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Jan. 5 — A federal district court cannot invalidate a purported transfer of trademark rights in the “Stolichnaya” brand name for vodka from the Russian government to a state enterprise, the U.S. Court of Appeals for the Second Circuit ruled Jan. 5.
The appeals court said that, under the doctrine of comity and the doctrine of act of state, the U.S. court could not rule that one branch of a foreign government's transfer of trademark rights to another branch of the government is illegal under that country's law.
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The court, thus, vacated a finding that the Russian state enterprise did not have standing to sue to regain control of the Stolichnaya brand and remanded the matter for further proceedings at the district court.
However, the appeals court also affirmed the lower court's rulings that the Russian state entity could not pursue some of its trademark infringement claims because the matter had already been adjudicated in an earlier court proceeding, and other claims because it had waited too long to file its lawsuit.
In 1901, the government of the Russian Empire established a distillery on the banks of the Yauza River in Moscow. The Moscow State Wine Warehouse No. 1—renamed the Public Corporation Moscow Distillery Cristall (OAO Moskovsky zavod Kristall) in 1987—was established in order to improve the quality of traditional Russian vodka.
In the 1930s or 1940s, the distillery began producing a vodka under the brand name “Stolichnaya,” derived from the term stolich, meaning “capital city.”
In 1969, the All-Union Sojuzplodoimport (known as “V/O-SPI”), a Soviet-owned entity, registered a trademark interest in “Stolichnaya” with the Patent and Trademark Office in the United States. In 1990, V/O-SPI became the All-Union Foreign Economic Association Sojuzplodoimport, known as “VVO-SPI.”
In 1991, VVO-SPI licensed the use of the “Stolichnaya” name in the United States to importer PepsiCo Inc. in a contract that provided that the rights would revert back to VVO-SPI in 2001.
Starting in 1992, during the fall of the communist government of the Soviet Union and the privatization of many state enterprises, the state entity's rights in the trademark were subject to a series of complex transactions. The Russian government alleged that Yuri Shefler and Alexey Oliynik illegitimately acquired control of VVO-SPI's trademarks and transferred them to their Spirits International entities.
Shefler's SPI Group S.A. then purported to license the U.S. distribution rights for Stolichnaya Premium Vodka—which is distilled in Latvia—to William Grant & Sons Inc. of New York and Allied Domecq Spirits & Wine USA Inc., which has since been absorbed by Pernod Ricard S.A. of France.
Meanwhile, in 2000, the government of the Russian Federation began to try to reassert control over properties that it deemed had been illegitimately privatized.
In 2002, it created the Federal Treasury Enterprise Sojuzplodoimport (Federal'noe kazennoe predprijatie Sojuzplodoimport or FTE Sojuzplodoimport), and granted it rights in the Stolichnaya trademarks. FTE Sojuzplodoimport licensed the trademark to the Itar Global Distillery, Kaliningrad, Russia, for the production of Stolichnaya Russian Vodka.
In 2004, FTE Sojuzplodoimport sued to regain control of the Stolichnaya brand name in the United States. FTE Sojuzplodoimport alleged that the trademarks were owned by the government of the Russian Federation, in whose name it was acting, and that the trademark rights should go to its exclusive licensee, Moscow Distillery Cristall.
In 2005, the Russian government issued a decree stating that FTE Sojuzplodoimport had the authority to assert rights in the Stolichnaya trademark in courts outside Russia.
FTE Sojuzplodoimport brought claims under Section 32(1) of the Lanham Trademark Act of 1946, 15 U.S.C. §1114(1)(b).
In 2013, the Second Circuit affirmed a ruling that found no statutory standing on the part of FTE Sojuzplodoimport because the Russian government had retained too much interest in the trademark rights. Fed. Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., 726 F.3d 62, 107 U.S.P.Q.2d 1839 (2d Cir. 2013).
The Russian Federation then issued Decree 69, which authorized the transfer of ownership of rights in the trademarks from the government to FTE Sojuzplodoimport, which then field another claim, arguing that the standing defect had been cured.
A federal district court again found a lack of standing, finding that the assignment of rights was invalid under Russian law, and that the claims were barred under the doctrines of res judicata—also known as claim preclusion—and laches. Fed. Treasury Enter. Sojuzplodoimport v. Spirits Int'l V.V., No. 14-00712 (S.D.N.Y. Nov. 24, 2014).
In the Netherlands, however, the Russian agency won back the rights to the Stolichnaya (as well as the Moskovskaya) brand from Shefler's company.
In this case, the court said that under the doctrine of comity, a U.S. court could not question the legality under Russian law of Decree 69 and the assignment of the trademark rights to FTE Sojuzplodoimport.
“The declaration of a United States court that the executive branch of the Russian government violated its own law by transferring its own rights to its own quasi-governmental entity (FTE) would be an affront to the government of a foreign sovereign,” the court said.
Furthermore, the court said that, under the act of state doctrine, the U.S. court could not review an act of the Russian government done within its own territory.
The question of whether FTE Sojuzplodoimport had standing under Russian law to assert trademark rights in “Stolichnaya” was “a question of Russian law decided within Russia's borders, rather than a matter of U.S. law with a situs in the United States,” the court said.
However, this victory may very well be hollow, because the court subsequently ruled that FTE Sojuzplodoimport's claims as a trademark holder under Section 32(1) of the Trademark Act were barred under the doctrine of laches, because it had waited too long to assert its rights.
And the other claims were barred under the doctrine of res judicata or claim preclusion, because they had already been adjudicated in the prior court proceedings, the court said.
The court's opinion was authored by Judge Dennis Jacobs and joined by Judges Jon O. Newman and John M. Walker Jr.
FTE Sojuzplodoimport was represented by Quinn Emanuel Urquhart & Sullivan LLP, New York. Spirits International was represented by Covington & Burling LLP, Washington. William Grant & Sons was represented by Kenyon & Kenyon LLP, Washington.
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