Bloomberg Law
Nov. 13, 2018, 1:00 PM

INSIGHT: U.S. Companies Should Brace for Brand Competition From China

Mark Peroff
Mark Peroff
Peroff Saunders, P.C.

With all the attention being focused on trade wars, tariffs, the weakening Chinese yuan, theft of intellectual properties -- all of which are serious and important issues -- an additional important trend is occurring beneath most companies’ radar screens. The number of U.S. trademark applications filed by Chinese companies has exploded, and it is an indication that China is positioning itself to compete in the higher-end, branded goods marketplace.

We’ve seen this trend play out other times with other countries in our recent history. Fifty years ago, a “Made in Japan” label was a sign of inexpensive, knock-off merchandise. Today, Japan is known for top consumer brands like Toyota, Sony and Nikon.

South Korea went through a similar evolution. Originally known simply as a location to manufacture counterfeit handbags, footwear and electronics, it is now known for companies like Samsung and LG -- global brands with outstanding products. The same can be said for Taiwan and Hong Kong in the “old days.”

China still has a reputation in many quarters -- reinforced by recent bashing over tariffs and trade -- for flooding our marketplace with low-cost fake products ranging from beer, clothing, cameras, mobile phones, to automobile, airplane, and helicopter replacement parts.

Things are beginning to and will continue to change. China is destined to become a new source of high-quality brands and products. Consumer brands are going to start exploding onto the international stage, offering world-class products and developing brand equity and recognition that enables them to build market share.

Forward-looking Chinese companies are already developing their own branding expertise and building relationships in the U.S. that will enable them to effectively build and market their own brands. The statistics speak for themselves.

As of October 17, of this year, the Chinese have already filed 41,564 trademark applications with the US Patent and Trademark Office (USPTO) in 2018 alone. Chinese companies filed 46,158 trademark applications with the USPTO last year, up from 4,702 in 2014.

Mark Peroff, Peroff Saunders

Among some of the Chinese brands to watch: Lenovo computers, Haier Group appliances, Huawei Technologies and Suning Appliance Group.

Some have suggested that this dramatic increase is due to a vast number of fraudulent applications being filed at a time when the Chinese government is providing financial incentives for companies who file U.S. trademark applications.

But just because an application is incomplete or inaccurate doesn’t mean it’s fraudulent. In a fast growing, emerging economy like China, there are probably many entrepreneurs trying to file trademark applications themselves, or to use online filing services, and are simply doing it wrong. Entrepreneurs who are cautious about expenses and are accustomed to doing things themselves, and foreign companies with great products but who are unfamiliar with the intricacies of filing and prosecuting trademark applications in the USPTO, may be taken in by advertisements that tout low-cost online filing services, which actually are a poor option for dealing with a complex registration process.

On top of that, a review of the actual filers reveals that, while there are indeed many individual filers, there are also quite a few larger, more established Chinese companies that are filing trademarks applications, and they are doing it correctly. As awareness of the process increases and applicants recognize the need to retain experienced U.S. attorneys to properly secure their trademark rights, we expect to see a larger percentage of better applications going forward. In fact, the USPTO is currently working on a new rule that could go into effect next year, requiring the use of licensed U.S. attorneys for these filings. Our firm is already hearing from Chinese companies interested in building relationships in the U.S. and developing their own branding expertise.

There is also concern building among U.S. companies and the USPTO about this onslaught of applications, which is making a crowded trademark register even more crowded and heightening the risk of collision between two confusingly similar marks. Given the sheer volume of applications, something could easily slip through the USPTO’s scrutiny that’s a threat to an existing brand. It also can make it more difficult for U.S. companies to register their own trademarks and challenge those registered by Chinese companies.

And even if many applications are rejected, with over 46,000 applications being filed last year, many will certainly be approved. That is why U.S. companies need to be vigilant. Sophisticated companies subscribe to relatively inexpensive “watching services” that are constantly on the look-out for filed applications that may infringe on their existing trademarks, so that they can be proactive about challenging them.

But many smaller companies with branded merchandise as their bread and butter may think that they lack those resources or are simply unaware that they exist and may still be exposed. These businesses also need “watching services” tailored to entrepreneurs and smaller companies to scout for potentially infringing marks and flag them. Without outside counsel, some of these companies are unfamiliar with the procedures available for preventing conflicting trademarks from becoming registered at the USPTO, such as filing Letters of Protest, submitted confidentially to the PTO, for it to consider; initiating formal opposition proceedings on the grounds that the applicant does not have the right to register because of a likelihood of confusion; and commencing a cancellation proceeding to cancel the registration of a confusingly similar trademark, after a mark is registered.

U.S. companies that fail to take seriously the competitive threat posed by an impending wave of branded Chinese goods – and the surge in trademark applications that is their precursor – are doing so at their own peril. While some of these applications may indeed be fraudulent or frivolous, a large number of them are legitimately being filed by serious players. U.S. companies and other companies selling their products in the U.S. need to be prepared to compete with China in the higher-end, branded goods marketplace. Doing so at this stage means ramping up their trademark protection efforts.

Mark Peroff is a Managing Partner at Peroff Saunders P.C. Mark has helped clients around the globe to protect their intellectual property and has seen intellectual property law evolve over an extensive career that has included government, multi-national corporations and private practice. His previous positions at the United States Patent and Trademark Office, in industry and in private practice enable him to bring a multi-faceted approach to strategic issues – advising clients not only on how to solve immediate problems, but on how to use their intellectual property as a strategic asset.

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