In the United States, trademark applications are public disclosures from which you can learn some very important competitive information. A trademark application will reveal:
1. The identity of the owner of the trademark, and
2. the nature of the goods and services to be identified by the trademark
A U.S. filed trademark application is, in effect, a product announcement. But what if a company needs to keep its product development plans under wraps? The trademark application process undermines that desire. Keep in mind that it may take more than a year for a trademark application to be granted, so companies must start the process early, perhaps, even before a product has been developed, never mind announced. There are other reasons, also. The sooner a company locks down a trademark the sooner it will establish priority over others who may wish to register the same name. Likewise, there may be a scramble for domain names related to the proposed trademark.
According to the World Intellectual Property Organization (WIPO),
This information may prompt competitors to adjust or accelerate their own product development plans. In other words, early disclosure may expedite imitation by competitors, undermining a company’s first-mover advantage. A firm must weigh the benefits from secrecy, a tradeoff that has only been investigated in the patent literature.
This is not just a theoretical possibility. Anecdotal evidence suggests intensifying use of the trademark online databases for market intelligence. On July 16, 2017, for example, news broke that Amazon had filed a trademark application on July 6 for the slogan ‘We do the prep. You be the chef.’ for the sale of meal kits (‘Prepared food kits composed of meat, poultry, fish, seafood, fruit…ready for cooking and assembly as a meal’).4 Before noon the following day, shares in Blue Apron Holdings Inc. fell 9.4%, while Amazon.com Inc. shares rose 1%.5 Shortly thereafter, on August 14, 2017, Smithfield Foods announced a strategic investment in Chef’d, a ‘best-in-class ecommerce meal marketplace.’ Albertsons, one of the largest grocery retailers in the U.S., announced the acquisition of Plated, a ‘premier meal kit service’ on September 20, 2017. Later in May of 2018, grocery retailer Kroger announced a merger with private meal kit company Home Chef. While remarkable for the market destabilizing aftermath, this is not an isolated incident.
As a result, companies have developed strategies to hide their identities and to keep the marketplace in the dark about product development plans. There are two common strategies:
1. Use of shell companies for filing trademark applications; or
2. Filing so-called “submarine” trademark applications in obscure countries where access to trademark databases is difficult. The first option, use of shell companies, can raise tax complications and, as one writer has pointed out, it raises the question of whether the “fake” entity “has a bona fide intent to use the mark, and second, transferring the inchoate trademark rights and the underlying ITU application could require some fancy footwork due to the Lanham Act’s anti-trademark-trafficking prohibitions.” Under U.S. trademark law, one can’t simply sell a trademark to a new company without transferring the goodwill associated with the trademark. If the seller has never used the trademark (or had a bona fide intention to use it), the transfer becomes suspect and vulnerable to attack. It can be messy.
The second option, filing a “submarine” application, has received more attention. WIPO identified eight submarine jurisdictions, utilized by mostly tech companies, that do not publish applications online: Honduras, Jamaica, Liechtenstein, Mauritius, Saint Lucia, Swaziland, Tonga, and Trinidad and Tobago. You may be asking yourself, Ok, I have a trademark registration application filed in Swaziland, how does that help me register a trademark in the United States? The answer to that question depends upon the legal basis for filing the trademark application under the United States Lanham Act. Under the Lanham Act, there are several ways in which to assert a basis for claiming trademark rights. You may be familiar with rights based upon trademark use or a bona fide intent to use the trademark. But you can also claim priority to a trademark based upon a foreign application (Section 44d) or a foreign registration (Section 44e). If the foreign country is a member of the Madrid protocol, one can also claim an extension of an international registration via the Madrid system (Section 66a). WIPO states it succinctly, “the main purpose of Section 44d and 44e of the Lanham Act of 1946 (Trademark Act) is to allow foreign applicants to obtain trademark protection in the United States while preserving the priority date of their first foreign filing.”
The strategy does not end there. Sections 44(d) and 44(e) require that the foreign applicant’s country be the country of origin. So, if a United States company files a trademark application in Swaziland, it cannot claim that Swaziland is the country of origin. To get around this restriction, the applicant will amend the legal basis of its Sections 44d or 44e U.S. application by claiming a Section 1a (in use) or a Section 1b (intent to use) basis.
Fully permissible under U.S. trademark law, this practice allows firms to adopt submarine trademarks by filing in foreign jurisdictions that do not publish applications and, thereby, secure an exclusive trademark right six months before revealing the mark and the product or services it protects to the market.
The WIPO study, published in 2018, identified 15 U.S. corporations that used this technique:
If this topic interests you, we strongly recommend the WIPO report, which you can download directly from this link.
— Adam G. Garson, Esq.