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Knights of the Vine RUSSIA


Someone’s Stolen my Brand!
John Bonar

As more and more foreign companies are viewing Russia’s booming economy and fast expanding consumer spending power, some of them are finding an unexpected obstacle to starting business here. Someone has already registered their brand trademarks and product patents, or hijacked their domain name on the burgeoning dot ru internet community.

Cases which have caught the public eye involve such international names as Starbucks Coffee Shops, Kodak, H&M retailers, Amway care products, Subway sandwiches and Annheuser-Busch beer.

These are just the tip of an iceberg.

Eugene Arievich, Russia’s foremost intellectual property lawyer and head of the IP practice at Baker & Mackenzie LLP, says Russian Trademark law is pretty much in line with Europe and rest of the world, “The first to file and register gets the rights” he says.
However, you have to actually use the trademark by importing and distributing products or opening shops and so on within three years of registration, or it will be terminated.

Also, in Russia there is no provision for rejecting bad faith registrations, so this opens the doors for what Arievich calls “Trademark Pirates”.

The most notorious of these is Sergei Zuikov. “He’s quite ingenious, probably reviews the Internet daily, attends international exhibitions looking for trademarks that could be worth something. Then he conducts a search to see if it is registered in Russia. If not, he registers it,” says Arievich.

The best estimate of legal professionals is that he has filed anywhere between 3,000 and 5,000 trademark registrations under a number of companies he controls.

Then there are various scenarios. He may just sit and wait for the trademark owner to start business in Russia, or he may contact them and offer to sell them their own trademark! The legal process to reclaim your own trademark takes you through several stages in law, and while you can achieve this in most cases in under a year in Russia, which is swifter than in many western countries, it involves hefty legal bills.

However if you are in business, then a year is a year. Many companies do not want the delay of launching their product and there is the added element of legal costs, which are unlikely to be recovered at a realistic level under the Russian legal system. “So some companies would prefer to pay off the pirates, so they can get on with business,” Arievich told Passport.

One company which fought back was Starbucks. Because they had not used their trademark for three years since registration, it was made void and Zuikov stepped in and registered it. As they successfully won case after case Starbucks started imported coffee product, they started supplying the Renaissance Hotel and then opened a branch in the US Embassy compound. Towards the end of last year, after a year’s legal battle, they won and are now believed to be planning high street operations in Russia. Those who dig in their heels and fight can expect a battle not less time consuming than Starbucks.

Europe’s largest lock manufacturer, Assa Abloy, has been approached by a Russian businessman, informing that he holds Russian patents on locks and offering to sell them.  Assa, who have been manufacturing locks for 100 years, are said to be unimpressed.

One bizarre case which has raised hackles in diplomatic and legal circles and even reached the ears of foreign teams negotiating with Russia over World Trade Organisation membership is Officescape, a British owned and managed fit-out contractor, currently locked in a legal battle with the Russian firm Department of New Technology (DNT). Lawyers categorized the situation as stepping into the Twilight Zone at a business debate last year.

The case revolves around patents on raised access flooring registered by DNT in June 2004. What’s bizarre is that the technology was developed in the USA in the middle of last century, and all patents around the world have expired after 25-year validity. Raised flooring facilitates computer cabling and helps insulation and soundproofing. In the 1990’s raised floors were installed by US Gypsum in the Russian Central Bank and in the Kremlin. In 1998 Officescape installed 9,000 sq m of raised flooring at 11 Gogolevsky Boulevard for Credit Suisse First Boston bank, and have been active in this area for many years.

This not withstanding, Sergei Kardashev, a director of DNT and Versolod Glukhetsov, a vice-president of ABN Amro Bank in Russia, were successfully awarded a patent for what most contractors had assumed was accepted as a generic technique.

Michael Wheller, the Managing Director of Officescape, told Passport a lawsuit came “out of the blue” accusing him of infringing the June 2004 patents on two projects Officescape had started prior to the issue of patent certificates to DNT.

Wheller points out that the Russian patent office is a signatory to the ‘Paris Agreement’ binding patent offices worldwide to certain criteria for issuing patents. “The main one being that you cannot get a patent for something that is already in common use anywhere in the world unless it has an inventive step, not obvious to the common person.”

“In its simplest form, this means you cannot paint something a different colour and call it an inventive step.”

Wheller says Officescape dug its heels in and decided to fight “because we see this as the thin edge of the wedge. Once we pay for this they will patent other items and then we will be paying a ‘royalty’ on everything.” Wheller is the defendant in a criminal case  as acting against the rights of the Russian ‘inventors’ and, if convicted could face a jail sentence of up to five years and major fines. His passport was impounded and he was unable to leave Moscow for months. Hearings on his appeals for leave to travel have been successively postponed.  Meanwhile other executives of the company have been pilloried in the Russian media, including one slanderous accusation of bigamy against a British bachelor working for the company.

All in all Wheller estimated Officescape has incurred costs in the order of $300,000 and have been struck off some tender lists for fear of repercussions where the potential business totaled $20 million. Despite this, Wheller maintains, “business is very good.”

One western executive with another construction company here puts a slightly different slant on it. Speaking on condition of anonymity he claimed DNT  not only registered the patent but also began manufacturing raised access flooring. “They spread the word that all raised flooring in Russia had to be purchased from them,” he told Passport.

“One of their first customers was Officescape. However the quality of the product failed to meet acceptable international standards. Officescape rejected it and refused to pay DNT’s invoice. This started the whole controversy,” he said. “Realising their product was substandard; DNT then started licensing other suppliers, essentially importers of foreign manufactured raised floor materials. It is the suppliers who pay a fee to DNT, not the contractors,” he told Passport.

Because Officescape’s case is in the criminal court system of Russia, it’s outcome and the process are far from assured. If they lose the case, then word has it DNT are prepared to ‘invent’ suspended ceilings, carpet tiles, hinges and other building materials.

A much more satisfying result was obtained by Amway towards the end of last year in a civil case in Novosibirsk to cancel the registration of and restore the rights to its own name to the company. “It was a regional court and the judge was certainly not familiar with computer technology, the worldwide web and the importance of domain names in conducting commerce,” Amway’s lawyer, Baker & Mackenzie’s Arievich told Passport.

Essentially, over a period of six months, Baker and Mackenzie educated the local judge on the Internet, the World Wide Web and domain names. “In the end she wrote an excellent decision which would have been a credit to a judge anywhere in the world.” Arievich told Passport.

The Trademark Pirates activity peaked in 2003 and in the face of a growing sophistication of the courts and judiciary is on the wane.  In the mid 1990’s, the get-rich-quick merchants were able to exploit the lack of judicial understanding of modern commerce and as the free market economy gained root in Russia were unprepared for the devious resourcefulness of Russian entrepreneurs.

Arievich is confident things are getting better. He points to a 2002 amendment to the law on trademarks which specifically singles out cybersquatting as a trademark infringement.

Russian courts, he says are now bearing down on people who register trademarks “capable of misleading consumers as to product or suppliers”.

That said, there are many companies still willing to pay up to Russia’s 21st Century carpet baggers to avoid the problems faced by companies such as Officescape in doing business here.

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