The US Trademark Office Post Registration Proof of Use Audit Programme should be taken seriously
January 2019 | SPECIAL REPORT: INTELLECTUAL PROPERTY
Financier Worldwide Magazine
January 2019 Issue
In November 2017, the United States Patent & Trademark Office (USPTO), which issues registrations for trademarks in the US, launched a new programme to randomly audit trademark registrations to be sure that the trademark is being used on all the goods and services listed in the registration. It has always been the rule in the US that ‘use in commerce’ of a trademark is a prerequisite to registration, and the case law has swung back and forth in terms of how harshly to penalise non-use of registered marks. This recently implemented Post-Registration Proof of Use Audit Programme (PRAP) takes the courts out of the equation and allows the USPTO to directly challenge registrations, and the consequences of non-compliance with an audit request are invasive and harsh. This audit programme is likely to disproportionately affect foreign registrants who use registrations or applications from their home country as the basis for filing in the US, because their home country’s system is likely a ‘first-to-file’ system, where use is not a requirement for registration and therefore applicants are incentivised to apply for the broadest categories of goods and services. The PRAP crystallises the differences between US law and most of the rest of the world when it comes to use of trademarks, and is a programme that both US and non-US applicants and their legal counsel should be aware of when considering applying for trademark rights in the US.
In the US, trademark rights arise from ‘use in commerce’, meaning “the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark”. Furthermore, “The owner of a trademark used in commerce may request registration of its trademark on the principal register”. Applications may also be based on a “bona fide intention… to use a trademark”, although use will have to be shown before a registration certificate is issued for these marks. Pre-existing foreign registrations or applications may also serve as the basis for registration under Section 8 of the Trademark Act, as may an application or registration from the International Bureau of the World Intellectual Property Organisation (WIPO) because of a treaty known as the Madrid Protocol. Applications to the US under the Madrid Protocol, or those based on foreign filings, have a certain advantage over applications filed domestically in that use of the mark is not a prerequisite to registration, but even these applicants will have to show use of the mark five years after registration when the first renewal comes due, or earlier if the mark is challenged by a third party for non-use or abandonment.
The five-year mark is the magic date for a possible PRAP, as well. All registrations, regardless of the initial filing basis, must show use of the registered trademark in connection with the goods and services identified in the registration, between the fifth and sixth year after registration, again between the ninth and 10th year of registration, and every 10 years thereafter. Both at the pre-registration stage for applications under Section 1(a) or Section 1(b) of the Trademark Act, and at the renewal stage for all registrations, the registrant has to provide the Trademark Office with specimens of use of the mark only on one good or service in each class of goods or services, even if multiple goods or services appear in the class.
The PRAP, however, allows the USPTO to ask for more evidence at the renewal stage, either at the fifth and sixth year renewal, or any subsequent renewals, with respect to any registration where there are more than four goods or services listed in the class, or more than two classes and at least two goods or services in each class.
Many registrations fall into one of these categories. However, it is particularly likely that registrations based on foreign filings will include an extensive list of goods and services, since at the application stage in the country of origin of the filing, use was likely not a requirement, and is not even a primary consideration until a third party files a challenge. Applicants in many ‘first to file’ jurisdictions are incentivised to make their applications cover as broad a scope of goods or services as possible in order to create a barrier to entry from competition, and often simply list every good categorised in a particular class. In the home country, use or even the intention to use is simply irrelevant for purposes of the filing.
An audit will come in the form of an Office Action. It will ask for ‘proof of use’ on two additional goods in whichever classes the audit names. For goods, ‘proof of use’ is a higher burden than the ‘specimen’ that was required for registration. For example, for registration, an applicant can show a solid cardboard box containing the goods with the mark stamped on the outside. To satisfy an audit request, the cardboard box will have to have a window in it sufficient to show the actual goods, or the mark will have to be affixed to goods themselves. Screenshots of webpages showing the mark on the goods at their point of sale will be acceptable, but at the audit stage an examiner is likely to check the veracity of these submissions by simply visiting the webpage, so false or temporary web postings to satisfy the audit request are definitely not advisable.
The consequences of not being able to satisfy the audit request are unpleasant. If the registrant is using the mark on some of the goods in the class but not all of them, he or she can delete the goods that were named in the audit request, and should also delete any other goods and services for which the mark is not in use, but then will have to show proof of use on all remaining goods and services in the registration. If the list of goods is extensive and covers multiple classes, such a requirement could take up significant time and labour, particularly if any of the goods are drop-shipped or made-to-order. For a larger organisation, it may be a major undertaking just to determine which goods and services are actually being sold or rendered. Failing to respond to an audit request will result in cancellation of the entire registration.
If there is time remaining in the filing period, an applicant can respond by filing a new declaration, but since it is ‘the registration – not the declaration’ that has been selected for audit, the USPTO will issue an Office Action on the second declaration. At this point, though, the registrant can delete all the non-used goods and services in the second declaration to be able to ensure compliance with the first Office Action.
There is prior history for carefully cautioning against including goods and services in an application that the applicant had no intention of using in commerce. A decade ago, the prevailing wisdom was that such filings would be easily subject to a fraud charge that could result in the cancellation of the entire registration, because the Trademark Trial and Appeal Board in the Medinol case held that the standard for a fraud finding was whether the registrant “knew or should have known” that it was not using, or had no intention to use, the mark on the goods or services in question. The Medinol decision was reversed in 2009 by the US Federal Circuit in Bose, which held that fraud may be found only when an applicant or registration “knowingly makes a false, material representation with the intent to deceive the PTO”, and that fraud must be proven “with clear and convincing evidence”. The PRAP does not change the fraud standard, but does again raise the likelihood that a registration could be cancelled in its entirety if the registrant is not using the mark on all the goods in the registration at the time of renewal.
Currently, the USPTO is not sharing data regarding how many audits have been conducted or how many have resulted in cancellations. In a pilot programme in 2012, 500 audits were issued on registrations for which owners filed six-year declarations, and while some did result in cancellations or deletion of unused goods and services, we do not know how many. Because of this, applicants from foreign territories may not be incentivised to sort out which of the goods in a class they are actually using in the US at the time of filing an application, based on a foreign application or registration or under the Madrid Protocol, particularly since things could change in the five years before the renewal comes due, and because the risk of an audit is unknown. But the risk remains and the consequences of non-compliance are severe. At the time of renewal, time should be taken to go over the identifications and be assured that the mark is in use on everything that is listed. Best practice is to begin the process before the window for renewal opens, leaving as much time as possible for a thorough review, and to file the renewal declaration on the first day of the one-year window to ensure time to file a second declaration if some unused goods or services are not caught in the initial review and the renewal draws an audit.
These audits, while possibly rare, could be a significant drain on time and resources if preparatory steps are not taken. A careful review of the plan for launching a brand or expanding it into the US, including serious consideration as to what goods and services will be offered in the US under the trademark, is strongly advised.
Tara Aaron is a founding partner at Aaron Sanders PLLC. She can be contacted on +1 (615) 734 1122 or by email: firstname.lastname@example.org.
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