oversight

The Need to Evaluate the Benefits and Costs of a Proposed Trademark Treaty and Implementing Legislation

Published by the Government Accountability Office on 1977-10-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT   ESUME

03678 - r B2854103

rThe Need to Evaluate the Benefits and Costs of a Proposed
Trademark Treaty and Implementing Legislation]. CED-77-133;
B-1333375. October 7, 1977. 9 pp.

R4port to Secretary, Department of Commerce; by Henry Eschwege,
Director, Community and Economic Development Div.
Issue Area: Program Evaluation Systems (2600); Program and
    Budget Information for Congressional Use (3400).
Contact: Community and Economic Development Div.
Budget Function: Commerce and Transportation: Other Advancement
    and Regulation of Commerce (403).
Organization Concerned: Patent and Trademark Office.
Congressional Relevance: House Comwittee on the Judiciary;
    Senate Committed on the Judiciary.
Authority: Trademark Act of 1946 (15 U.S.C. 1051).
         The Department of Commerce proposes to change the U.S.
trademark law. The Department vigorously supports the proposed
international Trademark Registration Treaty, to which the United
States is a signator. If the Congress is to ratify the treaty,
changes in TJ.S. trademark law are necessary. The proposed
legislative changes will not only affect the registration of
international trademarks but will greatly alter the process and
methods for registering domestic trademarks in this country. The
changes will affect all U.S. business firms registering
trademarks. Findings/Conclusions: An informed and objective
decision on the treaty and proposed legislation cannot be made
without complete and accurate estimates of the benefits and
increased costs to all parties. The Department, however, did not
obtain the data necessary to make such a decision. This data
could be obtained from a representative sample of business firms
registering domestic and foreign trademarks.    ecommendations:
Th! Secretary of Commerce should require the 'Zcmmissioner of
Patents and Trademarks to undertake a survey designed to elicit
needed information from a statistically alid sample of
trademark owners and use this information to es irate the
realizable benefits and probable costs that U.S. business firms
and the Government will experience from the proposed
legislation. (Author/SW)
                                UNITED STATES GENERAL ACCOUNTING OFFICE
                                        WASHINGTON, D.C.   20548



       COMMUNITY AND ICONOMIC
         DEVLPMUT DIVISON


             B-133375                                 OCT 07 19?7

r)Z\


             The Honorable
             The Secretary of Commerce
             Dear Madam Secretary:
                  We surveyed the changes the Department of Commerce
             proposes to make'to U.S. trademark law. The Department
             vigorously supports the proposed international Trademark
             Registration Treaty, o which the United States is a signa-
             tory, and if the Congress is to ratify it, changes in U.S.
             trademark law are necessary. The proposed legislative changes
             will affect not only the registration of. international trade-
             marks but will greatly alter the process and methods for
             registering domestic trademarks in this country. Consequently,
             the changes will affect all U.S. business firms registering
             trademarks.
                   The monetary impacts the proposed legislative changes
              will have on U.S. businesses and the Federal Government have
              not been fully and adequately considered. Monetary effects
              on business are virtually unknown; for the Government, how-
              ever, a sizeable expansion of the trademark program at a
              time of budgetary restraint will result.
                   Whenever objective data and other information are avail-
              able, they should be obtained and evaluated. To the extent
              possible, the monetary benefits of a program should be meas-
              ured and weighed against full costs. In this regard, the
              Department did not obtain pertinent information from a repre-
              sentative number of trademark owners and, therefore, cannot
              estimate the 'ealizable benefits and probable costs of this
              proposed 1c      4 .rn. Nevertheless, the Department is going
              forward wit,.         1        ial information and will ask the
              Congress to u_
                   For the most p            e conducted this survey at the De-
              paitment's Patent              ,demark Office, which is headquartered
              in Arlington, Virgi _.         We evaluated the information that
              office obtained and considered in developing the legislative
              proposal and reviewed pertinent trademark literature.
                                                                          CED-77-133
                                                                          (06206)
B-133375


     In addition, we discussed our findings with the Commis-
sioner and other officials of the Patent and Trademark Office.
TPADEMARK LAW, THE TREATY, AND
PROPOSED LEGISLATION

     Although there have been attempts to maltrially revise
it, the Trademark Act of 1946 (15 U.S.C. 10i:1 has remained
basically unchanged. The proposed trademark treaty and im-
plementing legislation represent the most extensive, wide-
sweeping chances proposed to date.    onsequently, a decision
on these matters should establish  trademark law for many
years to come.

     Under -resent law a businessman establishes rights in a
trademark ty being the first to actually use i in his parti-
cular endeavor. Registration of the trademark does not in
itself create or establish any exclusive rights but is recog-
nition by the Government that the owner has established the
right to use the mark to distinguish his goods from those of
another. The trademark must be used in commerce which may
be lawfully regulated by the Congress--namAly interstate and
foreign commerce--in order to be registered with the Federal
Government.

      In 1970 the United States sponsored international efforts
which resulted in negotiation of the Trademark Registration
Treaty. This treaty was submitted to the Senate for advice
and consent for ratification on September 3, 1975, but final
action cannot be taken until the Congress is also given the
implementing legislation. As of August 25, 1977, the Office
 .f Management and Budget was considering the legislation.

      The treaty's primary purpose is t establish a simplified
aind centralized international filing arrangement to enable
U.S. business firms to more easily obtain and maintain their
trademark rights in foreign countries. Although trademark
applications can be filed directly with an International
Bureau, 1/ the registration requirements of individual coun-
tries must still be met.

     The most fundamental change to which the United States
agreed was the registering of foreign trademarks that had not
Deen actually lvaed. However, a foreign registrant can be



 1/Administered by the World Intellectual Property Organization,
   -ne specialized agency of the Unitei Nttions

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B-133375


required to declare intention to actually use the mark and
must actually use it within 3 to 5 years of registration, or
it can be canceled. These and other provisions are included
in the Department's proposed legislation and, as an alterna-
tive to the present requirement for actual use, they are also
being extended to domestic firms that register trademarks in
this country.

OBJECTIVE DATA NEEDED FOR AN INFORMED DECISION

     U.S. business firms engaged in international trade will
De the beneficiaries of the trademark treaty, but the extent
of such benefits has not been determined.   ikewise, the ex-
tent of any benefits and increased costs to U.S. business firms
engaged in omestic trade, as well as the increased costs to
the Governrent, as a result of the treaty and changes to law
also have not been fully determined and considered. Conse-
quently, no one can ascertain whether the benefits are real
and sufficient to counterbalance resulting disadvantages and
increased costs.

Benefits to international registrants

     U.S. business firms must now deal with separate foreign
jurisdictions to obtain and protect trademark rights in inter-
national markets. According to the Department, the trademark
treaty is intended to alleviate the complexity and high cost
associated with this diverse procedure.

     The problem of complexity would seem to be solved by the
simplified filing arrangement with one International Bureau
as opposed to separate filings with individual countries.
Howevec, this benefit will accrue only in proportion to the
number of countries who join the treaty, which at this time
is unknown. Fifty nations attended the treaty negotiations
i 13,    but only 14 countries signed it, and none have ra-
tified it. Most countries are believed to be awaiting U.S.
action.

      Total cost savings to international registrants is un-
known also because the Department did not attempt to obtain
the information needed to make this determination. Concerning
U.S. firms, the Department does not know how many register
trademarks in foreign countries, how many may take advantage
of the reaty provisions, in how many countries they would
see!; registration, and what costs they would likely save.
Answers to these and similar questions are essential to esti-
mating the enefits to U.S. business firms registering trade-
marks in foreign countries.


                             3
B-133375


Benefits and costs to domestic registrants

     The Department believes that registering unused marks
will be more consistent with the legitimate needs of buoiness-
men.  For example, under present law actual use of a mark
is a prerequisite for filing an application for registration.
After having adopted a new mark and undertaken the time, effort,
and expense of creat'ng, planning, and using it with a new
product, it may be found to be in conflict with another trade-
mark or may not be registrable for some other reason. Under
these circumstances it would seem to be less difficult and
less costly to be able to register marks before they must be
used in commerce.

     Most persons knowledgeable of the treaty and proposed
legislative changes recognize that there will be an increase
in trademark applications in the United States, but the amount
of increase is unknown and subject to wide speculation. Op-
ponents believe that a large increase will occur because many
domestic firms with a constant need for new trademarks will
reserve them in advance. Also, many foreign firms will be
able to easily register marks in this country without having
to use them first. Presumably, this will lead to a cluttering
of the trademark register and add to the complexity and costs
of obtaining new marks, as well as protecting existing ones
from infringement.

     The Department did not contact trademark owners to deter-
mine how many more applications will be filed or what additional
costs, if any, will be saved or incurred if use is no longer
a prerequisite for registration. Answers to these and similar
questions are also essential to estimating the complete bene-
fits and total costs of the proposed legislative changes to
domestic trademark registrants.

Comments received from trademark sources

     The text of the Trademark Registration Treaty and an out-
line of possible changes to the law were published in the De-
partment's "Official Gazette."  In addition, the Department
requested that interested persons and organizations submit
views on these matters before September 1974. Public comments
were received from 16 persons or companies and 11 local patent
law associations. Of these, 70 percent opposed the changes,
19 percent favored them, and 11 percent took no position.
Some national law and trade associations also made their views
known directly or through official journals, Two favored,
one opposed, and two did not take a position on the changes,
as discussed on the following page.


                             4
   B-133375


        As recommended by its Patent, Trademark, and Copyright
   Law Section,  the American Bar Association adopted   favorable
   resolution,  which was based on a total vote of only about 3
   percent of the section  membership.

        The Executive Commrittee of the International Patent and
   Trademark Association nanimously adopted a favorable resolu-
   tion on the basis of a poll of association members. Of 723
   ballots sent, 308 were returned. Of those responding, 162
   members or 53 percent favored and 146 members or 47 percent
   opposed ratification.

        The United States Trademark Association, an international
   organization of trade:aark owners and associates, polled its
   802 U.S. members and received responses from 580,   s follows;


                  Number responding                  Percent
                      In                            In
            Abstain favor Oppose Total   Abstain   favor Oppose     TotaJ

Trademark
  owners      24     107    160   291        8      37     55        100

Lawyers,
  law firms,
  agents,
  etc.       38       78    173   289       13       27    60        100

    Total      62    185    333   580       11       32    57        100



         The American Patent Law Association and the Pharmaceutical
    Manufacturers Association took no position.

         It is difficult to judge whether the responses the Depart-
    ment received represent a valid cross section of trademark owners.
    There are about 475,000 active trademarks registered in the
    United States, representing an indoterminate number of owners.

    Increased costs to the Government

         Although the Department does not know and did not attempt
    to gather the data needed to calculate the benefits to inter-
    national registrants and the benefits and costs to domestic
    registrants, it did prepare some estimates of the increased
    costs to the U.S. Government if the proposed changes become


                                  5
        B-133375

        law. The DepaLtment estimates that during the first 3 years
        it will receive 28,000 additional trademark applications
        which will require 110 more staff-years of effort and $4.4
        million to handle the increased workload. About one-third
        of the costs will be recovered from trademark applicants, and
        the remainder will be financed by the American taxpayer.
        Our examination of the Department's estimates, a summary of
        which is included in the legislative package to be transmitted
        to the Congress, showed that in calculating the estimates
        the Department made certain questionable assumptions. The
        estimates are summarized below.

                                        Estimated increases
                           F--st year        Secnd  year                    Third ear
                         Staff-    Cost     Staff-   Cost                 Staff-  Cost
   Activity              years (note a)     vea.   (note a)               years (note a)
   Printing                    -      $    582           -       651       -     $    705
   Examining                  22           423       33          682      41          868
   International
     Affairs                   1            44           2        89       3          133
   Support                     2            63           3        94       3           94
          Total               25      $1,112         38       $1,516      47     $1,800

   a/OOOs omitted

             The Department used its estimates of the increased num-
        ber of applications it expects to receive to calculate the
        above increases in costs and sff-years of effort. The De-
        partment's estimates of inc'eased applications, the assumptions
        under which it calculatec the estimates, and our evaluations
        follow.

                        Projected
                      applications
                   unrder present law          Additional applications under new law
Fiscal                                                       Foreign
year               Domestic    F'oreign      Domestic        (note a)    Total   Percent
1979                42,800         4,280         5,992        1,605      7,97        17.75
1980                43,700         4,370         6,118        3,278      9,396       21.50
].981               44,700         4,470         6,258        5,029     11,287       25.25
a/Because less than full participation is expected in the first 3
  years, estimated increases were reduced to one-fourth in 1979,
  one-half in 1980, and three-fourths in 1981.


                                                 6
B-133375


Additional applications from proposed law

     In calculating the increased number of domestic appli-
cations it expects to receive, the Department assumed that
the increase would be equivalent to 14 percent of the number
of applications it expected to receive each year under the
Present law. The 14-percent assumption was based on Canada's
experience in the mid-1950s when its law was changed to
allow the registration of trademarks not previously used.
We believe that the application of this experience of over
20 years ago is inappropriate. Today's economic conditions
are different, the Canadian economy is smaller and less com-
plex tnan our own, and it registers only about one-fifth of
the total number of trademarks.

     Canadian law also differs materially from the Department's
proposed legislation.' In Canada an applicant-may apply to
register a trademark that has not been used, but the regis-
tration is not granted until use has actually commenced.
Use must commence within 6 months from the date the Canadian
Government decides to allow the registration. Under the
proposed trademark treaty and changes to U.S. law, rgistra-
tion will be granted when the Government determines that the
trademark is valid, whether or not it has been used. This
distinction alone could very well cause an increase in U.S.
applications far different from that previously experienced
in Canada.

     The Department arbitrarily added 150 percent to its
estimated normal increase in foreign applications in this
country to arrive at its estimate of increased foreign appli-
cations resulting from the treaty. The Department assumed
that foreign origin filings in the United States would
increase two to three times the present experience. The
De)artment did acknowledge that its assumption was arbitrary.

Costs not est.mnated

     TL.s Department expects to publish all trademark applica-
tions snortly after they are received. This new, added pro-
cedure will increase opposition proceedings, 1/ but te De-
partment did not estimate the increased costs for handling
additional oppositions.



1/Any person who believes that he would be damaged by the
  registration of a mark may oppose it.



                             7
B-133375


     Two other items of increased costs were identified,
but considered too remote to estimate--initial cash contri-
butions to the working capital fund administered by the
International Bureau, which will process international
applications, and later cash contributions for possible
deficits in that fund.

     The Department should attempt to idel.tify and estimate
all principal elements of increased costs to the Government
as a result of the implementation of the treaty and proposed
law. Individually, the elements may not be large, hut their
sum could be significant.

CONCLUSIONS AND RECOMMENDATIONS

     An informed and objective decision on the treaty and
proposed legislation cannot be made without complete and
accurate estiLmates of the benefits and increased costs to
all parties. The Department, however, did not obtain the
data necessary for it or the Congress to make such a deci-
sion. This data could be obtained from a representative
sample of business firms registering 3mestic and foreign
trademarks.

     We believe that the Department should select a statis-
tically valid sample of domestic trademark owners and send
them a questionnaire designed to obtain such information as
the

     -- number of companies that will take advantage of the
        treaty provisions in foreign countries,

     -- number of additional applications that will be filed
        by domestic business firms, and

     -- additional costs that will be saved or incurred by
        the companies.

The Department should include in the legislative package to
be submitted to the Congress the results of these analyses.
Without such information the arguments favoring and opposing
the treaty and legislative changes will largely remain sub-
jective, biased, and difficult to evaluate.

RECOMMENDATIONS

     We recommend that the Secretary of Commerce require the
Commissicner of Patents and Trademarks to (1) undertake a



                              8
B-133375


survey carefully designed to elicit needed information from
a statistically valid sample of trademark owners and (2)
use this information tc reasonably estimate the realizable
benefits and probable costs that U.S. business firms and
the Government will experience from the proposed legislation.

     We recommend also that the survey results and the De-
partment's estimate of the realizable benefits and probable
costs be included in the Department's legislative package
when it is submitted to the Congress.



     As you know, section 236 of the Legislative Reorganiza-
tion Act of 1970 requires the head of a Federal agency to
submit a written statement on actions taken on our recommen-
dations to the House Committee on Government Operations and
the Senate Committee on Governmental Affairs not later than
60 days after the date of the report and to the Hcuse and
Senate Committees on Appropriations with the age;-cy's first
request for appropriations made more than 60 days after the
date of the report.

     Copies of this report are eing sent to the Director,
Office of Management and Budget; the Senate Committee on
Foreign Relations; the above mentioned Committees; and
other applicable legislative committees. Your Assistant
Secretaraes for Science and Technology and Administraticn;
Commissioner of Patents and Trademarks; and Director, Office
of Audits, will also receive copies of t:'= report.

                                Sincerely yours,




                                Henry Eschwege
                                Director




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