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11.02.08
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Trademark Squatters Profit At The Expense Of Multinationals
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By Nataliya Vasilyeva
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Starbucks was uncharacteristically quiet opening its first coffee shop in Moscow last October. Rumors that Starbucks had already been making hazelnut hot chocolate in the U.S. Embassy for a while seemed so fantastic that they actually happened to be true. Entangled in a dispute over its trademark the Seattle coffee giant had to start business in Russia in a place where local laws had no effect.
Starbucks is one of hundreds of foreign brands that have become targets of Russian trademark squatters. The American company first registered its trademark in the country in 1997, but did not open any stores here because of the economic crisis in 1998. The trademark was not used for three years after the registration and therefore became void. It was at this point that Sergei Zuykov, Russia’s most famous trademark squatter, stepped in and registered it in his name. In 2005, Zuykov suggested that Starbucks pay $600,000 for the right to use their name in Russia.
The dispute was on the agenda at WTO talks between Russia and the United States in fall 2005. According to unofficial reports, Arkady Volsky, the head of the Russian Union of Industrialists and Entrepreneurs, met Zuykov to ask him to back down. “I didn’t meet Volsky,” Zuykov said. “I met his advisor, who said: ‘If you’re ready to give up all the claims, then you can go and shake Volsky’s hand.’ I didn’t want to shake hands with Volsky.”
“Like in many other countries, trademark registration in Russia is based on the first come, first served principle,” said Vadim Uskov, head of the law firm Uskov & Partners. Any person can apply to register a trademark.
“In this respect, everything was done legally,” said Eugene Arievich, head of the intellectual property practice at Baker & McKenzie. Arievich spent two years in court defending Starbucks against Zuykov. “We needed to prove that the trademark was known in Russia, and such registration could be misleading,” he said. Arievich and his team used everything, including statistics of Russians traveling abroad, to show how many Russians might be familiar with the brand.
Starbucks got its trademark back in November 2005, but Zuykov did not give in, and has recently filed a complaint with the European Court of Human Rights. “Russia has violated my right to a fair hearing. The trademark was voided because it was not used in commerce, and another company registered it legally,” he said. Vadim Uskov does not think Zuykov’s claim in the European Court stands much of a chance, “Starbucks won the case with good grounds for it. The European Court is just another PR stunt for Sergey Zuykov.” A Starbucks spokesperson declined to comment on Zuykov’s recent legal actions.
In another high-profile case, Beiersdorf went to court to defend its trademark Nivea against BRS-Kosmetiks and its trademark Livia. The Supreme Court of Arbitration handed down a decision in Beiersdorf’s favor in July 2006, saying Livia’s similar-looking design could mislead buyers. Other examples include H&M. The Swedish clothing retailer yielded its brand name last winter after two years of litigation. “All the time we were confident that the Russian authorities will give us the full rights to our brand,” said Annacarin Bjorne, spokesperson for H&M. The company now plans to open its first store in Moscow next year.
More Follows
Meanwhile, Sergey Zuykov has turned into a highly paid trademark lawyer. “I’ve got no brand names left and I’m not applying for more. I’m helping others to protect their rights,” he said. “You can make the same money providing consulting services.”
About 1,000 trademarks are still owned by legal pirates in Russia, according to Zuykov. In Eugene Arievich’s estimation, the number is more like several hundred. “But generally, squatting is in decline,” he said. Zuykov, however, doubts that squatting is disappearing: “Fewer cases are made public, that’s it. No one knew how to deal with these cases before, that is where all this publicizing came from.” Vadim Uskov, who now represents in court three companies against Zuykov’s firm, also thinks the number of squatters is high: “Those people are still in the business, so squatting won’t disappear tomorrow.”
As authorities are cracking down on trademark pirates, cybersquatting is becoming increasingly popular. “Canceling the registration is difficult unless the domain is being used to promote the same kind of business as the claimant’s,” said Arievich. Audi Russia spent more than two years in courts defending its rights to the www.audi.ru domain which was registered in the name of a Russian citizen. “We were offered to pay $150,000 for the website,” said the company’s spokesman Vagif Bikulov. In 1999, Kodak sued a Russian firm that was using www.kodak.ru domain and won the case after two years of litigation.
Legal experts say trademark squatting is still widespread in Russia because multinational companies make themselves easy targets. “The reason is not because the legislation is bad, because it’s not,” said Uskov. “It’s simply a marketing mistake.” Trademark squatters move fast, so copyright holders should make sure they register their trademarks quickly enough. “A lot of squatters travel to international fairs. They see a new product, go back to Russia and register rights for the brand if the company has not registered it here yet,” said Uskov.
Resorting to bad faith competition law is a good defense against trademark squatters. A decision from the Federal Anti-Monopoly Service can cancel the registration of a trademark on the grounds of bad faith competition. “In the Starbucks case, the Supreme Court of Arbitration actually said that it was bad faith competition and you can’t use somebody’s reputation to get an edge,” Arievich said.
A lot of the disputes, however, are settled out of court, where the balance of conveniences is considered. “Companies have to think what is going to take more time and money – litigation or an out-of-court settlement,” said Arievich. “Some of them prefer to pay, say, $20,000 and carry on with their business rather than spending years in court with no guarantee that they will win.”
The percentage of out-of-court settlements in these cases is high. “As far as I know, 70 to 80 percent of cases are settled out of court,” said Uskov. “If you look at the Federal Patent Agency’s fortnight bulletin, you can actually guess where settlement payments have been made. There are lots of announcements when a bogus company hands rights for a well-known brand to a multinational corporation.”
Zuykov knows how much a squatter can make on one deal. “I know a company that paid $1 million for its trademark in Russia,” he said.
Zyukov may have sold all of his trademarks, but there are still plenty of major squatters out there. Bytovik, a firm registered as a motor transport company, is hoarding some 300 brand names including Dole, SoBe and Snapple, and produces soft drinks using some of these names.
Trademark lawyers believe that a legal action rather than a settlement payment is the only way to deal with squatters. “When everyone fights their claims in court, squatting will no longer be profitable,” said Uskov. “Russia offers a system to establish justice, and there are plenty of examples of it.” |
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