In the Know

A “Brand" New World: Five Ways Foreign Companies Can Avoid Trademark Problems in the U.S.
July 8, 2019
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Arnall Golden Gregory LLP

Entering a new geographic market presents challenges for any company looking to expand its footprint abroad. For a foreign company making a move into the U.S., these challenges can be somewhat overwhelming. Matters such as taxes, employment and immigration issues, assessing potential tort liability (and overcoming anxiety about the U.S. court system), finding the right distributors and business partners, and establishing a base of operations in the right locale all are huge considerations.

Often overlooked, however, are other equally-important considerations relating to the company’s trademarks. Will the company’s trademarks be protected in the U.S.? Will the company’s use of its trademarks in the U.S. infringe the rights of others? How does the company manage the use of the trademarks by distributors or other parties?

Thankfully, by following the rules below, most problems can be avoided with a little advance effort, thinking, and planning.

1. Conduct Trademark Clearance Searches

Months prior to launching a product or commencing other operations in the U.S., a foreign company should first identify all trademarks that it intends to use in the U.S. In some cases, this may be only the company’s main corporate identifier. In other cases, the company may have dozens of uniquely-branded product and service offerings, or possibly several unique word and design combinations or tag lines.

Once the company compiles the list of trademarks that it intends to use in the U.S., it should conduct thorough clearance searches to identify potential conflicts. This process can be tricky, as the standard applied in U.S. courts to evaluate trademark conflicts is “likelihood of confusion,” a partially subjective standard that is based on a variety of factors, including the similarities of the marks in terms of sight and sound and the relatedness of the goods and services sold under the marks.

The company’s searches should cover not only federal trademarks registered with the United States Patent and Trademark Office (USPTO), but also trademarks registered at the state level. In addition, the U.S. is somewhat unique in that a party can acquire limited trademarks rights in the party’s geographic area of operation (often called “common law rights”) without taking any steps to register those rights at the federal or state level. Thus, a company that conducts a search and finds no potentially-conflicting state or federal trademark registration may nonetheless encounter significant problems with a prior user, if that prior user is operating in the same areas as the company.

The most efficient way to screen for potential trademark conflicts is to engage U.S. trademark counsel, who often have relationships with third-party vendors that specialize in conducting trademark searches and creating reports with all potential conflicts. These reports can be customized, but they frequently show not only potentially-conflicting registrations, but also common law uses. U.S. trademark counsel can help the company analyze the marks and uses identified in the report and advise the company of the potential risks associated with moving forward with a particular trademark.

2. File Trademark Applications

Once the company is confident that its trademarks are safe to use in the U.S., the company should consider taking proactive steps to protect them.

A federal trademark registration provides the maximum level of protection available to a trademark owner. The owner of a federal trademark registration is presumed to have the exclusive right to use the mark in all areas of the U.S., even in areas where the owner does not operate. A federal registration endows its owner with several benefits:

  • A federal registration provides constructive notice that its owner has the exclusive right to use the mark in commerce, subject to the rights of prior users.
  • After five years of continuous use in commerce, the mark becomes incontestable, which means that the registration of the mark cannot be attacked on the basis of prior use or descriptiveness.
  • The registrant of the mark may sue for trademark infringement in federal court when diversity does not exist.
  • In a trademark infringement action, the registrant may be entitled to increased statutory damages.
  • The registrant may use U.S. Customs & Border Protection to prevent the importation of counterfeited goods.
  • A federal registration generally makes it easier to obtain trademark registrations in foreign countries.

In addition, the federal trademark system is unique in that it permits the filing of trademark applications on an “intent to use” basis. This means that an applicant can essentially reserve the rights to a trademark that it is not presently using, but has a bona fide intention to use in the future. To obtain a registration, the applicant must eventually demonstrate use of the mark in commerce (either based on its own use or on the use of a licensee), although, with extensions, the time between filing and eventual registration can be up to three years. Once the registration issues, the owner will be permitted to claim a priority date extending back to the filing date of the application.

Thus, a foreign company should not wait until it commences operating in the U.S. to file trademark applications. Rather, the company should file intent to use applications as soon as it decides that a move to the U.S. will happen in the near future, even if that is several years away.

3. Execute Written Licenses with Quality Control Provisions

Frequently, a foreign company enters the U.S. market by partnering with a third-party distributor or reseller. It is critical that the company document all rights granted to the third-party that relate to the company’s trademarks.

The company and the third-party should execute a license agreement that specifies the trademarks that the third-party will be entitled to use, the applicable time period, the type of license (e.g., exclusive or non-exclusive), the territory, and other terms. These basic terms will vary depending on the nature of the relationship and the role the company expects the third-party to play. Further, the license can be a stand-alone agreement or can be a part of a broader agreement with the third-party.

However, in all cases, the agreement must contain quality control provisions. At a minimum, these provisions should require the third-party licensee to maintain the quality of the licensed goods and services. They also should give the company the right to monitor quality and cancel the license if the quality standards are not maintained. The failure to include quality control provisions in a trademark license can result in the loss of the company’s trademark rights. And, if the company does lose its rights, it’s often the licensee that is in the best position to step-in and claim those rights for itself.

4. Use the Trademarks (or Lose Them)

Once the company’s trademark rights are secured, it is important that the company, whether itself or through its licensees, continues to use the trademarks in U.S. commerce. Continuous use is a fundamental aspect of U.S. trademark law. Trademark rights are abandoned immediately if the owner discontinues use of the trademark with no intention to resume use. And, an owner will be deemed to have abandoned its rights (regardless of intent) if the trademark is not in use for three consecutive years.

Therefore, it is critical that foreign companies do not simply register and “stockpile” trademarks based upon the erroneous assumption that all rights are secured indefinitely. While routine gaps in use are typically not a problem, the company should do its best to use its trademarks consistently and avoid long periods of inactivity.

5. Adopt a Maintenance Program

U.S. trademark registrations must be maintained. Between the fifth and sixth year following the date of registration, the owner is required to file an affidavit with the USPTO certifying that the mark is still in use in commerce in connection with the goods and services identified in the application. Similar filings must be made between the ninth and tenth year following the date of registration, and every ten years thereafter.

Importantly, to maintain the registration, the mark must be used in the same manner in which it was registered. Any change to the mark, no matter how insignificant it might seem, may result in the loss of the registration. Also, the owner should make sure that the mark is used in connection with all goods or services stated in registration. If the owner no longer uses the mark in connection with a particular good or service, then the owner must remove the good or service from the registration. A failure to do so can lead to cancellation of the entire registration.

It is therefore important that the company calendar all renewal deadlines for its trademarks or engage U.S. trademark counsel to manage the company’s trademarks.

By following these steps, foreign companies can avoid major trademark problems in the U.S.