Many businesses spend considerable sums building brands that can be recognised globally. They do this primarily through trademarking words and images that are exclusive to their business. But the growth of brand protection worldwide has reduced the words available for new businesses to trademark. This increases costs both for businesses and hurts consumers.
Trademarks are useful because they bridge information asymmetries for consumers. When consumers see a trademark, they associate it with the quality and reputation the business has created. This reduces the costs for consumers of searching for products that meet their needs. It also encourages firms to invest in improving or maintaining the quality of their products.
Unfortunately, there is a growing problem known as trademark cluttering. Trademark cluttering occurs when unused trademarks remain protected, reducing the potential words or signs available for businesses to identify their brand. This increases the costs of creating new trademarks as businesses must find other, less common non-infringing words or signs. For consumers, it means an evermore crowded field of brands with names or designs that are ever less relevant to the good or service they represent.
Trademark cluttering is primed to grow exponentially. As more and more trademarks become unavailable, rejection rates for trademark applications increase. This encourages firms to apply for multiple trademarks for the same business or product in the hope of securing at least one, whilst the remaining applications add to an ever-increasing burden for trademark examiners to review and continue to clutter the field of available names. For example, it is estimated that this costs the pharmaceutical industry up to US$49m annually in the EU alone.
Trademark cluttering also encourages trademark squatting, where individuals purchase trademarks in the hope of selling them on later (a similar issue occurs with website domain names). This is especially so for translations of business names as companies seek to expand into overseas markets. For instance, Treasury Wine Estates’ preferred transliteration of the Penfolds brand in Chinese (‘Ben Fu’) cost considerable time and money, as the company was forced to take an individual who had pre-emptively trademarked the name to trial. Apple was not so lucky and was unable to trademark the word ‘iPhone’ in China.
When developing a business name, firms generally try to employ frequently used words that are easy to remember and simple to pronounce. Thus, commonly used words and surnames are among those most at risk of trademark cluttering. For instance, one study found that 82 per cent of the 1000 most commonly used words were trademarked with the United States Patent and Trademark Office (USPTO). Of those words that remained, they often had negative connotations such as ‘loss’ or ‘mistake’ that firms unsurprisingly wished to avoid.
For companies which have identified a registered trademark that they wish to use and is no longer in use, they must submit applications, pay fees and provide proof that the trademark is no longer employed in order to deregister it.
Trademarks can also be registered in one or more of 45 internationally agreed classes, known as Nice classes, after the city where the convention was signed in 1957. The more classes a single product is registered in, the less opportunity there is to use the same word for a product in a completely unrelated category (Iceland was famously unable to register the trademark Iceland as the name was already owned by a British manufacturer of frozen foods). As products have become more technologically complex, there has been a rise in the average number of classes for which products are registered.
Intellectual property offices could do much to reduce trademark cluttering in their national trademark registers. For instance, some countries encourage cluttering by essentially discounting trademarks made across additional Nice classes. For instance, the European Union charges €850 for the first trademark Nice class but only €50 for the second. In Canada, there is a flat C$250 per trademark application irrespective of the number of Nice classes the trademark covers. Other countries in contrast, such as Australia, Korea, New Zealand, the UK and the US, have adopted a per-class fee system which avoids this unfortunate consequence.
Another option is to review trademarks more frequently. Many businesses fail before their products even reach the point of sale. Yet their trademarks remain on the register for a specified period before review. In Australia for example, this is ten years after registration. Of those businesses that actually make it beyond the development stage, 50 per cent close within the first five years. The USPTO holds its first review of a trademark after six years which assists in removing the accumulated clutter of failed businesses from their trademark register.
Finally, many countries do not require proof of use. For instance, in Australia, the payment of a fee is all that is required to maintain a trademark. For businesses that have closed this is an unwanted expense but for others, it may encourage squatting. Only in the US and the Philippines are firms required to provide a proof of use to demonstrate that the trademark is indeed being utilised. Combined with further randomised audits, these measures greatly reduce trademark cluttering.
As businesses increasingly seek to export, it is important that countries make it easier for entrepreneurs to create and register new brands. To do this, it is incumbent upon intellectual property offices to reduce trademark cluttering through a few minor changes in trademark pricing and review.
Jeremy Rees is the Trade and Investment Fellow for Young Australians in International Affairs.