Trademark Modernization Act: Congress to Combat Fraudulent Trademark Applications

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A bipartisan, bicameral group of legislators in the U.S. Congress recently published a draft Trademark Modernization Act to reform the trademark application process and the remedies for trademark infringement. The draft TM Act—which is significant for both brand owners and consumers—has three parts. First, it allows third parties to submit evidence during a mark’s examination. Second, it provides new ex parte procedures to cancel registration of marks. Third, it restores the rebuttable presumption of irreparable harm as a remedy in a successful infringement lawsuit.

The TM Act is motivated by a dramatic increase in trademark applications from countries outside the U.S. fraudulently claiming use in domestic commerce. In Congress’ hearings last year, the U.S. Patent and Trademark Office testified that between 2013 and 2017, trademark filings from China increased 1,200%, and a large number of these filings were paid for by only three credit cards. Furthermore, two experts testified that, in a random sample of apparel trademark applications from China, two-thirds contained fraudulent specimens. Some examples included doctored photos, marks affixed to another company’s product or claiming foreign transactions as domestic ones.

To combat these fraudulent applications, the TM Act allows third parties to participate in a mark’s registration. Any third party can submit evidence “relevant to a ground for refusal of registration.” If a mark has already been registered, the TM Act creates two new procedures for a third party to petition for cancellation of a mark: expungement and reexamination. In both a petition for expungement and a petition for reexamination, a third party can submit findings from a “reasonable investigation” that the mark has never been used in commerce or in connection with the goods in petition. After review of this evidence, an examiner may cancel a mark’s registration.

These procedures have limits, however. A petition for expungement must be filed within three years of registration, and a petition for reexamination must be filed within five years. Also, upholding the registration would estop subsequent petitions against the mark.

The third part to the TM Act restores the rebuttable presumption favoring an injunction following a successful infringement lawsuit. Following eBay v. MercExchange, U.S. Circuit Courts of Appeal have been split in applying a four-factor test to determine irreparable harm and award an injunction in trademark cases. The Third, Ninth and Eleventh Circuits apply the four-factor test when evaluating remedies in trademark cases. The TM Act restores the pre-eBay rebuttable presumption for plaintiffs seeking a preliminary injunction, temporary restraining order or permanent injunction.

Congress has yet to pass the TM Act, but the strong coalition behind the bill suggests the act is likely to become law. Once it does, trademark holders should consider increasing defense of their marks before the USPTO to reduce the need for litigation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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