-off in their home provinces? Or worse, is this a coordinated effort to undermine the U.S. trademark system? As the U.S. government continues to investigate these serious issues, let’s look at what is known:
History of Chinese Intellectual Property Incentive Programs
In 2016, under Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures, the Chinese representatives to WTO provided a list of subsidies provided by 20 of its 32 provinces. While many of the policies and subsidy programs have expired/been replaced with other programs, there is evidence of clear incentives to register brands abroad by any means necessary.
Disclosed in this list were three municipal government-sponsored subsidy programs that rewarded local businesses with registered trademarks in other countries. The reward amount was dependent on the number of countries in which trademark registration was achieved. When the United States questioned whether these programs violated Article 3.1(a) of the Subsidies Agreement, the Chinese responded stating that each of the three programs were no longer in effect.
Case Study: Shenzhen Providence Trademark Subsidies
According to online business sources, in December 2014, Shenzhen Providence authorized the following incentives for those companies who register in Shenzhen:
Within one year after obtaining the certificate of overseas trademark registration, the applicant shall apply for a one-time subsidy in accordance with the following countries and regions, and the total amount of the annual grant of the same applicant (including enterprises and groups) shall not exceed RMB 50,0000
(1) Trademarks registered in EUIPO (European Union Intellectual Property Office ) and OAPI (Organization for Intellectual Property of Africa ) will get RMB 10000 subsides per trademark;
(2) Trademarks registered in single country/region will get RMB 5000 subsides per trademark (this would apply to US trademark registrations);
(3) Trademarks registered in Taiwan and Macao will get RMB 3000 subsides per trademark;
(4) Trademarks registered through Madrid System will get RMB 2000 subsides per country/region, and altogether 20 countries can be applied for at most;
(5) Trademarks registered in Hong Kong Special Administrative Zone will get RMB 1000 subsides per trademark.
As of March 23, 2018, RMB 5000 is approximately $791 USD.
The official purpose of these subsidies is to encourage Chinese businesses to seek global opportunities to grow their businesses by providing incentives to those who register their trademarks abroad.
However, almost all of the subsidy programs awarded money only after a trademark registered. This incentives applicants to obtain trademarks as quickly as possible. Some of these applicants have submitted doctored specimens in order to claim “use” in the United States, which allow their applications to proceed to registration.
What does this mean for the U.S. trademark registration system?
The Connection Between Fraudulent US Trademark Application Filings from China and Chinese Government Subsidies
As mentioned above, in a recent meeting, the USPTO expressed concerns over the proliferation of “doctored” or “computer-generated” specimens and have tied to the preliminary evidence to companies from China. Many of these chinese applications have correspondence addresses in jurisdictions that have “incentives funds” for international trademark registration like the ones mentioned above.
The paramount concern is that these businesses are submitting convincing-looking specimens to the USPTO, claiming that they are selling products in the U.S. when little to no products are actually being sold.
Then, presumably, these Chinese applicants are being paid approximately $800 USD for a filing fee of $225-275 dollars. Given the cost of living in China, one individual in China can register dozens, if not hundreds of trademarks in this matter and easily live off of the profits of the filings. In the meantime, legitimate trademark applicants are forced to deal with refusals of their applications because of an increasing crowded register of illegitimate trademarks.
The result of this process is the increase in cost to trademark registration and damage to the integrity of the United States Trademark Register.
Another underlying concern is that China may be encouraging or adopting policies designed to undermine the U.S. trademark registration system. In response to an influx of trademark applications, the U.S. government may struggle to meet predictable examination schedules. Delays in the examination process can lead to harm and uncertainty for U.S. companies trying to decide how to proceed with investing in a brand, ultimately affecting commercial progress.
While the U.S. government struggles with these difficult issues, they have asked everyone to help identify fake specimens via a new pilot program. In the meantime, applicants are on notice that the USPTO is going to be ramping up efforts to fight these issues.