Russia is becoming an attractive market niche for many a businessman. Some build factories and plants, others register trade marks and grant licences. The more wary begin their penetration into the Russian market by testing the waters and simply appoint agents to sell their products. But we live in a balanced world: if you save on the one side you inevitably lose on the other.

A German company started doing business in Russia selling its products under the trade mark Bullerjan. The German company found a company in Russia and signed a distributorship agreement with the company appointing it as the exclusive distributor of the products in Russia.

Some kind of agreement is necessary in all cases. On the one hand, it regularizes the relations between the seller and the buyer. On the other hand, it may become handy when one has to prove the use of the trade mark against trade mark pirates. (Three years of non-use open the door to cancellation.)

Some time ago the Russian PTO ceased to register formal licences, that is licencses which do not provide for the actual manufacture of the product. Instead, the distributorship agreements are quite sufficient to prove the use. So the importance of the agreement is two-fold. The only precaution to be taken is that the distributorship agreement should clearly show the owner of the product, the trade mark and that the product labelled with that trade mark is intended for sale in Russia. In that case, aside from its direct intended goal (sales) the distributorship agreement will safely help against the pirate.

The Russian company traded the products in question for some time then, wishing to have a trump card for the future, it registered in Russia the German mark in its own name and continued trading.

At one point the German company learned of the unfair practices of its Russian agent and filed an opposition against the trade mark in the Chamber of Patent Disputes of the Russian PTO. The basis for the opposition was Article 6 of the Paris Convention. As a result of the hearing the Chamber of Patent Disputes invalidated the trade mark in its entirety.

The Russian agent did not agree with the decision and initiated a court case against the decision of the Chamber. The court refused to satisfy the claims and ruled that the decision of the Chamber was correct. The court explained that the decision of the Chamber was based on the fact that the supplier company did not allow the Russian company to register the trade mark and that the agreement between them contained no provision to that effect.

Notwithstanding the clear circumstances of the case the Russian company appealed against the decision of the first instance to the Court of Appeal. The basis for the appeal was that the court acted beyond its competence in considering a case of a trade mark filed in contravention of Article 6 of the Paris Convention. The Court of Appeal however ruled that the court of the first instance correctly applied the Paris Convention and Article 28 of the Russian Patent Law. That article provides that a trade mark can be cancelled in its entirety if it was registered in the name of an agent or representative of a person having exclusive rights for that mark in one of the countries that is party to the Paris Convention. It also confirmed that the disputes of that nature are to be considered by the Chamber of Patent Disputes.

The Russian company argued that the provision concerning the "agent" or "representative" was introduced into the Law later than the application was filed. The last statement was indeed correct. However the Court ruled that the international agreements prevail over the Russian laws, in fact they are part of the Russian law.

The Russian company also argued that the agreement could be considered as a franchising agreement. The Court again did not agree with this statement. A franchising agreement should include the use of the company name of the franchiser as one of its essential elements and other important provisions. None of that was in the distribution agreement. It only contained the obligation of the German company to provide some commercial information to the Russian company. Indeed, it could be part of a franchising agreement, though the least important part. That provision does not make the agreement a franchise. Besides, a franchising agreement should be registered in the Russian Tax Authority without which it is invalid. This was not done either.

The bottom line was that the Court came to the conclusion that the decisions of the Chamber of Patent Disputes and of the court of the first instance were taken in full conformity with Russian and international Law.

This however would not have needed lengthy court proceedings if the German party insisted on the inclusion of relevant provisions in the distributorship agreement not allowing the Russian party to abuse the right.