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Trademark Bullying: Defending Your Brand or Vexatious Business Tactics?

Published on: 05 August 2015
by Roxana Sullivan and Luke Curran from Dennemeyer & Associates, Chicago, United States

Recently, in a Report to Congress on trademark litigation tactics, the United States Patent and Trademark Office (“USPTO”) defined the amorphous term Trademark Bullying or Trademark Trolling as the vexatious practice of a “trademark owner that uses its trademark rights to harass and intimidate another business beyond what the law might be reasonably interpreted to allow.” Mirroring the modus operandi exhibited by patent assertion entities and copyright bullies, several creative mark owners have adopted and modified this sue-to-settle paradigm and applied it in the trademark context. In short, trademark trolls—businesses both large and small—aggressively assert rights beyond the scope of trademark protection afforded by the Lanham Act through the issuance of threatening cease-and-desist letters.

When issuing a tenuous cease-and desist letter, it is common for these audacious entities to unreasonably interpret the Lanham Act by failing to conduct a comprehensive objective evaluation of the third party’s mark in relation to their delineated goods and services. Further, unreasonable interpretations may also include falsely aggrandizing the strength of the owner’s mark, exaggerating the mark’s scope of protection, or misrepresenting the likelihood of consumer confusion in the marketplace.

Further, examining the content of traditional demand letters, the sender will often attempt to force the target to cease using his or her own mark or face imminent litigation. Alternatively, others are issued in an effort to extract license payments, rapid settlements, or seek co-existence agreements from the alleged infringer. This litigious practice evinced by bullies occasionally results in filing infringement suits against arguable violators in an attempt to financially exhaust and deter that trademark holder from rightfully utilizing their registered trademark in commerce. However, the threat of litigation is typically sufficient economic pressure to force an individual or smaller business into compliance.

According to the 2013 American Intellectual Property Law Association (“AIPLA”) Report of the Economic Survey, trademark infringement litigation costs total on average as follows: $375,000 through trial when less than $1 million is at issue; $794,000 when $1-10 million is at issue; $1.4 million when $10-25 million is at issue; and $2 million in costs when the amount in controversy exceeds $25 million. Recognizing the tremendous value trademarks add to the U.S. economy, diligent and meritorious enforcement of trademark rights is critical to halt the disingenuous efforts of others attempting to unfairly trade off a mark owner’s established reputation.

It must be remembered that the line between trademark bullying and rightful enforcement practices is not always black and white. In light of the fact that mark owners are shouldered with the affirmative obligation to personally police violations of their intellectual property rights; aggressive enforcement campaigns do not necessarily rise to the level of abusive bullying tactics as previously described by the USPTO. By failing to control third party use, a mark owner’s rights may be substantially restricted. Refraining from enforcement measures may cause a likelihood of consumer confusion in the marketplace, lost profits, and harm to the rights holder’s goodwill. On some occasions, failing to police may even result in a loss of trademark protection entirely through genericide or abandonment. Thus, if the mark owner does not proactively enforce its rights against infringers, the owner’s ability to preclude others from using the mark in commerce and the value of that intangible asset will quickly erode.

Due to the fact that stronger marks are afforded an expanded scope of trademark protection, mark owners traditionally strive to enhance the strength of their mark. Accordingly, there is a strong incentive for mark owners to expand their rights through hyper-enforcement efforts. In the bullying context, these actors anticipate that the threat of costly, albeit unwarranted, litigation will intimidate alleged violators receiving demand letters into settlement instead of risking an uncertain trial. This concept of predation is a “wealth-maximizing strategy” not because the practice is inherently profitable, but because the profit resides in the actual threat of this predatory practice.

Ultimately, this deters market entry by others thus increasing long-term profits while enhancing the strength of the enforcer’s mark. Consequently, this practice imposes costs on society in the form of increased prices for products and services by reducing the number of legitimate competitors. For instance, a number of small business owners have conceded that they withdrew their trademark applications after receiving a cease-and-desist letter due to size and resource imbalances. As a result of bullying tactics, both the original policy-backed intentions codified by the framers in the Lanham Act and the balance between hypo- and hyper-enforcement have been patently disturbed.

Read the full article in the IP Watchdog magazine. For the full article, click here.