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The impact of bankruptcy on trade mark disputes

27 February 2018

A non-use court action is routine for the IP court. Every year several hundred cases are considered and granted. Sometimes, however, a cancellation action stumbles at unexpected obstacles.

Heineken United Breweries initiated a court action in 2016 at the IP court against trade mark WINTER HUNT, Reg. No 236790/1, regarding beer and alcoholic drinks owned by Mr Yezhikoff, an individual entrepreneur. The basis for the court action was non-use of the trade mark for three years. The IP court issued a ruling transferring the case to the Moscow Commercial Court because it transpired that there was a bankruptcy case concerning Mr Yezhikoff under consideration in the Moscow Commercial Court. The IP court reasoned that the trade mark non-use case should be considered within the framework of the bankruptcy case.

Heineken appealed the ruling of the IP court to the cassation instance court which is the Praesidium of the IP court (there is no appeal route at the IP court).

The Praesidium of the IP court noted that the Commercial Court of Moscow had recognised Mr Yezhikoff as insolvent and initiated a six month procedure of disposal of his property. The IP court explained that the exclusive right for the disputed trade mark was a property right and it should be included in the bankruptcy assets. As a result, the case on termination of the right for the trade mark should be considered within the framework of the bankruptcy case. It justified the ruling of the first instance IP court stating that according to the Code of Commercial Procedure, the case should not be accepted for consideration if the claim will be considered within the framework of a bankruptcy case.

Heineken did not agree with this statement and argued that the case should be under the jurisdiction of the IP court and should not be considered by the Commercial Court of Moscow. The argument was based on the earlier ruling of the Supreme Commercial Court which stated that only property related claims of creditors against the debtor should be considered within the framework of a bankruptcy case, and that too, only after the court recognises the debtor as bankrupt. Heineken is not a creditor of the trade mark owner. Heineken further argued that the right for a trade mark was not a proprietary right and at the time of initiating a court action Mr Yezhikoff was not yet recognised as bankrupt. The court nevertheless explained that the right for a trade mark is indeed a proprietary right according to Article 1226 of the Civil Code. When the issue of jurisdiction is being resolved during a bankruptcy case it should be determined whether that specific proprietary (including trade marks) right should be included in the bankruptcy assets. The exclusive right, being a proprietary right, has certain value and as a non-material asset is part of the property of the insolvent debtor.

If a business has stopped its activity and is undergoing bankruptcy proceedings, its property should be sold according to bankruptcy law. When the court starts bankruptcy procedures, all claims not made in connection with the bankruptcy case should be left out of the proceedings.

The non-use claim was filed by Heineken after the start of the bankruptcy proceedings hence the non-use case cannot be examined. Nevertheless, Heineken is not deprived of the right to protect its rights. The trade mark is included in the bankruptcy assets and will be sold together with other property items.

The trustee of the bankrupt entrepreneur appointed a meeting of creditors on November 29 2017 where the controversial trade mark was going to be sold. The starting price was $50. As a result of the auction the mark was finally sold for $500 to Kantemirovskaya Ltd. An assignment for that mark was signed but as the situation stands on February 20 2018 the assignment is yet to be recorded. As a result, the trade mark is still formally in the name of the bankrupt owner. According to judicial practice (even though it is scant), the period of non-use is not interrupted because of change of ownership. Hence the option of non-use action is still open for Heineken. The new owner may invoke force majeure. Is it worth initiating a non-use case in such circumstances? The answer to this question remains unanswered as yet.