Using Trademarks to Enhance Revenue Streams

Companies need to pay proper attention to trademark registration and licensing on a global basis.

By Richard L. Thurston and Christopher M. Neumeyer

Strategies that companies employ to increase revenue and improve competitiveness often focus on promoting and protecting a company’s image, reputation, and branding. An obvious cornerstone of such strategies is the strategic development, management, and use of the company’s trademarks. As Taiwan companies have increased their global reach, they often place too much importance on patents while overlooking the critical role of trademarks. Let us examine why that is a mistake and how one can generate maximum value from a global trademark portfolio.

Trademark fundamentals

A trademark is a legally protected word, phrase, symbol, logo, or design element that identifies the source of particular goods or services and distinguishes them from those offered by others. There is no such thing as a global trademark; the rights and requirements vary from country to country.

Most countries, such as Taiwan and China, recognize trademark rights on a “first-to-file” basis, meaning that the first party to file an application to register a mark obtains exclusive rights to use that mark in connection with the designated goods or services. Registration creates a legal presumption of ownership, allows one to record the mark with Customs to prevent importation or exportation of infringing goods, authorizes one to sue in federal court for infringement, and serves as a basis for subsequent filings in other countries.

Some countries, such as the United States, United Kingdom, Australia, India, and Canada, recognize ownership on a “first-to-use” basis. In these countries, even if a party never registers its trademark, as long as it uses the mark continuously in commerce, others may not register or use the same mark in the same region for the same types of goods or services.

Registration is generally disallowed for any mark that is likely to cause confusion with a mark that was applied for or registered earlier. Likelihood of confusion may exist where two marks are visually similar, have the same meaning, or create the same impression. However, even identical marks may cause no likelihood of confusion if the goods or services are unrelated, as in the case of Apple the record label and Apple the tech company, before the latter moved into the digital music business.

Increasingly, one may register trademarks by filing applications electronically, over the internet. The application must contain a drawing of the desired mark and a designation of the categories of goods or services for which registration is sought. Some countries, such as the United States, also require the application to specify whether it is based on current use in commerce or intended use. After the application is filed, the government’s intellectual property office (IPO) will commence an “office action” if there may be grounds to reject the application. The IPO will then publish the mark online and the public has an opportunity to object to the application.

If there are no objections and the application is based on actual use, registration occurs within a few months after publication. In the United States, if the application is based on mere intent to use, no registration will take place until the applicant files proof of actual use. In other countries, such as China and Taiwan, an applicant is not required to use the mark before registration.

Brand globally, think locally

When selecting branding, one should consider unintended translations that may cause a mark to be deemed undesirable in different markets. For example, the Ford Pinto reportedly sold poorly in Brazil, because pinto is Portuguese slang for male genitalia, and a doll sold by Ikea caused ridicule in Hong Kong, because its Cantonese name (路姆西) sounds like “old mother’s genitals” (老母閪). On the other hand, Apple played it safe when it adopted the Chinese name 蘋果, which is simply the literal translation of apple. McDonalds went a different route, selecting a phonetic transliteration of the name (麥當勞), with a fairly innocuous meaning. But the best Chinese names combine phonetics and meaning, such as Coca Cola’s 可口可樂, which sounds like “Coca Cola” and translates to “delicious happiness,” or BMW’s 寶馬 (Baoma), which translates as “treasure horse.”

Aside from choosing good translations for trademarks, it is critical to file applications as early as possible. In many regions, companies that fail to register their marks (along with translations, transliterations, and variations) promptly risk falling victim to trademark squatters, entities that register the marks of others in bad faith and demand a ransom in exchange for the mark. Often companies that failed to file early learn that fighting squatters in court can take years, costs thousands of dollars, and result in baffling and unjust court decisions.

For example, many are familiar with Michael Jordan’s trademark battles in China – how a Chinese company registered dozens of translations and variations of Jordan’s name and trademarks, including 乔丹 (“Qiaodan”), which in simplified characters is immediately recognizable to Chinese speakers as meaning Michael Jordan.  Jordan filed numerous actions to cancel Qiaodan’s marks, but China is a first-to-file nation and Qiaodan filed the first application.

Jordan lost case after case and by 2015 Qiaodan Sports had more than 5,000 stores selling fake Jordan gear across China, generating annual revenue of US$500 million. Finally in 2016, Jordan achieved his first legal victory, albeit a limited one, when China’s highest court granted him the right to use the Chinese characters for his name, but allowed Qiaodan to continue using many of the other deceptive marks.

Jordan is not alone. In 2016, a Beijing court granted a Chinese company the right to use the iPhone mark on leather goods. Apple applied to register the iPhone mark in China in 2002 for technology products, but the Chinese company filed first in the leather goods category. In another case, Apple paid US$60 million in 2012 to settle a dispute with a Chinese company and obtain the right to use the iPad trademark in China – again because the Chinese company had registered the mark first.

So what can one do about squatters?

  • Register all marks that you intend to use in important regions in all relevant classes and subclasses, along with multiple translations and transliterations.
  • Investigate what names locals use for your company and its products and register those.
  • Use different marks in different Chinese-speaking jurisdictions depending on what characters they use and other factors.
  • File as early as possible (always before your product launch) and take prompt action against squatters and infringers.
  • Monitor trademark publications closely in all jurisdictions, as the time period for filing an opposition to a proposed mark can be extremely short.
  • Seek to block offending marks before registration, but if necessary file cancellation actions afterwards, particularly in the case of non-practicing squatters, on the grounds of non-use.

Strategic coverage

For the most strategic, cost-effective, and comprehensive protection, a company should perform an annual audit of its trademarks, logos, and other elements that may be eligible for protection. Trademarks should be prioritized based on:

  • Value to the company. Some “house” marks may be broadly used across regions and product lines; others may have less critical value individually, but help deliver strong protection as part of a portfolio.
  • Trademark protection is recommended in present and future markets, places of manufacturing, distribution, sales, and counterfeiting.
  • Marketing strategy. Prudent companies roll out new marks constantly in advance of new products and new markets.

Before applying for registration, always perform a careful search to determine whether other parties may have already been using or have registered the same or similar marks in desired regions, which could block intended registrations. Start by searching IPO databases or subscription databases, but don’t stop there. In first-to-use jurisdictions, others may acquire superior rights without registering anything, so check business names, websites, domain names, and commercial usage. If conflicts are found, it may be advisable to attempt to cancel or purchase the marks or change your own mark.  Performing a comprehensive search is complex, so retaining experienced counsel is strongly recommended.

After that, companies based outside of Taiwan can save costs and maximize protection by filing applications under international or regional agreements. The Madrid Protocol is an agreement between 100-plus nations that allows one to register a mark in multiple countries at the same time by filing a single application, with no need to retain counsel in each county. After an applicant registers a mark in its home country and files an application with the World Intellectual Property Office (WIPO), WIPO forwards it to the IPO in each of the designated countries to register in each country.

The EUTM also allows one to register a mark in multiple countries with a single application, but it facilitates registration only in the European Union. The Paris Convention does not offer means of registering in multiple jurisdictions with a single application, but it allows one to register a mark separately in two member states within a six-month period and it gives the second application priority as of the date of the first filing.

Taiwan is not a party to the foregoing agreements, so Taiwan companies may not utilize them. But Taiwan is a member of the World Trade Organization (WTO), which permits applicants from one member state to claim priority when filing in another member state.

Licensing issues

While trademarks are considered to be intangible assets, their value is nonetheless very real, though often underestimated by corporate management. When determining a company’s annual and long-term plans, corporate executives should evaluate not just the defensive value of trademarks (existing or new) and the revenue they generate, but the brand awareness that they build, expanding a company’s reach into new territories and new product lines.

An executive charged with responsibility for trademarks should examine the goals and objectives of his or her company. Does the company seek to obtain from its trademarks a direct contribution to the bottom line or a more sustainable competitive approach to increasing its overall corporate brand awareness? Might it benefit by licensing its brands to third parties for use in connection with other goods or services? Should it focus on a global or regional market or both? Ultimately, the company’s trademark strategy should be intimately tied to its overall business plan and marketing strategies.

Some trademarks, central to a company’s image, may find widespread use across all levels of corporate sales and marketing, while others play a more limited role. Ensuring that branding and corporate image remain robust and competitive will likely depend on a well-integrated strategy of both company-wide and product-specific branding campaigns.

To grow corporate revenue and build sustainable competitiveness, it is often desirable to license brands to third parties, whether to appeal to existing customers or attract new customers. Such an arrangement should be formalized in a license agreement, with terms designed to protect the licensor’s legal rights, while complementing the marketing, sale, and distribution of the brand-owner’s own goods or services.

This agreement will define the specific business terms, conditions, responsibilities, and any special undertakings of both the licensor and licensee in managing and marketing the licensed trademark(s). Essentially, it allows a third party to exploit one’s marks to promote products or services that confer mutual benefits on both parties – not just revenue but increased brand awareness. However, it is critical that the licensor strictly dictate the terms and monitor each licensee’s performance to ensure that one’s brands are not tarnished and that use by all licensees and the licensor is consistent and seamless.

In licensing ones trademarks, of utmost importance will be the measures that one takes – and requires the licensee to take – to ensure that the uses of the marks are consistent with and enhance the existing brand reputation, thereby protecting the quality of the brand. For example, does one wish to provide to the licensee an exclusive or non-exclusive right to use your marks? On what products may licensee use the trademarks? What are the requirements concerning their use on packaging, labeling, sales, and merchandising materials? What is the territorial scope of the license? For what length of time will you allow the licensee to “rent” your trademark(s)?

Because trademarks reflect the image and reputation of a company and its products and services, the exact details of permitted use – size, color, placement, etc. – as well as quality control over the licensee are essential. The license agreement should establish clear standards of permitted and non-permitted uses, to avoid any unintended damage to one’s brand. Mechanisms such as an audit rights provision should be included to help assure consistent and proper use of the marks. The agreement should require all of the licensee’s uses of the marks, whether on products, packaging, marketing programs, and other materials, to be submitted to the licensor for prior approval, both in the pre-production and final production.

A significant portion of any trademark license negotiation will be devoted to compensation, including definition of net sales, royalty rates, minimum guaranteed payments, advance payments, interest, and the nature and duration of the license. This is how the licensor generates its revenue stream. The licensee will try to downplay the value of the trademarks while the licensor will seek to maximize the financial return through advantageous terms. A formula may be agreed upon for some variable running royalty. Or a fixed fee may be agreed to by the parties. Usually the royalty will be calculated against the net sales of the goods or services, often coming with some minimum guaranteed fee.

Finally, license agreements can typically be terminated at the end of a term, or upon a licensee’s failure to meet certain contractual obligations (either financial or performance), or upon a licensor’s failure to honor its representations, warranties, or covenants going forward. Often failure of the licensor to maintain the registration of a mark in the licensed territory, or to sue infringers in that jurisdiction, may be grounds for a licensee to terminate the agreement. Other provisions that will be hotly negotiated involve warranties, indemnification, governing law, jurisdiction, and venue.

The licensor may insist upon the right to seek injunctive relief in the event of breach by the licensee.  The licensee may insist upon the right to seek arbitration of disputes arising under the agreement. In any event, to minimize disputes the parties should seek to anticipate all risks and eliminate as much ambiguity as possible, especially as relates to territorial scope, permitted uses, audit rights, and especially sublicense rights.

In conclusion, since strong branding is at the core of a company’s identity, the proper development, management, and protection of its trademarks is critical to build and enhance the company’s corporate reputation and protect it from unscrupulous third parties who may try to mislead consumers by using identical or confusingly similar trademarks. Longtime consistent use of well-designed marks in accordance with strategic planning will ensure sustainable competitiveness over time in the marketplace. Proper registration, management, and protection will also enhance the goodwill of a company and enhance corporate share value. To successfully achieve such objectives, a company should retain legal counsel with extensive trademark experience throughout the global marketplace.

Richard L. Thurston is of counsel in the New York office of the law firm Duane Morris LLP and Christopher M. Neumeyer is special counsel in the Taipei office of the same firm.