6 November 2010

Stolichnaya’s trade mark right lost in transition

Image: Stolichnaya by Thor on Flickr
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This blog post does not aim to address only the consumers of good vodka. It rather aims to direct readers’s attention to the social and economical process of transition of the former communist countries that followed the fall of the iron curtain in the late 1980’s. The transition in question comprised of numerous transfers of previously state-owned assets to individuals or privately owned companies. Many of these transfers of assets have been considered to represent rather sinister business practices. I know, it is somewhat weird but it appears that the transfers, particularly those in Russia, have had also some intellectual property relevant aspects. In practical terms, I will spend some time and digital ink to analyse the case of the well-known brand “Stolichnaya”, being a transfer of asset case. In terms of dubiosity, it seems, the legal battle over Stolichnaya that is currently pending at the United States Court of Appeals for the 2nd District, delivers a good quality proof for above suspicion.

But let me first present the facts as the Second Circuit has made a great effort to summarize them in a very comprehensible fashion. Impatient readers are advised to proceed by skipping the next paragraph.

As many of you might well be aware,  “Stolichnaya” is Russian for “from the capital,” and is the name of a successfully marketed Soviet and, after the collapse of the Soviet Union, eventually Russian vodka. As part of this marketing, the All-Union Association Sojuzplodoimport (“V/O-SPI”), a Soviet-owned entity, registered the trade mark “STOLICHNAYA” with the United States Patent and Trade Mark Office (USPTO) in 1969. In 1990, V/O-SPI became the All-Union Foreign Economic Association Sojuzplodoimport (“VVO-SPI”). In 1991, VVO-SPI assigned the rights to the American trade marks, along with the authorization to import vodka under those marks into the United States, to the American corporation PepsiCo, in a contract which provided that the marks would revert to VVO-SPI in 2001.  Following the dissolution of the Soviet Union, the General-Director of the state-owned VVO-SPI at that time, Evgeniy Filoppovich Sorochkin, designed a scheme with others of the VVO-SPI staff to seize its assets for themselves. In 1992 Sorochkin registered a private Russian corporation, the Foreign Economic Joint Stock Company Sojuzplodoimport (“VAO-SPI”). Sorochkin then took various actions—including transferring assets from VVO-SPI to VAO-SPI in 1993—which were evidently sufficient to convince PepsiCo that VAO-SPI was the successor of VVO-SPI. In 1994 the two corporations entered into an agreement which adverted to the agreement between PepsiCo and VVO-SPI and which referred to VAO-SPI as the owner of the STOLICHNAYA trademarks. In 1997, VAO-SPI spawned a successor-in-interest, which subsequently sold the reversionary rights from the PepsiCo contract to a new company, Closed Auction Company Sojuzplodimport (one letter different from sojuzplodoimport) (“ZAO-SPI”), controlled by defendants Yuri Shefler and Alexey Oliynik. While still under the control of Shefler and Oliynik, ZAO-SPI sold its rights to the marks to defendant Spirits International, N.V. ( a Dutch corporation headquartered in Curacao) which is a subsidiary of defendant SPI Group SA (a Swiss company headquartered in Geneva). Both SPI corporations are hereinafter referred to as the “SPI defendants”. Claimant alleges that both of these corporations, together with defendant SPI Spirits Limited (a Cypriot corporation), are managed and owned by Shefler and Oliynik. Thus, claimant alleges, when ZAO-SPI transferred its purported trade mark rights to Spirits International, it was effectively transferring those rights to yet another corporate entity owned or controlled by Shefler and Oliynik, only this time to one located outside of Russia. In November 2000, SPI Spirits and Spirits International entered into an agreement with defendants Allied Domecq International Holdings, B.V. (a Dutch corporation) and Allied Domecq Spirits & Wines USA, Inc. (an American corporation), in which the SPI entities agreed to assign the marks to Allied Domecq beginning in 2001 until 2011, at which point the marks would revert to SPI. Allied Domecq then began marketing and selling STOLICHNAYA vodka in the United States. Meanwhile, the origianl proprietor of the STOLICHNAYA trade mark, VVO-SPI, continued to exist. In July 2001, the Russian government converted it to a different corporation, called Federal State Unitary Enterprise Economic Association Sojuzplodoimport (“FGUP VO SPI”). That same year, Russia’s government created claimant Federal Treasury Enterprise SOJUZPLODOIMPORT and Zakrytoe Aktsionernoe Obshestvo “LIVIZ” (“FTE”). In 2002, after Russia recovered rights to the Russian STOLICHNAYA marks from an SPI entity, Russia gave FTE the rights to manage (but not assign) the Russian STOLICHNAYA trademarks, and in 2005 it charged FTE with representing its interests relating to the recovery and registration of alcohol trademarks abroad. This litigation resulted.

Got it now? Once again, but in a nutshell: VVO-SPI registered the trade mark STOLICHNAYA and assigned it for a certain period to PepsiCo for operation in the US, VAO-SPI misrepresented to be the successor of VVO-SPI, VAO-SPI then sold the trade mark to ZAO-SPI, ZAO-SPI transferred its rights to the SPI defendants and they transferred to Allied Domecq. FTE, an entity created by the Russian government and purportedly granted rights by the government to manage the STOLICHNAYA trade marks, now sues two groups of defendants: (1) the SPI defendants and (2) Allied Domecq. FTE based its claims, inter alia, on fraud, misappropriation, unfair competition, copyright infringement, unjust enrichment, contributory trademark infringement, contributory trademark dilution, and contributory false designation of origin.

Curiously, but the district court dismissed the bulk of FTE’s trade mark and misappropriation claims on the ground that claimant sought to challenge ownership of a trademark that had become incontestable under the Lanham Act.

It is true that § 1065 of the Lanham Act establishes a process by which a registered trade mark may become “incontestable.” It is also true that  § 1115(b) of said act states that once the steps of the process occur, the “incontestable” trade mark provides evidence of the registrant’s ownership of that mark, subject to certain enumerated defenses, and accords the registrant the “exclusive right to use the mark”. Finally, the district court reasoned, according to § 1127 that the term “registrant” embraces the  assigns of a registered mark.  The district court consequently concluded that Allied Domecq could step into the shoes of PepsiCo and rely on the incontestable registration of the trade marks as conclusive evidence of ownership, and consequently ruled that FTE could not pursue claims purportedly challenging Allied Domecq’s ownership of the marks.

When I first read this section of the judgment, some doubts as to the correctness of the decision showed up and I thought “something must be wrong here”. I got reminded of the storyline as to how VAO-SPI became the “proprietor” of the STOLICHNAYA trade mark and Allied Domecq an “assign” respectively. It seems just too easy to be good, doesn’t it? Well, I am proud that the 2nd Circuit is of more or less the same opinion. This court, citing McCarthy, opined that only after a valid assignment of trade marks does the assignee succeed to the rights of the assignor. Obviously, an assignment obtained by fraud would not be valid. The court further held, citing In Re Ratny, that since the act of recording a document is not a determination of the document’s validity, the existence of a recorded assignment does not preclude a party from establishing its ownership of the mark in a proper forum, such as a federal court. As a result, the incontestability of a trade mark cannot serve to defeat allegations challenging the legality of the assignment. For those reasons, the 2nd Circuit vacated the district court’s decision and remanded it advising FTE to challenge the validity of the assignment of the incontestable STOLICHNAYA trade marks to Allied Domecq before the same district court.

I personally have no doubts as to FTE’s success in proving the invalidity of the assignment. The funny thing is that it takes an American court of jurisdiction to rectify a fault undertaken in the dying off Soviet Union.

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