An Interlude Continued–Unitary State Enterprises Under The Russian Civil Code
For historical as well as political reasons, the Russian government does not directly participate in private sector business activities. Rather, analogous to the practice of governments in other civil law jurisdictions, separate and inferior legal entities are used for such purposes. Generically, in Russia, these legal entities are referred to as “unitary state enterprises” (where different levels of government e.g., federal or municipal may act). The formulation herein is the federal treasury enterprise. See generally Wm. Butler, Russian Law §§ 11.112-11.120 (3rd ed., 2009).
There are two types of unitary state enterprises viz., those having the right of economic management and those with the more limited right of operative management. The latter are generally characterized as treasury enterprises. Specifically, articles 113-115 of the Civil Code address the “what” of unitary enterprises with articles 294-300 enunciating the “how.”
Regarding the management of the Stolichnaya family of trademarks, the Russian Government originally established the Federal Treasury Enterprise (FTE) through Decree No. 494 (July 2002) “On Trademarks of Alcohol & Spirit Products” (see 425 F.Supp. 2nd 458 ) and the FTE continues as the named plaintiff now appealing to the Second Circuit for the third time.
The Government decrees creating and empowering the right of operative administration in this Federal Treasury Enterprise are grounded in article 115 of the Civil Code, which together with article 297 prohibit it and other unitary enterprises from disposing of any of the property entrusted to them without receiving prior State approval.
Under Russian law a notable and subtle distinction exists regarding what is property. This distinction caused confusion in the legal analysis that Judge Scheindlin engaged in. In fact, it lead to her making a legal error in declaring what Russian law was and is regarding the Stolichnaya family of trademarks entrusted by the Russian Government to the FTE.
Act 4–The Slippery Slope Of Judge Scheindlin’s Reasoning About The FTE’s Putative Failure To Fulfill The Requisites Of The Lanham Act
Back on 25 August 2014, Judge Scheindlin considered and, in substantial part, decided the defendants’ joint motion seeking to dismiss plaintiffs’ trademark claims on the grounds that the quantum of the evidence proffered in the fourth amended complaint did met neither the obligatory standing nor representation requisites of the Lanham Act.
The crux of the plaintiffs’ proof was in their Exhibit A–an “Assignment of U.S. Trademarks” (dated 03 February 2014) from the Federal Agency on State Property Management, a federal state executive body acting under a Decree of the Russian Government, No. 69 (dated 01 February 2014) with that assignment being signed by a deputy minister of the Russian Ministry for Economic Development who, inter alia, served at the Head of the Russian Federal Agency on State Property Management.
Judge Scheindlin curtly set forth (at p. 18 of her August 2014 slip opinion) the legal authorities enunciating the criteria for her judgment call:
“Courts in the Second Circuit have long held that “a party is not an assign for standing purposes under the Lanham Act unless that party owns the mark at issue.” [FTE IV, 726 F.3d at 75] Moreover, the Second Circuit has “accepted that a transfer of an ownership interest in a mark is a predicate to standing for any putative assign.” [FTE IV, 726 F.3d at 76 citing DEP Corp. v. Interstate Cigar Co., 622 F.2d 621 (2d Cir. 1980)]”
Thus the crucial verbiage in English was established as involving two nouns–“ownership” that is transferred in a writing plus an–“assign” which are what the Federal Treasury Enterprise was obliged to prove itself to be.
Applying those case law authorities plus logical reasoning in her August ruling, Judge Scheindlin, in November, firstly rejected defendants’ argument that the limitations of FTE’s decree-based charter could not be superseded and expanded by the February 2014 degree-based Assignment. Secondly, she determined (at p. 28 of that August 2014 slip opinion) that until expert testimony was marshalled on how to read the relevant Russian legislation, the
“FTE has alleged facts that plausibly show that the Russian Federation has assigned the Marks to FTE, giving FTE standing to sue under Section 32(1).”
At page 20 of her 24 November slip opinion, Judge Scheindlin succinctly stated her matured view of the crux of this case:
“To determine [at this point in time] whether FTE has standing, I must decide one overarching question: does FTE have a sufficient ownership interest in the trademarks at issue pursuant to the Assignment and Decree 69 to qualify as an “assign” under the Lanham Act? As will become quickly apparent, the task of answering this question is extremely difficult because it requires a U.S. court, which lacks any familiarity with Russian law, to address issues of first impression under Russian law. After hearing two days of expert testimony and several hours of thorough and thoughtful summations, I have decided that the answers to these novel issues resolve the Lanham Act standing question in favor of defendants, although this is undoubtedly a close call. (Italic emphasis in Judge Scheindlin’s opinion and order.)”
Act 5–The “Nitty-Gritty”–Decree No. 69 & the 2014 assignment to the FTE
Decree No. 69 (dated 01 February 2014) of the Russian Government directed the Federal Agency on State Property Management in the Ministry of Economic Development to execute a bilingual Assignment (dated 03 February, exhibit A to the plaintiffs’ fourth amended complaint that was filed on 04 February 2014).
In formulaic paragraphs of classic legal boilerplate, that 2014 Assignment
“sells, conveys, transfers, assigns, and sets over”
a five-page catalog of legal rights–“to title and interest;” “to sue and collect damages;” “to record” these trademark rights. Ultimately, that 2014 Assignment even declares that:
“[The] Assignor expressly relinquishes any and all right, title, and interest in and to the assigned property in the U.S.”
The plaintiffs placed much hope that the verbiage in this 2014 Decree and 2014 Assignment would resolve prior confusion and remove any doubt about whether a sufficient delegation of legal authority–under Russian law–had been made to the Federal Treasury Enterprise in order to satisfy the Lanham Act’s registration and representation requisites.
However, a yet further factual and legal development intervened in the form of legislative amendments making changes as well as additions to Part Four of the Russian Civil Code. These were enacted in Russian Federal Law of 12 March 2014, No 35-ФЗ, which for the most part took effect on 01 October 2014 (see generally, http://www.wipo.int/wipolex/en/).
One of these specific changes enunciates a notable delineation in the Russian civil law of property rights viz., as regards rights in tangible “things” (land and chattel) and intellectual property rights. This is Civil Code article 1227 that addresses the relationship between an intellectual property right and the right to ownership of that right. There was added, a new part viz., (3) providing that:
“The provisions of Section II of this Code shall not apply to intellectual property rights, if not otherwise established by the provisions of this Section [VII}.”
The significance of this change is corroborated and contrasts with the previous conception articulated in Civil Code article 128 stating:
“The following are objects of civil law rights: things, including money, commercial paper and securities; other property, including property rights; work and services; protected results of intellectual activity and means of individualization equated to them (intellectual property); non-material values.”
Pursuant to this catalogue, Russian legal property rights were previously conceptualized as being holistic plus in rem.
Thereafter in Part Four and articles 1229-1231 there is elaborated a characterization of IPR as an “exclusive right,” albeit it implies at least the semantic possibility of a distinction being drawn between the legal rights attendant for a “holder” (обладатель) as opposed to those for an “owner” (владелец).
Act 6–Russian experts sparring in an American federal district court
In the autumn of 2014, upon the parties’ mutual urging, Judge Scheindlin heard two-days of expert testimony from contending Russian legal advocates about what the Russia law was upon this point. Each tendered opposing analyses with reasoning. The one thing that was undisputed was that articles 113 plus 296 and 297 of the Civil Code do enunciate limits to the property ownership rights of a unitary state enterprise such as the named plaintiff, Federal Treasury Enterprise. Judge Scheindlin relied upon the explanations proffered by the two disagreeing experts. This state of affairs lead directly to her remarking (slip opinion at p. 29) that:
“I am somewhat uncomfortable telling a foreign government that a validly enacted decree cannot achieve the result that was clearly intended by its passage. I am also uncomfortable interpreting various sections [sic “articles”] of the laws of a foreign country–which I can only review in imperfect translation–when those sections [sic “articles”] have not yet been addressed and defined by the courts of that country.”
Much ado was made in this Federal Treasury Enterprise (FTE V), Sojuzplodoimport litigation over a Russian закон/statute that prima facie altered the overarching framework of the Russian Civil Code. That addition creates a distinction between the characteristics of ownership vis-à-vis intellectual property rights (viz., as are described in Part Four of the Civil Code, i.e., Section VII) and other property rights (viz., as are described and defined in Part Two, i.e., Section II, i.e., articles 209-306).
Specifically and in full, an addition has been made in Part Four to article 1227 i.e., a sub-part “(3)” is added (which for emphasis is in italics infra):
“(1) Intellectual rights do not depend upon the right of ownership and other rights in things to the physical carrier (or thing) in which the respective result of intellectual activity (or means of individualization) is expressed.
“(2) The transfer of the right of ownership to a thing does not entail the transfer or granting of the intellectual rights to the result of intellectual activity or to the means of individualization expressed in this thing, with the exception of the case provided by the second subparagraph of Paragraph 1 of Article 1291 of the present Code.
“(3) The provisions of Section II of the present Code shall not be applied to intellectual property rights unless otherwise established by the articles of the present Section [VII].”
In the end, Judge Scheindlin was most persuaded by the testimony of Moscow advocate Vladimir Gladyshev (firstname.lastname@example.org). On behalf of the defendants, he had argued the premises that:
- this legislative addition effected no changes in the status of unitary state enterprises–like the FTE–which is elaborated in article 113;
- the characterization made by article 1226 that “[i]ntellectual rights . . ., include an exclusive right that is a property right, …;”
- article 1226 needing to be read together with article 1228 which defines “objects in civil law rights” to include “other property, including property rights.”
His explanation had the seeming virtue (cf., Ockham’s Razor) of greater simplicity than the explanation made by Moscow advocate Alexander Muranov (AMuranov@rospravo.ru & http://www.rospravo.ru/en/firm/message/). Judge Scheindlin consequently concluded that:
“Mr Gladyshev closes the gap between “property,” as defined by article 113, and “property right,” in the intellectual property context of Article 1226, by relying on Article 1228, . . . Accordingly, trademark rights must be “property” that can only be held by a unitary enterprise in operative management.”