US Patent Office Reports on How Chinese Government Supports IP Registration Fraud

The United States Patent and Trademark Office (USPTO) has issued a new report on how Chinese government subsidies and other non-market factors may be influencing the high rate of Chinese patent and trademark filings in the United States.

As the report notes,

A growing number of suspect trademark applications filed in the United States from China prompted the U.S. Patent and Trademark Office (USPTO) to study the reasons for this development.

The report concluded:

In addition to the market factors that normally drive application volume in any country, China’s filings are influenced by non-market factors such as subsidies, government mandates, bad-faith trademark applications, and defensive countermeasures.

Chinese government actions have affected both its domestic intellectual property ecosystem and foreign systems.

For example, China subsidizes domestic and foreign trademark applications and registrations. As the report notes,

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. …

After Shenzhen and other cities began offering subsidies for overseas trade applications, the USPTO experienced a surge in fraudulent trademark applications originating in China.

In 2013, Shenzhen offered subsidies of RMB 5,000 (about $750) for trademark registrations in eligible foreign countries, including the US. The cost to file a trademark in the US electronically was lowered to $225 in 2015, so this was substantially less than the subsidy.

Similarly, Chinese subsidies for filing patents were greater than the cost of obtaining patents.

From 2013-2017, notes the report,

U.S. trademark filings from China increased by 1,264 percent, with applications from Shenzhen accounting for more than 42 percent of applications from China in fiscal year 2017.

Overall, US trademark filings from China increased from 5,161 in 2014 to 54,064 in 2018.

In 2020, according to the report, the Chinese government directed its state-owned enterprises to increase international trademark filings even more – by 50%. The Chinese government also directed state-owned enterprises to double their holdings of US and other foreign patents by 2025.

Commissioner for Trademarks Mary Boney Denison testified before a congressional subcommittee that “this dramatic rise in applications coincides with the rise in inaccurate and fraudulent claims of use that threaten to undermine the reliability of the trademark register.”

A study found that about two-thirds of use-based Chinese trademark applications included fraudulent specimens, suggesting that the marks weren’t actually used in commerce.

To establish trademark rights in the US, a trademark owner generally must be the first to use the mark “in commerce” in association with specific goods or services. Trademark application forms request information about the date a mark was first used.

Use “in commerce” can include putting the mark on the goods, their containers, or their displays, when the goods are actually sold or transported in commerce.

For services, “use in commerce” can mean using service marks in advertising and marketing materials.

The “use” must be more than minimal. For example, a single sale, a single shipment, etc. may not be sufficient to establish “use in commerce.”

The Chinese government incentives are seen as cluttering the IP registration systems both in China and abroad, increasing the administrative burden on these systems while narrowing “the scope of protections available to mark holders engaged in the legitimate sale of goods and services.”