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How to Prevent Trademark Squatting

How to Prevent Trademark Squatting

Trademark squatting is prevalent, although most trademark offices prohibit bad-faith trademark filing.

Brands must be proactive and put a stop to this harmful practice.


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Here’s answers to FAQs that can shed light on trademark squatting and how to prevent it.



What is Trademark Squatting?

Trademark squatting is when someone other than the original brand owner obtains a trademark relating to the brand to make a profit.

Squatters can attempt to sell the trademark or trademarks back to the original brand for as much as they can get.

Or the squatters can free-ride on your brand’s name and success by impersonating the brand, selling counterfeits or gray market goods, or otherwise profiting off it.

In some cases, it can be both, because although squatters are different from counterfeiters, they are still opportunistic.

Therefore, they may be open to selling the trademark to counterfeiters rather than to the original brand.


How Does Trademark Squatting Occur?

To protect intellectual property rights and prevent consumer confusion – trademark law does not allow similar trademarks in the same category of goods in the territory.

Trademark squatting usually happens when a brand files for a trademark in its office of origin and maybe a few other countries while not filing for protection in every country.

Trademark squatters find out that the brand has no trademark in a jurisdiction, and they file for the brand’s trademark.

The practice exists because trademarks are territorial rights and have to be registered in each jurisdiction in which brand owners seek protection.

The United States Patent and Trademark Office, for example, can only protect trademarks registered within the U.S.


How to Prevent Trademark Squatting


Who are third-party squatters?

Trademark squatters may be other parties filing for trademarks in the hope of making a profit later (from selling back to the original brand or counterfeiting).

They may also be a former distributor or importer turned squatter, such as if they registered the brand’s trademarks in their name and later ended the relationship with the brand, or a competitor who wants to gain an unfair advantage through squatting on his competitors’ trademarks.

When U.S. Starbucks wanted to launch its brand in Russia, the coffee shop chain could not do so because of a trademark squatter who registered its name in Russia in an attempt to sell it back to the Seattle coffee brand.

Starbucks chose to fight him and won, but it delayed its entry into the Russian market.

Another example is the National Competition Commission in Chile which concluded that the largest Chilean brewery at the time obstructed competition by having registered many of its competitors’ trademarks to try and constrain competition.



What is the problem with Trade Squatting?

When someone has your trademark registered in a country or region, it may be harmful in more than one way.

To begin with, it may be more difficult for you, the original brand, to expand into that market or operate in it.

It may also make it easier for the squatters to mislead consumers into believing they have the right to represent the brand in that country.

If another party registers your trademark, they may also manufacture and sell counterfeit goods with your trademark displayed on them.

Counterfeiting damages sales and brand reputation and can cause brand dilution.

Squatters can even stop the original brand from selling its products in the market or even sue it for using the trademark, especially in first-to-file intellectual property legal systems.


How does the trademark system affect trademark squatting?

Trademarks usually follow one of two systems: first to use or first to file.


The first-to-use party is the party that first sold or transported the goods in good faith and in the ordinary course of trade.

In a first-to-file system, such as in the United States and Canada, the party who is first to file for trademark registration is not necessarily granted the trademark.

Instead, trademark protection is given to the first party to actually use the trademark in the territory.

For products, prior use of a trademark in the U.S. means that the mark must appear on the products, the packaging for the products, or on displays associated with the products. In addition, these products must be sold or transported in commerce.

It is worth noting that in the U.S. trademark applications can also be filed based on Intent to Use (ITU) for a limited time.

It may seem that the original brand is always the first to use its trademark, but it may not be the case in every jurisdiction.


In a first-to-file system, such as in China, Germany and Japan, intellectual property rights go to the first party to file the trademark.

Prior use is not taken into consideration, and often whoever files first gains the rights.

The first-to-file system can result in more trademark squatting, as is the case in China where trademark squatters attempt to register third-party trademarks, often in bad faith.

The first-to-file rule makes it possible since the party filing for trademark registration does not need to present evidence of use in order to register.

However, in 2019 China made an amendment to its trademark law prohibiting bad-faith trademark applications that are not intended for use.

In addition, it extended protection (Article 13) to “well-known trademarks”.

A well-known trademark that is not registered in China but using it may cause consumer confusion or mislead consumers, can gain protection in China, although proving your trademark is well-known can be very hard.

Article 13 applies to identical or similar kinds of goods, yet a well-known trademark can have extended protection to other categories of goods.

In the past, even well-known brands have lost trademark court battles, such as was the case with Chivas Regal and Hermès.

The Chinese court allowed a garment maker to use Chivas Regal’s name for its clothing based on the fact that the Scotch whiskey brand had failed to register its trademark under the clothing class of goods and was unable to prove its well-known status prior to the Chinese maker’s registration.

In the case of Hermès, the luxury fashion house faced a situation in which the registration of the English company’s name in China was not sufficient to protect it from the registration of the Chinese phonetic translation of the English name.



Is trademark squatting legal?

Depending on the country, trademark squatting in bad faith generally contradicts trademark law.

The USPTO, for example, offers trademark registration and legal protection against trademark squatters.

In 2019, China amended its Trademark Law to provide that a bad faith trademark registration application without an intention to use should be rejected.

The amendment is intended to prevent squatters from maliciously registering and hoarding trademarks in China.

Among the exploitative practices related to squatting is the practice of domain name cybersquatting.

According to the U.S. trademark law, specifically, the Anti-Cybersquatting Consumer Protection Act (ACPA), a cybersquatter is someone registering, trafficking in, or using an identical or confusingly similar internet domain name in bad faith with the intent to profit from the goodwill of a trademark belonging to someone else.

The likelihood of confusion in such cases results from users assuming that a company’s domain name corresponds to its trademarked name.

In addition to the likelihood of confusion in such cases, it also hinders business opportunities and presents unfair competition.


How to Prevent Trademark Squatting?

  1. Register your Trademark

The best way to prevent trademark squatting starts with trademark registration.

When you decide where to register your trademark, consider all jurisdictions where you may manufacture or distribute your goods now or in the future, and focus on the countries that have a First to File trademark registration system.

  1. Apply the Madrid System

The Madrid System is an international system that extends trademark protection to multiple countries with a single application.

Once your trademark is registered in your Office of Origin, you can file through the World Intellectual Property Organization (WIPO) and choose which of its member countries you want your trademark to be registered in.

  1. Protect Variations

Your brand name may have close variations and transliterations in different countries.

Trademark squatters can exploit not only your brand’s name but also its transliteration.

This way, they free-ride on your brand reputation without infringing on your trademarks.

  1. Register in all applicable classes

Register your trademark in all classes or categories of goods and services which could potentially be of interest to your brand.

Proactive registrations can prevent squatters from registering your brand’s name in classes not covered by the existing trademark.

  1. Monitor and Eliminate

Constantly monitor all online channels for trademark violations to ensure that when someone tries to profit from your intellectual property, you are ready to take them down.

Being proactive about your intellectual property will not only deter others from squatting or infringing on your rights, but it can also prevent loss of sales and damage to your brand reputation and loyalty.

Without taking preventative measures, brands may have no choice but to buy back their own trademark, rebrand their product, or go into a legal battle to fight for what’s theirs.


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The Wiser Online Brand Protection Solution

Trademark registration is essential to brand protection strategy for both preventative measures and proactive intellectual property protection.

Wiser Market is an online brand protection agency dedicated to helping brands detect and fight trademark squatting, counterfeits, and any other intellectual property violation.

Our brand protection solutions include advanced monitoring technology, team expertise and proactive enforcement to help you combat brand infringement with quick, effective results.

With Wiser Market, your brand will have a global intellectual property protection solution tailor-made to your intellectual property protection needs.



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