Trademark Cancellation by the US Government Highlights a Business Risk for Companies with Trademarks

Redskins CEO Dan Snyder
(Image Credit: Wikimedia / CC 2.0)

The June 18 decision by the United States Patent and Trademark Office’s Trademark and Trial Appeal Board (USPTO) to cancel the registrations of six trademarks owned by the Washington Redskins football team has thrown the sports world into controversy, but for tech companies and other companies that invest heavily in intellectual capital, the news is also a reminder of the business risks associated with trademark registrations.

For many companies, intellectual property such as trademarks are a huge component of valuation. For the companies in the S&P 500, for example, about 80% of their market value came from intangible assets in 2010, according to Ocean Tomo. Of a Forbes list of the 10 most valuable trademarks, four belong to tech companies (Google, Microsoft, IBM, Apple) and two belong to telecommunications companies (AT&T and Vodaphone). Google’s trademark value alone is $44.3 billion—a whopping 27% of its market cap, according to the list.

But as the Washington decision shows, the USPTO can cancel trademark registrations at any time. That gives it tremendous influence over the value of a company’s intellectual property. Granted, intangible assets also include things like patents and copyrights, which have their own protection rules. But companies often find out about the USPTO’s influence over trademark value the hard way when they come up against the section of the U.S. Trademark Act (Section 2(a), 15 U.S.C. §1052(a)) that allows the government to revoke trademark registrations.

The wording is specific, but the rough translation is this: the USPTO can cancel your trademark registration if it decides that the trademark:

  • involves “immoral, deceptive, or scandalous matter”
  • disparages a person, institution, belief, or national symbol or makes a false connection between a trademark and those things
  • lies about the origin of beer, liquor, or wine
  • uses any insignia of the United States or of any state, city, or other country
  • uses someone’s image without consent
  • infringes on someone else’s trademark
  • is deceptive

Of course, losing a trademark registration doesn’t mean losing the right to own or use a trademark. And companies still have the option of challenging the cancellation in federal court (which is what Washington is doing). But when the USPTO cancels a company’s trademark registration, it does lose permission to put the ® symbol after the trademark, and the trademark falls off the U.S. Customs and Border Patrol Service’s registry, which it uses to block the import of infringing or counterfeit goods. The underlying value of the company in turn takes a hit.

Therein lies the financial risk—one that only gets bigger if a company is heavily reliant on trademarks. In the Washington case, it only took five complainants to win revocation of trademark registrations that had been around since the 1930s, and they filed their petition eight years ago.

Can your trademarks withstand section 2 of the Trademark Act? Can your company withstand the threat of cheap, imported knockoffs without that protection? And do you have the time and the money to defend yourself against those threats, both in and out of court? If not, your name could be on the line.