In environments where budgets are finite, creating a resilient, quantifiable methodology for making strategic filing decisions is key
While companies with deep pockets can afford to file numerous marks without having to choose between occupying the market or testing the strength of the contemplated sign, for those with a more modest budget, the cost of creating, maintaining and defending a trademark portfolio can quickly add up, leading to a poor return on investment (ROI), if not planned and managed carefully. There is thus a pressing need for such companies to understand the costs associated with different strategies in order to optimise their ROI. Even in large enterprises, management are increasingly keen to know which strategy will provide the best ROI.
Consequently, it can be extremely helpful for companies of all sizes to develop a quantifiable methodology based on their specific needs and requirements when determining whether to file and if so, where and under which route.
This article sets out measurable guidelines to help corporate marketing managers and trademark attorneys more easily manage daily tasks when dealing with trademark strategies, especially when under budget constraints. These guides focus mainly on the primary cost aspects and thus, in practice, may need to be balanced with additional factors that have indirect cost implications.
In order to properly develop a sound trademark strategy, a corporation must first clarify the key objectives of investing in its trademark portfolio, which may change over time and under different business circumstances. The following are a few possible scenarios.
If your company’s objective is brand recognition to promote sales and services, you would target countries where you currently sell either directly or indirectly (eg, through channel partners, resellers or distributors) or plan to sell in the next few years. Alternatively, if your company’s objective is revenue or market share protection and the reduction of counterfeits and knock-off goods, then you should target countries where such infringement is rampant and the local government respects and cooperates with trademark enforcement. Some companies face both issues and thus would likely adopt a strategy that balances these two approaches, developing a mixture of offensive and defensive portfolios depending on the specific country.
How to segment a trademark portfolio to obtain a repeatable result
Trademark budgets must typically cover filing, maintaining and defence expenses. Our strategy can be applied to all of these categories using the following streamlined three step approach:
More specifically, the first step is to classify each of your trademarks into three tiers, defined as follows:
The second step is to segment the countries of interest into three groups. The precise groupings may vary from one trademark to another, although for simplicity, you can assume that they are the same for all your marks:
The next step, the third step, is to formulate a trademark registration strategy based on these three tiers and the three country groups to evaluate the cost impact depending on which trademarks you decide to register and in which countries.
We propose a matrix approach (see Figure 1) that recommends keeping active (ie, registering, renewing and defending) Tier-1, Tier-2 and Tier-3 trademarks in a decreasing number of countries. For simplicity, we assume that the country groups are the same for all three trademark tiers:
Figure 1. Trademark filing/renewal/defence strategy based on trademark tiers and country groups
This strategy is easy to understand, simple to implement and should yield consistent results in trademark decisions. However, even after you have chosen the countries for each trademark, there are still various routes available. These include:
Therefore, besides the three-step process to determine the countries in which to register your trademarks, corporations should also develop quantifiable guidelines to establish which route will be the most cost efficient.
Trademark registration routes to reduce total filing costs
Instead of looking at all aspects of developing and maintaining a trademark portfolio, here we focus on filing costs to illustrate our methodology. Trademarks maintenance and defence strategies can follow a similar approach. In addition, as mentioned above, we use EU trademarks as an exemplary regional system – the same regional approach applies to other regional trademark regimes. For countries covered by the Madrid System, marks can be registered using the international registration route. However, in certain scenarios it may be more cost effective to choose an individual national registration route instead.
In addition, if you do select the international registration route, depending on how many EU member states are strategic, you can reduce your total filing costs by designating individual EU member countries instead of the European Union. The following example illustrates this quantifiable decision process.
EXEMPLARYTM has its base mark application/registration filed in Japan. The rights holder would like to expand the mark to Germany, France, the United States, China and a few other optional EU member states such as Spain and Italy, provided that the budget allows this. If EXEMPLARYTM is a pending or newly registered mark, the owner will need to assess whether it is sensible to file an international registration given that during the first five years of the international registration, this and all extensions will be subject to central attack.
Therefore, if the base mark EXEMPLARYTM in Japan fails or is cancelled during this period for any reason, in whole or in part, the international registration and all extensions will be cancelled to the same extent, unless the rights holder can transform the extensions into national applications. Even if this is possible, these would be subject to national examination and national filing fees in each country.
Many companies will still choose to extend an international registration on a relatively new application or registration, with the knowledge of a potential increased cost if a central attack prevails. In this case, we assume the base mark EXEMPLARYTM in Japan has no apparent issues and is unlikely to be challenged or cancelled.
We then evaluate:
Figure 2 depicts the total cost (including government fee plus an exemplary flat agent fee of $700 for national filings and $1,000 for regional or international filings) for an increasing number of classes. The blue, orange, grey and yellow stacked column represents the case of registering the trademark via a national route individually in Germany, France, the United States and China, respectively (exemplary countries). The white solid line represents registration via the international route through an international registration designating the exemplary countries. The red dashed line represents the case via an international registration designating the European Union, the United States and China.
As soon as there are three or more countries to be covered, the international route via an international registration is seen to be more advantageous in terms of total cost compared to the individual national route (the exact number of countries may vary if your individual agent fees differ significantly from our assumed fee structure). Since we are trying to expand our base mark EXEMPLARYTM from Japan to between four and six additional countries, an international registration is the recommended route. However, if you need only file in one or two countries, you are better off cost-wise to register the trademark individually in those countries.
In addition, when filing EXEMPLARYTM in the exemplary countries using the international route via an international registration, if you designate the European Union as a contracting party, the cost of filing the international registration designating the European Union, the United States and China (represented by the dashed red line) is significantly higher than the cost of an international registration designating each EU member state (ie, Germany and France), as well as the United States and China individually (represented by the solid white line). In fact, if you add a few optional EU member states (eg, Spain and Italy), the total cost of an international registration including Germany, France, the United States, China, Spain and Italy (represented by the dashed green line) is still less than the cost of designating the European Union as a contracting party. Since the incremental cost of designating additional individual EU countries via an international registration is approximately $100 per country, the total international registration cost – even after adding another four or five EU member states (ie, eight to nine total EU member states) when designating individual EU member countries – is still lower than designating the European Union as a contracting party. Therefore, designating as many as eight individual EU member states via an international registration has a cost advantage compared to designating the European Union as a contracting party for your international registration.
Figure 2. International registration route versus national route and regional route
Using a similar approach, we find that it is typically more cost effective to choose the EU trademark route when looking to register a trademark in three or more EU member states. On the other hand, if you need only register in two or fewer EU member states, you are better off cost-wise by registering in the individual EU member states – although you may arrive at a slightly different conclusion if your agent fees differ significantly from our assumption. Each company should use their actual cost numbers to find out the optimum route for their own specific scenario.
We now apply these guidelines to our trademark registration strategy to include recommended filing routes. Again, these principles also apply to trademark maintenance and defence decisions. We first categorise our trademarks into three tiers (Tier-1, 2 and 3 trademarks). We then need to sort the countries into three groups (Group-1, 2 and 3 countries). Meanwhile, we also need to choose the best route (ie, national, regional or international).
Figure 3. Low-cost filing route for Madrid and Non-Madrid System countries
Figure 3 depicts a portfolio with Tier-1, 2 and 3 trademarks listed in the first column on the left-hand side and a few exemplary countries listed across the top row as the Group-1, 2 and 3 countries. We also aggregate countries that belong to the Madrid System but are not members of the European Union into Cluster A. Trademark registrations in Cluster A countries can be made through an international registration designating these countries or via a national route. Separately, EU member states are aggregated into Cluster B. These states have the most flexibility – trademark applications within the EU territory can be filed through the national route (local application in each country of interest), the regional route (one single application (ie, EU trademarks for the 27 EU member countries)) or through the international route via an international registration (based on a base national mark), bearing in mind that as part of an international registration you will be able to designate the European Union as a contracting party or the EU member states of interest individually as contracting parties. Non-Madrid countries are aggregated into Cluster C and the trademark filing route in these countries is limited to national registrations.
In Figure 3, we list two exemplary countries under each Group (eg, Country A1-1 and Country A1-2 under Group-1 in Cluster A; and Country A2-1 and A2-2 under Group-2 in Cluster A). This is simply for illustration purposes and the actual number of countries in each group may vary anywhere from zero to as many as a couple of hundred, depending on the breadth of the company’s trademark portfolio.
In the following section, we examine each trademark tier under each cluster to illustrate how to use Figure 3 to help determine where to file and which filing route to select purely from a cost-saving perspective.
Cluster A – countries under the Madrid System that are non-EU members
Since the guideline is to register Tier-1 trademarks in Group-1 and Group-2 countries, it is almost certain that three or more countries will need to be covered. Therefore, an international registration route would cost less than a national route based on the analysis set out in Figure 2. In addition, more than eight EU member countries will likely need to be covered because Tier-1 trademarks are the most important marks (eg, house marks). Therefore, designating the European Union via an international registration generally means lower costs and that some of the risks involved in filing an EU trademark can be overcome through the conversion mechanism. As a result, we recommend registering via an international registration and designating the European Union as a contracting party for Group-1 and 2 countries. Whether to register in Group-3 countries is optional.
For Tier-2 trademarks, the guideline is to register in Group-1 countries. It is likely that three or more countries will need to be covered in addition to your base mark since Tier-2 trademarks are moderately important. Thus, using the international registration route would result in a lower cost than the national route. However, only a handful of EU member countries likely need to be covered. As a result, we recommend registering via an international registration, which designates non-EU countries and eight or fewer EU member states individually as contracting parties. Registration in Group-2 countries is optional and there is no need to register in Group-3 countries.
Whether to register Tier-3 trademarks in Group-1 countries is also optional. If you do decide to register a trademark, the national route with only one or two countries would be recommended. If you decide to use the international registration route, designating each EU member country as contracting parties individually is likely to be cheaper than designating the European Union as a single contracting party. On the other hand, there is no need to register in Group-2 or 3 countries.
Cluster B – EU member states covered under an EU trademark
Since countries in Cluster B are all EU member states, they are all covered under the single title of EU trademark. Thus, Tier-1 trademarks would automatically be registered in all countries within Cluster B, benefiting from the guidelines for Cluster A, which recommends an international registration and designates the European Union as a single contracting party. As a result, Group-1, 2 and 3 countries are automatically covered.
For Tier-2 trademarks, similar to the guidelines set forth for countries in Cluster A, we recommend registering via an international registration designating non-EU member states and eight or fewer EU member states individually as contracting parties for Group-1 countries. Registration in Group-2 countries is optional and there is no need to register in Group-3 countries. Registration in Group-2 countries is also optional and not necessary for Group-3 countries.
For Tier-3 trademarks, similar to the guidelines set out for countries in Cluster A, registration in Group-1 countries is optional and there is no need to register in Group-2 or 3 countries.
Cluster C – countries that are not members of the Madrid System
According to our general guidelines, Tier-1 trademarks should be registered in Group-1 and 2 countries. Since these countries are not part of the Madrid System and thus cannot be covered by an international registration, the only route is the national route. Whether to file in Group-3 countries is optional.
Tier-2 trademarks should be registered in Group-1 countries using the national route. Whether to register in Group-2 countries is optional and there is no need to register in Group-3 countries.
For Tier-3 trademarks, registration in Group-1 countries is optional. There is no need to register in Group-2 or 3 countries.
To assist those who are interested in developing a process flow or an algorithm customised for their specific situation, the following flowchart describes these steps.
Figure 4. Flowchart for the low-cost filing route for Madrid and non-Madrid System countries
The smart approach
This article proposes a methodology to optimise your trademark strategy with a limited budget. This quantified approach provides a transparent and repeatable process where companies may adjust their filing routes based on their specific needs to optimise costs. The methodology laid out in this article applies not only to trademark applications and registrations, but also during the lifecycle of the registered marks (eg, maintenance, defence and monetisation).
Tao Zhang is associate general counsel of intellectual property and technology, Cecile Guillaumond is senior legal counsel – trademarks and domain names lead, and Janet Lee is vice president, general counsel and secretary at ANSYS. They can be reached at [email protected], [email protected], [email protected].
The authors wish to thank Brian Mentzer and Bill Kulb for gathering the relevant data to support the model development and analysis.