‘Suspect’ China filings driven by govt subsidies and targets, says USPTO
The exponential growth in trademarks and patents filed in the US from China may be partially fuelled by subsidies by the Chinese government, according to a new report released by the US Patent and Trademark Office (USPTO).
According to the report, “ Trademarks and Patents in China, The Impact of Non-Market Factors on Filing Trends and IP Systems”, released yesterday, January 13, the volume of trademark and patent applications in China is the highest in history.
The USPTO stated that the growing number of suspect trademark applications filed in the US from China prompted the office to study the reasons for this development
According to IP data firm Clarivate, the office filed more than 700,000 classes in 2020, compared to 673,233 in 2019. Chinese applicants accounted for 30% of all US trademark applications; in September this soared to 43%.
In 2019, authorities in China received 7.8 million trademark applications and
1.5 million utility patent applications, accounting for nearly half of global totals, the USPTO study revealed.
“China’s filings are influenced by non-market factors such as subsidies, government mandates, bad-faith trademark applications, and defensive countermeasures,” said the report.
Subsidies exceed costs of filing
According to the study, China has reportedly adopted more than 70 subnational trademark subsidy measures, including measures for domestic and foreign applications and registrations.
“Because the amount of these subsidies often exceeds the cost of registering a trademark, a rational economic actor in China may choose to pursue a trademark application without any intention to use the mark in commerce,” it stated.
While the USPTO is unaware of publicly available information showing how the proportion of trademark applications in China that are motivated by subsidies, the report noted that after Shenzhen and other cities began offering subsidies for overseas trade applications, the USPTO experienced a surge in applications.
According to the report, Shenzhen issued procedures in 2013 that allowed applicants to seek a subsidy of RMB 5,000 ($750) for trademark registrations ineligible foreign countries, including the US.
After the USPTO lowered the fee for its lowest-cost, fully electronic applications to $225 in 2015, the cost to file at the USPTO became substantially lower than the amount of the subsidy. Between 2014 and 2018, trademark filings from China increased from 5,161 applications to approximately 58,066.
According to Barton Beebe, professor of IP Law at New York University School of Law, and co-author of the article, “ Are We Running Out of Trademarks? An Empirical Study of Trademark Depletion and Congestion”, two-thirds of the applications filed in 2017 in the US class 25 (apparel) were fraudulent in nature.
Following criticism by the USPTO, the China National Intellectual Property Administration announced in January 2020 that it planned to clean up” IP subsidies, in part by eliminating large subsidies for trademarks.
However, this commitment was undermined in March 2020, when China’s government directed its state-owned enterprises to increase their trademark filings under the Madrid System for the International Registration of Marks by 50%.
According to the USPTO, this government mandate is an example of a non-market factor driving trademark applications, because China’s subnational governments will be compelled to offer and increase the availability of non-market incentives to meet these targets.
Bad faith trademarks
Another factor driving the volume of trademark applications in China is the frequency of parties attempting to profit from registering trademarks in bad faith, said the report.
“Certain aspects of China’s trademark protection and enforcement framework make it possible for bad-faith applicants to register large numbers of marks in that country,” it said.
According to the report, these bad actors may register marks to: ransom them to their legitimate owners, to sell, without authorisation, goods or services that appear similar to those of their legitimate owners in an effort to “free ride” on the owners’ goodwill, or block the legitimate owners’ entry into the Chinese market or thwart the owners’ notices to takedown infringing products from e-commerce platforms.
China’s patenting targets for state-owned enterprises, universities, public research institutions, and government officials had also driven a surge in patent applications, noted the report.
The report further pointed out that in March China directed its 128 centrally owned enterprises to double their holdings of US and other foreign patents by 2025.
Patenting subsidies
In 2019, the Shanghai government raised the per applicant maximum annual subsidy for international patent filings from RMB 1 million to RMB 10 million, and the per patent subsidy from RMB 30,000 to RMB 50,000, it added.
The Beijing government has adopted a similar approach. According to the report, an applicant is now entitled to as much as RMB 20 million in foreign patent subsidies per year.
The report noted that as with trademarks, subsidies likely encourage parties to seek patents to receive the subsidy rather than to protect an innovation.
It added that while subsidies and national targets have caused a surge in patent filings, they also motivate “strategic filing behaviour” including “the practice of splitting a single patent application into multiple applications in an effort to reach specific innovation metrics”.
The report concluded that these trends undermined domestic and foreign registries, stretching the capacity of China’s patent and trademark examiners and review authorities, and narrowing the scope of available protection for legitimate rights holders.
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