The Menace Of Trademark Trolls

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While the term "patent troll" has entered common parlance in recent years, the term "trademark troll" is less commonly used.
India Intellectual Property
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While the term "patent troll" has entered common parlance in recent years, the term "trademark troll" is less commonly used. However, trademark trolls do exist and can present brand owners with real challenges. In the trademark world, a troll is generally understood as one who attempts to register a mark and then demands payment and threatens litigation against unsuspecting companies that have adopted the same or similar marks. In the field of domain names, such trolls are generally known as cyber squatters.

There are generally two different classes of people or entities that have been accused of being trademark trolls.

1. Opportunistic trademark registrants

Such persons or entities do not actually use or intend to use the mark but opportunistically attempt to register well-known or recently introduced trademarks registered by a different company in other countries, in anticipation of that company eventually wanting to use it in the troll's country at some point in the future. By doing so, the troll waits until the original owner decides to use the mark in the country, and then blocks this use on the basis of its "spurious" registration, generally demanding the original trademark owner to pay money in order to obtain a license to use the mark. This is more common in "first to file" countries where usage of a mark is not required to register a trademark and has produced some well-publicized cases in recent years, particularly in China.

For instance, as widely reported by IP and mainstream media, French winemaker Castel Frères SAS experienced trademark trolling when a Chinese court ordered it to stop all sales of its CASTEL brand wines in China and pay over USD 5 million to Li Dao Zhi (Li), a Shanghai company that had registered the name Ka Si Te, the known transliteration of "Castel." (2012) No. 166 Zhe Zhi Zhong (2012). While Castel reportedly entered the Chinese market in 1998, and began selling wine under the name Zhang Yu Ka Si Te in 2001, it did not apply to register its CASTEL mark until 2002. In 2005, it became aware that Li had registered the KA SI TE mark in 2000. Castel filed a request to cancel Li's registration based on non-usage, but during the pendency of the cancellation action, Li began use of the KA SE TI trademark, and Li sued Castel for infringement. The court ultimately ruled in Li's favor, and Castel found itself in the unenviable position of being labeled an infringer of a mark it had developed more than several decades earlier.12 Subsequently, however, Castel appealed the case all the way to the Chinese Supreme Court, and earlier this year it was reported that the Supreme Court had suspended the fine and would retry the case.13

Another famous case involved the Tesla Motors family of TESLA marks and logos. In 2009, Zhan Baosheng, a businessman based in Guangzhou and founder of a cosmetics website, registered the TESLA trademark across a range of classes, including cars. Tesla Motors made various offers to purchase the marks, but Mr. Zhan rejected the offers and ultimately demanded a price of USD 32 million, which Tesla rejected. The carmaker sued Mr. Zhan for damages and cancellation of the marks and was initially successful, but Mr. Zhan appealed and sued Tesla for trademark infringement, demanding USD 3.9 million in damages and seeking an order that the company stop all marketing and shut down all showrooms displaying cars with the TESLA marks. In August 2014, the parties entered into a settlement whereby it was decided that Zhan would give up his trademark rights while Tesla would drop its compensation demands in return. Tesla also agreed to buy domain names including tesla.cn and , a businessman based in Guangzhou and founder of a cosmetics website, registered the TESLA trademark across a range of classes, including cars. Tesla Motors made various offers to purchase the marks, but Mr. Zhan rejected the offers and ultimately demanded a price of USD 32 million, which Tesla rejected. The carmaker sued Mr. Zhan for damages and cancellation of the marks and was initially successful, but Mr. Zhan appealed and sued Tesla for trademark infringement, demanding USD 3.9 million in damages and seeking an order that the company stop all marketing and shut down all showrooms displaying cars with the TESLA marks. In August 2014, the parties entered into a settlement whereby it was decided that Zhan would give up his trademark rights while Tesla would drop its compensation demands in return. Tesla also agreed to buy domain names including tesla.cn and teslamotors.cn from Mr. Zhan for an undisclosed purchase price.14

2. Suspect Trademark Users

These persons or entities are the ones who claim, without solid reasons, to have used a specific mark, and threaten or bring infringement actions or opposition against any company or individual using and/or registering that mark. This practice, based on alleged prior use, is more typical of those legal systems based on common law, and/or where trademark rights are primarily based on usage and not registration (e.g. the USA).

For instance, the most infamous trademark troll is probably US based self-acclaimed entrepreneur, Leo Stoller. He controversially claimed rights to a large inventory of "famous" trademarks and engaged in the assertive enforcement of those alleged trademark rights, threatening infringement action against people and companies who attempt to use similar marks.

One of the primary marks with respect to which Mr. Stoller attempted to enforce his alleged rights was the mark STEALTH. In the Northern District of Illinois alone, Mr. Stoller was involved in at least 47 cases involving trademark infringement. In case after case, Mr. Stoller was unable to demonstrate legitimate trademark use or infringement, and the Northern District of Illinois not only ordered him / his corporate entities to pay costs and the defendants' legal fees in several cases, but enjoined him from filing any new civil actions in that court without first obtaining the court's permission. Moreover, in Central Manufacturing, Inc. v. Brett, 492 F.3d 876 (7th Cir. 2007), the Seventh Circuit affirmed the decision of the Northern District of Illinois that ordered both payment of the defendant's legal fees as well as the cancellation of 34 of Mr. Stoller's trademark registrations.

Steps to be taken by companies in order to avoid trademark trolls

  1. First and foremost, one should file trademark applications as early as possible, not only in the countries in which one currently does business or manufactures or sources products, but in all countries in which expansion is likely in the future.
  2. Filing transliterations of one's marks in the local language including logos.
  3. Establish watch services or conduct trademark searches to identify potential trolls at an early stage. Updating the search periodically and scanning local media for references to the mark will help trademark owners keep abreast of local developments.
  4. Keeping track of the use of its own trademark in "troll friendly countries" (e.g. file and save invoices, commercial documents, correspondence with distributors, etc.) and always display in a proper way the mark as registered on products and commercial papers. This would constitute good background evidence on prior legitimate use in case of unexpected/undesired litigation.

Footnotes

12. 2013) No. 1405 Min Shen Zi (2013)

13. Peter Mendelson, Purdue Pharma L.P, Trademark Trolls: Here to Stay? available on  https://www.inta.org/INTABulletin/Pages/Trademark_Trolls_7021.aspx

14. (2014) No. 09258 San Zhong Min (Zhi) Chu Zi (2014).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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