Red Points examines and compares first-to-use and first-to-file trademark systems and the trademark strategies to be followed under both systems.
The first-to-use trademark system followed by some countries, such as the U.S. and Canada, provides the first users of the marks in commerce trademark rights and priority over others in the geographical territories where the marks were used in commerce. This first-to-use priority applies regardless of whether the mark is unregistered at the time of actual use in commerce.
However, the U.S. trademark system is not an entirely first-to-use trademark system because Applicants may be assigned priority based on being the first to file for registration of their marks with the U.S. Patent and Trademark Office (USPTO) before they have actually used their marks in commerce. Under Section 7(c) of the Lanham Act, 15 U.S.C. § 1057(c), filing an application to register a mark constitutes “constructive use of the mark, conferring a right of priority, nationwide in effect, on or in connection with the goods or services specified in the registration,” contingent on the trademark application maturing to registration. These trademark priority rights of the first Applicant to register a mark is subject to certain limitations and cannot be asserted “against any other person except for a person whose mark has not been abandoned and who, prior to such filing—
(1) has used the mark;
(2) has filed an application to register the mark which is pending or has resulted in registration of the mark; or
(3) has filed a foreign application to register the mark on the basis of which he or she has acquired a right of priority, and timely files an application under section 1126(d) of this title to register the mark which is pending or has resulted in registration of the mark.”
U.S. trademark applications can be filed based on either actual use of the mark in commerce under Section 1(a) of the Lanham Act, 5 U.S.C. § 1051, or on bona fide intention to use the mark in commerce under Section 1(b). Nevertheless, to actually obtain trademark registration, Applicants that apply for trademark registration based on intent to use must actually use the mark in commerce within a specified period of time: 1) before the application is approved for publication, or 2) within six months of the Notice of Allowance issue date, or 3) during the extension of time obtained after the Notice of Allowance issue date. See USPTO’s Section 1(b) timeline.
Therefore, under U.S. law, if a mark owner has already used an unregistered mark in commerce in certain geographical territories prior to an Applicant’s date of filing a trademark application for the same mark, then subsequent to registration, the Applicant cannot claim priority to the mark and assert trademark rights against the prior user in the territories where the prior user has used the marks in commerce. On the other hand, the Applicant can assert priority against a user of an unregistered mark, so long as 1) the Applicant’s date of filing for trademark registration, which is the date of Applicant’s constructive use, predates the date of actual use of the mark in commerce by the other user, 2) the Applicant has either actually used the mark in commerce, or has shown a bonafide intention to use the mark in commerce at the time of filing the trademark application, followed by actual use within the specified period of time, and 3) the Applicant is successful in obtaining trademark registration.
Under the first-to-file trademark regime, Applicants that are first to apply for registration of their marks are assigned trademark rights and priority, irrespective of whether the Applicants have used the marks in commerce or whether the marks were used in commerce first by others. Most of the world, including European Union countries and China, follow this first-to-file trademark system. Part of the reason of its worldwide adoption is probably because it is easier to administer, since it is much easier to determine the first entity to apply for trademark registration than to determine which entity may have first used the unregistered mark in commerce and in which geographical territories to ascertain priority. However, there are several downsides to adopting a first-to-file trademark regime that entirely disregards prior widespread international or local use of the mark in commerce by others, such as that adopted by China. Article 31 of Trademark Law of the People’s Republic of China provides that:
“Where two or more applicants apply for the registration of identical or similar trademarks for the same or similar goods, the preliminary approval, after examination, and the publication shall be made for the trademark which was first filed. Where applications are filed on the same day, the preliminary approval, after examination, and the publication shall be made for the trademark which was the earliest used, and the applications of the others shall be refused and their trademarks shall not be published.”
Although Article 32 provides that “the application for trademark registration shall not be allowed to harm other person’s prior rights, and no preemptive application by any unfair means of a trademark which has been used by another person and has a certain influence shall be allowed for registration,” the extent of its enforcement leaves much to be desired.
Given the importance of merely being the first to apply for registration of a trademark under Chinese law, regardless of prior use, it is no surprise that China leads the rest of the world in the number of trademark applications filed in 2018, with 7.371 million trademark applications filed and 5.007 million approved for registration. This prolific trademark application filings and approvals has led to widespread trademark squatting in China. Trademark squatting refers to the acts of unscrupulous entities that are the first to register marks of others, either to profit off the marks’ goodwill or to extort hefty settlement sums from the owners of the marks when the owners want to begin using their unregistered marks in countries like China. Even well-known and world famous companies such as Apple and Ferrari have lost trademark cases in China for using their “iPhone” mark and horse graphic mark, respectively, merely because trademark squatters beat them to registration in China.
Perhaps because of the rampant trademark squatting in China, the Standing Committee of the National People’s Congress on April 23, 2019 announced amendments that apply to six articles to go into effect on November 1, 2019, which are specifically directed to deterring bad-faith trademark registrations. For example, the drafters have amended Article 4 to add: “Applications for the registration of trademarks in bad faith that are not intended to be used should be rejected,” and increased the statutory and punitive damages for trademark infringement under Article 63. Only time will tell whether these new amendments and their subsequent enforcement would have any impact in deterring bad faith trademark registrations and trademark squatting in China.
Regardless of whether mark owners are planning to use their marks on products or services in commerce under a first-to-use or a first-to-file trademark regimen, mark owners should always file for trademark registration as early as possible prior to actual commercial use.
Under a first-to-file system, such as in China, the first filer gets priority over prior users of the marks in commerce, even if at the time of filing, the first filer has not used the mark in commerce themselves.
Under the U.S. first-to-use trademark regime, mark owners should still apply to register their marks with the USPTO prior to their actual use in commerce based on their intent to use. Under U.S. law, as explained above, the trademark application filing date is construed as constructive use of the mark.
Consequently, if actual use of the mark in commerce follows within the specified amount of time leading to subsequent registration of the mark, the Applicant would prevail over other users that use the mark after their application filing date, even if such use is before the Applicant’s actual use in commerce. Therefore, being the first to file for trademark registration is beneficial under either system, and is a better strategy than to wait to apply for trademark registration after the mark has already been used in commerce.