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INTA Bulletin


December 1, 2015 Vol. 70 No. 21 Back to Bulletin Main Page

Trademark Trolls: Here to Stay?


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. This article explains the two main types of trademark trolls, the distinction between a “trademark troll” and a "trademark bully” and discusses examples of each of these. It concludes by providing tips on how to avoid becoming the victim of a troll.

What Is a Trademark Troll?
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. There are generally two different classes of people or entities that have been accused of being trademark trolls.

Troll #1: Opportunistic Trademark Registrants
Perhaps most common is the person or entity that doesn’t actually use any trademarks, but opportunistically attempts 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. The troll then “lays in wait” until the other company enters the country and finds its trademarks already registered and therefore unavailable for use without paying the troll a licensing or purchase fee. This is more common in “first to file” countries where use of a mark is not required to register a trademark, and has produced some well-publicized cases in recent years, particularly in China.

For example, as widely reported by IP and mainstream media, French winemaker Castel Frères SAS experienced this 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-use, 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. 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. (2013) No. 1405 Min Shen Zi (2013).

Another case in China 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. (2014) No. 09258 San Zhong Min (Zhi) Chu Zi (2014). In August 2014, the parties entered into a settlement whereby Mr. Zhan would give up his trademark rights while Tesla would drop its compensation demands in return. “Collectively, these actions remove any doubt with respect to Tesla’s undisputed rights to its trademarks in China,” Tesla said. Tesla has also agreed to buy domain names including tesla.cn and teslamotors.cn from Mr. Zhan for an undisclosed purchase price.

Most recently, a Chinese court ordered an affiliate of New Balance Athletic Shoe Inc. to pay nearly USD 16 million to a local businessman for infringing his registered BAI LUN and XIN BAI LUN trademarks by marketing New Balance’s sneakers under the name “Xin Bai Lun” in China. The New Balance affiliate was also ordered to stop using the Xin Bai Lun name to promote products in China. New Balance argued that it needed to use the Xin Bai Lun name as the transliteration or translation of its own Chinese-registered NEW BALANCE trademark, but the court rejected this argument stating that Xin Bai Lun is neither a straight translation nor transliteration of the term New Balance. It is unclear if the company will appeal the ruling. (2013) No. 547 Sui Zhong Fa Zhi Min Chu Zi (2013).

Opportunistic trademark trolling cases are not limited to China. In Scotland, for example, a company named Never Give Up attempted to register at least 34 different juice-related marks, including the names of two existing juice bar companies, Juiceling and Juiced Up. During the trademark application stage, Never Give Up was alleged to have threatened the owners of both Juiceling and Juiced Up with legal action and demanded tens of thousands of pounds in licensing fees, despite the fact that Never Give Up’s trademarks had not even passed the application stage and had never been used. A BBC reporter who had heard of the claims went undercover and posed as a representative for Juiceling. During his discussions with Never Give Up, the reporter stated that he was told that the demand for a licensing fee went up from GBP 25,000−30,000 to around GBP 60,000. When later confronted by the reporter, Never Give Up claimed that it never threatened the juice bars with legal action and that its activities were all legitimate. With respect to the JUICED UP trademark, the owner of the Juiced Up bars went on the offensive and successfully opposed Never Give Up’s application for JUICED UP based on prior use and bad faith, and the hearing officer noted that “in all probability [the application was made] with the intention of inducing [the juice bar owner] to part with money to continue use of the name.” What this case demonstrates is that trademark trolls will often attempt to rely on the ignorance of the business owner from whom it is seeking to extract money, in this case by asserting rights in a pending application against businesses which were in fact senior users of the marks in question. It also shows that even small businesses with little-known trademarks are vulnerable to demands from trademark trolls.

Troll #2: Suspect Trademark Users
Another type of trademark troll is one who claims, without adequate foundation, to have actually used a particular trademark and threatens infringement actions or oppositions against any company that uses the mark, even in unrelated areas.

In the United States, where trademark rights are based on use and not registration, there have been several notable examples involving parties claiming broad rights based on alleged prior trademark uses. Perhaps the two most famous instances involve Leo Stoller and Tim Langdell.

Leo Stoller is a name well known to many companies, large and small, that have received his requests for licensing fees based on one of the many marks he registered for a wide variety of goods and services. Mr. Stoller has instigated hundreds of cases in both the U.S. federal courts and the United States Patent and Trademark Office (USPTO), and the convoluted history of his extensive exploits would require a much longer article than this one. A list of the hundreds of Trademark Trial and Appeal Board cases that just one of his companies, Stealth Industries Inc., has been involved in can be found on the TTABVUE, the Trademark Trial and Appeal Board Inquiry System.

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, and he was described by that court as “running an industry that produces often spurious, vexatious, and harassing federal litigation.” 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 or 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. It has been argued that the court’s power to order cancellation of a registered trademark (a power it shares with the U.S. Trademark Trial and Appeal Board) should be used more often to deter trademark trolls.

Mr. Stoller eventually went bankrupt, and, in 2007, the bankruptcy court approved an auction and sale under which Stoller’s trademark assets were transferred to the Society for the Prevention of Trademark Abuse, LLC, the sole bidder in the auction, for USD 7,500. Mr. Stoller’s legal struggles continued as he was sentenced to 20 months in prison in November 2014 after entering into a plea agreement relating to federal fraud charges surrounding his bankruptcy filing. He is currently in prison and is scheduled for release in May 2016.

Another example of a well-known trademark litigant with a very convoluted history is Dr. Tim Langdell, CEO and founder of Edge Games. Dr. Langdell has been involved in numerous attempts to enforce the EDGE trademark against other companies using marks with the term Edge in them, most notably in the video game industry. In one notable case involving Edge Games, Future Publishing, the publishers of Edge video gaming magazine, brought suit in the United Kingdom against Dr. Langdell for copyright infringement, passing off and other claims. Future Publishing Limited v The Edge Interactive Media Inc & Others [2011] EWHC 1489 (Ch). In that case, which Edge Games lost, the judge described much of the evidence presented by Dr. Langdell as proof of trademark use of the EDGE mark as being fabricated and unconvincing. In one instance, Dr. Langdell claimed he created the logo for Edge magazine in 1991, two years before the magazine launched in 1993, and produced a floppy disc containing the logo which his expert asserted dated back to 1991. Future Publishing’s expert then showed that the logo was created using Windows 95 software, which did not even exist in 1991. Despite Dr. Langdell’s loss in this suit and the cancellation of his EDGE registrations in the United States, he has continued to press claims based on his alleged common law rights in the EDGE trademark, including filing opposition and cancellation proceedings against various EDGE marks in the USPTO even after his registrations were canceled.

“Trademark Bullies” or Legitimate Enforcement?
A variation on the concept of the trademark troll is the company with a well-known trademark that attempts to assert its rights more widely than would normally be considered legitimate, often bringing actions against parties operating in totally unrelated areas where confusion would be highly unlikely. In such cases, well-established businesses have been accused of acting like “trademark bullies” when the company in question has attempted to enforce its trademark rights more broadly than is warranted by its registrations or prior use. Of course, in many cases, what is one person’s overreaching may be another person’s legitimate enforcement. Moreover, the assertion of tarnishment claims by owners of famous marks against unrelated products may lead the recipient of such claims to believe that the owner is overreaching as well.

Trademark filing service, Trademarkia, made news a few years ago by publishing a list of what it terms the “top trademark bullies,” based on the number of trademark oppositions filed in the USPTO. However, the number of oppositions filed may just reflect aggressive but legitimate enforcement, and even Trademarkia acknowledged that this metric does not necessarily define which company is or is not a trademark bully. Indeed, companies have an obligation to police their rights, and often rely on strong enforcement of their trademark rights to discourage third parties that would otherwise be tempted to piggyback or infringe on their rights.

Various websites, such as www.lumendatabase.org, have also sprung up which focus on alleged trademark bullies. Some of these sites post cease and desist letters from companies in an attempt to expose aggressive litigation tactics used against small businesses, which may not have the time, resources or expertise to fight back against large corporations’ claims of infringement. Social media and blogs are also being used to generate publicity regarding aggressive trademark enforcement tactics.
 
In 2010, pursuant to the Trademark Technical and Conforming Amendment Act, the U.S. Department of Commerce (DOC) was required to issue a report on the extent to which small businesses may be harmed by litigation tactics used “to enforce trademark rights beyond a reasonable interpretation of the scope of the rights granted to the trademark owner.” After receiving public comments on both sides of the issue, the report was published by the DOC in 2011. The report concluded that “it is unclear whether small businesses are disproportionately harmed by enforcement tactics that are based on an unreasonable interpretation of the scope of an owner’s rights.” The report stated that abusive tactics are best addressed by existing safeguards in the litigation system (including awarding attorney fees in the case of frivolous litigation and imposing sanctions under Rule 11 of the Federal Rules of Civil Procedure) and recommended enhancing education (such as continuing legal education programs), increasing outreach by federal agencies to help small businesses get the resources they need to deal with trademark issues and engaging the private sector to provide support in the form of low-cost or free legal advice such as pro bono programs and educational clinics.

Banish the Troll
How can one avoid falling prey to a trademark troll? 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 any countries in which expansion is feasible in the future. Filing transliterations of one’s marks in the local language, as well as logos, is also key. In addition, it is important to 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. Furthermore, keeping good records of one’s trademark use will come in handy should a conflict arise and it is necessary to show early legitimate use of a mark. Moreover, keeping all emails and notes of verbal communications with trolls can be critical when trying to demonstrate to a court or other decision-maker the troll’s bad faith. Finally, if possible, it is advisable to set aside a litigation fund if one is operating in an industry and geographic territory where trolling is more likely to happen.

While it is often impossible to predict when one may become the victim of trolling activity, it pays to be aware of, and prepare for, the possibility that one will have to deal with a troll in the future. Rather than just saying “we will cross that bridge when we get to it,” only to find a troll blocking the way, trademark owners are well advised to act ahead of time to protect their interests.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

© 2015 International Trademark Association