and live on cspan3, on capitol hill a senate sshdary subcommittee will be hearing about fraud in trade marks. >> thanks for accommodating the scheduled change today. we left the senate floor where senator johnny isaacson gave his farewell speech and may friend and colleague ranking member corns is down there now bidding him farewell on the speech. he and senator isaacson worked a long time together. it's fitting senator coons is there because in many respects he embodies alt a lot of the same attributes as senator isaacson in terms of working torgt together on this committee. when he comes in he will intersquekt. but in the meantime we will get to your opening statements. we are here to talk about the issue of fraudulent trade marks. as earn knows trade marks are

the back bone of any business's brandon and operations. a good trademark allows a brand to easily identify and distinguish itself from competitors. aed good trademark allows good will consumers and differentiate goods and services. while trademarks are important to every business. they're especially critical to retail and small business, mom and pop shops. unfortunately, in recently yeerps the united states has seen a surge in fraudulent trademark applications. according to the "wall street journal" from 2013 to 2017 the united states passanted and trademark office has seen a surge of applications from china, a 12-fold increase totalling thousands more than the combined filings from canada, germany and the uk. and this morning when i was preparing for the hearing it reminded me of something that's not specifically focused on what we'll talk about today.

but it gives you an idea of the depth of challenge we have with china on several different levels. if there is a company that's generations old and in north carolina called charlotte pipe and foundry. it's a factory right down in the city center. it's been there as i said generations. all of a sudden a few years ago what pops up in china but charlotte pipe and foundry. blatantly just taking the brand that has -- that has gone on for generations and posting up and setting up shop in china. in this particular case they went to the chinese courts and as you would expect tried to uphold our trademark rights in a chinese court just didn't work out. but they go even further. they actually counterfeit products and sell them and theft lost trade cases on dumping. although we're here to talk

about trademarks and trademark applications in united states. it's important to understand the major threat is china and they are fighting the economic war on several tro fronts. this is another front i intend to come back to in a subsequent hearing. but today we just want to know that the people know that the chinese government are paying citizens to fraudulently obtain u.s. trademarks. i'm concerned the surge in chinese trademark filings is leading to a situation where fraudulent trademark clutter the register and preventing legitimate american businesses and brand owners from getting trademarks to protect and promote their reputation. fortunately the u.s. pto is taking steps to address the problem. and our counterparts in the house jshtdary committee earlier this year heard how the agency is piloting software capable of detecting altered photographs of trademarks, how they are increasing the number of post-registration the maintenance audits and how increased training is being provided to examiners to

identify and more closely scrutinize suspicious specimen processes process. those are great efforts and the director should be commended for the work. however i think congress has a role to play in addressing this problem. that's why we are holding this hearing today. we want to hearing from experts about their experience with fraudulent trademarks and how they are negatively impacting american businesses and consumers. i'm also interested in their recommendations -- i don't wish recommendations on what steps congress should take to combat the problem. and finally while it's the first hearing on the subject in the senate. the house of representatives have been vigorously working on the issue for months. house jshd committee chairman gerry nadler and doug collins have done fantastic work and i appreciate the work they've done. i'm proud to be part of the bi caramel working group and i look

forward to working together on what i truly believe can a positive significant impact. i want to thank the steph led by jamie simpson and mary beth walker actively working on legislation. and i hope the witnesses today will give us your thoughts on the proposed legislation. then finally thanks for being here today and accommodating our schedule. i look forward to your perspective. and i hope you view this as just one of a series of discussions we need to have to get this right and have a result that ultimately goes to the president's desk. when senator coons arrives if he would like to make opening compensates we'll allow him to do that. but to get the testimony moving forward, i'll introduce the witnesses. barton beebe is the professor of intellectual property school at new york university school of law and codirector of engelberg -- didn't bring my glasses on center of innovation law and policy.

he previously taut at ya'll law school stanford law school and university of hong kong. he is prubld frequently about trademark law including authoring a free online trademark case bjork in use at over 40 law schools worldwide. douglas rettew is a prrnlt at finishing garrett henderson and dunner. he focusing on trademark false advertising unfair competition litigation trials appeals and disputes. arguing before the u.s.ment court of appeals for fourth eighth circuit court opinion else argues before the united states patent and trademark office. meg meg megan bannigan. she is a member of the intellectual property media group. she has represented clients before the u.s. pto, the

trademark trial and appeal board and the international trade commission. she is active in international trademark association, the ip section of the american bar association and the american intellectual property law association. thomas williams is the supervising attorney for duke law -- duke law school start-up vice president venture clinics where he works with opportunities to represent early stage for profit and non-profit entities also director of the duke university jdma joint degree in bioethics and science policy. prayer to joining duke law mr. williams was a corporate attorney and served as assistant counsel to a physician practice. finally stephen lee. stephen lee serves as chief sblg the property counsel for the target corporation where he told the position of senior director and assistant general counsel. prior to joining target mr. lee worked in private practice at two minnesota law firms. i am -- did i know that i've got

a swearing in statement here i'm not going to swear you you in. i know your passion around this issue. i promise you promise in me to be truthful that's your swearing in. start withy yoir opening payment. mr. beebe. >> members of the subcommittee thank you for inviting me to be a witness today. good afternoon. i'm barton beebe. i'm the john m damarius professor of intellectual property at new york university school of law. my testimony draws on research with professor jeanne farmer also of nyu school of law. along with our written testimony for the records i have submitted our recent harvard law review article entitled are we running out of trademarks? and empirical study of trademark depletion and congestion. a at it best trademark law promotes fair and efficient competition and helps new market swras entrants and small businesses in particular to compete on a level playing field. this benefits american

consumers. however, in the empirical research we report in our article we show in essence that it is becoming increasingly difficult for businesses to find a reasonably good trademark that someone else hasn't already claimed. and it is especially difficult for new and small businesses to do so. trademark law has long assumed that there is an inexhaustible supply of trademarks. and much of trarm policy is built on the assumption. the assumption that if the market the company wants is already taken, the company can find a the different mark just as good. but we have reached the stage of economic development in which this is no longer true. to give you a sense of what we're talking about, our research shows that even using a the conservative similarity matching protocol 89% of the time when we speak american english we are using a word that has either been registered as a trademark or is confusedingly similar with an already registered mark. consider that that at least 68%

of americans carry a surname for which the same is true. their surname habs has been registered or kuchzingly similar with an already registered marked means they have been born too late to register their name as a mark in certain categories of goods or services. meanwhile new applicants shift towards coined words and longer and complex less effective marks. yet even these efforts are fnzingly failing. our research shows that pto fz ared rates for confuseding clarity similarity a railroad already registered mark continue to rise. this problem is particularly acute for small businesses by typically lakt lack the sophistication and resources to claim unclaimed marks and prosecute the marks to registration. this problem of what we term trademark depletion has been significantly worsened in recent years by a surge of fraudulent applications originating from

china. except in rare instances a trademark must be used in u.s. commerce to qualify for registration at the pto. to meet the use in commerce requirement numerousis chinese applicants have been submitting during the registration process fraudulent evidence of use tip leically in the form of doctored photographs. in our written stem we report the results of a recent empirical study we conducted on the issue. we show that at least with respect to apparel goods two thirds of chinese applications filed in 2017 contained apparently fraudulent specimens of use. 60% of these were nevertheless approved for publication and 39% then proceeded to registration. when these applications are allowed to proceed to registration they contribute to clutter on the register. clut certificate term trademark law uses to describe marks registered but not actually used in commerce.

to address the problem of trademark depletion and dluter and to defend the integrity of the trademark register we support a mix of reforms to trademark law includes processes for exparta re-examination and gunning li expungement of trademarks not used in commerce, specialization of trademark examiners, and requires the pto to study and the report annually on fraudulents on the trademark register. thank you and i look forward to your questions. >> thank you. apparently my staff was watching this. i got glasses and airport i'm low energy they got me a mountain dew too. >> thank you, chairman. thank you mr. corns and the subcommittee thank you for allowing me to testify before you. chairman timmis, ranking member corns and members of the subcommittee thaeng thank you for inviting me to testify. today i will discuss whether irreparable harm required fo an

injungs should be approved in where the moving party can establish success on the merits of its claim. i believe the presumption sneaded for the trademark system to function properly fairly and effectively. to start, it's useful to discuss the important roles that trademarks play in our society and how they kifr from other forms of intellectual property, including patants and copyrights. patants for in re part protect novel inventions kaurps protect original works of authorship. both are meant to encourage innovation in the science and the arts by giving authors and invent esper limited economic monopolies. trademarks are quite different in what they protect how they protect and why they protect it. a trademark is a word, symbol or device that's used to identify one parties' goods and distinction we shall them from others. and trademark law serves several object he was. first a trademark ensures when a consumer sees a brand that they recognize they know what they're

getting. economically this creates marketplace efficiencies because it reduces consumer search cost 37 for example, my eyes aren't very good but when i saw that soft drink that you drink i could tell from the colors and the font exactly that that was a mountain dew. without more i nigh knew that immediately. now at the same time trademark law also protects an owner's investment in the brands. and it incentivizes that investment and incentivizes to invest more in their good will. but if trademarks are not given due protection a all of in falls apart. without recourse the cost of copying somebody else's trademark is quite law on the upside very high. that's why the trademark law prohibits as a form of tramg infringement the use of marks likely to cause mistake or deception. when that happens. when somebody uses a mark causing confusion mistake or deception the trademark orion

loses control of the good will and reputation. even though monetary damages are available in lanamac cases any can't fix the reputation alharms harms courts have historically acknowledged they are the impossible to ascertain and measure. also monetary damages are notoriously difficult to prove and collect in the cases. so none of this is new or revolutionary. for decades nearly every circuit recognize the the per ms. initials harm that flows from lanamac viemgss. for that reason the circuits recognized a presumption of err represent trabl harm once somebody proves likelihood of success or success on the merits of a lanamac claim, changing in 2006 when the supreme court ruled in ebay versus merck exchange that the irreparable harm does not exist in patent cases. but ee way was a pat abt case not a lanamac and it has muddied

the land skap. after ebay some circuits representsed the irreparable harm despite the ebay holding. others have kun away with the presumption of irreparable harm. still oerps struggled with the issue questions whether ebay replies in the first plan failing to decide the issue. amending the lanamac to include the presumption of irreparable is reasonably for efrl years. first it does not foreclose the preparationo proposition. moreover be in that decision the justices justices roberts and kennedy admonished courts not to jettison historical practice. justice roberts said a page of history is worth a volume of logic. here the historical presumption much recognizing presumption in lanamac cams is robust and shouldn't be ignored. the prurpgs is needed.

if there is infringe many infringers can continue to confuse unwitting consumers into shelling out hard-earned money for products not what they are deemed to be and not understood to be. all the while the trademark owner loses consumer trust and control over the brand. it's essentially commercial identity theft. the presumption would provide clarity for courts and litigants. beyond the question of whether the presumption applies in certain cases it's unknown now what exactly you need to do to prove irreparable harm. one would think that proof of deception and confusion would be enough. but the ninth circuit said otherwise. finally, a presumption would be balanced by the fact that it is rebuttable. so an alleged infringer can come forward with evidence to counter it. also even with error represent rabl harm that doesn't mean the injunction issues. a litigant and movent must show the balance of shrtd shardship actives in their favor and injunction favors the public interest. in the end the time tested

common sense doctrine has well served trademark owners consumers in the marketplace for many years and shuntd be taken away. thank you for your time and i welcome your questions. >> thank you. miss bannigan. >> chairman tillis ranking member corns and members of the subcommittee. good afternoon. "i" megan bannigan, counsel where my practice includes protecting enforcing and defending the trademark rights and other intellectual property rights of our clients. i'm honored to be here today to share my views of fraudulent trademarks and the importance of decluttering the trademark register. while we all agree that protection of trademarks is critically important to the american economy and competitiveness around the world overprotection has negative repercussions. the trademark -- discuss me. the trademark register has the important function of providing notice to others of what marks

are already in use. if we allow marks that are invalid to remain on the register it can stifle innovation by providing misinformation to companies about whether they can use a mark or not use a mark. for instance, you know, this might cause a company that is planning to use a mark to abandon it if the register says that mark is already in use. they may instead pick a mark that is less productive, less suitable or less effective. this is a real problem. and fraud we know is one of the causes. to prove fraud and to have a mark cancelled from the register on the basis of fraud you have to meet a very high standard. a third party would have to show willful intent tody receive. and as a litigator i can tell you that's a really hard standard to meet. in order to prove that, you often have to embark on complex discovery which can include

forensic review of documents, really detailed fr granular depositions and difficult time-consuming product, proceedings taking upwards of two years that's not okay if you are a new brand looking to enter the market. you don't have two years. the courts agree, that this is really difficult. in fact in the last ten years the ttab has only cancelled one mark on the grounds of fraud. and there is only a hand of of federal courts that have found the same. so the question becomes what do we do about the fraudulent trademark sns how do we get them off the register. >> unof the suggestions many have said is that we need to lower the standard of fraud. but there are real risks of doing that. because you risk harming people who have made innocent mistakes. and, you know, they risk -- well, let me back up.

before 2009 the standard was actually lower. you could prove fraud by showing a misstatement on a v registration. numerous reg strapgss were conditionsled based on misinformation without intent to deceive. leading to a situation that put a ton of pressure and practitioners and trademark owners when filing registrations they had to do so with such exacting detail or risk cancellation of the entire registration, even when there is classes of goods where they are legitimately using the trademark. that is a consequence we don't want to see. and that's just not the intended outcome. we don't want to make applying for trademarks so onnerous and so complex that it -- that in turn it causes the trademarks to go unprotected.

we need a balanced approach that promotes brand protection while at the same time protecting against overbroad and invalid registrations. there has to be a bright line division between intentiol fraud and innocent mistakes. while there are surely some ways we can improve the fraud standard, perhaps even by lowering the penalty if we lower the standard, perhaps the better more effective solution is look at how we address this problem of deadwood as a whole. those are marks whether due to fraud, innocent mistakes or due to something in between exist on the register covering more goods and services than they shall be covering. the pt. oh has been working on this. as you noted, they have implemented various solutions. and they have been very effective. my clients are now paying more attention to the trademark filings. but still a ways to go. we still have a cluttered

register and some potential approaches include requiring applicants and -- requiring applicants and registrants to submit specimen of uses for all goods and services. requiring applicants and registrants to be represented by u.s. counsel, implementing a more streamlined procedure as an alternative to the cancellation and the lengthy opposition procedures, and these are not mutually exclusive. there are pros and cons of each. but a clear trademark register is critically important and i look forward to answering your questions. thank you. >> thank you. mr. williams. >> chairman tillis, ranking member corns members of the subcommittee good afternoon and thank you for the tune to be here today. my name is thomas williams. i currently serve as a lecturing fellow and supervising toerp in the start-up ventures legal cling at duke law school and today i'm here to advocate for

the tools and systems that place small businesses on equal footing with with respect to accesseding a trademark protections. i would like to provide a special thanks to the committee staff who made this possible .issue is porp one for small business owners some of whom along with my -- with clinic director brian mcgahn i have the opportunity to serve with our students. small businesses is the back bone of the united states economy. according to the 2018 small business profile, 99.9% of the businesses in this country are in fact small businesses. every major company in the world was at some point a small business that grew and flourished pch because of that small businesses are important. creating economic possibility for the communities they serve and responsible for almost 60 million jobs in this country. because of that reducing costs related to trademark protection can help to boost that number. but also to create more flexibility and economic promise for small businesses in their communities. i'm here primarily to relate to you in a meaningful way the

stories of the clients we serve. their stories are critical to good policy creation with wrekts to trademarks and how we police and enforce them. through their stories i think we can begin to see trends ask empirical questions and create models of policy serving the needs of the american back bone of economy. our clinic advises a broad range of clients. it might include non-profits. health care remoted starrups and a retail venture or two. often our students are the ones directing the clients to the importance of protecting their intellectual property interests. that attention is focused on preting the interests in their name. or word mark through federal trademark protection. doing this requires our students to become proficient in intellectual property basics use usual using usual avenue as skill sets they consult our intellectual property specialtyist brand y which willrd and using tmtko analytics to come to conclusion whether

the js frame, phrase or logo of a client is infringing. use of the tools provides with us particular knowledge. namely if there is a trademark they might be infringing or if it's free. even if he with know it may be held by someone else it's not clear whether it's fraudulent or abandoned. based on the discussions and information available to us we have to work with the clients to kret strategies to move forward. and some cases we advise clients they will need to create another name and to do so quickly. for some clients that are nascent this isn't hugely problematic. but for other clients the task is more ownerous. and the pgs decision making more complicated. many so misses are doing business in the real world already and they have to answer some critical business related questions that legal counsel alone can't create clear answers to. one option for the the uncle is to knowingly infrederic with the hope the trademark holder will not seek them out or discover usage. and even if discovered for some

clients the costs of rebrandening might be so as to make the risk of infringement and associated costs reasonable. it's hard to know. the costs of indecision, rebranding or loss of business that may occur with respect to rebranding for a small list business are unclear. what's clear however is there is a cost in the current structure. trademark had yous could be the proverbial straw that breaks the camel's back for the business. just a few thousand dollars for the companies can make a huge decision. for some clients the decision to apply for trademark protection comes down to a short term analysis. providing means of challenging existing or steal trarm would move a critical aid to small and emerging companies. small business already face incredible hurdles financing business strategy the list goes on and on. providing simplified means of challenging fraudulent or interest steal trade works would eliminate enormous uncertainty for small businesses. it seems reasonable that when someone else has a great idea

and the timing is right they should be able to seek the refuge of trademark protection for their word, mark product or logo. and the right should supercede the interests of spread certifiesers no longer actively using the marks. no matter how long they gained the rights. some stom could create a less burden some playingful for small businesses. one component could be anonymity when challenging the trarm to ensure the small business owner can take on a trade marj troll or a larger more well established company without fear ofright retribution. the current system makes the challenging party known setting them up as a marks for the hold are in the line of fire for trademark litigation the expense of which most small businesses can't bear. process in closing there is no question the trarm system is important. providing important protections and incentives for innovation and helps to fuel a culture of entrepreneurship important to us all. that being said, we should be striving to create a system with a firm foundation and focus on

fairness. part of creating a fair reasonableplace system means about thinking about the role kmul small businesses play in the economy and making room for small businesses to gain access to the protections helping to create value around the work they do. thank you for the tune to speak and i look forward to questions and assisting with the committee in any way i can. >> thank you, mr. williams. mr. lee. >> good afternoon chairman tillis ranking member corns and members of the committee. thank you for holding a hearing on emerging threats to the u.s. trademark system and the impact to u.s. businesses. my name is stephen leeann i'm chief zlgtle property counsel for target. target is one of america's largest retailers. with more than 360,000 team members supporting almost 1,900 stores across all 50 states. as a company we're in the midst of a multi-year transformation strategy strategy we reinvested in remodding stories increasing wages and reinventing the portfolio of target designed own

brands. since 2017 target has introduced more than 3 dozen new brands from food to apparel to home goods. this work makes target the leading trademark fieler in the united states and one of the top five globally. the development of intellectual property and a strong means to protect our designs are key to our success. yet we are concerned about fraudulent trademark applications flooding the u.s. register. i'm here today to share the impact on our business and offer perspective how the united states patent and trademark office can improve enforcement and police willing efforts to stop the bad actors and protection innovation of american companies when the u.s. pto approves a fraudulent application it can effectively block our legitimate efforts to tramg our own products. target has been moving with exceptional speed to bring a number of new owned brand lines to market. for each new brand we have thousands of concepts and names before choosing the right one.

the process to create develop and adopt a new owned brand is time intensive and the related costs are significant. we became aware of the fraudulent filing problem in the process of selecting a new trademark for an upcoming product launch we landed on a preferred name but blocked by a prior application. we were unable to determine use in commerce in the united states or even locate the company. we in little recourse and moved on to another mark costing us millions of dollars in time and expense. after in finding we audited recent trademark searches we conducted for other brand launchings in nearly all cases at least one fraudulent filing would have blocked our application. a comprehensive review of the u.s. pto filings uncovered harmings of fraudulent filers. first use of the same photograph submitted for different trademarks. second, photo shop images

noticeable on sight. third stock photography submitted as original proof of use of the trademark and finally, images of other company trademarks still clearly visible. the vast majority were successfully registered by the u.s. p. to we reached the conclusion we stumbled on a systemic problem. the u.s. pto has taken steps to address the problem including the specimen pilot mailbox, a post registration audit program and the u.s. local counsel requirement. while all of these are well intentioned and provide some limited deterrent they have largely ineffective. suspicious actors are successfully registers trademark and doing so at an alarming rate. we believe the u.s. pto must do more. we ask the kbt to consider the following concepts to strengthen examination practices using people, process and technology to mitigate the successful registration of the fraudulent trademarks. first, modernize the u.s. pto

tool can kit for reviewing fraudulent applications preponderate u.s. pto should create a specialized review team more effectively assessing applications from bad actors dwichlg edevelop stringent review the specimen and apply for rigger and consistency during examination while working within existing resource constraints. second, give the u.s. pto theplex ability to society response time lines. today the u.s. pto muffett allow application politics to six months to respond to inquiry shortening the time to respond should be issues to resolution sooner. third, allow a third party to ob ant offer evidence regarding pending applications. today a third party has no effective and timely path to present evidence of bad faith or challenge a pending application for that matter issued registration. these remedies need to be improved or new solutions developed to allow third parties to raise challenges against applications and

to help declutter the register. thank you, again, for providing me an opportunity to testify today. we want to continue working with you as you develop policy approaches to address the integrity of the united states trademark register. >> thank you, mr. lee. senator coons, i let the panel know that you were absent for a noble cause. >> thank you. >> when you got here, if you wanted to make any opening comments before we go to question. >> thank you, chairman tillis. as i understand, you shared a treasured colleague of ours just gave his farewell speech and i was the first democrat to speak. some would say i may have spoken too long, but we've had a long and significant friendship and collaboration. i appreciate your foreberance. trademarks and brands as you testified drive economic growth, enrich our lives and protect the public from dangerous counterfeit products by giving us the confidence in things we're buying.

as the co-chair with senator grassley of the congressional trademark caucus, i'm glad chairman tillis has convened this hearing to address the issue of fraudulent trademark filings and i appreciate your testimony and apologize for missing the first three witnesses' testimony which i will review in writing following today's hearing. as i'm certain you said, the uspto's register includes something north of 2.5 million trademark registrations and suffers from the clutter of marks not actually in use and in many cases fraudulent and we have seen a recent surge in frivolous filings from china. the commissioner recently testified, i think, in the house, that between 2014 and 2018, uspto experienced a greater than 1,000% increase in chinese filings, many of which appeared spurious or suspicious, so the result is a register cluttered with unused marks, a pipeline of questionable applications and the frustration of legitimate branding efforts.

so, i applaud the pto of taking steps. as we just heard, they may be insufficient. i look forward to questioning you on that. i look forward to hearing in more detail your responses to what you think are the most important steps we should take in partnership with the house i.p. subcommittee and more than anything, i look forward to hearing your answers, so i will stop my introductory remarks and express my appreciation to the chairman for indulging me. >> chairman grassley, i always look for opportunities to have you go first. would you like to -- >> if i could. >> yes, sir. >> thank you very much. appreciate it. i also appreciate my work with senator coons on trademark committee as well. i'm going to start with professor bibi because i got some interest on what's going on in china. in your opinion, what is the driving the chinese to engage in such widespread fraud with respect to trademark filings?

>> thwart grasenator grassley, . what is driving the chinese to do so is partially local concerns where certain municipal governments want to report to the center that they are engaging in all sorts of economic conduct. of these mu s municipal governments look good in the eyes of the central government. i do think that there is a degree of -- how to put it politely -- there is a degree of not minding that the american trademark register is being adversely affected by this. chairman tillis had mentioned something about economic warfare and i agree with the chairman that this is regrettably an aspect of it. >> can i ask you, also, is the u.s. patent and trademark office doing enough to address the

problem? and if they aren't, what else you think that they should be doing? >> thank you, senator grassley. the -- as has been said, the pto is doing well. it is a good agency. it's an agency that works. it is taking proactive measures to try to address this problem. however, i think we all agree that it needs to do more. and some of the things that, with my co-author, professor, we propose are specialization of trademark examiners, perhaps by particular class of goods or services. so that examiners would become familiar with the kind of fraudulent specimens that they're seeing especially in certain classes of goods or services. we also strongly support the proposals for expungement and ex parte re-examination and other proposals we think are important are asking the pto, requiring the pto, to report annually

fraud on the principal register. >> i'll ask you again then i'll ask any of the panelists that want to comment the same way, so it your sense the number of fraudulent trademark applications is a growing problem or has it leveled off for a while? do you see the number continuing to grow or level off? and go ahead and then anybody else that wants to comment on that can. >> thank you. the pto imposed an important reform effective august 3rd of this year which requires foreign applicants to use local u.s. counsel to file their applications. this is a way, then, that the pto can try to enforce against fraud because it can impose penalties on local counsel. the result, as news reports indicate, has been that there has been a decline in the number of fraudulent applications coming from china but they haven't stopped. they're still occurring and so

it seems clear that we need to do more in order to try to address this problem and stop it entirely. >> i won't call on specific people, so anybody else that wants to comment on that or can comment on it, jump in. >> i will say for small businesses, particularly our clients, it's also very difficult to figure out what is fraudulent and come up with the necessary resources to do the same kind of in-depth investigation that mr. lee spoke of. it's just a really high -- high burden. >> mr. -- did you want to comment? >> i'd add, the local counsel rule, the temporary decrease that we're seeing in these foreign fraudulent trademark applications, i think it is too early to tell. the rule went into place. there was a massive spike right

before the rule was adopted. i think the bad actors are just add ju adjusting their strategies. in fact, we heard from the uspto and outside counsel, they're trying to circumvent the rule. there's an email floating around from a foreign applicant asking to use attorneys' credentials to file trademark applications. uspto communicated to us that legitimate attorney credentials are used without their permission. finally, we're seeing either unscrupulous or unknowing u.s. attorneys to continue to file these fraudulent trademark applications on behalf of their clients, so we think the problem is going to continue and even if it were to stop the problem, it doesn't deal with the actual clutter already on the register. the tens of thousands of marks, the 1,200% increase we've seen over the last couple years. >> i may submit some questions for answer in writing. thank you for your courtesy. >> mr. chairman --

>> thank you. let me make sure, i may have missed this previously, forgive me if i did. for your clients and just for the average person who may be watching this, what's the cost to file versus the cost to successfully challenge all the way through? so if you got a small business, a startup or very well-established large business and you've got a product that you've come up with a great trademark, you're ready to file the mark, you're ready to go to market and your search reveals a trademark that you think may be fraudulent but you're not sure, what is that balance of the cost and time currently involved in filing and what is the cost and time involved in successful post-grant challenge? anybody? please. jump on. >> i can take the easy one. the cost to file is $275. and you've got to do a little bit of legwork on the front end, right? looking through tests. doing the things that our students are learning to do. the cost of challenge is quite high and quite varied. >> in the hundreds of thousands

of dollars in many cases. >> i will leave that to my co-witnesses to answer, but for our clients, at least, it's so varied and unclear, but certainly high that it makes it difficult to even step into the ring. >> okay. ms. paningan, did you have a rough number in terms of time and cost for me? >> i don't have a rough number, but it can, in fact, cost in the hundreds of thousands of dollars especially if qyou go into the complicated discovery. have to conduct detailed depositions, it takes a long time. it can take up to two years. and cost a lot of money. >> if i might, professor beebe, how do you think that impacts decisions companies are making and, mr. lee, how this impacts the decisions target's making? >> thank you. we actually cite in our written testimony some resize numbers. international trademark

association has estimated the cost of opposition could be $150 to $500,000. american intellectual property law association has put the average number at $95,000. this is a lot of money. for small businesses, i think it's fair to say it's too much money. mr. williams testified to the degree many of these small businesses are making decisions based on very limited resources and they're just not able to engage in teahese kinds of oppositions or cancelation processes of pto. >> then, mr. lee, what kind of impact does that have ? i think target is literally the nation's largest trademark filer, if i'm not mistaken. >> for the last couple years, yes. >> what impact does it have on your decision-making? $100,000 ain't nothing, but i'm very concerned about how it impacts your brand launch, your product launch, your product extension decisions. >> thank you for the question, senator. yes. while the financial impact is significant, it's not so much as the cost of filing these oppositions or cancelations. when i say an own brand, that's

a private label at target. the past three years, we launched 30 of those brands. an own i work with close to 50 team members at target cross funct n functionally over the process of a year coming up from ideas to the actual product, the name, the packaging, the marketing that's going to go into a product launch. this includes merchandising teams, marketing, creative product design and development, research scientists. a whole gamut of people. something new and different when they expect to come to target for our own brand products. the time lost, the opportunity, to pivot to another brand, a preferred name, well-researched name and move to a secondary name costs us time in terms of time and expense in the millions of dollars. but i'd also say the opposition and the cancelation proceeding for a company like target, we're well versed in that and willing to spend the money, it's the

time, the wasted time in order to get to that resolution. opposition, cancelation, could take anywhere from six to eight months to multiye years to get resolved. we can't wait. limits our choice and undermines the integrity of the u.s. trademark system. >> let me ask three quick questions if i could about potential legislation or solutions. one option, to codify a rebuttable -- where you're seeking injunctive relief. ms. bannigan, how would that presumption change or improve the system? >> well, that presumption, senator, would help when somebody's filing an infringement action or delusiil action -- >> right. >> -- in court to stop the use of a mark. one of the difficulties is we heard time is money, time is the big problem to stop these launches. opposition and cancelation is essentially a mini litigation, so the fraudulent filer, if they

don't de faufault, they diefaul maybe the case goes away for a -- >> it grinds ahead. >> then it grinds for years and several hundred thousand dollars so that's part of the problem, so the irreparable harm presumption would help for district court litigation and getting stopping uses but not necessarily this fraud problem before the pto. >> right. proposal to give the pto director the authority to re-examenire re-examine registered trademarks and have ux puexpungement proces to eliminate registrations for marks that the have menever bee used or seem visibly fraudulent are widely embraced potential proposals. i'd be interested, this is my last question, on anyboone's response on the panel to whether those would be sufficient. >> we believe those are a good

start. target is in support of much of the legislation, proposed legislation that's coming out of the house. both getting it at the application phase with ex parte re-examination and expungement. we would say one thing on the expungement language we've seen so far, there is a clause within the draft language that gives us serious pause. we believe it created an actual loophole that these fraudulent filers could actually expose. it allows the extension of time for which to prove actual use in commerce from the time of registration all the way up to the time of the filing of the expungement. that extends the rights of any fraudulent filers. they could legitimately warehouse trademark registrations and start using it post-registration when we know these applications by law require use to be commenced at the time of filing. that undercuts the trademark system and we're eager to work with members of congress to understand why that language is in there and to come up with better language. >> interesting. thank you, mr. lee. any other comments from other members of the panel before i

yield? >> i agree that expungement is a great start and that is would be very helpful. a low-cost, low-burden alternative, you know, would allow many more people to challenge these marksing but you're still relying on third parties to challenge the marks so there still has to be some kind of reasonable basis for th think it's a fraudulent mark so it doesn't completely solve the problem. >> thank you, all. thank you, mr. chairman. >> actually, senator blumenthal, i just want to -- i'm not missing you. i actually let somebody go before me and deferred to senator coons, so i'm going -- before i start, i'd like to end interthe record the registered trademark for charlotte pipe and foundry company along with the press release outlining the ways that china i think unfairly competed. without objection. that, and the article will be submitted for the record. i wanted to make sure senator coons and senator blumenthal here now, professor beebe, if you went back and would go

through the research, the statistical study, two-thirds found fraudulent and would you run through that for the purposes of my colleagues? >> yes. thank you. with professor farmer, i did research on the chinese applications in class 25 of the classification scheme. that is trademark applications in the apparel sector. and we looked at the year 2017. applications from china. we then took a random sample of those applications and then each of us personally studied each application and coded each application according to various indicia of fraud. through the course of this process, we came to see that at least one-quarter of the applications we were looking at contained doctored photographs, clearly doctored photographs and this is consistent with press reports about the degree to which these applications contain

photo-shopped specimens of use. we also came to see as mr. lee had testified that some applicants would just place brand-name cards on top of a t-shirt, take a photograph, and then submit this to pto as a specimen of yesterday. we sometimes had the impression that people might have been taking things from their closets, from their kitchens, depending on the particular classes we were seeing outside of class 25 nesin order to enga in this application process of pto. so the ultimate result of our analysis was our estimation that t two-thirds of the applications filed in 2017 solely in class 25 apparel were fraudulent in nature. nevertheless, as i said in my opening testimony, 60% of these were approved for publication by pto in the official gazettes and ult pat ultimately 39% -- we

suspect we would find similar numbers in certain other classes of goods and services. >> to what extent do you think some of the changes the uspto have made would impact that number if we were to do it, it was implemented the first part of august, if we were to go back and look again? do you have any idea to what extent it would possibly impact that? >> i think it would probably cut the number by half, though i'm really sort of estimating. so now we only have one-third of the applications. as has been explained, the fraudulent appliers are now seeking other ways to circumvent what pto has done. using u.s. local counsel. i'm not sure it's that effective at the moment. >> ms. bannigan, you were talking during your comments, anyone on the panel, decluttering, you said you need

to make sure you don't have unintended consequences. how do you strike the balance as a matter of law in any action we would take? >> it's hard to strike the balance between protecting the trademarks and clearing the register. i think that some of the suggestions the pto has put out start to get at the issue and we need to look at how to address the issue of dead wood as a whole. not just going after fraud. not just going after innocent mistakes. but really just looking for the best solutions to get this register clear and get these marks available for our businesses. the most comprehensive solution may be to require applicants and registrants to submit proof of use for all goods, but that's really burdensome both on the filer and on the pto who has to review it.

it is the most comprehensive. you know -- >> if you'd help me out with that, with all goods, so all goods that are under the trademark. >> so when you register the trademark, you register in classes of goods which can be very broad. so, for instance, class 25 is clothing. you register in class 25, but then you also specifically name the goods that you intend to use the mark on. so you can in one application register for sweaters, pants, coats. in order to get the registration, you have to show proof of use on one of those goods. so if you send the picture in showing your mark on a t-shirt, you can get it in all three categories. what i'm suggesting here is you could require the applicants show use on all three categories, but, again, it creates more work. >> i -- just generally for those of you who have been able to

study some of the proposals in the house, if you could just maybe down the line any of you who have, mr. lee, you already stated, one concerning clause, i guess we need to look at. for the rest of you, any of you who had the opportunity to look at any proposals, i'd be interested in things you think are good ideas or potentially problematic and then i'll defer to senator blumenthal. >> i looked at the legislation for irreparable harm, senator, and i think it's very good. because it not only provides for the presumption of irreparable harm, it also makes the presumption rebuttable. they can at least come forward with something to counter whether there is, in fact, irreparable harm, something like delay and bringing suit. it strikes a nice balance and achieves everybody's objectives particularly trademark owners and consumers in being protected from continuing infringement. >> thank you. anyone else? >> i'll just say that i reviewed the irreparable harm proposed

legislation and completely agree and it's such an important concept and will be so helpful if we can pass that legislation. >> professor beebe? >> i'll say quickly we think the proposed legislation is very good but we share with mr. lee the same concern about the particular phrase in the expungement section. >> mr. william the, how's duke going to do this year in basketball? >> i would rather lose early than lose late. >> i'm sorry for your loss. senator blumenthal? >> thanks, mr. chairman, thank you to both you and the ranking member for being so active on this subcommittee. i've been really impressed by the energy and comprehensiveness fof your approach to this subjet area. as all of us know here and around the nation, millions of americans purchased a lot of goods online yesterday, which

was, of course, cyber monday, but also every day of the year, particularly as we go into the holiday season, and they relied on amazon and other platforms to actively police their marketplaces for fraudulent sellers and as we all know, too often mistrust is misplaced. sellers often exploit unknowing consumers through low-quality goods and counterfeit goods. many times these sellers immaite well-known companies by inlawfully using their trademark logos creating the false impression that the retailer is the genuine brand-name product. there are significant costs to consumers who receive defective, even dangerous products, and on businesses, businesses in connecticut and all around the country that suffer loss sales and damaged reputation. so trademarks are really important to online markets and

that meets my question to you. i'm concerned that tech companies like amazon are taking insufficient steps to police their sites against trademark, fra fraud and counterfeit goods, police their platforms which are so important to the nation. amazon announced a new effort called project zero to combat counterfeit goods so my question is twofold, are these platforms doing enough including amazon? and have you noticed any noticeable effect of project zero? and i'll open the floor to whoever on the panel wishes to answer, all our one or more of you. and i can't believe that no one has an answer. >> well, i'll say we con frofro

this, senator, in our practice every day with products being sold on these retail websites. the difficulty, of course, is a lot of times the retailer is being scammed by those who are selling goods on the side and there's so many goods being sold. part oof the problem is there's inconsistent results. different platforms, different brand policies, they work with brand owners in taking things down but it's not always enough so sometimes the retailer will end up getting sued when their own policy doesn't -- doesn't take down the infringing good or the counterfeit good. it's a difficult issue because a lot of times the retailer doesn't want to be the arbiter of whether something is or isn't an infringement. >> you mean the platform doesn't want to be the arbiter. >> correct. >> amazon doesn't want to say which is legitimate, which is counterfeit, but they could if they expended more resources to do it. couldn't they? >> certainly. certain

certainly, some cases there are obvious cases. and some of the platforms like amazon are very good about taking down obvious counterfeit products but it's a game of whack-a-mole, it's very difficult given the number of things sold online nowadays. it's an ongoing process and struggle. when the brand owner doesn't get relief from the platform, sometimes they end up having no choice but to sue the platform in district court. >> and in your experience, are those lawsuits and that litigation an effective deterrent or something more needed? >> i think more is always needed in these types of situations. i do think lawsuits are an effective deterrent. the problem is we are now as we open up commerce to the electronic marketplaces, there's just a flood of different sellers so it's hard for the brand openwner and admittedly h for the online platforms to keep up, figure out what's genuine and what's not genuine. a lot of times these products are being resold through third parties and may actually be legitimate.

that depends upon whether that permissible. but there's always room for improvement. and i do think there is a need for cracking down on counterf t counterfeiting and unauthorized sales on different platforms. not target, of course. >> thank you. i have another question which maybe more of you will want to answer. maybe not. as you all know, less than two months after donald trump's inaugurati inauguration, the chinese government registered 38 trademarks for the president of the united states and his businesses. all but three were in the president's own name. pretty unprecedented, i think. correct me if i'm wrong. these registrations ended a multiyear legal battle between trump and the chinese government. coincidentally, right after he took office.

beijing has continued to approve trademarks for trump-roelted busine businesses throughout his presidency and his daughter, ivanka, numerous of them. i am deeply concerned that the chinese government is using, or at least was using its trademark system to improperly influence united states policy and, by the way, it is implicated in the constitutional prohibition against emoluments. it is the subject of a lawsuit that i have brought, trump versus -- blumenthal versus trump. 200 members of united states congress joining me in that effort. trademarks are far from the central point of the lawsuit, but they are implicated. and at the very least, these trademark registrations create the appearance at china is interfering with its own intellectual property system to

support the president of the united states and his busine businesses. so, let me ask you, do such trademarks create harms, potentially, for competitors who may be seeking trademarks also from the chinese government? would you agree that a politically-connected company when it's treated differently with respect to trademark law can create the appearance and the reality of unfair competition? we can't order you to answer, but, yes, sir. >> senator blumenthal, it's a delicate question, but i think based on my knowledge of chinese registration practices, it is obviously highly irregular. what they did with the trademark

registration as you mentioned. i think it was obviously an effort to ingratiate themselves to president trump, but one would, i'm certain that the pto would never do anything of that nature and so it is -- it is discouraging to those who wish to engage in fair competition in china to see this conduct, but it also reminds us of how professional our own patent and trademark office is by comparison. >> i think that's a really good point and a very well-stated way to put it. thank you. >> senator blumenthal, you won the stump the panelist match today. >> well, this is a very able and ae aerodite panel. >> it is. >> i don't know whether that's a compliment -- thank you. >> i want to go back, senator coons, would you like to ask anything? >> my last question would be, is there any proposal that you think is not currently being considered in draft legislation

that you think would be relevant and timely, would help the pto clear either the clutter of the existing registry or would help them better determine when filings are fraudulent, whether from china or elsewhere? >> i believe professor beebe and i both commented on a specialized review team. there are a number of telltale signs, hallmarks of these fraudulent filers that we're seeing. there's a laundry list. five to ten different attributes that you could find in these applications. they all seem to be filed for use in commerce, not based on intent to use. they're single-class applications. there are 40 different classes. 40-plus different classes. they're all filed single class. hay u they use photo-shop images, stock photography. they use duplicative images that can be easily found with technology. they use simple index card kind of tags attached to the item. as professor beebe mentioned, sitting on top of a cardboard

box on someone's desk, even on the floor. finally, we've seen even some tags that are in foreign currency, not even in u.s. dollars. all these telltale signs can be identified and we take it a step further that, yes, the examiners are taking them on a one-off case, case by case, and hit or miss, but instead, if there was a specialized review team that can pull their common knowledge over time, develop consistency, more rigor in their examination and share that knowledge across different groups. it's done on the patent side. you have patent examiners dedicated to a particular class and have it on the trademark side. at its own accord, uspto with no extra funding, no legislative requirement, under the new farm bill adopted a specialized review team for cannabis-related product applications so it can be done and we're asking it would be done in this case as well. >> professor beebe, let's just

say we eliminated the future flow of fraudulent trademark applications from china, to what extent will we have solved the problem? >> to a very large extent, i think based on our understanding of the data. there are still applications from other countries and domestic applicants who are engaging in some degree of fraud on pto in order to accomplish an early priority date for their application. i think the main source of this problem -- >> the root cause of the clutter problem right now appears to be sourced o ut of china. >> i believe so, yes. >> do you know of -- has there been any research done about how they actually -- how they're actually going about doing this? is this just a cottage industry that bubbled up organically or something where clearly entities within china are promoting, prompting, and compensating for this sort of activity?

>> we only are going on media reports which we cite in our written testimony, "wall street journal" article and a few other articles. that's fairly thin information we have at the moment and it may be worth something investigating further either by media or by government teams. it does appear to be an organized effort. cottage industry is probably too polite a term. i think it's more organized than that. i think sabotage is too strong a term probably, but still this does seem to be an organized effort with many motives behind it. >> and mr. williams, again, just i worry -- the thing that i worry most about up here are the small -- if you take a look at target has to budget for the litigation and all the work they're going to have to do and have the scale to deal with it. not that i'm diminishing the significance to you all and your ability to bring products to market, but, i mean, this is -- if we don't fix this, this is just going to devastate any sort

of innovation in the small businesses, the next target, the next -- the next big enterprise that starts small. would you agree with that? >> i'm not sure that we'll completely prevent them from coming to market but surely slow them down and slow them down in the ways mr. lee has spoken about once they begin to grow so i think it's really valuable to be considering these kind of ex parte actions, the idea of being able to file claims anonymously. to prevent kind of retaliation from folks. and so hopefully those entrepreneurs stick with it and keep moving and move forward, but with certain financial circumstances in place, it really might take out some companies that have great promise. >> and a question from senator blumenthal about -- i forget who it was, but the platform, so if you think about the e-commerce providers, they may or may not

know about the legitimacy of a trademark on a retail platform for which they're selling a product, but at target, not everything you sell is your brand. they're products that have their own trademarks associated with it. before you put something on the shelf of target or before you make it available online, what sort of due diligence do you all do, just as a large corporation, to make sure what you're selling is actually something that's protected by legitimate trademark? >> in particular for our recently launched marketplace, we are not going full-in with the marketplace and launching into where any third party can just start selling. it's a curated assortment. so to date, there haven't been any allegations of any counterfeiting going on, in fact, counterfeiting for target would be a lesser issue because of the price point of most of the items we sell. it's typically more expensive, higher price point items. instead, the issue we're confronted with, which this

hearing is about, is actually the reverse of that. it's not an infringement or counterfeiting of our brands or our own brands or other third-party brands. it's actually the reverse you have such a cluttered register that legitimate filers like target, like small businesses can't get their marks registered because there's a minefield of fraudulent trademarks that are blocking them. blocking their business from coming to market whether that be on a large scale, this is not not a size issue, the size of the company, fraudulent trademarks impact them and solutions they are proposing is regardless of size. it's not just to make target's business work better, it's to make it more fair, efficient and rigoro rigorous. >> not being a skilled attorney like my colleagues to my left over here, fairly new to politics, i may be asking, i know i'm asking either a dumb question or one i don't know the answer to, but i'm thinking more about a product that has -- that's operating under a fraudulent trademark and, yet,

they're still selling it. what obligation does that retailer who benefits from the transaction of being a part of that sales transaction, what obligation do they have now as a matter of law to do the homework to make sure they're not actually promoting a product with a fraudulently obtained trademark and benefiting from it? >> target's policy is first by contract for every vendor, supplier, agrees that the products they sell us are not only good for what they're supposed to be sold for but don't infringe the intellectual property rights of others, but to say we go and vet the hundreds of thousands every 8,000, 9,000 skews of products that we sell in our stores, we don't do that. >> okay. >> but once we do get a claim, we take it very seriously. we work with the vendor to verify that and if necessary if

it's found to be infringing, they'll take it down and deal with the issue. >> okay. thank you. senator blumenthal, you have any other tough questions? no? i want to thank the panel, as i said in my opening statement, i hope this is a continued dialogue. you've given us something to think about that goes beyond the language that's being vetted in the house. i hope that we're moving forward with a mark here shortly and in the interest of working with our colleagues in the house, it will be something that ultimately produces a bicameral, bipartisan, positive outcome. your testimony has been very enlightening. i'm particularly interested in getting -- digging deeper into the research, professor beebe, that you've done, or beebe, that you've done. and you're watching what we're doing here and not waiting for us to call you for feedback is welcome. i think senator coons agrees and

the houstaff on the house side. we're interested in your feedback and comments and new things that come up. we will hold the record open for a week. for the week. for any information that any of the members would like to submit. and, again, thank you, all, for being here and indulging us in the calendar change. committee's adjourned.

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