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GORODISSKY & PARTNERS
INTELLECTUAL PROPERTY
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The Recovery of Trademarks – a Russian Case Study & Success Story

11 December 2015

Not taking timely actions to protect your IP rights can result in time consuming and expensive court proceedings associated with taking back IP assets from wrongful claim of ownership by others. For example, in 2014-2015, the Moscow Commercial Court and the IP Court (first instance court / cassation court respectively) heard two interconnected cases (А40-89861/2014 and А40-26037/2015) relating to the situation where trademarks had been fraudulently registered by distributors in their own names.

Background facts

H.B. Health and Beauty Limited, Israel (hereafter – “H&B Limited”), a producer of cosmetic goods, has successfully imported its products into Russia since 2010. Debora LLC, an official distributor of “H&B Limited” in Russia, registered “H&B Limited’s” trademark in its own name without authorization from “H&B Limited”. After obtaining that registration, Debora then used it to block the import of H&B’s genuine goods to Russia by initiating administrative proceedings against “H&B Limited’s” goods being delivered to Russia. As result of such actions, a significant quantity of “H&B Limited’s” goods were held to be counterfeit and destroyed under the court’s order. Naturally, “H&B Limited” was both offended by such behavior by its Russian business partner and it suffered tangible economic damages.

Initially the dispute resolution route of negotiation was tried. After having some difficult negotiations with Debora, it agreed to return to “H&B Limited” the trademark in a nominally amicable settlement of the controversy.

“H&B Limited” completely fulfilled its obligations and submitted a duly signed assignment agreement (hereafter – “H&B’s assignment agreement”) to the Russian Patent Office (hereafter – PTO) for recording. Unexpectedly, Debora then took actions to prevent H&B’s agreement from being recorded with the PTO, which is a must for any trademark assignment to be effective. Among others, Debora petitioned the PTO to stop it’s recordation of “H&B’s assignment agreement”, because Debora claimed that it did not consent.

Court proceedings

The Russian PTO is not empowered to record an assignment in the case of a dispute between an assignor and assignee. Here, “H&B Limited” was left with no option but to institute a lawsuit against Debora LLC and petition for “H&B’s assignment agreement” being recorded by court order. Almost at the same time, DS Trading LLC (hereafter – “DS Trading”), a third party, brought a lawsuit against Debora LLC and “H&B Limited” claiming “H&B’s assignment agreement” to be void. The legal ground for “DS Trading’s” action was yet another assignment agreement (hereafter – DS Trading’s third-party agreement) signed by Debora with DS Trading before “H&B’s assignment agreement” was signed by H&B Limited and Debora.

According to Russian procedural law, a court is generally obliged to consider a motion for interim relief without giving notice to the parties the next day after the respective motion is filed with the court. Therefore, courts have no information about judgments that might be in conflict with interim reliefs

In response to “DS Trading’s” lawsuit, “H&B Limited” filed its cross-complaint against Debora LLC and “DS Trading” asserting that “DS Trading’s third party agreement” was void. “H&B Limited” argued, among other things, that: (i) the trademark was well-known among Russian customers who associated it with “H&B Limited” and its products; (ii) “DS Trading” had never produced or distributed cosmetic products; (iii) “DS Trading’s” using the trademark “H&B” could mislead Russian customers. Under Russian law, the legal assignment of a trademark necessitates the fulfillment of several statutory requisites including whether it has the potential to mislead Russian customers.

Upon “H&B Limited’s” motion, the court consolidated all three lawsuits into one. Ultimately, it took about 9 months for the court to decide the dispute. In that court’s adjudication of these facts and Russian law, the commercial court, at the first instance, sustained all of “H&B Limited’s” claims: (i) holding that “DS Trading’s third party agreement” was void and (ii) ordering the PTO to record “H&B’s assignment agreement”. In addition, the court rejected all of “DS Trading’s” claims. The appellate court upheld the first instance court’s judgment in full.

A Response From Debora & Development

When the judgment was about to come into force, Debora LLC instituted a separate lawsuit (the fourth one, herein). This time, Debora LLC sued “H&B Limited” arguing that “H&B’s assignment agreement” was void because it was falsified. Along with this lawsuit, Debora filed a motion for interim relief asking/requesting the court to prohibit the Russian PTO to record any assignment/license relating to the trademark in question. According to Russian procedural law, a court is generally obliged to consider a motion for interim relief without giving notice to the parties the next day after the respective motion is filed with the court. Therefore, courts have no information about judgments that might be in conflict with interim reliefs.

In Debora’s new lawsuit, the court was not informed about the earlier judgment and thus erroneously granted interim relief prohibiting the PTO to record anything relating to the trademark until her judgment on the Debora’s new lawsuit came into force.

As a result, owing to Debora LLC’s several bad-faith actions, the enforcement of the earlier judgment was unlawfully blocked by interim relief granted within proceedings on another case. Thus, Debora LLC was given legal freedom to continue thwarting “H&B Limited” from importing its goods into Russia because Debora still held a valid trademark registration. (Reminder: “H&B’s assignment agreement” had not yet been recorded by the PTO).

It seems to be that the main purpose of Debora’s new lawsuit was interim relief which blocked, in fact, enforcement proceedings of the judgment that made it impossible for “H&B Limited” to recover the trademark and resume importation of the goods to the Russian market.

It appears to be that interim relief might be used by Debora as a last chance to persuade “H&B Limited” to negotiate a settlement agreement since damages caused by Debora’s blockage of importing H&B’s goods were really significant. Taking into account such damages, “H&B Limited” might prefer to settle the dispute rather than suffer such damages further.

“H&B Limited” appealed the first instance court’s ruling on granting interim relief before the Intellectual Property Court (hereafter – the IP Court).

“H&B Limited” argued:

  1. Although Debora knew about the earlier commercial court judgment, they sought interim relief which in effect blocked enforcement of that judgment;
  2. Such Debora’s actions amounted to abuse of procedural right; according to Russian law one’s actions constitute abuse of procedural right if such an action was aimed to inflicting harm/damages to another party rather than protecting their own rights/interests;
  3. Judicial relief including interim relief should never postpone the earlier judgment from being enforced;
  4. Court unfairly tilted the balance in favor to Debora LLC by granting interim relief as “H&B Limited” had an unconditional right to rely on the judgment, which was unlawfully blocked by interim relief.

The good news is that “H&B Limited” represented by Gorodissky & Partners succeeded in convincing “IP Court” which sustained “H&B Limited’s” appeal in full including a nullification of inappropriately issued interim relief.

Under Russian law, the legal assignment of a trademark necessitates the fulfillment of several statutory requisites including whether it has the potential to mislead Russian customers

Conclusion

At the end of the day “H&B Limited” won all cases initiated with respect to its trademark. The court has sustained in full all actions brought by “H&B Limited”:

  1. By means of the first one brought against Debora LLC, “H&B Limited” petitioned the court to record “H&B’s assignment agreement”;
  2. By bringing another one against “DS Trading”, “H&B Limited” petitioned the court to hold “DS Trading’s third party agreement” void. “H&B Limited” had to bring this action to attack the cause of “DS Trading’s” action, i.e. “DS Trading’s third party agreement” which was used to block recordation of “H&B assignment agreement”. Since the court held “DS Trading third party agreement” void, “DS Trading’s” claim was left with no chance but to be rejected as it lost its cause of action.

Then “H&B Limited” removed the last obstacle to importing its goods into Russia by successfully appealing the court’s ruling on granting interim relief.

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