Trademarks 2017: Trends & Conclusions

As global competition intensifies, companies are becoming increasingly conscious of the value and force behind an effective brand and the competitive advantages this can secure. As a result, they are becoming increasingly protective of their IP rights. Globalisation, the internet and politics are among the significant forces currently shaping this complex area of law, and the effect of these and other major trends are explored below.

Overview

The total volume of filing applications continues to increase. China is home to the largest filing office in the world, with a total of 3.69 million new filings last year. This is compared to the 1 million filed in the EU, and highlights China’s growing presence in the global economy. Our sources note that this huge growth in applications is not without problems and, in China in particular, has given rise to major registration difficulties due to the number of competing marks, leading to inconsistent decisions and consequently to disputes.

Sources in jurisdictions party to the Madrid Protocol report that, despite overall increases in the total number of filings, the number of national filings dropped following the protocol’s entry into force. Some respondents estimated this fall to be approximately 20 per cent. Filing marks under the Protocol is attractive to businesses as it offers a cost-effective standardised system. Lawyers noted that, although the amount of filing work they undertake has decreased as a result of this system, there is an increasing amount of opposition and searching work due to the increase in total number of marks being filed, and therefore the number of conflicts. This leads practitioners to conclude that, although filing under the Madrid Protocol is initially much cheaper for clients, it can lead to considerable expenses if problems are encountered when applications are examined later.

IP rights are increasingly being viewed as business-critical. Sources have reported a growing tendency for businesses to structure the ownership of IP rights to achieve strategic objectives such as commercial exploitation, growing the brand portfolio or structuring liability. One lawyer reported, in relation to the Argentinian market, that UK and German companies are particularly proactive about maintaining an investment portfolio in the region, even when it is not a particularly attractive time to invest, as this enables them to seize opportunities when they arise. Lawyers see a clear desire among companies to expand their trademark portfolios abroad. This trend is particularly prominent in Asia, and sources throughout the region have reported high volumes of outgoing activity and significant interest in emerging markets.

Enforcement actions against infringers have also increased, and sources from jurisdictions across the world reported an increase in contentious cases. Although in many instances the parties opt to settle, and mediation is becoming increasingly popular in jurisdictions such as the UK, interviewees note that clients across the board have become increasingly willingly to litigate.

In China, IP courts are becoming markedly more sophisticated, making judicial relief an attractive option for IP owners as an efficient alternative to trademark offices that lack the capacity to effectively deal with the enormous workload. The Supreme People’s Court is handling a large number of IP cases and market commentators affirm that it is setting good guidance. The Chinese government also backed the establishment of three specialist IP courts which have proved valuable to securing trademark rights in the country.  

Brexit

The UK’s decision to leave the European Union has caused a stir in IP markets, although our interviewees are optimistic that the issues will be resolved and the UK government will offer similar levels of protection without too much controversy. In the words of one London-based source “We do not expect Brexit to cut us off at the knees.”

That said, UK-based firms and practitioners are taking measures to ensure that they will be able to deal with the UK’s transition out of Europe seamlessly. Individual practitioners are registering to qualify in Ireland. This is occurring across many practice areas, although is particularly prevalent in the IP space due to the volume of cross-border work UK firms undertake within Europe and before the EU IPO. It is therefore fundamental for many UK practitioners to retain their representation rights before European authorities. Market commentators also noted that some firms who do not currently have a presence in Europe are looking to the continent for opportunities to establish this, and Germany is a jurisdiction of particular interest. Practitioners from large international firms are confident that their networks across Europe will enable them to offer clients a smooth transition and maintain a consistent level of service.   

Sources reported an uptick in requests from clients all over the world who rely on European Union Trademarks (EUTMs) to protect their brands and predict that this will be a significant source of work going forward. The future of this type of mark in relation to the UK is uncertain and gives rise to questions about the security of trademark rights. Our sources say they are advising clients who rely on EUTMs to register for UK trademarks now and are including jurisdiction clauses in new licensing and settlement agreements. Withdrawal from the EU is also presenting challenges for companies whose EUTM is largely derived from their business operations in the UK. As such trademarks only protect marks which are used “in a substantial part of the territory of the European Community”, there is some uncertainty as to what arrangements will be put in place post-Brexit. Sources also voiced concern about the enforcement of EUTMs if the UK courts lose jurisdiction and pan-European injunctions are no longer to apply. These factors are problematic in relation to pending litigation.

In the short term, sources do not expect considerable substantive changes to trademark law as the Great Repeal Bill contains provisions to transfer all existing EU legislation into domestic law. Interviewees highlight the possibility that the government will change its stance over time and look at the statutory interpretation of the Intellectual Property Act 2014 to downplay certain EU decisions and move back towards a more traditional interpretation, or that the law will be changed by judicial decisions when significant cases arise. Lawyers are expecting courts to see an increasing case load as judicial proceedings are brought to clarify any uncertainties. For the most part, UK sources expect national courts to adhere quite closely to European court judgments due to the level of integration between the markets and advantages of maintaining consistency. However, sources are uncertain about the future of exhaustion. The EU’s approach currently prohibits a trademark’s owner from restricting the movement of goods within the EU or preventing their import once they have consented to them being placed on the market for the first time, as their right to the trademark is “exhausted”.  This only applies to countries within the EU and EEA, and sources question the approach the UK courts will take when challenged. Interviewees stated to us that this principle is supposedly unpopular with UK judges at the moment, so it is possible that they will adopt a different approach.

Online Trademark Infringements

Trademarks are valuable commercial tools to direct traffic to websites and it is therefore of paramount importance to protect them online. The use of online platforms and the proliferation of online infringements presents new challenges and shapes trends in terms of overall protection.

The internet provides a single trade channel which spans multiple jurisdictions and trade settings. It therefore brings marks into conflict with each other to a much greater extent than they have been in the past, when brands were more confined by jurisdiction and specific sales outlets. Overall, more and more counterfeiting operations have moved to the internet, making it very easy for consumers to find fake goods online. Furthermore, packages now contain smaller quantities of counterfeit goods; this is a huge shift from the large shipments of items which were previously arriving through customs. One source reports that these smaller shipments discourage brand owners from taking action when weighing the cost and benefits of seizing the goods. Many of our sources reported that clients are increasingly conscious of making value-based judgements, challenging lawyers to provide quicker and more cost-effective solutions.

Lawyers have reported changes in the approach businesses are taking to online infringements: many companies have turned to alternative methods of dealing with them and have adopted a more pragmatic commercial approach. This has caused a change in the lawyer’s role in brand protection and, in the words of one source, “threatens traditional legal services”. Such approaches include using investigators, using technology to stop payments and focusing on intermediaries and carrier companies who have infringements coming through their channels. Although this commoditisation leads to disruption of the market, one source remains optimistic that as mechanisms for identifying online infringements become more sophisticated this may also lead to increasing levels of litigation which will be a source of work.

Legal Market Analysis

Sources report increasing competition for work between solicitors and trademark attorneys and a shift in the landscape in the market in these areas. In the US and Germany there has not traditionally been a marked distinction between the two professions, and sources from the UK and Netherlands report a further watering down of the separation. In the UK, there has been a merging of practice areas as attorney firms acquire IP solicitors. This marks a transition from previous years when attorneys would refer litigation work to solicitors’ practices. Sources from the Netherlands report that many law firms have shifted to a “one-stop-shop approach” providing services throughout the entire life cycle of the trademark. This has put pressure on trademark attorney firms, which were strictly separate in previous years, and there is an ongoing trend towards some joining law firms.

Competition on cost was a key trend underpinning all of our interviews this year. Practitioners are feeling pressure from clients to provide lower fees, and many now request an estimate of costs rather than hourly rates. This is a point of fierce competition between firms, particularly in relation to trademark filing, which has become very heavily commoditised. Trademark agencies provide low-cost filing applications and renewals are becoming increasingly prevalent on the smaller side of the market in jurisdictions such as the Hong Kong, the UK and Spain, where trademarks can be filed for as little as €10.

However, sources report that for business-critical matters, clients are willing to pay for quality, although cost is still a consideration. Commentators have observed that this squeeze on costs has resulted in ample opportunities for boutique firms and solo practitioners who do not have the overheads of large firms, and so are able to charge lower fees for services. The last 10 years have seen a number of eminent IP partners leaving large corporate firms in order to start their own boutiques, which presents some serious competition in European markets.

The legal market as a whole is consolidating, as firms seek to remain competitive with their scale and offices and also to reduce costs. The UK market has seen some significant changes as large firms have merged, while Rouse Legal closed its solicitors’ practice in London. It has also seen new entrants from international firms. Singapore is “shaping up as a real international playground” and has seen a number of new players and a significant number of tie-ups over recent years, including Dentons Rodyk in 2016, Ashurst ADT Law in 2017 and RHTLaw Taylor Wessing in 2012. Latin America is home to a number of very sophisticated players. For instance, the Chilean market is dominated by domestic firms and sees little exposure to international firms. Sources in Argentina also report that “companies have a lot of options” due to the number of high-quality practices there, while Ecuador is seeing a lot of changes with many boutiques and full-service firms establishing IP departments. One source predicted that the next year will see larger firms merging with boutiques, reflecting a worldwide trend towards firms attempting to build their IP capacity.

***

This fiercely competitive legal market is evolving to adapt to new challenges and accommodate new players. Major issues such as Brexit, the breaking down of borders caused by the internet and the continuing squeeze on fees will all have to be resolved by practitioners worldwide in the coming months and years. But it seems certain that there will continue to be a huge volume of trademarks work and legal practitioners will remain as busy as ever. 

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