Supreme Court provides guidelines for early termination of trademark protection for non-use

In Kait Sport LLC v Kait Sport LLC (Case No А40-53262/2012-19-370, September 17 2013; full judgment published on October 29 2013), the Supreme Commercial Court has considered an unusual dispute between two Russian companies with similar company names. The plaintiff was an active company (a sports clothing and equipment manufacturer), while the defendant was a shell company. The defendant had once been a large sports clothing and equipment manufacturer, but had not carried out any activities for several years.

The plaintiff sought to register the trademark KAIT-SPORT for goods in Classes 25 and 35 of the Nice Classification. The plaintiff intended to use the designation it its manufacturing process and had already concluded agency agreements for the resale of sports clothing and equipment, lease agreements for factories and other contracts for manufacturing.

The defendant was once a well-known sports clothing and equipment brand, and KAIT-SPORT was still a registered trademark owned by the defendant. Therefore, the plaintiff filed a claim for early termination of protection of the defendant’s trademark on the ground of non-use.

The commercial court of first instance and the appeal courts rejected the plaintiff’s claim on the following grounds:

• The goods for which the plaintiff sought to register its trademark were not similar to those for which the defendant’s mark was registered;
• The plaintiff had no interest in the use of the trademark and, therefore, there were no grounds for the early termination of the trademark's protection; and
• The plaintiff had failed to present proof of non-use of the defendant's trademark.

The Supreme Commercial Court overruled the lower courts’ decisions and terminated the protection of the defendant’s trademark. The Supreme Court's reasoning was as follows.

First, the lower courts had failed to apply Article 1486(1) of the Civil Code of the Russian Federation, Part IV, according to which the early termination of the legal protection of a trademark is available in respect of all or part of the goods due to non-use of the trademark during any three-year period after its registration. An application for early termination may be submitted to the court by an interested party after these three years, provided that, prior to such claim, the disputed trademark was not in use. An interested person is any person or entity with a legitimate interest in the termination of the legal protection of an unused trademark. 

Second, the lower courts had failed to apply the rules regarding the similarity of goods laid down in previous Supreme Court decisions (see Resolutions of the Presidium of the Supreme Commercial Court No 10268/02 dated December 12 2002 and No 2979/06 dated July 18 2006), according to which, in order to establish the similarity of goods, the courts must take into account the following factors:

• the type of the goods;
• their properties and functionality (scope and purpose of the application);
• the type of material from which they are made;
• the complementarity or substitutability of the goods;
• the way in which the goods are sold (eg, retail or wholesale);
• the relevant consumers; and
• the traditional or primary way in which the goods are used.

In the present case, the Supreme Court held that it was obvious that the goods were similar. 

Third, the lower courts had failed to apply the rules laid down by the Supreme Court in LLC Kazachie v Rospatent (Resolution of the Presidium of the Supreme Commercial Court No 14503/10 dated March 1 2011), in which it was established that an interested party must have a real intention to use the disputed designation in its business, as well as a real intention to make necessary preparations for such use (eg, an interested party must have filed an application to register a trademark). In the present case, the plaintiff had filed an application and provided the court with invoices and bills of lading which proved that it was prepared to use the designation. 

In addition, the Supreme Court noted that, if a plaintiff's company name is identical or similar to the disputed trademark and the company's business activities are similar to those of the trademark holder, such company has an interest in the early termination of the trademark protection. 

As a rule, the burden of proving that a disputed trademark is used rests on the party whose trademark is being attacked (in this case, the defendant). The lower courts, however, had mistakenly reversed the burden of proof. The defendant failed to appear in any of the court hearings, including that before in the Supreme Court, and did not submit any objections or evidence that it used the trademark. Thus, the defendant had failed to prove that it used the trademark or that it could not use it for reasons beyond its control.

The Supreme Court indicated that cases with similar facts in which the judges’ reasoning was different from that established in this case could be subject to retrial. The reasoning set forth in the present case will serve as mandatory guidelines for future disputes with similar facts.

The Supreme Court’s decision in this case establishes clear-cut rules for the early termination of trademark protection on the ground of non-use. This will hopefully allow good-faith businesses to register trademarks in Russia with certainty and without having to spend a lot of time and money. Once again, the Supreme Court has clearly demonstrated that its approach focuses on substance over form.

Alexey Pashinskiy, Squire Sanders Moscow LLC, Moscow