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18 September 2020TrademarksMuireann Bolger

Boxed-in brands: dealing with trademark infringement during COVID-19

To retain a strong position in a tough marketplace, established brands must constantly be wary of threats to their IP. But the COVID-19 crisis has posed unprecedented challenges to many businesses, presenting a question mark about how to best protect their brand and IP against audacious rivals.

Before COVID-19, companies had already reported a marked increase in trademark infringement. According to a study by CompuMark, released earlier this year, 85% of brands experienced trademark infringement during 2019 – a steady upward trend from 74% in 2017. The costs were significant for brands experiencing brand infringement, with the top three cited as customer confusion (45%), loss of revenue (38%) and damage to brand reputation (37%).

Moreover, brands were prepared to take action. Three quarters of trademark infringements led to litigation, with 40% of organisations spending between $50,000 to $249,999 on legal proceedings. In addition, 46% of companies reported having to rebrand as a result of infringement.

Heating up

But during the course of a few months, the pandemic has dramatically altered the outlook for many businesses, and brand owners that have suffered infringement may be wary of the ongoing rise in trademark applications.

Last month, Tim Moss, chief executive of the UK Intellectual Property Office, told WIPR that applications had surged to 20% above forecast levels for the time of year. Meanwhile, trademark filing at the United States Patent and Trade Office is now 3% higher than at the same point in 2019, with five consecutive months of increases, according to IP data firm Clarivate.

Research by Clarivate has also revealed that trademark filing activity in China is 18% higher this year than in 2019, with Chinese applicants now filing around 20% of all US and EU trademark applications.

This could spell trouble for established brands, wishing to avoid costly litigation or rebranding, as ambitious rivals potentially see an opportunity to encroach upon their territory.

William Stroever, co-chair of the IP department at Cole Schotz, explains that due to the spectre of uncertainty cast by the pandemic, new players may be increasingly tempted to “call the bluff” of established brands.

“New entrants always face some level of risk that an existing entity will object to their brand. With budgets stretched thin, they may be more willing to test established brands and see if they are really willing to spend the money and pursue litigation,” he says.

“It can be difficult for a new entrant to get attention in a crowded marketplace and the obvious way to do it is to mimic what they believe customers expect to see,” agrees Sahira Khwaja, partner at Hogan Lovells.

But a failure to act, in some cases, could place brands in a perilous position. “Any new entrant to the marketplace with a similar name or brand could chip away at the distinctiveness of an established brand,” says Stroever.

Fear of litigation

So when should brand owners take action, and when should they take a step back? Stroever explains that during uncertain economic times brands need to make difficult decisions about whether it makes financial and business sense to assert IP rights.

“Now more than ever, businesses need to be as creative as possible with their negotiations and enforcement in order to try and find those solutions that balance the benefits with the cost,” says Stroever.

Even when there are grounds for taking action against infringement, in the era of COVID-19 the potential reputational fallout could be more damaging for brands in the long-term. “There are big things happening in the world at the moment so if company X is suing company Y, it mightn’t look great for company X,” says Sanjay Kapur, partner at Potter Clarkson.

“It’s a delicate balancing act for established brands who must weigh the enforcement of their IP rights against public relations concerns,” says Annie Allison, associate at Haynes and Boone. “On one hand, established brands have a strong interest in maintaining and protecting the goodwill and reputation of a brand that likely has tremendous value for their business and for which they have likely expended significant resources.”

She adds that, conversely, enforcement against a newcomer could have significant public relations consequences if consumers perceive these enforcement activities as bullying or territorialism. “Established brands need to be thoughtful in their enforcement strategy,” she says.

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