Trademark Ransom: Another Form of Business Identity Theft

Business identity theft can take on many different forms.

I was the victim of what’s known as a business hijacking, which is when criminals file fraudulent paperwork with the local state government to seize control of a company. Other scams include criminals:

• setting up a fake website to impersonate a business,

• obtaining an address very similar to an existing business’s in order to trick lenders into giving them money or

• stealing a business’s federal Employer Identification Number in order to file a fraudulent tax return. 

In each of these cases, fraudsters are assuming the identity of a business in order to exploit its assets or reputation for financial gain. The criminals’ goal in these cases is to use the targeted businesses to get money from third parties: the IRS, lenders, unsuspecting customers.

But in one form of business identity theft, criminals actually try to get money from the owners of the targeted business itself.

I’m speaking of what’s known in the identity theft community as “trademark ransom.”

What is Trademark Ransom?

Trademark ransom is when criminals register the name of an existing business as an official trademark and then demand a ransom from the business in order to release the trademarked name and allow the business to operate. 

Domestically, trademark ransom preys upon businesses that have not adequately protected their company’s name by filing with the U.S. Patent and Trademark Office. Using the Internet, criminals identity businesses that have not filed trademarks on their name and then file the requisite application with the federal government, obtaining their own trademark.

Then the criminals turn around and notify the legitimate company that it is using their trademarked name illegally and demand a ransom.

A 2018 investigation of business identity theft by the Washington, D.C.-based National Cybersecurity Society identified this kind of scam through interviews with state officials.

But the society acknowledged no one is quite sure how prevalent this activity is.

Trademark ransom is a problem in international markets as well

But that’s not the only flavor of trademark ransom. Criminals also can employ trademark ransom schemes against businesses that operate internationally.

You see, as the U.S. patent office noted, what most businesspeople don’t understand is that trademarks – like patents – are territorial. Trademark protections only exist for the countries in which you’ve applied for a trademark. But years-old research by the patent office found that only 15 percent of small businesses doing business overseas knew that a U.S. trademark only provides protection in the U.S. 

Thus, if you’ve only trademarked your company name in the United States but do business in other countries, your trademark protections don’t exist in those other countries. That makes you vulnerable to trademark ransom in the other countries.

‘Use-Based’ vs ‘First-to-File’

Indeed, as the patent office notes, while the United States employs a “use-based” trademark system where trademark rights are acquired by a “priority of use,” most other countries employ a “first-to-file” system, in which the first filer of a name receives the trademark.  

This means that if a criminal beats you to the punch and files a trademark on your business name before you do, the criminal will possess the legal rights to that trademark, even if the trademark was claimed in bad faith.

As the federal patent office writes:

“Any company, large or small, is a potential target for bad-faith filers. In some cases, your own manufacturer, distributor, or retailer in another country might decide to file for your trademark. In other cases, it could be a person who approaches you at a trade show, asks about your plans for expansion to another country, and then registers your mark first. These are just a couple of the many ways trademark squatters can find out about your mark and register it."

I spoke with Company Alarm’s patent attorney, Aly Dossa, in the Houston office of the Chamberlain Hrdlicka law firm, and he confirmed he’s encountered trademark squatters in the past, although he added that “most of these issues arise in overseas markets.”

So again, while the extent of this form of business identity theft is unknown, it’s a real problem – especially for businesses operating outside of the United States. 

Beware and make sure your trademarks are up to date in all the legal jurisdictions you operate.