Considerations for international brand expansion – beware of pirates!

The expansion of a U.S.-based brand into new territories is one of the most daunting scenarios for any company and is full of potential pitfalls. A well-considered brand strategy and an experienced trademark attorney knowledgeable about international trademark laws and procedures are essential to navigate international growth while protecting and increasing the good will and value of trademarks.

The primary questions a company must ask when expanding a brand internationally are: where in the world is it selling or offering goods/services now; and (2) which territories might it expand into within the next five years. These answers will dictate which jurisdictions to consider for trademark filings and, of those, which countries should be prioritized.

When it comes to trademark rights, the U.S. is a “first-to-use” country, meaning that the first person/entity to use a trademark with a product or service in U.S. commerce has priority over later users. However, first-to-use countries are the minority. Many jurisdictions throughout the world, including China, the EU (with some exceptions), the United Kingdom, Mexico, Japan, and many others, operate on a “first-to-file” basis, meaning that the first person or company to file a trademark application in that jurisdiction has priority over other future adopters of that (or a confusingly similar) trademark in that country. In first-to-file jurisdictions, the registrant of a trademark can stop others from using that trademark in the country or geographic area (such as the EU) of registration, including the established owner of the trademark in the U.S. Thus, in first-to-file jurisdictions, so-called “trademark pirates” often race to the Trademark Office to file applications for existing, well-known U.S. (or other) brands, and then offer to sell them to the trademark owner for an exorbitant price. This extortionary practice is very common in China and some other jurisdictions.

This crucial difference between first-to-use and first-to-file jurisdictions requires companies to contemplate not only which jurisdictions they intend to expand into, but also in what order to file foreign trademark applications. It is imperative when developing an international brand strategy for a company to consider and prioritize first-to-file jurisdictions to attempt to get ahead of the pirates and avoid having to purchase its own trademark rights in that country, or worse, forfeit use of a trademark in a particular jurisdiction.

Also, when expanding an English language trademark into new territories, it is important to determine whether a trademark consisting of an English word or phrase has an unintended translation in the local language. In one well known foreign trademark expansion blunder, PepsiCo, Inc. began use in China of the popular U.S. slogan “come alive with the Pepsi generation,” which, to PepsiCo’s chagrin, translated to “Pepsi brings your ancestors back from the grave.” This bold, albeit unintentional, marketing claim ultimately had a negative impact on Pepsi’s brand value, which certainly ran counter to the company’s goal. In foreign-language jurisdictions where a mark has an unintended translation, companies may consider adopting a wholly different trademark for use in that jurisdiction.

There may be additional reasons for a brand to adopt a different trademark outside of the U.S., such as local laws, trademark registration availability, local brand loyalty (such as when a U.S. company acquires a foreign brand), and others. For instance, in most of the world consumers know Kentucky Fried Chicken as KFC. However, in Quebec, Canadian law dictates that all business names be in French. Accordingly, in Quebec, Kentucky Fried Chicken adopted the trademark PFK, or Poulet Frit Kentucky. Or when expanding outside of its home country, Unilever, the owner of the Axe trademark for body sprays, discovered that the trademark AXE was already protected in a number of jurisdictions, requiring it to rebrand as LYNX in those areas.

Further, when expanding to countries where English is not the dominant language, companies need to weigh whether it is worthwhile to file trademark applications in both English and in the local dialect. In China, for example, it is highly recommended to file a trademark both in English and to file a transliteration, and, depending on the circumstances, also a translation. Transliteration is the process of transferring each letter from one language’s alphabet into another language’s alphabet to aid in pronunciation. Translation, however, tells the reader the meaning of a word written in another language. Whether to file a translation, transliteration, or both depends on the country, the intended usage in that country, and the country’s trademark registration usage requirements. For instance, if a jurisdiction requires usage of a trademark to obtain registration, filing a trademark in a foreign language that the company has no intention of using could prove to be a waste of time, money, and effort. However, in some first-to-file countries, usage is not necessary to obtain a trademark registration, but lack of use will render the registration vulnerable to third party attack and cancellation if use of the trademark does not occur in that jurisdiction within a set amount of time. In these situations, it is often sound branding strategy to obtain a registration for a translation and/or transliteration despite the lack of intention to use it simply to prevent third party users from registering it or using it. If the registration is later challenged based on non-use and use cannot be established, the registrant can simply abandon the registration at that time.

A company expanding into foreign territories also needs to evaluate whether to file directly in those countries, or whether to obtain an International Registration that will allow the trademark owner to expand its U.S. application or registration through the Madrid System. Importantly, it should be noted that there is no such thing as a worldwide trademark registration, a common misunderstanding among brand owners. In fact, the horribly misnamed “International Registration” does not grant protection of a trademark in any jurisdiction, much less internationally. Rather, it is a procedural tool that allows trademark applicants to file and manage trademarks through a single centralized system. There are many pros and cons to using the Madrid System, a discussion of which is beyond the contours of this article, and it is not recommended for all brand expansions.

When expanding into foreign jurisdictions, fashion brands also need to be aware of the “legal fake” phenomenon, which is, of course, a contradiction of terms. This is when a third-party is the first to file a trademark registration for a well-known, usually U.S.-based fashion brand in a foreign first-to-file jurisdiction, sets up its own business, produces and sells goods, and operates as if it is the original brand. Consumers often do not realize that the goods are fake, believing them to be the genuine products. The owners of these brands assert that their goods are not counterfeit; rather, they consider themselves the foreign parallel of a brand, albeit an unauthorized one. Legal fakes can create significant and costly damage to a brand and need to be considered before expanding a fashion brand into foreign jurisdictions.

Companies with trademarks that apply to physical goods must also consider whether registration of their trademarks with the local Customs agency is warranted to try and prevent the import/export of counterfeit products. Customs registration can be a highly effective enforcement tool.

In addition to the above, expanding into foreign jurisdictions brings into play questions and concerns regarding counterfeiting, grey market goods or parallel imports, import and export taxes, and myriad other issues. While this article contains an overview of the considerations necessary when contemplating brand expansion into non-U.S. jurisdictions and crafting international trademark strategies, each situation presents challenges and circumstances unique to each brand and jurisdiction, requiring brand strategies to be dynamic and periodically updated based on expansion, market, and enforcement developments.