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Pirate wars

May 29, 2013

Currently in Europe's markets when buying and selling enterprises, the cost of a trademark amounts up to 50-60 percent from the total company cost. If and when promoted at the market, this cost grows and a trademark becomes an important element of the property complex of an enterprise. That's why it is no wonder that particularly a company brand often comes under attack both on part of the competitors and on part of the third persons. To achieve one's goals – receipt of a pecuniary compensation or removal from the market of a company- competitor – the instigators of attacks for a brand can use different tools.

Manufacturers of the goods and services permanently struggle for a right to increase their customer base. And often a brand plays a pivotal role in a struggle for the consumer.

As it is known such notion as "brand" is absent in the Russian legislation. It is substituted by a "trademark" or "service mark" - a designation making it possible for the consumers to distinguish between the goods and services of some legal entities or natural persons from homogeneous goods  and services of the other legal entities or natural persons. But "a trademark" in our country - is exceptionally legal notice and rather "dry" one. In essence, its role consists in unambiguous identification of the goods. Usually they put a broader sense into the notion  "brand", meaning a trademark possessing of its individuality and having already got a certain publicity and loyalty among the consumers. A brand does not only comprise the information on a company and its goods making it possible to differentiate  product but also provides a manufacturer with an opportunity to distinguish, personify its goods and services among the similar products of competitors, to put into circulation in a simpler way a new product line under a brand that is already known. This is precisely why a brand can come under attack on part of different "intellectual diversionists" - competitors, so called "trolls" and other persons.

As a rule, each of these groups has its interests: "trolls" want to earn profit, competitors - want to lower the company sales and publicity of its products among the consumers, to push a company out of the market. The third persons represented most often by former business partners or former spouses of business owners, are driven by a personal grievance and a wish to revenge, having caused trouble. To achieve the goals each of these three groups of the intellectual diversionists can register similar trademarks or those that are not yet drawn up by the companies, patents for utility models or design inventions and can file lawsuits on prohibition of the real trademarks and patents use of a right holder, as well as can attempt to contest their protection. To impose an arrest for the goods it is possible to initiate criminal or administrative cases, to address with applications to the anti-monopoly authorities. Thus the schemes of actions of each of the above mentioned groups of intellectual diversionists, differ as a rule.

Patent trolls

"Trolls" (or "patent trolls") are called small companies and private persons who by some means or other get the ownership (buy up as a rule) of a plenty of patents and trademarks. The goal consists not in subsequent independent use of these items of intellectual property for production of goods and services, but in their sale to companies concerned at essentially excessive price or in getting a compensation from these companies for a similar designation use. The trolls' attacks are aimed as a rule at small and medium business, although sometimes larger companies  become their victims.

Scheme of the actions that are typical of trolls. Trolls wait until a would-be victim starts developing and releasing the products to the market containing the registered elements (an invention covered by a patent, or trademark, service mark). Then threatening with a suit or applying to court immediately, trolls claim losses compensation for unauthorized use of their intellectual property and severance payments. As a rule, they become active not on an initial stage of the products release that contain registered elements, but when this release gathers pace and winding-down of a project is fraught with enormous losses. Trolls try to play exactly on the fact that in the eyes of a manufacturer on this stage a needed sum payment to them may seem to be the best way out than the risk of necessity to withdraw all the goods and change a trademark.

An example from the practice. The best known case that occurred in Russia at the beginning of the 2000-s with mark STARBUCKS. A Russian company cancelled the marks of STARBUCKS registered in the name of an American company due to being unused, and then registered it in its name, registrations No.No. 274659. This trademark restrained the entrance of an American company to the Russian market for about 3 years. These cases (А40-11022/06, А40-70379/06) were the subject matter of the Russian and American negotiations on Russia accession to the WTO. As a result, a mark of the Russian company was cancelled but the American company registered the marks again and opened coffee houses in Russia.

Competitors

The main goal of the companies-competitors when filing applications to the anti-monopoly authorities and police as well as suits to court – is to bring down a company brand. They try to push a company out of the market, having given it no opportunity to sell at least temporarily the manufacturable goods or services.

Unlike patent trolls that don't know well enough a real market and don't understand what is more important for a manufacturer and exactly what kind of goods are best sold, a competitor possesses of the necessary information and does not always limit by just efforts to deprive a company of a trademark, when applying to a court, police and the Federal Anti-Monopoly Service.

When competitors take up a struggle, they acquire or register a similar or identical designation by means thereof they initiate subsequently proceedings against a company. 

The example  – is a struggle for a trademark "GZHELKA" that was owned at one time by Moscow plant "Kristall". Primarily a graphical trademark which used the design elements from popular craftwork items, was registered with a company consent – a manufacturer popular craftwork items of GZHELKA LLC. Thus later on this company was bought by the competitors (JSC Liviz) that filed the objections against the trademarks' operation, having withdrawn a consent issued earlier. As a result, all the trademarks which had used the design elements were cancelled on 22 January 2005 by a decision of the commission for patent disputes of the Federal Service for Intellectual Property. In the course of the long-term judicial proceedings only verbal trademarks "ГЖЕЛКА" and "GZHELKA" continued to be in full force and effect.

Whereby as to mark "GZHELKA" No.230001, the mark was restored by a decree of the Moscow District Federal Arbitration Court dd. 12.04.2006 with regard to case No. А40-26356/05-27-93. The decision of the the Chamber for Patent Disputes of Rospatent under application No. 2002727266 is declared invalid, the trademark registration under evidence No. 239001 is fully restored.

And as to mark "ГЖЕЛКА" No. 239000, the mark effect was restored only by decree of the Presidium of the Supreme Arbitration Court of RF dd. 09 October 2007 No. 15006/06, that declared invalid the decision of the Chamber for Patent Disputes dd. 25 January 2005 on invalidation of registration No. 239000 of a trademark "Гжелка", the legal protection of a trademark "Гжелка" under evidence No. 239000 is restored.

As a result of the war, vodka "ГЖЕЛКА" that took the 1st place on the sales volume in the segment of cheap vodka, ceased to be even a top ten of the best-selling sorts of vodka of the cheap segment. Each of the parties spent over 5 mln. dollars for the war.

Currently it is evident that the actions of JSC Liviz for acquisition of Gzhelka LLC and subsequent contestation of the trademarks' effect were not protection of own rights. The company intentionally pushed the competitor out of the market. Nevertheless, a right holder of trademark "ГЖЕЛКА" did not claim to recognize the actions of Liviz as an act of unfair competition.

Other persons

Competitors initiating patent confects can be driven by absolutely different motives. Most often, such struggle occurs between the former partners, employees, husbands or wives who have withdrawn from the same business. It makes sense that this category or people having withdrawn from a company, start selling things at what they are good best of all and with which they worked during a long time. War, for all that, can take place both for a well-known brand, for example coffee drink Golden Eagle, and for not well-known, for example jeans Lafei Nier.

Much more rare the patent wars' instigators are driven by a personal grievance. But there are such examples: in 2008, the company Russian standard filed a lawsuit to a tower builder Imperia Tower at the complex Moskva-City, trying to prohibit the latter to use a trademark Imperia, which owner was Russian standard for the services in the field of immovable property. The builder registered a trademark Imperia Tower, but on 09.06.2008 Rospatent by the Rospatent's decision No. 2007731256/50 cancelled this mark suggesting its similarity to a confusion degree to trademark No. 120617 "IMPERIA" that had been owned by Russian standard.  Later on the Moscow City Arbitration Court with regard to case А40-52071/08-93-186 declared invalid the decision of Rospatent on the legal protection termination of a trademark. The 9thArbitration Court of Appeal and the Moscow District Federal Arbitration Court supported the decision of the first instance court.

The reason for the war beginning was that the fact that Russian standard failed to agree upon a discount for a penthouse purchase on the 60th floor in Moskva-City.

What actions can be undertaken by trolls or competitors?

As has been already said above, the trolls and competitors are driven by different goals in principle, thus all the actions undertaken by them can be noted down item-by-item:

  1. Registration or purchase of the similar designations. To file a claim, a troll or competitor needs to be an owner of a designation that is confusingly similar to that one which is used by a company against which their actions are aimed. Otherwise, it will be difficult for them to prove their interest and achieve obtaining a compensation or legal protection termination of a used trademark. One can become an owner of a similar designation either having registered it or – having acquired  a trademark registered earlier. Moreover, the second variant is more advantageous for the competitors, especially in those cases when one deals with a  trademark purchase that takes a priority on a registration date over a designation used by a company.  
  2. Application filing to Rospatent. Companies address to Rospatent with the applications for designations registration that are similar to competitor's designations, trademarks in relation to the goods that are homogeneous with the company goods in the hope that such applications will be registered or the companies will buy them back from an applicant. At the beginning of this year legal company "Intellectual property — BesProblem" filed applications to Rospatent at the first business day of 2013. In particular, it requests to fix its rights for such brands as Valio, President, "Vesyoliy molochnik", "Domik v derevne", "Savushkin product" and others on the 29th class of the International Classification of Goods and Services (MKTU) in the categories "sweet condensed milk", "sour cream" and "boiled fermented milk". The company explains such filing by the fact that MKTU (International Classification of Goods and Services) of the previous revised editions did not comprise such goods, that's why the company hopes it will be able to register marks and will sell them to everybody who has such a desire. 
  3. Claim dispatch to the company address. A claim will demand from a company to stop unlawful using of a trademark. Notably, even in those cases when a company is sure in its own rightness, prejudicial claims should not be disregarded – they will provide the competitors with an opportunity to tell before the court about evil intention of actions and intended use of their mark. A response to such claims in different cases is always different, but the first thing that one should started doing – is to file an objection against a "pirate" mark, trying to cancel it. Hereinafter it is important to understand whether a retail shop will be ready to continue sales in case of a claim receipt. It is exactly relied on the fact that shops will more than likely discontinue selling  the goods in order to decrease would-be losses. A possibility to persuade a shop to continue selling the goods is always individual. Patent trolls generally use this method very extensively because their objective – is prejudicial settlement of a situation, profit gaining with the least costs.
  4. Application filing to court.  Competitors and trolls can ask the court to render a prohibition for a trademark use and to collect a compensation in the amount from RUB 10,000 to RUB 5,000,000. Courts grant interlocutory injunctions on the goods sale suspension in very rare cases, generally the courts' position is such: interlocutory injunctions shall not coincide with the claims under a lawsuit. It is rather difficult to convince the court to grant interlocutory injunctions in form of assignment prohibition of anything, for example domains or trademarks, such measures are taken in 50% of cases.  
  5. Addressing to the Federal Anti-Monopoly Service.  As a rule competitors address to the Federal Anti-Monopoly Service because trolls don't manufacture goods and services, which means this issue is not about the competition protection. If the anti-monopoly service's employees see that a breach takes place, they can call for evidence from a breaker, having relieved, in doing so, a plaintiff from a necessity to gather documents proving the infringing merchandise turnover. If the anti-monopoly service recognizes the actions of a guilty person to be an act of unfair competition, a penalty can be recovered from a company in the amount from 1 to 10% from the turnover of the entire goods of one group being sold by a company. But a penalty enters the government budget. But after a decision of the Federal Anti-Monopoly Service, one can file a statement of claim to court and collect a double amount of the infringing merchandise cost in favor of a right holder, namely for this purpose the documents will be needed that have been provided by breaker to the Federal Anti-Monopoly Service.
  6. Appeal to police. The competitors' exclusive right - is that the law enforcement officers can initiate a criminal case or administrative case, seize  the goods marked with a disputable designation or destroy them, having done a considerable financial harm to a manufacturer. The Criminal Code of RF and Administrative Offences Code contain the articles on the criminal liability (article 180 Unlawful use of a trademark, article 147 Unlawful use of a patent) and administrative liability (article 14.10 Unlawful use of a trademark, article 7.12. Infringement of the copyright and associated rights, invention and patent rights).  Police, within the framework of clause 4 of article 111 of the Criminal Procedure Code of RF, can apply a measure of procedural compulsion – seizure of the property. Thus, police works as a rule in full force and effect only when it comes to a well-known brand, and if one deals with a small company and a relatively unknown mark, the law enforcement officers don't make due efforts to protect the right holder's interests.
  7. Claim dispatch to the address of shops. Such claims are dispatched as a rule by competitors. Notably, in this case a company-competitor does not just dispatch claims to shops that sell competing goods, but also addresses to police and court. In this case, shops will more than likely take a decision to take the goods away from the shelves until a situation is resolved. What is it fraught with for a manufacturer? Its' products won't be supplied within a long period of time, in this period a company will incur considerable financial losses.

Depending on the ultimate goals and a concrete case, trolls or competitors can address to one of the mentioned authorities or to several of them simultaneously. A difference between their actions consists in the fact that if the actions and addresses are initiated by a troll, then his/her threats can have no severe impact upon retail networks, and are always aimed at receiving a compensation, meanwhile the competitors' actions always do an economic harm to a company, preventing its work. Any claims entered in the company address should be treated very attentively, indeed even if a company is sure that its rights for a trademark are pure and the competitor's claims will be unsuccessful, a competitor can do harm to a company by means of interlocutory injunctions. So, a manufacturer will legally win a case, but will be removed from the market for a certain time and nevertheless will suffer losses.

Situations that are potentially hazardous for business

Naturally those situations can be regarded as potentially hazardous for a company brand when one of the partners abandons business and starts the similar business on his-/her own, when a certain conflict arises with a competitor. However, more frequently a company becomes a victim of patent wars when it starts expanding new markets. As an example, we can consider a case with company Stadler Form Aktiengesellschaft.

Stadler Form – is a Swiss company that has existed in the market for over 14 years already. Its founder – is designer and entrepreneur Martin Stadler. After the Swiss company entered the Russian market, it turned out to be within the field of view of BORK company. The machines of these two marks are in the frontier price segment  and are represented in the same chain stores (MediaMarkt, Tekhnosila, Stockmann etc.). In 2010 company Tekhnomag allied with firm BORK (one of its owners is the security department head of a company-manufacturer of electronics), filed an application to Rospatent for the designation registration "STADLER FORM", that is used by self-named Swiss manufacturer. In March another company - Cypriot offshore company Vacasim Properties Limited – filed an application for a mark registration "STADLER". In two months, in May of 2011, the trademark "STAHLER" was bought for offshore company Vacasim Properties, whereafter Vacasim filed objections to Rospatent against validity of mark "STADLER FORM". Rospatent rejected the registration cancellation of the designation, but a plaintiff filed a lawsuit to court on prohibition to use the "STADLER FORM" mark, as well as filed an application to the Agency for financial crimes enforcement on a criminal case initiation and sent the suits to the retail networks claiming to stop selling machines under the brand "STADLER FORM".

The Swiss company, in its turn, filed an application on early loss of effect of a trademark "STAHLER", but Rospatent rejected it by virtue of the formal grounds. This decision was appealed against at court. In all the processes the company STADLER FORM referred to the right abuse on part of Vacasim Properties, but the courts didn't apply article 10 of the Civil Code of RF, making it clear that STADLER FORM had not addressed with a respective application to the Federal Anti-Monopoly Service. Just after the cassation appeal that confirmed the cancellation of "STADLER FORM" mark, an application was filed on the actions recognition of Vacasim Properties for the rights acquisition for a trademark "STAHLER" to be an of unfair competition and administrative case No. А40-37701/12-5-343 was initiated. Now, only as soon as the commission of the Federal Anti-Monopoly Service will recognize the actions of Vacasim Properties to be an act of unfair competition, the courts will have an opportunity to apply article 10 of the Civil Code of RF and reject protection to company Vacasim as a person that has abused its rights.

On 19 March, the 9thArbitration Court of Appeal settled the claim of the Swiss company Stadler Form Aktiengesellschaft on the prohibition abolition for the trademark "STADLER FORM" use in the RF territory and revoked the resolution of the Moscow City Arbitration Court and issued decree No. 09АП-1760/2013-ГК.

Through the example of STADLER FORM case it is seen what is necessary to do to withstand the competitors' actions.

The first thing that is to be done – is to address to the Chamber for Patent Disputes with an objection on legality of a trademark registration. For this goal it is also necessary to prove one's interest and raise arguments confirming that a mark registration is unlawful and the consumer, for example, is misled by such registration. These provisions are reflected in article 1486 of the Civil Code of RF.

The next step – is to address to the Moscow City Arbitration Court with an application on early loss of effect of a trademark due to its being unused, thus this rule functions just in relation to the marks registered three and more years ago, because according to article 1486 of the Civil Code of RF the legal protection of a trademark can be terminated early in relation to all the goods or a part of the goods, for which individualization a trademark is registered, as a result of continuous non-use of a trademark within any three years after its state registration.

When assessing the situation on the whole it may turn out to be expedient to try to terminate early the effect of a part of your opponent's marks. Having terminated the effect of a prior mark that was used long ago in another form or for other goods, one can supply a reason, to justify the use of a mark, that you have started using a designation earlier than an opponent's later trademark.

It will become clear through the following example: Geksa - Non-woven materials LLC filed a lawsuit to JSC Plastic on prohibition of trademark "AGROTEKS" use, No. 170696, registered for the goods of the 17th class and No. 399161, registered for the goods of the 24th class. Case No. А68-9125/2010.

The third person, a manufacturer of the material AGROTEKS, company Sibur – Geotextile, the third person with regard to the case, filed an application to Rospatent on early termination of trademark No. 170696 due to its being unused. Decision of Rospatent dd. 07.06.2011 granted the application, the effect of a trademark AGROTEKS was terminated early due to the fact that the goods for which the trademark had been used, referred to the 24th class rather than to the 17th class for which this mark was registered.

As a result, the respondent submitted an evidence to the court that it started using the designation AGROTEKS earlier than the priority of trademark "AGROTEKS" No. 399161, a suit was rejected.

An application on the competitor's actions recognition as an act of unfair competition for the rights acquisition for a similar trademark or its registration, should be filed to the Federal Anti-Monopoly Service. In case with patent trolls this measure is not effective because trolls, as a rule, manufacture nothing and it is difficult for the Federal Anti-Monopoly Service to establish the competitive relations.

Utility model patents

"Patent trolling" is developed in our country much less than in Europe or the USA. When a patent raider files a lawsuit in court as a right holder, it has to prove that it has a registered patent to what is used by its victim. And even in case when a company gets a suit from a raider in connection with a patented technology use, it can avoid an attack through the rights establishment for a design invention. And in a series of cases one can do without it because a patent raider will have to find many rationales for his/her suit.

The Western "trolls" work primarily at the telecommunications market, at which by virtue of its specific nature, tens of the registered patents of different persons can be used for a certain technology or device. Here it is relatively easy to find a breach, if desired. But patenting in Russia in this field was less intense than abroad, and that's why the main patent wars (for example, between Apple and Samsung) pass our country by. Besides that, RF does not have its technological giants such as IBM and Apple (namely these companies become especially often the objects of patents suits), that's why our trolls act primarily in the field of consumer goods, patenting on the whole the known solutions and blackmailing good faith manufacturers or sellers.

The major weapon of the patent trolls – is lack of information or insufficient judicial competence of entrepreneurs. Besides that, today they have an opportunity to get patents for utility models without a substantive examination (that is, actually under a declaration of the very applicant on compliance of a utility model with the conditions of patentability).  This is precisely why in the recent years the growth tempos of patents for utility models have by that surpassed considerably the invention patents growth. Most often the patent trolls' victims in Russia become the manufacturers and suppliers of toys, fast moving consumer goods and electronics. Thus the trolls' attacks are easily defeated if a correct approach is used.

This is one of the examples: a suit of the Russian inventors Vitaly Pilkin and Vladimir Miroshnichenko to Sony Electronics. By the way, these two young men are the patent holders for a plenty of inventions in the field of electronics, many of which don't meet such a criterion as industrial applicability.  Citizens of the Russian Federation claimed from the court to prohibit the respondent sales of game console Playstation Vita in the territory of Russia, because they hold the invention patent as early as since 2009, that turned out to be identical to the console of Playstation Vita, under comparison. On the eighth  of September 2012, the collegium of the Chamber for Patent Disputes made a decision under application No. 2009136784/08 and declared fully invalid invention patent No. 2427879 of the Russian Federation.

Here there is one more example of the judicial proceedings in respect of the patents: in 2000 six inventors were granted a patent for utility model No. 31946 "Radiographic scanning device". Subsequently, in 2008 the patent was reassigned to Enterprise MEDTEKH LLC.

MEDTEKH lodged claims at once to its former partners, companies CJSC Rentgenprom and CJSC AMIKO, to which it had supplied at one time the products under a patent.

In 2008 CJSC Rentgenprom and CJSC AMIKO filed an objection to Rospatent against the mentioned patent issue. Their main argument was the fact that the device had not been new because before a priority date of the utility model under patent No. 31946 CJSC AMIKO had manufactured and sold the radiographic scanning device, to which all essential features specified in a formula of a disputable utility model are inherent. Rospatent delivered the decision to declare invalid utility model patent No. 31946 "Radiographic scanning device".

In a year company MEDTEKH declared this decision invalid in a judicial procedure, but CJSC Rentgenprom and CJSC AMIKO filed an appeal petition. On 30 July 2010 the ninth Arbitration Court of Appeal delivered the decision with regard to case No. А40-30551/09-5-358 and revoked the resolution of the Moscow City Arbitration Court, having retained in force the decision of Rospatent. Company MEDTEKH filed a cassation appeal, but in November 2010 the Moscow District Federal Arbitration Court issued decree No. КА-А40/14028-10 having retained in force the decision of the  Court of Appeal.

Currently our country makes the first steps on the way toward protection strengthening of the intellectual property. So, for example, with the introduction in Russia of the utility models examination, trolling will almost die out in essence , and if the patent court starts functioning in Russia – the arbitration court that will be engaged only in intellectual law, then the disputes resolution in this area will become simpler. The patent court will address all cases under the disputes relating to protection of the infringed or disputable intellectual rights, as the court of the first instance and the court of cassation. Cases will be divided into two categories: on establishment of right holders and on the right infringement.

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Author of article

Sergey Zuykov

Sergey Zuykov

Managing Partner / Patent Attorney of the Russian Federation / Eurasian Patent Attorney