Failure to register a trademark in a market is a risk that could prevent you from entering that market. Thus, trademark protection is one of the first steps you should take before you expand your business into new, international markets. In fact, it is something you should consider in the early stages of your business. Even if you think expansion is a long way off, it would benefit you to at least consider your future expansion plans and direction early on. This article will explain the basics of what a trademark is and why it is important for a startup to consider international trademark protection early in the life of the business.
What is a trademark?
A trademark is a sign or mark that you can use to identify and distinguish your company’s goods or services from another company’s goods or services. By owning your mark, you can prevent others from using its name or logo. A trademark is a type of protected intellectual property and is considered an important intangible business asset. Acquiring a trademark can give your business partners and investors more confidence in your business, which can help you to collaborate with more partners and to raise equity to further develop your business. A trademark not only protects your creations, but can also maximize the value of your creation because you have the ability to license it out to a franchisee or sell it outright.
How do trademarks work around the world?
Intellectual property rights are territorial, giving protection only in the country or countries where they are granted or registered; therefore, registering your trademark in one country only protects your brand in that country. Every country has its own trademark registration system with specific rules and processes. Most countries around the world are ‘first to file’ jurisdictions, meaning the registration, rather than the use, of a trademark is required to own the rights of the trademark. If you do not have any rights, someone else can register your mark and own the rights. The United States is the most notable exception to the ‘first to file’ rule. In jurisdictions that follow the ‘first to use’ rule, like the United States, the use of a mark is enough to confer ownership rights.
What is the biggest risk in choosing not to register a trademark?
Of course resources are a huge handicap to most startups and the benefit of international trademark protection might not be immediately apparent. Many experts would insist however that the risks of not registering a trademark far outweigh the cost of registration. Furthermore, the cost of registration is generally less than many of the other costs of starting a business. Let’s look at a few scenarios that lay out the biggest risk of not registering your mark, the exclusion of your product or service from a particular market.
Trademark protection is often overlooked by companies that do not have a physical presence in a country, but rather have independent sales representatives, distributor relationships, or licensees, which is a common way smaller companies expand into new markets abroad. The ‘first to file’ rule is often very important in this situation.
Representatives and distributors want to be protected and able to sell your products or service, so, they may ask you to register your trademark in their country. If you do not register your mark in that country, your representative or distributor may apply for the mark himself. Your representative or distributor may have only good intentions in registering for your mark, that is, the protection of his ability to sell in that country. If your representative or distributor registers that mark, unless you have a contract with him that states that you own the mark, he now owns that mark. If the relationship goes down hill, you could lose your mark and ability to sell your product or service in that country.
Another example in which you could lose your mark and ability to do business in another country is if your negotiations with a representative, distributor, or partner break down before you have created the relationship and he registers the mark in order to block you from doing so. This example also illustrates the potential need to have a non-compete agreement in place as early as the negotiation stage.
A final example, completely unrelated to your actions, is the outright theft of your idea and mark by taking advantage of the ‘first to file’ system. This is often referred to as trademark squatting. Trademark squatting is when a person or company files for your trademark where you do not hold the trademark. This is generally done by two different types of people or companies. The first is a person or company that files for the trademark simply to hold you hostage to their ownership rights. They generally want to force you to purchase the right from them at an inflated price. This works because without the trademark, you cannot do business in that market. The second is a competitor that wants to block you from the market. A competitor is not likely to sell you the trademark because they don’t want you to be able to do business in that market.
How does a company develop an international trademark strategy?
Having an international trademark strategy will help you effectively save money while also protecting your trademark rights abroad. There is no way a startup or even a SMB can protect its trademark rights throughout the world, particularly in the early life of the business, however an intentional strategy can protect the company where and when it matters most. By registering your mark in key markets first, you are protecting your company now and in the future. You can always register in additional countries at a later time. Below are some tips to help you determine your key markets.
Present and anticipated sales locations:
You should first consider where you currently do business. If you have an online presence and sell worldwide, or even in only a handful of countries, you will need to prioritize your applications. The most apparent way to prioritize countries, for obvious reasons, is by sales volume. You should strongly consider trademark registration in your top markets. How many markets you file in initially will depend entirely on your business needs and resources. Another common method for prioritization is anticipated sales. If you already have plans to expand into another country or have had inquiries from customers in that country, it would be a good idea to add that country to your key markets list.
Manufacturing locations:
You should also consider the location where you manufacture your product(s) as an early key market. It is often important, if not necessary, to register in the country where you manufacture to protect your ability to continue to manufacture there. This is often done as a defensive strategy to keep infringers from filing for your trademark before you do. If another person or company files for your mark before you do, you could be effectively kicked out of that market. In this situation, you could be forced to purchase the mark (if it is for sale) or to find another place to manufacture your product. This is common in China.
China is a manufacturing hub for companies around the world, so trademark registration is important to consider as early as your manufacturing options research. The Chinese intellectual property rights system, including its laws, processes, and enforcement are complex, expensive, and favor Chinese companies and citizens. Furthermore, China has both a counterfeit and trademark squatter problem. If you decide to manufacture in China, you should work with a local expert immediately to determine when to register your trademark in China.
Countries where counterfeiting is common:
This consideration is more specific to consumer product companies, but important for all companies to understand. If people or companies can create a fake version (counterfeit) of your product(s), you should consider trademark protection. Keep in mind however, the risk of people or companies selling fake versions of your product(s) increases as your company grows. In the early stages of your business, your product(s) is not likely to have the type of reputation that encourages people to sell counterfeit products. That is, it doesn’t make sense or money to sell a fake product that no one has ever heard about. It is as your company and reputation grow that you want to more seriously consider registering your trademark in these markets.
Being prevented from entering or pushed out of a market because you did not register your trademark can be catastrophic to your startup. You should have an intentional, well thought out international trademark strategy and consider it an imperative part of setting up your business. You should use the considerations above, and others, to determine what key markets to file for trademark protection in first. Because the trademark process is complex and lengthy, you should engage a local expert to assist you throughout the process.
About Globig:
If you have international offices with employees and business teams focused on foreign markets, Globig is a must for saving valuable time and money, and for managing risk.
