COMMENTARY: Are foreign manufacturers stealing your trademarks?


By William Honaker

At the time of this article's publication, there has been an increasing number of foreign manufacturers registering their customer's trademarks, selling counterfeits on the side, and holding shipments for ransom. This is a serious problem. These manufacturers then use the registered trademarks to protect their business relationships with U.S. companies, compete against these partners and ultimately hold them hostage.

The best way for a business to protect itself is to be proactive. Businesses that have products manufactured or sold in a foreign country should ensure that their trademarks are registered and that they own them. Taking it a step further, companies should register all of their trademarks in any country where they are sold or manufactured or will be sold or manufactured in the future. Failure to do so can result in expensive consequences later on.

- What can happen?

Unfortunately, this is a worldwide problem affecting many businesses and not limited to one region. In a recent example, a U.S. company was doing business with several foreign manufacturers. Without the U.S. company's knowledge, one of the manufacturers registered the company's trademarks. They also recorded the newly registered trademark with their country's customs agency. When the other manufacturers tried to ship products, customs officials seized the shipments. The only way to get these goods released was for the U.S. company to pay a ransom (a trademark licensee fee).

In another example, a U.S. company was having products made by a foreign manufacturer when the manufacturer began making extra products and selling them on the side under the same trademark. Since the foreign manufacturer owned the foreign trademarks, they argued that they had the right to manufacture and sell their trademarked product outside the U.S.

In yet another example, a U.S. company was in the final stages of negotiations to sell its business when they learned their distributor had registered the trademarks in a different country. Of course, the purchaser wanted to secure the trademarks before closing the $100 million deal. The distributor demanded $250,000 to transfer ownership of the highjacked trademark. They had nothing to lose since their distributor agreement would terminate with the sale of the company. In order to close the deal, the U.S. company had to pay the demand.

- What to do?

In each of these cases, the companies could have fought and likely would have won recovery of their trademarks, but it is an expensive and time-consuming fight. Time is not on the business owners' side, with inventory stuck in customs, sales being lost and, ultimately, the deal falling through.

In one country, for example, outside businesses can initiate invalidation proceedings with the country's trademark office. However, one must prove that the registrant knew that the trademarks were owned by the company before they filed. Obviously, this seems apparent, but it must be proved through correspondence and other available evidence. This takes time, effort, and expense.

The quickest and best resolution is to convince the trademark owner to transfer the trademarks back to the company. In the first example, where our firm was involved, we had leverage through continued contracts. We were able to negotiate an assignment because the foreign manufacturer wanted to continue doing business with our client.

- How can this happen?

Many countries have a first-to-file system, which means one does not have to use the trademark to get registration of it. In the United States, it must be proven that the trademark is actually being used in commerce in order to get federal registration. This prevents the hoarding of trademarks. In some countries, as the first example shows, the filing of an application is all that is required. In the first example, the manufacturer had registered 37 of this customer's trademarks.

- What actions should be taken?

To avoid having a trademark stolen, companies should register their trademarks in the countries where:

  1) Their products are being made;
  2) They sell products or services; and
  3) Where they plan to do business in the future.

Taking this proactive approach will ensure that rightful owners get the benefit of their trademarks. Once a trademark is registered, the registrant is the owner, and another company cannot register that trademark or a confusingly similar trademark.

- The takeaway

U.S. companies doing business or having products made in other countries should have a search done to see if their mark is registered. If it is not, they should register it immediately. The cost is nominal compared to what can happen if it is left unprotected. If your trademark is registered by others, contact trademark counsel and review the options for getting it returned. Time is not on the rightful business owner's side. Take the appropriate action today to ensure the company owns one of its most valuable assets.
William Honaker is a member in the Troy office of Dickinson Wright. With more than 30 years of experience as an intellectual property attorney, he helps businesses protect their brands, inventions, and copyrights.