The USPTO Has Enacted the Trademark Modernization Act: But Now What?

To make matters worse, many of those trademarks should not have registered in the first place. The USPTO has also been experiencing an unprecedented surge in trademark applications from overseas, particularly from China. Many of these applications share a number of unusual features, including lists of goods within a class that are unlikely to be sold together in the marketplace and evidence of use (i.e., specimens) that appear to be mock-ups or doctored images.

Partially to address some of these issues, in December 2020, Congress passed the Trademark Modernization Act (TMA), which is one of the most significant changes to U.S. trademark law in decades. A year later, in December 2021, the USPTO enacted the TMA’s signature policy: trademark expungement and reexamination proceedings. These proceedings allow third parties and the USPTO a set procedure to challenge the validity of trademark registrations that may never have been used in commerce. This article explores the potential benefits of the newly enacted TMA as well as the potential short-term and long-term impacts of these new proceedings on both foreign and domestic trademark owners and their counsel.

Use in Commerce Is a Fundamental Requirement of U.S. Trademark Law

The TMA’s expungement and reexamination proceedings aim at providing new tools to defend a fundamental requirement of U.S. trademark law—that rights arise and persist when a trademark is in use in U.S. commerce.³ When a trademark owner ceases use of a trademark without intent to resume use, that trademark is considered abandoned and free from the legal protections that would prevent a new business from using a similar word, phrase, or other source identifier in the marketplace.

The USPTO’s requirements for federal trademark registrations mirror this fundamental concept of U.S. trademark law. The USPTO requires applicants to submit evidence of use prior to issuing registration (the so-called “preregistration use requirement”), but exceptions exist for U.S. trademark applications based on foreign registrations or for extensions of international registrations under the Madrid Protocol.

However, in requiring “proof of use,” the USPTO limits its evaluation of use evidence in most instances essentially to use that functions as a trademark to identify source. The USPTO recently enacted pilot programs and internal policy efforts to recommend that examining attorneys assess whether the use evidence is authentic, but these programs remain limited in scope and impact. Although the USPTO is now in the process of implementing technological solutions to assist its examining attorneys in identifying obviously fraudulent specimens, it has generally taken the position that further evaluation of use evidence would be too burdensome on its examining attorneys.⁴

Rather than requiring evidence to establish that the use occurred on or before a particular date, that it occurred within the U.S., and that it was sufficient to qualify as use in U.S. commerce, the USPTO relies on the sworn statements of applicants and their counsel as to these facts.

Fraudulent Applications Are Slowing Down Examination and Hurting the Integrity of the Principal Register

Amidst a backdrop of registrations issuing without actual use, whether intentionally or not, the USPTO has faced an unprecedented surge of applications over the past few years. It is believed that many of these applications have been motivated by foreign government subsidies and requirements of the Amazon.com Brand Registry, but there have also been practitioners and organizations adopting very low-cost, high-volume business models in handling U.S. trademark applications for their customers.

The USPTO has taken a number of steps, including requiring U.S. licensed counsel for foreign-domiciled applicants and registrants, implementing a user verification system for access to U.S. trademark application and registration filing, and sanctioning practitioners and organizations that violate the USPTO rules and website terms and conditions. Still, many applications slip through and end up registered. The USPTO has addressed other efforts toward cleaning up the register, such as by implementing auditing of use evidence in a random selection of registrations due for maintenance or renewal and imposing a fee for deletions occurring as a result.

Despite these efforts, the register remains cluttered by registrations for marks that are not properly in use for some or all of the goods and services recited. This impacts the ability of legitimate applicants to clear and register new marks. Moreover, legitimate applicants have not been motivated to challenge such registrations because of the costs, risks, and efforts required to do so. The clutter has also slowed the period between the filing of an application and its initial examination (so-called “first action pendency”) from between two and three months in 2020 and beforehand to nearly eight months as of the second quarter of 2022.⁵

In response to these concerns, Congress passed the TMA, which was signed into law as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on December 27, 2020.⁶ The statute amended the Trademark Act of 1946 to establish new ex parte proceedings to cancel U.S. trademark registrations for which the mark was not in use for some or all of the goods and services at a designated time. The statute required the USPTO to implement rules establishing proceedings for expungement of registrations not subject to the preregistration use requirement and for reexamination of registrations that were subject to the preregistration use requirement. The USPTO enacted those rules, most of which took effect on December 18, 2021.⁷

Timing and Procedures for New Proceedings

For marks registered on the basis of a foreign registration or under the Madrid Protocol, the TMA established expungement proceedings since those marks can be registered in the U.S. for at least three years without commencement of use in U.S. commerce.

An expungement proceeding is initiated between the third and 10th year following registration by any third party or by the USPTO when the proponent establishes a prima facie showing that the registered mark has never been used in commerce on or in connection with some or all of the goods and services recited. Expungement may be pursued against registrations beyond their 10th year only until December 27, 2023.

A reexamination proceeding can be initiated during the first five years following registration by any third party or by the USPTO when evidence establishes a prima facie showing that the mark was not in use on or in connection with some or all of the goods and services as of the filing date of the application or amendment to allege use, if based on actual use in U.S. commerce, or before the deadline for filing a statement of use, if the application was based on intent to use and proceeded to allowance.

Expungement and reexamination may be sought through these ex parte proceedings, and expungement may also be asserted as a new ground for inter partes proceedings to cancel registrations. Under the rules, anyone can file a petition to the USPTO to initiate an ex parte expungement or reexamination proceeding, without necessarily identifying the real party in interest.

The USPTO evaluates each petition to determine if a prima facie case has been made by establishing “a reasonable predicate concerning nonuse.”⁸ Apart from petitions by third parties, the USPTO director may institute proceedings on its own initiative if the information and evidence available to the USPTO supports a prima facie case of nonuse. Once the USPTO determines that a prima facie case has been made, it issues a notice of the proceedings to the petitioner and the registrant, at which point the petitioner has no further involvement. The notice to the registrant is an office action requiring the registrant to provide evidence of use, information, exhibits, affidavits, or declarations as reasonably necessary to rebut the prima facie case by establishing that the required use was made in relation to the goods and services at issue. The registrant has a period of three months to respond but may request a one-month extension for a fee. If the USPTO determines that the response fails to establish the requisite use, it will issue a final action to which the registrant has a non-extendable period of three months to respond and/or seek an appeal to the Trademark Trial and Appeal Board (TTAB).

Early Analysis of Reexamination and Expungement Petitions

Since these proceedings became available on December 18, 2021, and through May 9, 2022, approximately 80 petitions were filed, 43 of which were for expungement and 37 of which were for reexamination.⁹ Of these, at least 13 were instituted, and at least 10 were determined not to be instituted. There has been one director-initiated proceeding so far. The registrants vary from individuals in China and Ecuador to small, medium, and even large entities, including a known U.S. company (ADP, Inc.), a known Swedish company (Oatly AB), a known Korean company (LG Electronics), and a Czech Republic gaming company and its Austrian affiliate. While a handful of the registrants were unrepresented at first, most of the registrations challenged appeared to be represented by solo practitioners and small firms, with the exception of a handful of cases in which the registrants are represented by recognized practitioners in known intellectual property boutiques and general practice firms with intellectual property practices. With the progression of time, more recent petitions have challenged registrations that are managed by more well-established firms.

While the TMA might eventually help reduce the number of illegitimate and unused goods and services from the principal register, it is not a “silver bullet” that will stop the USPTO’s problems with the accuracy or speed of examination. These proceedings require extensive and dedicated resources within the USPTO. These resources are funded by newly implemented fees and recent fee increases, as well as the influx of new applications. With the numbers of U.S. trademark applications filed in 2018 and 2019 being approximately 470,000 and 500,000, respectively, and the numbers filed in 2020 and 2021 being substantially higher, upwards of 660,000 each, it is hard to imagine that a few hundred or even thousand reexamination and expungement proceedings in 2022 will go far enough in clearing the deadwood and fraudulently obtained registrations from the register. Moreover, a substantial amount of work will need to go into each of those proceedings, and they will likely pose further burdens on the already encumbered USPTO.

There is a question as to whether the USPTO’s allocation of resources to these new proceedings is the most efficient way to tackle the problem. The USPTO could commit more of its growing resources to more completely evaluating use in commerce as perhaps a better means of ensuring an accurate register. However, commentary from USPTO personnel suggests that it is concerned about the added burden on its examining attorneys that would arise from a more complete assessment of trademark use.¹⁰

The TMA Will Force Trademark Applicants to Reevaluate Long-Used Filing Strategies

While the TMA’s expungement and reexamination proceedings do not directly affect the examination of a trademark application other than by potentially removing registrations that might otherwise have served as obstacles, they will force trademark owners and their counsel to reconsider some common filing strategies that, until now, had very few consequences.

Many non-U.S.-based applicants generally misinterpret the USPTO preregistration use requirement and often require substantial legal advice from their U.S. counsel on the goods and services to include in their applications, on the evidence of use required, and on the evidence that they may ultimately need to endure a challenge. U.S. counsel, in turn, are sandwiched between the increased need to avoid willful blindness and/or malpractice and properly advise their clients on newly augmented options and risks in the face of the increased demand for lower fees.

Many non-U.S.-based entities proceed with applications without any prefiling searches or with only cursory federal screenings. They also continue to submit applications for broad and extensive lists of goods and services without any support for their bona fide intent to use or actual use but are able to meet the minimum showing required by the USPTO—use on one good or service within each class of the application.¹¹ These applicants and registrants will face a greater risk of challenge in the form of expungement (or reexamination) and the corresponding increased costs arising from them.

U.S. registrants that use the Madrid Protocol to obtain registered rights beyond the border will also be impacted. Expungement and reexamination proceedings provide a new means of so-called “central attack” on trademark registrations obtained internationally through the Madrid Protocol, without an inter partes proceeding or the predictable deadlines that come with statutory maintenance and renewal of registrations¹² (which have been common ways of pruning registrations).

The new proceedings may significantly impact owners of U.S. trademark registrations that have not properly understood the meaning of certain listed descriptions of goods and services. One such discrepancy could be whether the services provided by the registrant are for the registrant itself or for another party.¹³ There are limited explanations available currently through the Trademark ID Manual. So, should a registration with these services be subject to reexamination or expungement proceedings, there is a risk that the ambiguity of how the services must be offered could be costly to brands in terms of time and money spent in unnecessary proceedings.

Facing these new proceedings, trademark registrants will need to consider their own recordkeeping and bona fide “use in commerce.”

U.S. trademark attorneys should consider adopting new procedures and due diligence, if not as a result of increased duties and obligations arising under the TMA and the risk of sanctions, then as a way to improve client service. These may include going so far as collecting evidence of use for each item in a proposed application and on a regular basis following the issuance of a registration or requiring an explanation of goods or services beyond those that can be readily confirmed via a website or that are obviously overinclusive. Attorneys may also consider requiring applicants and registrants to justify the basis for their claims of a bona fide intent to use or actual use in U.S. commerce and to provide support for their claimed dates of first use. Even where the attorneys can confirm that the USPTO specimen requirements are met, they can require additional supporting evidence that the goods/services were sold or transported in U.S. commerce in sufficient quantity and prior to the relevant dates.

However, the more obstacles that U.S. attorneys raise and the more fees they need to charge for the added advice, the less likely that applicants and registrants may want to continue working with them, when those applicants and registrants have access to cheaper and less obstructive alternatives. In the face of all of the added guidance and correspondence that may be needed as a result of the new proceedings and risks, U.S. attorneys need to consider how best to charge for their increased time and attention and what their clientele will tolerate on that front.

Use Case: Low-Risk Clearance of High-Value Marks

One of the biggest foreseeable benefits of the expungement and reexamination proceedings is in trademark clearance. The process of selecting and implementing a new brand can be expensive. Experienced trademark professionals provide searches and analyses on brands to gauge not only the infringement risks but also the risks of refusal or objection of their application in the USPTO. The inability to obtain a federal trademark registration is a substantial consideration in determining whether to proceed with a new brand. Searches inevitably uncover risks stemming from trademarks that, upon research, may never have been used in the marketplace, in violation of the USPTO’s basic rules requiring use.

Use Case: USPTO’s Sua Sponte Ability to Bring Proceedings

One of the possibly overlooked items in the TMA’s reexamination rules is that the director of the USPTO can enact a proceeding sua sponte.¹⁴ The TMA does not require that a third party file a petition for reexamination before the USPTO can reexamine a trademark registration. This provides the USPTO with an opportunity to systematically challenge trademarks where, in the director’s discretion, there is prima facie evidence of nonuse as of the appropriate “use” date. The planned adoption of technologies to identify fraudulent use evidence may be one of the ways in which the USPTO may obtain such evidence and initiate the expungement or reexamination proceedings on its own. It may also prompt the USPTO to investigate cases and counsel for possible sanctions and, in doing so, challenge registrations after the fact. In the past, the USPTO had no ability to challenge the validity of a registered trademark on its own due to the presumption of validity.¹⁵

One of the long-term uses of these new proceedings could very well give purpose to a division of the USPTO to study the marketplace and remove registrations that never should have been issued in the first place.

The TMA’s Success Will Depend on the USPTO’s Ability to Adapt to Bad-Faith Responses and Filings

One of the biggest unanswered questions with expungement and reexamination proceedings is whether they will actually be effective or just another hurdle for bad-faith filers to overcome in maintaining an unused registration.

Some trademark registrants obtained their trademarks through fraud via doctored specimens, and some while allegedly using the services of a U.S. trademark attorney. If expungement and reexamination proceedings become widely used for their intended purposes, then it is possible that the same individuals who submitted false statements and doctored specimens would simply do the same thing again in responding to the post-registration office action arising during the proceedings. Even if the USPTO is ultimately successful in canceling fraudulent registrations, it will have expended substantial resources in its efforts, and it seems that delays in examination and other actions by the USPTO will continue. These are all long-term questions that will remain unanswered for some time.

Another long-term concern is bad-faith petition filings, a subject expressly singled out as something that the USPTO is monitoring. An expungement petitioner does not proactively need to reveal whether it is a “real party in interest,” and filings can be made by individuals or companies with no real interest or standing.¹⁶

For example, online marketplace sellers face cutthroat competition, and it is not uncommon for sellers to file false takedown notices or intellectual property claims, or find other ways to disrupt their competitors’ businesses.¹⁷ If filers are able to provide misleading or inaccurate information to the USPTO to enact these filings, they could force their competitors to answer these frivolous claims with little chance of any repercussions under the current USPTO rules.

An additional long-term concern lies in how these proceedings will impact the value of a U.S. trademark registration as an asset. Trademark registrations, like other forms of intellectual property, are valuable assets for companies. Expungement and reexamination make it easier to challenge a registration without requiring a full inter partes proceeding, and allow for these challenges even sooner than maintenance deadlines come up and for a lower overall price and arguably less risk and effort than cancellation proceedings or litigation. Thus, there is a risk that acquiring a registration will become less valuable as an asset because of the ease with which that registration can potentially be cut down.

New Proceedings Will Not Replace Need for Traditional Inter Partes Proceedings

As the TMA proceedings are utilized more frequently, there is a question as to how the current landscape of trademark enforcement will change.

Unlike the TTAB proceedings, expungement and reexamination are new and do not have a history of best practices or legal precedent on which petitioners may rely. As a result, the standards of what the USPTO will accept as prima facie proof of abandonment, or what a “reasonable investigation” is, are largely unknown. Under the current USPTO rules, it seems more likely that a petitioner seeking a cancellation of a trademark before the TTAB will be able to obtain a final judgment through a default than a petitioner obtaining cancellation of a trademark registration through these new expungement and reexamination proceedings.

Currently, it appears that the average proceeding will take five or more months from the filing of a petition for expungement to the earliest possible disposition of the proceeding. As such, it is unlikely to help a potential trademark owner make meaningful risk decisions before launching a new brand (or applying to register that trademark). While less risky, it also does not appear to be any faster than a default judgment through the TTAB, further limiting the usefulness of the proceeding to trademark owners under time constraints.

The TMA Provides Useful Tools, but Will It Be Enough?

Congress provided the USPTO and stakeholders with powerful tools to protect the integrity of the principal register. The development of ex parte proceedings has the potential to be helpful for registrants, practitioners, and the USPTO alike in ongoing efforts to clean the trademark register and, consequently, allow for more efficient filing and examination of future applications. However, the effectiveness of these new proceedings remains to be seen amongst a host of concerns about their scope and implementation. Trademark practitioners and potential registrants will have to consider new strategies in terms of filing and enforcement, and the USPTO will be tasked with protecting the integrity of the proceedings against misuse. Thus, successful implementation will require buy-in from the USPTO, trademark attorneys, and registrants to ensure that the proceedings are developed with predictability and are utilized effectively in promoting legitimate trademark use and clearing deadwood registrations.

Endnotes

1. Trademarks Dashboard, U.S. Pat. & Trademark Off., https://www.uspto.gov/dashboard/trademarks (last visited May 19, 2022); Steve Brachmann, USPTO Says Trademark Filings Are Up More than 60% through First Six Months of 2021 Due to E-Commerce Growth, IPWatchdog (June 29, 2021), https://www.ipwatchdog.com/2021/06/29/uspto-says-trademark-filings-60-first-six-months-2021-due-e-commerce-growth; David Gooder, What a Huge Surge in Trademark Filings Means for Applicants, USPTO Dir.’s F. Blog (June 23, 2021), https://www.uspto.gov/subscription-center/2021/what-huge-surge-trademark-filings-means-applicants.

2. Available through TESS search.

3. Lanham Act § 45, 15 U.S.C. § 1127.

4. See U.S. Pat. & Trademark Off., Transcript of Trademark Public Advisory Committee (TPAC) Public Meeting 63 (May 21, 2021), https://www.uspto.gov/sites/default/files/documents/TPAC_Transcript_20210521a.pdf (“And because of the time it takes to investigate such matters as fake addresses or specimens that appear legitimate but turn out fake, Trademarks is no longer in a position to really rely solely on our examining attorneys to fight fraud.”).

5. See Trademarks Dashboard, supra note 1.

6. Pub. L. No. 116-260, div. Q, tit. II, subtit. B, §§ 221–228, 134 Stat. 1182 (2020).

7. See Changes to Implement Provisions of the Trademark Modernization Act of 2020, 86 Fed. Reg. 64,300 (Nov. 17, 2021), https://www.federalregister.gov/documents/2021/11/17/2021-24926/changes-to-implement-provisions-of-the-trademark-modernization-act-of-2020.

8. Id. at 64,303 (citing H.R. Rep. No. 116-645, at 8 (2020) (citing In re Pacer Tech., 338 F.3d 1348, 1351 (Fed. Cir. 2003), and In re Loew’s Theatres, Inc., 769 F.2d 764, 768 (Fed. Cir. 1985))).

9. See Expungement and Reexamination Petitions Received, U.S. Pat. & Trademark Off., https://www.uspto.gov/trademarks/apply/expungement-and-reexamination-petitions-received (last modified May 9, 2022).

10. See U.S. Pat. & Trademark Off., Transcript of Trademark Public Advisory Committee (TPAC) Public Meeting 62–63 (July 30, 2021), https://www.uspto.gov/sites/default/files/documents/TPAC_Transcript.pdf (“[W]e are seeing applications featuring indicia of bad faith, fraud, inaccuracy, false statements, whatever you want to call it, we’re seeing it. . . . But we have not previously been built to handle these sorts of statements, inaccuracies that are coming in in applications. And the reason why is our examining attorneys are not investigators. They are not in a position to be able to investigate each and every data element that comes in an application to identify whether it is accurate or not.”).

11. See U.S. Pat. & Trademark Off., Trademark Manual of Examining Procedure (TMEP) § 904 (8th ed. July 2021), https://tmep.uspto.gov/RDMS/TMEP/current.

12. See id. § 1902.09 (“Under § 63 of the Trademark Act, 15 U.S.C. § 1141c, and Article 6(4), the USPTO must notify the [WIPO International Bureau (IB)] if the basic application and/or registration is restricted, abandoned, cancelled, or expired with respect to some or all of the goods/services listed in the international registration. . . . The IB will cancel (or restrict) the international registration accordingly. Article 6(4); Regs. Rule 22(2)(b). This is sometimes called ‘central attack.’”).

13. See id. § 1301.01(a)(iii) (noting that a service must be primarily for the benefit of a third party, not the applicant, to be registrable).

14. See Changes to Implement Provisions of the Trademark Modernization Act of 2020, 86 Fed. Reg. 64,300, 64,300 (Nov. 17, 2021) (“[T]he TMA created two new ex parte processes that will allow a third party, or the Director, to challenge whether a registrant made use of its registered trademark in commerce.”).

15. See TMEP, supra note 11, § 1801 (“A certificate of registration of a mark on the Principal Register is prima facie evidence of the validity of the registration. 15 U.S.C. § 1057(b). Public policy demands that every employee of the [USPTO] refuse to express to any person any opinion as to the validity of any registered mark, except to the extent necessary to carry out inter partes proceedings at the [TTAB] in cancellation and similar proceedings authorized by law.”).

16. Changes to Implement Provisions of the Trademark Modernization Act of 2020, 86 Fed. Reg. at 64,301 (“[T]his rule does not require a petitioner to identify the name of the real party in interest on whose behalf the petition is filed, but retains the Director’s authority to require that information in particular cases. Reexamination and expungement petitions are intended to allow third parties to bring unused registered marks to the attention of the USPTO.”).

17. Is the DMCA’s Notice-and-Takedown System Working in the 21st Century?: Hearing before the Subcomm. on Intell. Prop. of the S. Comm. on the Judiciary, 116th Cong. (2020) (statement of Abigail A. Rives, Engine Advocacy and Research Foundation), https://www.judiciary.senate.gov/imo/media/doc/Rives%20Testimony.pdf (“A noteworthy fraction of takedown notices are, for example, directed to material that is not infringing or material that the notice-sender has no rights to enforce. Instead, some notice-senders use § 512 to hurt competitors, remove content they do not like, or attack speech.”); Jennifer M. Urban et al., Notice and Takedown: Online Service Provider and Rightsholder Accounts of Everyday Practice, 64 J. Copyright Soc’y U.S.A. 371, 389 (2017) (“Nearly every [online service provider (OSP)] recounted stories of deliberate gaming of the DMCA takedown process, including to harass competitors, to resolve personal disputes, to silence critics, or to threaten the OSP or damage its relationship with its users.”); Letter from Etsy to U.S. Copyright Off. (Feb. 21, 2017), https://www.regulations.gov/document?D=COLC-2015-0013-92464 (“[Etsy] [s]ellers have raised concerns that some notices are strategically sent in bad faith by competitors with no legitimate basis or solely with the intent to disrupt their business.”).