16 Aug
2021

USPTO criticised in scathing report from US Department of Commerce; expert warns of ‘troubling Sinophobia’

  • The US Department of Commerce’s OIG releases results of USPTO audit
  • Claims USPTO trademark registration “not effective” in preventing fraud
  • One expert “troubled by the Sinophobia underlying” the report

The US Department of Commerce’s Office of Inspector General (OIG) has published a scathing report into the USPTO trademark registration process, claiming that it is “not effective” in preventing fraudulent or inaccurate registrations. Response to the report has been mixed, with concern that any additional anti-fraud measures could affect legitimate filers and criticism that it presents a Sinophobic perspective.

The 25-page report, entitled “USPTO Should Improve Controls over Examination of Trademark Filings to Enhance the Integrity of the Trademark Register”, was written by the OIG after an audit that was conducted last year. The aim was to determine whether the USPTO’s trademark registration process is effective in preventing fraud by assessing the agency’s examination procedure and risk management. The release of the report comes less than two weeks since the Department of Commerce filed for federal protection of the USPTO’s trademarks, including its name and logo, as part of ongoing anti-fraud efforts.

The report outlines four key findings, all of which are critical of the USPTO’s trademark registration process. The OIG claims that the USPTO “lacks control” to effectively enforce the US counsel rule (implemented in August 2019), does not “ensure accurate identification of goods and services”, “lacks a comprehensive fraud risk strategy” and has “approved trademark filings with digitally altered or mocked-up specimens'' (an issue that WTR has covered extensively).

The report also includes a number of recommendations for the USPTO, including:

  • developing tools to detect “unacceptable domicile addresses in trademark applications” (eg, post office boxes and commercial mail-receiving agencies);
  • developing procedures to identify and investigate US-licensed attorneys that are listed as the attorney of record on high numbers of fraudulent or inaccurate trademark applications;
  • developing controls to ensure “consistency and coordination” among examining attorneys for the examination of multiple trademark applications from a single applicant;
  • creating a risk framework to address fraudulent and inaccurate trademark filings; and
  • developing a procedure to aggregate data to monitor and assess the effectiveness of efforts to improve the accuracy of the trademark register.

The rise in fraud at the USPTO has been widely reported, with the report claiming that “an increase in foreign filings” has coincided with such nefarious activity, “particularly from China”. The biggest spike in fraud has come from office actions relating to digitally altered or mocked-up specimens, which appeared on nearly 0% of office actions in late 2014 and grew to 12% in early 2018. A year later, the USPTO introduced various measures, including the aforementioned US counsel rule and guideline amendments for specimens of use. However, the impact of these measures has been questioned, with some applicants “attempting to circumvent” them, the report notes.

Incredibly, the report goes on to claim that the US counsel rule appears to have done little to curb fraudulent specimens of use. “Examining attorneys refused specimens because they were digitally altered or mocked up at a similar rate for both unrepresented applicants and for those represented by an attorney,” the OIG claims. “We would expect a lower rate of submission of digitally altered or mocked-up specimens from represented applicants if the U.S. counsel rule incentivised accurate applications.”

In response, the USPTO has “concurred” with each of the OIG’s recommendations and described various actions that it has taken or is planning to take to improve the accuracy of the trademark register. “The USPTO is committed to strengthening the integrity of the trademark register and is confident in our ability to timely implement to only these recommendations, but also additional register protection strategies,” an agency representative said in a letter to the OIG before the public publication of the report.

The findings are “not surprising” but are “still very important”, claims Erik Pelton of Erik M Pelton & Associates. “Perhaps this report will wake up the bar associations and Trademark Public Advisory Committee to the depth and impact of these problems,” he adds. “There is no one solution; instead, there are a multitude of things that need to be done to improve accuracy and trust in the register. In my opinion, the first step should be a task force that includes officials from the USPTO, bar associations, corporations and experienced attorneys; the task force could then help to brainstorm and vet potential fixes in an open and public manner.”

However, Pamela Chestek of Chestek Legal penned a scathing Twitter thread focused on the report’s claims on the root cause of fraud. “I am so troubled by the Sinophobia underlying all of this,” she wrote. “Front and center in the report, and as reported by the USPTO for years, is the number of increased filing from China, as if that was suspicious for some reason. Guess what – more Chinese are also doing business in the US, especially through Amazon. The USPTO’s assumption that the problems are all the fault of the Chinese narrowed their thinking about how to solve the real problem, which is flawed applications regardless of country of origin.”

Indeed, as recent reports from WTR have revealed, at least one suspicious entity that appears to be based in Pakistan is responsible for more than 3,700 trademark applications filed at the USPTO in the past two years – a significant proportion of which have been filed incorrectly. The company that appears to be behind the mass filing operation, Karachi-based Abtach, has reportedly been under investigation for money laundering and fraud.

Nonetheless, the USPTO is expected to adopt new measures in response to the OIG report. But the agency must be careful in doing so, Pelton tells WTR. “The USPTO needs to try to ensure that the measures taken don't impact legitimate filers any more than necessary,” he concludes. “Additional steps or burdens likely mean trademark protection will be more costly, and if it is more costly, it will harm applicants or boutique practices (or both).”

UpdateFollowing the publication of this article, WTR received a comment from Drew Hirshfeld, acting Under Secretary of Commerce for Intellectual Property and USPTO director“We agree with the Inspector General that additional controls are needed to address the increase in fraudulent trademark filings and trademark-related scams. Confronted with these new challenges, we implemented many new initiatives as early as 2019, and have added and expanded on them since that time. These initiatives include an enlarged (and growing) Special Task Force (started in 2019), updated examination guidelines, the issuance of show cause orders and potential sanctions against bad actors, and preparation for new mitigation initiatives provided by the Trademark Modernization Act of 2020, to name a few. In the coming, days we will publish more detailed information on the USPTO’s comprehensive strategy to fight trademark fraud. We appreciate the IG’s further input and will be continuing to expand our efforts to combat fraud, consistent with those recommendations.”

Tim Lince

Author | Special Projects Editor

[email protected]

Tim Lince