Trade mark squatting involves a third party registering a trade mark that is identical or similar to your branding, usually with the intention of selling it to you for an inflated price or exploiting your reputation for their own gain.
Trade mark squatting is a growing problem for brands, mainly due to the popularity of e-commerce and the prevalence of cross-border trade. In 2023, the World Intellectual Property Office (WIPO) reported handling a record number of disputes concerning trade marks that had been registered as domain names by entities other than the brand owner.
If you’re unsure how to protect your brand against trade mark squatters, what steps to take if someone has registered a similar mark, or how to prevent it from happening in the future, we can help. Our trade mark solicitors provide clear, practical advice to help you protect your rights and maintain control over your brand’s reputation.
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Why is trade mark squatting such an issue for trade mark owners?
Trade marks are one of a business’s most valuable assets. They allow a business to trade under its name and branding to the exclusion of all others. For example, McDonald’s would rely primarily on its trade mark portfolio to prevent a competing burger bar from using its famous golden arches in its branding.
The power of branding is enormous. A strong, recognisable brand instils trust, confidence, and loyalty in consumers, who rely on it as a marker of the nature and quality of the goods or services it represents. Taking McDonald’s as an example again, anyone seeing the McDonald’s sign and its golden arches anywhere in the world knows what to expect in terms of offerings and quality, thanks to their previous experiences with the brand.
To understand trade mark squatting, it’s essential to appreciate how trade marks work. Trade marks are territorial rights. This means that they only protect your brand in the country of registration. So, if you have a UK trade mark, nobody else can use your mark or something similar in the UK without potentially infringing your rights. If someone in the US were to start trading under your name or logo, you couldn’t rely on your UK trade mark rights to stop them. That’s why many brands develop international trade mark portfolios covering all the countries in which they trade or into which they hope to expand.
Since trade marks are country-specific, it follows that they are governed by the laws of the country in which they are registered. Different countries operate different registration systems, which can be broadly divided into two categories: first to file and first to use.
In first to file countries, the business that files its trade mark application first generally gains the rights to use it. The UK and China are first to file countries. By contrast, first to use countries afford a business using a mark some rights over it, even in the absence of a trade mark registration. The extent of that protection differs depending on the country. The US and Canada are first to use countries.
First to file countries facilitate trade mark squatting to a greater extent than first to use ones since they enable third parties to gain exclusivity over a trade mark purely by registering it. That said, if you don’t yet use your trade mark in a first to use country, you have no prior rights on which to rely to prevent third parties from registering it.
Discovering that someone has taken your trade mark in a country you want to expand into presents several significant problems, including:
- It prevents you from using your own branding there, including in connection with e-commerce.
- It impacts your reputation in the market. If consumers purchase substandard goods and services believing they originate from you, your reputation invariably suffers and, with it, your profitability.
- It hinders your ability to attract business partners, such as licensees, who are unlikely to pay you to use a brand owned by someone else.
A well-documented case of a brand falling foul of trade mark squatting is that of Apple and Chinese company Proview Technology, which registered the mark ‘iPad’ in several countries, including China. The issue caused Apple to lose considerable revenue from iPad sales in China after they were pulled from shelves and delayed the launch of new iPad models there. In the end, Apple had to pay a reported $60 million to Proview to secure the Chinese iPad trade mark.
As a first to file country, China is a hotbed for trade mark squatters, particularly because the region often plays a significant role in brands’ expansion plans. Those squatters charge brand owners extortionate fees to relinquish their rights to the mark, effectively holding them to ransom.
Who can take action legal action against a trade mark squatter?
The positive news is that many countries impose a good faith requirement on trade mark applicants in some form or another. This means that anyone applying for a trade mark must do so in good faith and not simply to block another business or gain an unfair advantage. If a trade mark squatter registered your branding in bad faith, you may be able to take legal action to invalidate their trade mark. If your invalidation action is successful, you can then secure the trade mark.
Different countries operate different rules and procedures for invalidation actions. Usually, only the rights owner or other interested parties can take invalidation action on bad faith grounds, so understanding who owns the rights in your branding is crucial, particularly if you operate a group of companies.
You’ll need to enlist help from local agents when challenging a trade mark on bad faith grounds, not least because they’ll speak the language and have the requisite knowledge of the applicable laws. Our trade mark solicitors have a network of trusted agents with whom they work closely to achieve our clients’ aims.
How can I prevent trade mark squatting?
Prevention is better than cure, and avoiding trade mark squatting in the first place is far preferable and cheaper than dealing with the problem once it has arisen. Examples of some of the steps you can take to avoid trade mark squatting abroad include:
Securing trade marks in all relevant countries
Some countries operate a first to use trade mark system under which they recognise prior unregistered rights. The extent to which they do so varies, and proving your rights in the absence of a registered trade mark can be an uphill task. By far, the best option is to develop a portfolio of registered trade marks aligned with your business’s expansion plans. Even if you don’t trade in a particular country yet, by gaining pre-emptive protection, you can protect your place in the market ahead of your launch.
You can obtain worldwide protection for your trade marks in two ways. You can register the mark in each of your target countries individually, or you can use an international trade mark registration system, like the Madrid Protocol. Using the Madrid Protocol, you can gain trade mark protection in as many as 130 countries with a single application. Most key economies, including China and the US, have signed up to the Madrid Protocol.
Before you can use the Madrid Protocol, you need to have registered the branding as a UK trade mark. Using your UK trade mark as your base mark, you can then file an international trade mark application with the UK Intellectual Property Office (IPO). The IPO forwards your application to WIPO, which sends it on to the Trade Marks Office in each of your chosen countries. If your application accords with a country’s trade mark laws, the relevant Trade Marks Office will register it, and it will enjoy the same protection as a national mark.
International trade mark systems like the Madrid Protocol offer a convenient and cost-effective way of gaining worldwide brand protection. You may need to supplement your portfolio with national registrations, for example, because a target country is not a signatory to the Madrid Protocol.
There may be situations in which your base mark is inappropriate in the target country or does not provide the protection you require. For example, if your trade mark has even the remotest religious or explicit connotations, it’s unlikely to be accepted for registration in the Middle East. If your expansion plans include China, you may need to consider applying for the Chinese version of your trade mark as well as the English one since obtaining trade mark protection for solely the English version does not prevent third parties from registering it using Chinese characters.
Our trade mark solicitors have experience in helping brands with devising and implementing their global brand protection strategies. Working with their network of agents around the world, they will ensure your brand is fully protected in all relevant countries.
Monitoring trade mark applications in key countries
Many countries have mechanisms for handling trade mark applications that are too similar to existing marks, which include refusing the application or notifying the earlier rights holder. If you haven’t registered your branding as trade marks in the relevant countries, the Trade Marks Office there will be unaware of your rights and won’t take them into account when considering an application. Even if you do have registered trade marks, what you consider too similar to those marks may differ from the trade mark examiner’s view.
Trade mark monitoring services, allow brands to monitor trade mark applications for any that may cause issues for their business in the countries of their choice. If our software identifies any potentially problematic applications, we will notify you so that you can oppose their registration.
Opposing problematic trade mark applications
If our trade mark monitoring service alerts you to a problematic application, you may be able to oppose it. The grounds on which you can do so vary depending on the country, but most trade mark systems allow oppositions on the grounds of bad faith. Applications are made in bad faith if they are for the purpose of extracting payment from the brand owner or piggybacking on their established reputation, which essentially is the same as trade mark squatting.
Strict time limits apply to trade mark oppositions. For example, in China, oppositions must be filed within three months. If you miss the deadline, you must wait until the trade mark has been registered and then bring an invalidation action.
Placing contractual restrictions on business partners
It’s not uncommon for a brand’s business partners, notably distributors, to register trade marks relating to the goods with which it deals in the country within which they operate. Sometimes, their reasons are legitimate. For example, they might consider such action necessary to protect their business interests because the brand owner hasn’t secured the relevant rights. In these situations, the business partner will usually transfer the trade mark to the brand owner for a nominal fee.
In other cases, the business partner’s motives may be dishonest and amount to trade mark squatting. This presents a far bigger problem for a brand owner, who faces having to take legal action against them or negotiating a transfer in return for payment.
To prevent this issue, you should ensure that all contracts with foreign business partners include clear provisions regarding trade mark ownership and prohibit the other party from filing any competing applications, oppositions, or invalidations.
Monitoring distributors
Your Distribution Agreements should clearly state how your distributor can use your trade marks and where. It should also allow you to monitor their use of your trade marks through periodic audits and compel them to provide information on their use of your trade marks, including sales data and marketing materials.
How do you resolve a dispute with a trade mark squatter?
When faced with a trade mark squatter, you should try to stem any brand damage and stop mounting financial losses. The type of action necessary will depend on several factors, including where the squatter is based and their motives.
Before you can take action of any type, you must identify the squatter’s identity. Searching international trade mark databases and the details held by the national Trade Mark Offices is a good place to start. If the squatter is using the mark in connection with their own goods or services, further research into their commercial activities, such as checking for any contact details featured on their e-commerce sites, can also assist.
It's always a good idea to seek an amicable solution to a trade mark squatting issue where possible. Although it can be galling to pay a squatter for the transfer of a mark that’s rightfully yours, doing so is often cheaper than pursuing them through the legal system of the country in which they are based. In some cases, negotiating a settlement might be your only option. Say, for example, the business registered the trade mark because they trade under the branding in the relevant country. In that case, your only option would be to seek the transfer of the mark, for which the owner would likely expect payment. These negotiations must be carefully handled to avoid the trade mark owner taking advantage of the situation by demanding onerous settlement terms and an inflated price.
To avoid future issues, any agreement reached with a trade mark squatter through negotiations should include restrictions on them applying to register the mark, or anything similar to it, in the future.
If a settlement can’t be reached, for example, because the trade mark squatter isn’t amenable to negotiation or demands an extortionate price, you may need to consider legal action. You can only take legal action if you have valid grounds on which to do so. Third parties who have registered the mark purely to exploit your goodwill or sell it to you will likely be deemed to have done so in bad faith, so you may be able to take invalidation action.
When the squatter is based abroad, it might be necessary to use local agents to correspond with them, particularly if there are language barriers. If you’re considering legal action, using local agents may be mandatory. Our trade mark solicitors will advise you on the position in the particular country and work closely with their agents based there to secure your desired outcome.
Summary
Trade mark squatting presents a real and significant threat to your brand’s expansion plans and reputation in the global market. The importance of preventing a trade mark squatting situation by securing your trade mark rights in the countries of importance to you can’t be overstated. Registering your brand as trade marks in countries you hope to expand into, even before you begin trading there, can facilitate a smooth and successful launch and avoid expensive legal action or being held to ransom to use your own branding.
Your approach to the issue will depend on a number of factors, including the squatter’s motives and the country of registration. Our trade mark solicitors are highly experienced in assisting brand owners in addressing trade mark squatting issues around the world. They will work closely with their network of local experts to secure the transfer of the mark to you, protect your brand, and facilitate your expansion plans.
