Trademark Squatting Explained

If you are an ambitious entrepreneur who launched a successful product or service in the U.S., it is likely that you are carefully evaluating the opportunities to expand your business into a new market overseas. Imagine, however, how frustrated you’d feel if, upon trying to register your U.S. trademark in another country, you discovered that someone else had beaten you to the punch and registered your trademark as their own! Such a scenario would effectively deprive you of the rights to use your trademark in that country and could potentially cause your company to suffer considerable financial losses.

As unfair and unlawful as it may seem, the scenario described above is far from imaginary. In reality, this practice known as trademark squatting is an alarmingly common form of intellectual property rights infringement. Many U.S.-based firms trying to expand into overseas markets – especially to China – fall prey to trademark squatting often with serious consequences to their finances or image. For example, in 2012, Apple Inc. was forced to pay a staggering $60 million in order to settle a legal dispute with a trademark squatter company that had held legal rights to the iPad trademark in China.

In this article, you’ll learn what mechanisms allow for trademark squatting, what kind of practices it involves, and how you can effectively protect your trademark and your business from it.

Why Is Trademark Squatting Possible?

In the United States, a person or a business entity acquires the rights to a trademark by the actual use of a symbol, word, etc. in a commercial context. Therefore, according to the U.S. legal system, trademark ownership both precedes the registration and is an essential prerequisite for it. This is called the first-to-use rule. No all countries, however, follow the same rule; some honor the “first-to-file” principle. This means that the rights to a trademark are obtained by the means of registration and the actual use isn’t a necessary requirement. In countries like China, this allows malicious actors to register trademarks that are well known in other countries and try to make a profit off of it.

How Trademark Squatters Exploit Legitimate Trademark Owners

Trademark squatters are usually cunning and creative in their pursuit to make money off stolen trademark rights. There are at least a few different ways in which they are able to do so. One way is to register a well-known, foreign brand name before the brand representatives are able to do so and then demand a “ransom” – usually a large amount of money – if the original company wants to regain the rights to use the name. Other trademark squatters register foreign trademarks in order to sell counterfeit goods using the same name. In some instances, a local company may register your trademark if you deal in the same kind of products or services and view your business as competition. In such cases, trademark squatting could effectively prevent you from entering the market – at least under the same brand name.

Protect Your Trademark

The main challenge in safeguarding your trademark from trademark squatters is that this practice usually flourishes in countries where intellectual property protections are fledgling or, worse still, virtually non-existent. The best way to prevent it is to act preemptively – register your trademark before malicious actors realize they can make a profit off of it. You should also keep detailed records documenting the use of your trademark both in the U.S. and overseas. Such records may be essential if a legal battle with trademark squatters appears to be the only way to reclaim the rights to your brand, product name, or some other aspect of your trademark.

Issues related to trademark registration and litigation can be extremely complicated. Even if your company already has a lawyer, you may need an attorney who specializes in intellectual property laws and protection. BRADFORD, LTD provides exactly this kind of legal assistance to businesses with operations in foreign countries. If you need help with trademark registration overseas or if you are bracing for a battle with trademark squatters in the U.S. or another country, contact us immediately to schedule a consultation.

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Bradford LTD specializes in IP protections and maximization for startups and small businesses. We also provide scaled legal services to our clients, including fractional legal counsel and value-based rates. From trademark, copyright and service mark protections to patent protection and outside inside counsel, we help position entrepreneurs and owners for long-term success.

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