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May 19, 2022Legal
Patexia Insight 137: Trademarks Originating From China Continue to Flood USPTO for the Second Year

Next week we will be releasing our second annual Trademark Prosecution Intelligence Report. Trademark review is much more different than other IP reports we have published as it involves tens of thousands of attorneys and law firms.

For this year, we reviewed the trademarks filed between January 1, 2017, through December 31, 2021. A total of 2,848,988 trademarks were filed during this period by 201,467 applicants, U.S. and foreign. This activity was channeled through 33,578 attorneys coming from 28,217 law firms.

For the first time this year, we have included a lateral moves section which compares the attorney data from the previous year and highlights those active attorneys who changed law firms over the past year. This has proven very useful by our readers in our other reports, and serves as a good indicator for growth or decline of law firms in different areas of IP. The full report besides providing rankings of all entities based on their activity and performance, offers valuable insights and data including yearly comparison of filing activity, registration rates, abandonment, renewals, cancellations etc.

One of the key anomalies was the increase in filing activity, originating from China, which we covered in Patexia Insight 109 in 2021. Our Trademark Intelligence 2022 confirms that the massive filing activity from Chinese entities continued during 2021 as well.

The above chart shows the trademark filing activity during the period of our study. While the trademark filings have been growing with moderate numbers varying 4% - 6%, in 2020 there was a substantial increase of over 30%, compared to 2019. A filing activity declined 2 percent in 2021 compared to 2020 (i.e., 678,923 compared to 691,825)

A deeper dive into the data and the foreign filing trends, shows that this growth and the number of filings in the last two years is almost entirely caused by an enormous increase of trademark filings coming from Chinese entities. Using the data for the first quarter of 2021, we showed in Patexia 109 that this was likely to continue during the entire 2021.

The following chart shows the trademark filing activity from Chinese entities during the past 10 years:

As seen in the above chart, the number of trademarks filed from Chinese entities has been on the rise at least for the past decade and there are several years like 2015, 2016, 2017 or 2019 that have seen considerable growth in numbers, however the growth of 143% during 2020 is a record.

Even during 2021 when the total number of filings saw a decline, the trademarks coming from Chinese entities further grew 5.45%. In 2021 a total of 180,029 trademarks were filed from China, which is 26.5% of the total 678,923 trademarks filed at the USPTO. A similar percentage and trend was observed during 2020 as well. This is a very meaningful climb compared to 2011 where Chinese entities accounted for less than one percent of the total. While the reasons behind this growth belong to the realm of speculation, here we will try to cover a few of the theories.

Normally a growth in trademark filings is a sign of innovation, new products, and market expansion. Itmay  also reflect the improved understanding and awareness of IP, specifically for trademark, which pushes brand owners to register their marks. As Chinese economy has been growing, all of the above may have contributed to this rise over the last decade.

Last week, in Patexia Insight 136, we explained how this impacted the patent filings as China became a major global player. However, the rise in trademark filings seems to be non-uniform and non-justifiable by the above causes. The USPTO explains this growth with what they call “non-market factors”. One of these factors are the government subsidies. China is reported to have over 70 national subsidy measures, which often exceed the cost of trademark filing at the USPTO and seem to be a form of financial gain for individuals in particular cities in China. Driven by financial motives, there are many cases of misconduct by providing false information from applicants and in response, the USPTO often takes measures and sanctions such as the ones against Yusha Zhang and Shenzhen Huanyee Intellectual Property Co., Ltd in December 2021.

The fraudulent filings are a major concern with applicants committing them in different ways. Most often these filings include digitally altered images and aim to register trademarks which are not used in commerce at all. Especially when it comes to apparel goods, there are researches and estimations, which show that over 60% of them are fraudulent aiming to create a clutter of trademarks, which increases risks for trademark depletion.

Applicants acting in bad-faith are a known and systemic problem in China. They either aim to “ransom” legitimate trademark owners by what is known as trademark squatting or simply want to sell goods that are very similar to other brands. The fashion industry has often highlighted this issue which seems to create quite a bad situation for their sector. Bad-faith practices on the other side, are known to push the legitimate trademark owners to register; if you don't register yours, someone else will. In this context, there may be many applicants acting in good faith, registering their trademarks in an effort to counter the bad-faith applicant actions.

While all of the above might apply and explain the rising numbers, it still doesn't seem to quite explain the spike in the last two years. When the rise began, there were many experts in the IP community that explained it with the changes that the USPTO did to the trademark prosecution during 2019. All applicants not domiciled in the United States to engage US licensed attorneys to file and prosecute trademark applications which could potentially raise the costs. In this way, many businesses may have rushed to register their trademark before the costs increased. However, this explanation seems to be no longer valid with the filings coming from China continuing to increase after the USPTO rules changed. Furthermore, the rise in trademark filings coincided with the global pandemic and there are IP experts who claim that the possibility of online filings as well as the increase of small businesses operating in ecommerce might have something to do with the growth in trademark filings. This however does not explain why the majority of applications come from China and not other countries.

What is most probable is that more than one of the above reasons stand behind the anomaly we are studying. The full Trademark Intelligence 2022 goes further in analyzing other aspects of the trademark prosecution activity as well as evaluation and rankings for the top 1000 most active and best performing entities, law firms and attorneys that benefited from all of this rise in filing activities.

Stay tuned for more insights from our Trademark Intelligence 2022 in the coming weeks, including the rankings of the best performing and most active entities, as well as revealing some of the best patent attorneys and law firms from our Patent Prosecution Report.

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