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Lawyers Aiding Chinese on Fake Trademarks Targeted for Sanctions

Oct. 18, 2021, 9:01 AM

The U.S. Patent and Trademark Office is targeting U.S. attorneys filing illegitimate trademark applications as it steps up efforts to halt a practice that can weaken the register.

The agency’s recent sanctioning of an attorney who filed thousands of fraudulent trademark applications, mostly from China, was the first signal of a stronger crackdown, trademark attorneys and agency observers said. A second attorney, who filed around 100 suspect applications, was sanctioned soon after.

The trademark office has increased its investigations of U.S. attorneys who are potentially involved in fraudulent activity with foreign applicants in recent years, and two September sanction orders were the first resulting from them.

More PTO investigations have been targeting trademark attorneys filing large volumes of applications, mostly from Chinese applicants, said Mike McCabe, a partner at McCabe Ali LLP Law who represents intellectual property attorneys in ethics and discipline matters at the agency.

“For the most part, the pattern seems to be that the trademark attorneys that have been getting investigated are largely the people who are large volume filers of trademark applications,” McCabe said. “They’re getting attention that you don’t want to get. There’s been a lot of action at the U.S. PTO.”

The action is needed because fraudulent applications undermine the integrity of the trademark register, making it less reliable, Trademark Commissioner David Gooder said.

The bad-faith applications also impact businesses trying to file legitimate applications, he said.

When the fraudulent applications are registered, other businesses have to petition to cancel them if they’re too similar to marks they are legitimately trying to register. The cancellation can be expensive and add more cases for the Trademark Trial and Appeal Board, said Stacey Watson, the co-founder of Markery Law LLC who formerly was a trademark examiner at the agency.

“It’s not cheap to do that for applicants, and then it increases the burden on the Trademark Trial and Appeal Board,” Watson said. “It just has a ripple effect on everyone.”

Applications From China Up

The number of trademark applications the office receives from China has been growing, from around 4,700 applications in 2013 to around 76,500 in 2019, according a January agency report. Many of those applications are fraudulent, meaning they contain doctored evidence of use in U.S. commerce, the agency said in its report. That use is required to register trademarks in the U.S.

The increase in applications from China could be due partly to subsidies from the Chinese government to encourage companies to obtain U.S. trademark registrations, said Robert Reading, the head of content strategy at the intellectual property group Clarivate.

Attorneys also said the increase in applications from China has contributed to the surge in registration filings that has been slowing examination times at the PTO. The trademark office has said the surge is mostly from an increase in e-commerce, creating more domestic filings, though the Chinese applications are also a factor.

Not all of the fraudulent applications are from China, Gooder said, noting that some suspect filings were from Pakistan and other countries.

Some attorneys said that while the increase in discipline will be a much-needed deterrent, the first sanction order isn’t as discouraging as it could be.

Trademark attorney Joshua Gerben of Gerben Perrott LLC called current deterrence efforts a slap on the wrist.

“The U.S. PTO should be at war against fraud,” he said, “and it should be taking extraordinarily serious actions against attorneys who are purposefully and systematically filing fraudulent applications.”

Fighting Fraud

The PTO in 2019 issued a rule that said overseas applicants must file with a U.S. attorney. Then it started a growing number of investigations.

Because of the rule, some foreign applications will list names of fictitious U.S. attorneys with fake addresses, according to several PTO orders. In other cases, U.S. attorneys will file the applications without doing enough due diligence, such as confirming the evidence of use in commerce is legitimate.

The agency significantly ramped up its fraud prevention efforts starting in March 2020, Gooder said. The increase in show-cause orders, which is what the trademark office issues to start its investigations, and the recent sanction order against the U.S. attorney for filing thousands of fraudulent applications from overseas are the first steps in going after bigger fraud, Gooder said.

The first sanction order against Devasena Reddy instituted a 12-month probationary period during which the attorney must take ethics and trademark classes. Reddy had used an intermediary in India, KA Partners, to file the applications. Reddy acknowledged reviews of the applications were sometimes inadequate, according to the agency order.

Reddy didn’t immediately respond to requests for comment.

The second order issued in September, against Bennett C. David, similarly said the attorney didn’t do enough to properly review the trademark applications he was asked to sign from a client in China.

David was unaware that his signature was used on many of the applications, according to the order. He declined to comment.

While the PTO has issued sanctions against individual applicants in the past, attorneys said it was unusual to see sanctions against a U.S. attorney for that type of fraud.

Gooder said the agency’s group that handles these investigations will grow, adding more analysts and investigators so that enforcement efforts can continue to build.

“You certainly will continue to see an increase in orders to show cause and sanction orders,” Gooder said. “Hopefully the work the Office of Enrollment and Discipline does starts to send a message to the legal community to not take these kinds of business deals. I think you’ll see more, and then that will hopefully start correcting the bad behavior.”

To contact the reporter on this story: Samantha Handler in Washington at shandler@bloombergindustry.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com

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