USPTO Criticized for Registering Fraudulent Trademarks, Recent Audit Reports

USPTO Audit Results Registering Fraudulent Trademarks Cover

Overview

A recent audit has found that the USPTO’s current registration process is “not effective” in combating fraudulent or inaccurate trademark applications. The U.S. Department of Commerce’s Office of the Inspector General (OIG) released a report on August 11, 2021 titled “USPTO Should Improve Controls over Examination of Trademark Filings to Enhance the Integrity of the Trademark Register.” The audit was performed to determine if the U.S. Trademark and Patent Office had sufficient safeguards to prevent fraudulent or inaccurate trademark applications.

2020 Trademarks: A Visual Look

2020 USPTO Trademark Statistics IP Illustrated 1
Image courtesy of IP Illustrated

From 2014 to 2020, trademark applications from China increased 1600%. Josh Gerben, founder and principal of Gerben Law, explains that this increase may be due to China paying its residents—handsomely—to obtain US trademarks. In 2014, the Chinese government announced a cash incentive for Chinese residents to receive approximately $500 in profits for each registration, half of the median monthly income. Trademark applications from China quickly flooded the Trademark Office, where many were found fraudulent. The introduction of the Amazon Brand Registry in 2015, which requires that brands have a pending or registered trademark, has also contributed to the increase as well as registrations for nonsensical words.

The Audit Process

The audit took three factors into consideration. First, the OIG analyzed a sample of trademarks filed during October 1, 2019 – April 30, 2020. Applications were selected based on indicators such as filing date, filing basis, and country of origin. This resulted in 448 trademark applications and 159 maintenance filings. Second, the Office of Inspector General interviewed USPTO employees who work in application examinations, policy development, quality assurance, and “how they responded to improper activities.” Third, the OIG reviewed documents, both external and internal. These included current trademark laws, the Trademark Manual of Examining Procedure (TMEP), a Columbia Law Review article “Fake Trademark Specimens: An Empirical Analysis” by trademark professors Barton Beebe and Jeanne Fromer, and previously published USPTO reports.

Infographic: Key Findings

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4 Key Takeaways

The report states the following:

  1. USPTO lacks controls to effectively enforce the U.S. counsel rule. 
  2. USPTO approved trademark filings with digitally altered or mocked-up specimens. 
  3. USPTO did not ensure accurate identification of goods and services. 
  4. USPTO lacks a comprehensive fraud risk strategy. 

Overall, we found that USPTO’s trademark registration process was not effective in preventing fraudulent or inaccurate registrations. 

OIG’s Audit Report

Recommendations for the USPTO

The OIG recommends the USPTO do the following:

  1. Develop controls and/or tools to detect post office boxes, post offices, CMRAs, registered agents, and other unacceptable domicile addresses in trademark applications and other trademark filings. (A CMRA is a private business that accepts mail from the U.S. Postal Service for recipients and keeps it for collection or re-mails it to another location.)
  2. Develop standards and procedures to (1) identify and investigate U.S.-licensed attorneys who are properly listed as the attorney of record on high numbers of fraudulent or inaccurate trademark applications and (2) address the attorneys’ behavior by providing guidance, taking disciplinary action, or taking other actions as appropriate. 
  3. Revise procedures to clarify (a) expectations for the extent of examining attorneys’ use of third-party information sources when examining specimens, (b) steps for assessing authenticity of webpage specimens, and (c) guidance for identifying mocked-up labels and tags in specimen photos. 
  4. Develop controls to ensure consistency and coordination among examining attorneys for the examination of multiple trademark applications from a single applicant. 
  5. Develop specific guidance for examining attorneys’ use of TMEP Section 904.01(a) “More than One Item Specified in a Class.” 
  6. Create a risk framework to address fraudulent or inaccurate trademark filings.
  7. Develop procedures to aggregate and analyze data from managing attorneys’ reviews of examining attorneys’ work.

Public Response

Some critics have stated that the focus on fraudulent trademark applications originating in China (or any nationality) promote sinophobia. Lawyer Pamela Chestek pointed out in a Twitter thread that there is direct correlation between China doing more business in the US and the increase in trademark applications.

The USPTO’s Response

After the World Trademark Review published their article about the OIG’s report, they received the following comment from Drew Hirshfeld, the temporary Director of the USPTO:

“We agree with the Inspector General that additional controls are needed to address the increase in fraudulent trademark filings and trademark-related scams. Confronted with these new challenges, we implemented many new initiatives as early as 2019, and have added and expanded on them since that time. These initiatives include an enlarged (and growing) Special Task Force (started in 2019), updated examination guidelines, the issuance of show cause orders and potential sanctions against bad actors, and preparation for new mitigation initiatives provided by the Trademark Modernization Act of 2020, to name a few. In the coming, days we will publish more detailed information on the USPTO’s comprehensive strategy to fight trademark fraud. We appreciate the IG’s further input and will be continuing to expand our efforts to combat fraud, consistent with those recommendations.”

– Drew Hirshfeld

Read the Report

The full report can be found here: https://www.oig.doc.gov/OIGPublications/OIG-21-033-A.pdf or below.

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