Supreme Commercial Court lays down guidelines on free-riding and dilution

On April 24 2012 and June 27 2012 the Supreme Commercial Court (the highest judicial body for commercial disputes in Russia, including IP cases) issued two decisions in disputes between a luxury watch manufacturer and Russian-based companies which used the plaintiff’s marks (VACHERON&CONSTANTIN and JAEGER LECOULTRE) to sell clothes. The court found against the defendants.

The decisions are significant for two reasons:

• They lay down important guidelines on free-riding and dilution by companies taking advantage of a trademark’s distinctive character and goodwill (there is no case law in Russia, but guidelines are usually strictly followed by the lower courts).
• The judges of the Supreme Court did not formally apply the Russian law on trademarks, as it would have created an injustice for the plaintiff and violated the international obligations of the Russian Federation (Article 10bis of the Paris Convention for the Protection of Industrial Property).

In Richemont v Tessir Partners Ltd (Decision of the Presidium of the Supreme Commercial Court N 16912/11, April 24 2012), the plaintiff had registered the trademark VACHERON&CONSTANTIN in 1978 for luxury watches and other horological goods (the mark was registered via the Madrid System for the international registration of marks). In 2010 the plaintiff found out that a Russian-based company, Ritter-Gentlemen, had been selling T-shirts, caps and shoes with the words 'Vacheron Constantin' embroidered on them. It also discovered that the respondent had registered the trademark VACHERON&CONSTANTIN in 2004 for use on clothes, caps and shoes. In 2007 the respondent had assigned its rights in the mark to a British Virgin Islands company, Tessir Partners Ltd.

In 2011 the plaintiff filed an application with the Russian Federal Service of Intellectual Property (Rospatent) for the cancellation of the respondent's mark. Rospatent rejected the application. The plaintiff challenged Rospatent's decision in the Commercial Court of First Instance, the appellate and cassation instance courts, but was unsuccessful.

The courts based their decisions on the applicable law and found against the plaintiff on the following grounds:

• The plaintiff’s goods (luxury watches) and the respondent’s goods (clothes, caps and shoes) were neither similar nor interchangeable (Article 1483(6)(2) of the Civil Code of the Russian Federation, Part IV);
• No confusion had been caused, or was likely to be caused, to consumers as to the manufacturer or place of origin of the goods (Article 1483(3)(1) of the code); and
• VACHERON&CONSTANTIN was not a well-known mark in Russia, since only a limited class of people were aware of it (Article 1483(6)(3) of the code).

The courts thus upheld the decision of Rospatent and dismissed the plaintiff’s application. The plaintiff appealed to the Supreme Court.

The Supreme Court overturned the lower courts’ decisions and ordered that Rospatent cancel the respondent's mark on the following grounds:

• Consumers could be misled into believing that there was a connection between the plaintiff's famous watch brand and the respondent's clothes due to the high quality and price of the parties' goods, which were sold under the same trademark;
• There was also a likelihood of confusion as to the manufacturer and place of origin of the goods, since consumers might believe that the plaintiff had decided to expand its product line;
• The actions of the respondent constituted wrongful misappropriation of the plaintiff's goodwill and, therefore, amounted to unfair competition, even though the respondent was not a competitor of the plaintiff; and
• Rospatent had abused its discretion in registering the mark at issue.

Interestingly, the judges of the Supreme Court took into consideration the plaintiff’s argument that the present case was similar to Eastman Photographic Materials v Kodak Cycle ((1898) 15 RPC 105)), which involved the use of KODAK for bicycles, in which the court had found against the respondent.

The facts of the second case, Richemont v InPro AG (Supreme Commercial Court Ruling N 15771/11, June 27 2012), were similar to those of the first case, except that the mark at issue was JAEGER LECOULTRE and that the respondent had assigned its rights in the mark to a Seychelles company, InPro AG. The court also found in favour of the plaintiff - the judges merely followed their decision in Richemont v Tessir Partners.

Nevertheless, the court laid down important rules:

• The Nice Classification is not decisive in evaluating the similarity of goods; and
• The court shall take into consideration not only the type of the goods, but also:
  • their properties;
  • their functional purpose;
  • their interchangeability or complementarity;
  • their conditions of sale;
  • their intended consumers; and
  • their traditional or primary use.

Following these decisions, it will be possible to prevent the wrongful misappropriation of goodwill in cases where the parties are not competitors. This new approach by the Supreme Court intends to prevent actions which are lawful in principle, but unfair in substance.

Olga Bezrukova and Alexey Pashinskiy, Squire Sanders Moscow LLC, Moscow