Federal Treasury Enterprise Sojuzplodoimport et al v. Spirits International B.V. et al
Filing
91
OPINION AND ORDER: I conclude this discussion section as I started it. This case presents the difficult challenge of interpreting a new foreign law that has not yet been addressed by the courts in that country. In the short run, the parties to this a ction could benefit from a de novo appellate review of this decision I have little doubt that FTE will seek such review. But in the long run, a better system should exist to address the problem of U.S. courts interpreting issues of first impression under foreign law. For the foregoing reasons, this case is dismissed for lack of subject matter jurisdiction. SO ORDERED. (Signed by Judge Shira A. Scheindlin on 11/24/2014) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
·---------------------------------------------------
)(
FEDERAL TREASURY ENTERPRISE
SOJUZPLODOIMPORT and OAO
"MOSCOW DISTILLERY CRISTALL,"
Plaintiffs,
OPINION AND ORDER
v.
14-cv-0712 (SAS)
SPIRITS INTERNATIONAL B.V., SPI
SPIRITS LIMITED, SPI GROUP SA,
YURI SHEFLER, ALEXEY OLIYNIK,
ALLIED DOMECQ INTERNATIONAL
HOLDING B.V., ALLIED DOMECQ
SPIRITS & WINE USA, INC.,
WILLIAM GRANT & SONS USA,
WILLIAM GRANT & SONS, INC., and
STOLi GROUP (USA) LLC,
Defendants.
·---------------------------------------------------
)(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
In order to determine whether this Court has subject matter
jurisdiction over this action, I must resolve thorny questions of first impression
under Russian law. In earlier litigation among these parties, the Second Circuit
ruled that plaintiffs Federal Treasury Enterprise Sojuzplodoimport ("FTE") and
OAO "Moscow Distillery Cristall" ("Cristall") lacked standing to assert claims
1
under Section 32(1) of the Lanham Act.1 In February 2014, plaintiffs brought a
new action against defendants, which include Spirits International B.V., SPI Group
SA, and SPI Spirits Limited (collectively “SPI”); Allied Domecq International
Holding B.V., and Allied Domecq Spirits and Wine USA, Inc. (collectively “Allied
Domecq”); William Grant & Sons USA and William Grant & Sons, Inc.
(collectively “WGS”); and Stoli Group (USA) LLC (“Stoli Group”), arguing, in
part, that FTE had cured the standing defect and should be allowed to re-assert its
Lanham Act claims.2 On August 25, 2014, I issued an opinion (the “August 2014
Opinion”) granting in part and denying in part defendants’ motion to dismiss the
new complaint.3 Important to today’s opinion, the August 2014 Opinion denied
defendants’ motion to dismiss FTE’s claims for lack of standing largely because
1
See Federal Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd.
(“FTE IV”), 726 F.3d 62, 85 (2d Cir. 2013). For ease of reading, this Opinion uses
“FTE” to describe all plaintiffs, collectively – Cristall’s “rights as a plaintiff are
purely derivative of those held by FTE.” Id. at 66.
2
See Compl. ¶¶ 7, 66.
3
See Federal Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., No.
14 Civ. 712, 2014 WL 4207133 (S.D.N.Y. Aug. 25, 2014), reconsideration denied,
No. 14 Civ. 712, 2014 WL 4392535 (S.D.N.Y. Sept. 5, 2014). Pursuant to that
ruling, plaintiffs’ only remaining claims against defendants are their Lanham Act
claims.
2
the Court had not been presented with expert testimony on Russian law.4
Since issuing the August 2014 Opinion, the Court has heard extensive
expert testimony, pursuant to Rule 44.1 of the Federal Rules of Civil Procedure
(“Rule”), on the relevant Russian law issues impacting Lanham Act standing. In
light of this expert testimony, I again address the question of whether plaintiffs
have standing to bring their remaining claims.5 For the following reasons, I find
that plaintiffs lack standing and, pursuant to Rules 12(b)(1) and 12(h)(3), dismiss
their remaining claims for lack of subject matter jurisdiction.
II.
BACKGROUND6
A.
The Second Circuit Holding and FTE’s Response
This case concerns defendants’ alleged misappropriation of U.S.
trademarks – namely the iconic Stolichnaya vodka brand – which FTE claims to
4
See id. at *8. Such evidence was critical to the standing inquiry
because the Russian Federation had passed a new law that purported to close the
gap identified by the Second Circuit in its decision finding that FTE lacked
standing to pursue its claims.
5
See Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006) (“[C]ourts,
including [the Supreme Court], have an independent obligation to determine
whether subject-matter jurisdiction exists, even in the absence of a challenge from
any party.”).
6
A detailed factual background and long history of this case is found in
this Court’s August 2014 Opinion. See 2014 WL 4207133, at *1-*4. This section
reviews the relevant facts and procedural history pertaining to the narrow issue of
how Russian law impacts FTE’s standing under the Lanham Act.
3
own. As noted above, in August 2013, the Second Circuit held that FTE lacked
standing to sue for trademark infringement because even though the Russian
Federation “entrusted [FTE] with responsibility for using and enforcing the
[trademarks], it had not assigned the trademarks to FTE.”7 In response to the
Second Circuit’s ruling, in February 2014 the Russian Federation issued a decree
(“Decree 69”) authorizing the transfer of ownership rights in the trademarks at
issue from the Federation to FTE.8 Pursuant to Decree 69, FTE and the Russian
Federation entered into an assignment agreement (the “Assignment”), in which the
Russian Federation purportedly assigned the trademarks to FTE and expressly
relinquished any and all interest in the trademarks.9 FTE then filed a new lawsuit,
alleging that Decree 69 and the Assignment cured the previous standing defect.
Defendants moved to dismiss FTE’s claims in their entirety pursuant
to Rules 12(b)(1) and 12(b)(6), arguing, inter alia, that the Assignment and Decree
69 still failed as a matter of Russian law to confer full ownership rights of the
trademarks to FTE. The August 2014 Opinion granted defendants’ motion as to
plaintiffs’ non-Lanham Act claims on the ground of res judicata; however, the
7
FTE IV, 726 F.3d at 85.
8
See Compl. ¶ 66.
9
See id.
4
Court denied defendants’ motion as to FTE’s Lanham Act claims for trademark
infringement, contributory infringement, rectification of register, and cancellation
of registration.10 I noted at the time that the Court could not, without additional
testimony from experts on Russian law, rule that FTE lacked standing.11
B.
Rule 44.1 Expert Testimony
Accordingly, pursuant to Rule 44.1, the parties offered expert reports
and two days of expert testimony regarding relevant Russian law. On October 28,
2014, the Court heard summations.12 The key questions, which are explained in
greater detail below, relate to FTE’s ownership rights in trademarks under relevant
Russian law, which is codified in the Russian Civil Code. In the main, the expert
reports address two principal questions. First, through the Assignment and Decree
69, could the Russian Federation effect a legally valid transfer of full ownership
rights in the trademarks at issue to FTE?13 Second, if the Assignment was legally
10
See 2014 WL 4207133.
11
See id. at *8.
12
See 10/28/14 Hearing Transcript (“Summations Tr.”) (Dkt. 88).
13
See 10/6/14 Legal Opinion of Alexander I. Muranov (“Muranov
Rep.”), expert for FTE (Dkt. 64); 10/6/14 Declaration of Vladamir Gladyshev
(“Gladyshev Decl.”), expert for SPI (Dkt. 65); 10/13/14 Amended Declaration of
Michael Newcity (“Newcity Decl.”), expert for Allied Domecq and WGS (Dkt.
75). Mr. Muranov and Mr. Gladyshev are managing partners of Russian law firms
and have authored many research papers and books covering issues of Russian law.
5
valid, did it also give FTE the right to sue the Allied Domecq and WGS
defendants, who ceased selling vodka bearing the trademarks at issue years ago, for
past damages?
Critical to both of these questions is an October 2014 amendment to
the Russian Civil Code (the “Amendment”), which took effect just days before the
expert reports were filed.14 The Amendment states that “[t]he rules of Section [2 of
the Civil Code] shall not be applied to the intellectual rights unless otherwise
established by the rules of the present Section.”15 According to FTE’s expert, this
language confirms that FTE has full ownership rights of the trademarks at issue.16
Defendants and their experts vigorously dispute this claim.17
See Appendix 1 to Muranov Rep.; Appendix 1 to Gladyshev Decl. Mr. Newcity is
Deputy Director of the Center for Slavic, Eurasian, and East European Studies at
Duke University, a practicing attorney, and editor of the Survey of East European
Law, a quarterly newsletter dedicated to business law-related developments in the
countries of the former Soviet Union and Eastern Europe. See Appendix 1 to
Newcity Decl. The parties have not contested the expert status of any of the three
experts. See Day 1 Tr. at 30:2-30:10 (Mr. Muranov); id. at 115:9-115:12 (Mr.
Gladyshev); Day 2 Tr. at 4:17-4:22 (Mr. Newcity).
14
See Muranov Rep. ¶ 70.
15
Russian Civil Code art. 1227(3).
16
See Muranov Rep. ¶ 70.
17
See 10/15/14 Hearing Transcript (“Day 1 Tr.”) (Dkt. 81); 10/21
Hearing Transcript (“Day 2 Tr.”) (Dkt. 79); Summations Tr.
6
III.
LEGAL STANDARD
A.
Subject Matter Jurisdiction
Rule 12(b)(1) provides for the dismissal of a claim when a federal
court lacks subject matter jurisdiction. A federal court has an independent duty to
determine that it has subject matter jurisdiction and, pursuant to Rule 12(h)(3),
may raise the issue sua sponte at any time.18 “Rule 12(h)(3) is governed by the
same standard as applied to a motion to dismiss for lack of subject matter
jurisdiction under Rule 12(b)(1).”19 Under that standard, the proponent of
jurisdiction (typically the plaintiff) bears the burden of establishing subject matter
jurisdiction by a preponderance of the evidence.20
“In reviewing a facial attack to the [C]ourt’s jurisdiction, we draw all
facts – which we assume to be true unless contradicted by more specific allegations
or documentary evidence – from the complaint and from the exhibits attached
18
See Fed. R. Civ. P. 12(h)(3); Arbaugh, 546 U.S. at 514.
19
CP Investors Grp., LLC v. Deutch, No. 13 Civ. 5228, 2014 WL
1327975, at *3 (S.D.N.Y. Apr. 3, 2014).
20
See Luckett v. Bure, 290 F.3d 493, 497 (2d Cir. 2002). See also
Goonewardena v. New York, No. 05 Civ. 8554, 2007 WL 510097, at *6 (S.D.N.Y.
Feb. 14, 2007) (“[T]he burden of demonstrating that the court has subject matter
jurisdiction over the case falls on the plaintiff[,] as it is the plaintiff who seeks to
invoke the court’s jurisdiction.”).
7
thereto.”21 However, to the extent that jurisdictional facts are in dispute,
“‘jurisdiction must be shown affirmatively, and that showing is not made by
drawing from the pleadings inferences favorable to the party asserting it.’”22 In
fact, “in dismissing a complaint for lack of subject-matter jurisdiction under Rule
12(b)(1), a court may ‘refer to evidence outside the pleadings.’”23 Where questions
of foreign law bearing on subject matter jurisdiction require testimony from
foreign law experts pursuant to Rule 44.1, plaintiffs’ factual allegations deserve
closer scrutiny, and the Court is not limited to the allegations contained in the
complaint.24
21
Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir.
2011) (emphasis added) (internal citations omitted).
22
APWU v. Potter, 343 F.3d 619, 623 (2d Cir. 2003) (quoting Shipping
Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998)). Accord London v.
Polishbook, 189 F.3d 196, 199 (2d Cir. 1999) (citations omitted) (“[I]t is the
affirmative burden of the party invoking [federal subject matter] jurisdiction . . .
to proffer the necessary factual predicate [—] not just an allegation in a complaint
[—] to support jurisdiction.”).
23
Burfeindt v. Postupack, 509 Fed. App’x 65, 67 (2d Cir. 2013) (quoting
Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000)).
24
See City of Harper Woods Emps. Ret. Sys. v. Olver, 577 F. Supp. 2d
124, 128 (D.D.C. 2008), aff’d, 589 F.3d 1292 (D.C. Cir. 2009) (finding that a
challenge to standing requiring the testimony of foreign law experts under Rule
44.1 to be a factual, not facial, challenge to jurisdiction, permitting the Court to
consider any relevant evidence, in accordance with Rule 44.1).
8
B.
Foreign Law Expert Testimony Under Rule 44.1
Pursuant to Rule 44.1, “[i]n determining foreign law, the court may
consider any relevant material or source, including testimony, whether or not
submitted by a party or admissible under the Federal Rules of Evidence.”25
“Although the Court may consider expert testimony, it need not accept the expert’s
opinions, and the ultimate determination of foreign law rests with the Court.”26
IV.
APPLICABLE LAW
A.
Lanham Act Standing
Section 32(1) of the Lanham Act “protects only registered
trademarks.”27 Under that section, a party has a cause of action “against any
person who ‘uses in commerce any . . . imitation of a registered mark . . . likely to
cause confusion, or to cause mistake, or to deceive.’”28 However, “[t]his cause of
action is available . . . only to ‘registrant[s]’ of the trademarks at issue, a term the
Act defines as embracing the actual registrant’s ‘legal representatives,
25
Fed. R. Civ. P. 44.1.
26
Ancile Inv. Co. v. Archer Daniels Midland Co., 992 F. Supp. 2d 316,
321 (S.D.N.Y. 2014) (citing Rationis Enters. Inc. of Panama v. Hyundai Mipo
Dockyard Co., 426 F.3d 580, 586 (2d Cir. 2005)).
27
FTE IV, 726 F.3d at 72 (citing 15 U.S.C. § 1114(1)).
28
Id. (quoting 15 U.S.C. § 1114(1)).
9
predecessors, successors and assigns.”’29
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.”30 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.”31
B.
Relevant Russian Law32
Because of the Lanham Act’s requirement that an “assign” own the
trademark at issue, the Court must examine relevant Russian law, which governs
the ownership rights of enterprises such as FTE. Integral to the Court’s resolution
of FTE’s ownership rights in the trademarks at issue are two main areas of Russian
law governed by the Russian Civil Code: (1) the nature of unitary enterprises, such
as FTE, and their ownership rights, and (2) the Civil Code’s definition of “property
rights,” especially as those rights relate to trademarks. First, I will review Decree
29
Id. (quoting 15 U.S.C. § 1127).
30
Id. at 75.
31
Id. at 76 (citing DEP Corp. v. Interstate Cigar Co., 622 F.2d 621 (2d
Cir. 1980)).
32
In this section, I review the Russian law applicable to the standing
issue. The Court’s understanding of the applicable law is drawn from the experts’
reports and testimony. Unless otherwise noted, the applicable law is undisputed.
However, not surprisingly, the parties dispute how to interpret the applicable law.
I describe those disagreements in the discussion section below.
10
69 and briefly explain the organization and structure of the Russian Civil Code, an
understanding of which is essential to interpret the relevant Civil Code provisions.
Then, I will review the Civil Code provisions most pertinent to resolving FTE’s
ownership rights in trademarks.
1.
The Civil Code and Decree 69
Russia is a civil law country.33 Accordingly, the “binding substantive
rules are to be found exclusively in the black letter statutory law.”34 Russia’s
statutory law is contained within the Russian Civil Code, which is the secondhighest body of law, behind only the constitution of the Russian Federation. 35 The
Civil Code has no real Western law analogue because of its sheer breadth of
coverage and quasi-constitutional status.36 Given the Civil Code’s importance to
the Russian legal system, where a government decree – such as Decree 69 – or
order from the President of the Russian Federation conflicts with the Civil Code,
the Civil Code applies over the decree.37
33
See Gladyshev Decl. ¶ 29.
34
Id.
35
See id. at ¶ 33.
36
See id.
37
See Russian Civil Code. art. 5(3); Muranov Rep. ¶ 23.
11
The Civil Code itself is divided into four parts.38 Part 1 of the Civil
Code contains the foundational, general concepts of Russian law. It is considered
the most important part of the Civil Code, and when its provisions conflict with
other provisions in other parts of the Civil Code, the general rules of Part 1 will
typically apply over the specific rules in other parts absent special statutory
provisions to the contrary.39 Part 4 of the Civil Code, which was not enacted until
2006 – more than eleven years after Part 1 went into effect – outlines rules
regarding intellectual property.40
The Code is divided further into sections, numbered consecutively.
Sections 1 and 2 are contained within Part 1 of the Civil Code; Section 7, which
includes the Amendment and specific rules regarding trademarks and intellectual
property, is contained within Part 4 of the Civil Code.41 Specific rules are called
“articles,” which are contained within the parts and sections of the Civil Code and
are also numbered consecutively (e.g. article 5 is contained within Section 1 of Part
1, Article 296 is contained within Section 2 of Part 1, Article 1227 is contained
38
See Gladyshev Decl. ¶ 31
39
See id. ¶ 37.
40
See id. ¶ 31.
41
See generally Summations Tr.
12
within Section 7 of Part 4).42
In order to determine whether the Civil Code conflicts with Decree
69, it is necessary to review the language of the decree. Specifically, Decree 69
authorizes FTE to “enter into” the Assignment, “passing to [FTE] the rights of the
Russian federation for the trademarks that contain such verbal symbols as
“Stolichnaya” and/or “Stoli” used within the territory of the United States of
America.”43 Thus, the Decree purports to allow FTE to own full rights to the
trademarks at issue.
2.
Unitary Enterprises and Operative Management
As explained in Section 1 of the Civil Code, a treasury enterprise,
such as FTE, is a “unitary enterprise,” which is defined by Article 113 of the Civil
Code as “a commercial organization which has not been granted the right of
ownership of the property assigned to it by the owner.” 44 Under the Civil Code,
“[t]he property of a state or municipal unitary enterprise is respectively state or
municipal property, and belongs to such enterprise by the right of economic
42
See generally id.
43
Decree 69, Ex. 1 to Gladyshev Decl.
44
Russian Civil Code art. 113.
13
management or operational administration.”45
The limited rights of property ownership in operative management are
described in Section 2 of the Civil Code, specifically in Articles 296 and 297. 46
Article 296 explains that a unitary enterprise “exercises the rights of possession,
use and disposition of such property [granted to it] within the limits established by
law and in accordance with the purposes of [its] activities, the tasks assigned to [it]
by the owner and the designated purpose of the property.” 47 This provision also
clarifies that the “owner of property granted to a budget-supported enterprise or
institution has the right to take back the property if it is deemed to be excessive or
is not being used or is being used for purposes other than those for which it was
designated, and to dispose of it as he deems fit.”48 To that end, Article 297 states
that a unitary enterprise has the “right to alienate or by other means dispose of
property granted to it only with the consent of the owner of this property.” 49
45
Id. “Operational administration” is the same as “operative
management,” which is discussed in greater detail below.
46
See id. art. 115 (“The rights of a budget-supported state enterprise to
the property assigned to it shall be defined in accordance with Articles 296 and 297
of the present Code and the law on state and municipal enterprises.”).
47
Id. art. 296.
48
Id.
49
Id. art 297. Article 299 also states that “[t]he . . . property acquired by
a unitary enterprise . . . by contract or other grounds, are subject to . . . operational
14
Article 157.1 of the Civil Code, which is found not in Section 1, expands on the
definition of “consent,” noting that “[a] prior consent for . . . a transaction shall
contain a definition of the subject of the transaction.”50
3.
Property Rights and Trademarks
The crux of the experts’ disagreement regarding the Russian law
applicable to this case is how to define “property” under the Russian Civil Code.
Throughout two days of testimony, none of the experts could identify a single case
in the Russian courts that has squarely addressed and resolved the primary issue
before this Court – whether the Civil Code’s definition of “property” excludes
ownership rights in trademarks. If it does, and trademark rights are not “property”
under the Civil Code, then FTE can hold trademarks on its own, free from the
severe ownership restrictions imposed by operative management. If “property”
includes trademark rights, then FTE must hold the trademarks under operative
management, subject to those restrictions. Here, I review the relevant Civil Code
provisions addressing property rights and trademarks.
administration . . . in accordance with the procedure specified by the present Code,
other laws and legal acts for acquisition of the right of ownership.” Id. art. 299.
50
Id. art 157.1. In interpreting Article 157.1, Russian courts require
effective consent to include specific information about the transaction for which
consent is sought, including the basic terms and conditions of the transaction, such
as the price and parties. See Day 1 Tr. at 103:19-25, 102:16-21, 154:10-11.
15
Part 4 of the Civil Code addresses intellectual property. Article 1226,
entitled “Intellectual Rights,” provides as follows:
Intellectual rights, which include an exclusive right that is
a property right, and in instances provided for by the
present Code, also personal nonproperty rights and other
rights . . . shall be deemed results of intellectual activity and
means of individualization equated thereto (results of
intellectual activity and means of individualization).51
Article 1227, the third paragraph of which constitutes the Amendment, provides
that:
(1)
(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)
51
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.
The rules of Section II of the present Code shall not
be applied to the intellectual rights unless otherwise
established by the rules of the present Section.52
Russian Civil Code art. 1226 (emphasis added).
52
Id. art. 1227 (emphasis added). The Amendment went took effect on
October 1, 2014. It does not apply retroactively. See Muranov Rep. ¶ 72.
16
Article 128, in Part 1, Section 1 of the Civil Code, is entitled “Objects of Civil Law
Rights.”53 “Among the objects of civil law rights are: things, including money,
commercial paper and securities; other property, including property rights; work
and services; protected results of intellectual activities and similar forms of
individualized creativity (intellectual property); nonmaterial values.”54 As noted
above, Article 113 refers to “property” in the context of unitary enterprises’ rights
of ownership, explaining that a unitary enterprise “has not been granted the right of
ownership of the property assigned to it by the owner.” 55
A separate statutory type of law inferior to the Civil Code, Law 161,
states that a unitary enterprise “is entitled to hold stamps and blanks with its firm
name, its own emblem as well as the trademark registered under the established
procedure, and other means of individualization.”56 Without specifically
referencing unitary enterprises, Article 1478 of the Civil Code, found in Part 4,
states that the “holder of the exclusive right to a trademark may be a legal person
53
Russian Civil Code art. 128.
54
Id. (emphasis added).
55
Id. art. 113.
56
Law 161 art. 2. However, Law 161 also defines “unitary enterprise”
as “a commercial organization not having the right of ownership of the property
given to it.” See also Day 1 Tr. at 167:2-169:6 (explaining that Law 161 is inferior
to the provisions of the Civil Code).
17
or an individual entrepreneur.”57 Article 48 of the Civil Code states that a “legal
person is an organization which has in its ownership, economic management or
operational administration a specific property and fulfills its obligation with this
property, may acquire and exercise property and personal non property rights in its
own name . . . and be a plaintiff and defendant in court.”58 Finally, Article 49 of
the Civil Code clarifies the rights of a legal person more generally:
A legal person may possess civil law rights corresponding
to the purposes of the activities specified in its foundation
documents, and bear the responsibilities associated with
these activities. Commercial organizations, with the
exception of unitary enterprises and other types of
organizations specified by law, may possess civil law rights
and bear civil responsibilities necessary for conducting any
types of activities not prohibited by law.59
C.
The Act of State Doctrine
“[T]he act of state doctrine [] concerns foreign governments’ conduct
within their own territory: it holds that generally ‘the courts of this country [will
not] inquir[e] into the validity of the public acts [of] a recognized foreign sovereign
power committed within its own territory.’”60 However, it is black-letter law that
57
Russian Civil Code art. 1478.
58
Id. art. 48.
59
Id. art. 49 (emphasis added).
60
Republic of Iraq v. ABB AG, 768 F.3d 145, 174 (2d Cir. 2014)
(quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 401 (1964)
18
the doctrine “does not prevent examination of the validity of an act of a foreign
state with respect to a thing located, or an interest localized, outside of its
territory.”61 While “‘the situs of intangible property is about as intangible a
concept as is known to the law,’”62 “[g]enerally courts have viewed the situs of the
right to use a trademark or to market products ‘to be in that nation granting the
marketing rights or the right to use the trademark itself rather than in that nation in
which the person or company who was given the right to use the trademark or who
manufactures the product is located.’”63 Therefore, the doctrine does not apply to
international trademark disputes in which a foreign government declares, through a
formal decree, an act, directive, or otherwise, U.S. trademark rights to be its own
(emphasis added)).
61
Restatement (Second) of Foreign Relations § 43(1) (1965). Accord
Zwack v. Kraus Bros & Co., 237 F.2d 255 (2d Cir. 1956) (refusing to apply
doctrine in a trademark dispute where the government of Hungary declared that it
owned U.S. trademark rights in a liquor manufacturer and purportedly transferred
by an agreement those rights to another U.S. entity); Boland v. Bank Sepah-Iran,
614 F. Supp. 1166, 1173 (S.D.N.Y. 1985) (holding that the doctrine does not apply
“when the act in question concerns a thing or interest located beyond the confines
of the foreign state’s territory”).
62
Films by Jove, Inc. v. Berov, 341 F. Supp. 2d 199, 207 (E.D.N.Y.
2004) (quoting Tabacalera Severiano Jorge v. Standard Cigar Co., 392 F.2d 706,
714 (5th Cir. 1968), cert. denied, 393 U.S. 924 (1968)).
63
Id. 207 (quoting 12 A.L.R. Fed. 707 § 14(b)).
19
property, or that of another foreign or U.S. entity. 64
V.
DISCUSSION
To determine 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.
Because of the murkiness of Russian law regarding these questions of
first impression, it is helpful to frame the Court’s approach to resolving them. The
64
See Zwack, 237 F.2d 255; Films by Jove, Inc., 341 F. Supp. 2d at 207
(refusing to apply the Act of State Doctrine to a copyright infringement suit where
the Russian Federation issued a directive in response to U.S. litigation declaring
rights to U.S. copyrights to belong to a state unitary enterprise); F. Palicio y
Compania, S. A. v. Brush, 256 F. Supp. 481, 488 (S.D.N.Y. 1966), aff’d sub nom.
F Palicio Y Compania, S. A. v. Brush, 375 F.2d 1011 (2d Cir. 1967) (noting that,
where U.S. trademark rights are at issue, courts will not apply the doctrine to a
foreign state’s decree declaring that a certain entity, and not another, owns those
rights, “even where directed against its own nationals”).
20
first question is whether, under the Russian Civil Code, trademarks are “property
rights” such that they can only be held in operative management. If the answer is
no, then the inquiry ends. FTE is the exclusive holder of the trademarks pursuant
to Decree 69 and the Assignment, qualifying as an “assign” under the Lanham Act,
and has standing. If the answer to the first question is yes, the next question is
whether, through the Assignment and Decree 69, the Federation effectively
consented to dispose of its ownership interest in the trademarks under the operative
management consent provisions of Articles 296 and 297. If the answer to this
second question is no, then FTE lacks standing; if yes, it has standing. And, if FTE
has standing, the final issue, which pertains only to the Allied Domecq and WGS
defendants – is whether the Assignment and Decree 69 conferred on FTE the right
to sue for past damages. With this framework, I now turn to the experts’
arguments.
A.
Overview of Experts’ Arguments
1.
FTE’s Expert
Mr. Muranov’s thesis is that the legal regime of rights in rem, which
governs physical, tangible property, is not applicable to intellectual property
rights.65 Because of this, the foundational Part 1, Section 1 Civil Code provisions
65
See generally Muranov Rep.
21
defining “property” and “property rights,” and the corresponding provisions
addressing FTE’s limited, operative management rights in such “property,” do not
apply to trademarks held by FTE.66 Accordingly, FTE can legally hold trademarks
outside of the operative management scheme. The Assignment and Decree 69
were legally effective in transferring full rights to the trademarks at issue from the
Russian Federation to FTE.67
Mr. Muranov finds support for his position in scholarship, case law,
and, perhaps most importantly, the Amendment, which he claims confirms the
accuracy of his view. This view requires a bit of historical perspective. In essence,
Mr. Muranov argues that since the collapse of the former Soviet Union, Russian
legal scholars have debated whether a unitary enterprise could hold a trademark
outside of operative management, with most scholars taking the position that a
66
See generally id.
67
Mr. Muranov insists that in Russian law, the English term “own” is
used not in reference to owning trademarks, but to tangible property, or rights in
rem. By contrast, the term “hold” is used to connote ownership of trademarks,
which Mr. Muranov defines as the “exclusive right.” Muranov Rep. ¶ 15. See also
10/31/14 Letter from Marc Greenwald, counsel for FTE, to the Court (“FTE PostSummations Ltr.”). Defendants thoroughly contest the relevance of this distinction
and in fact point out that a Russian Supreme Court case cited by FTE in its letter
refers to the Russian Federation “owning” exclusive rights to trademarks. See
11/3/14 Letter from Emily Henn, counsel for SPI, to the Court (“SPI PostSummations Ltr.”).
22
unitary enterprise could hold the exclusive right to a trademark on its own.68 The
debate stems from increased privatization in Russia after the Soviet Union’s
collapse, which sparked fears in the Russian Federation that a unitary “enterprise
could alienate [trademarks] without due legal ground.”69 In the midst of this
debate, Russian legislators began drafting the Russian Federation’s Civil Code,
which ultimately remained silent on unitary enterprises’ ownership rights in
trademarks as they related to operative management.70 In the years that followed,
Mr. Muranov claims the “case law was divided” on this issue.71 During this
period, Mr. Muranov concluded that it was legally permissible for a unitary
enterprise to hold a trademark either in operative management or outside of it.72
68
See Day 1 Tr. at 43:1-45:14.
69
Id. at 43:7.
70
See id. at 43:1-45:14. Mr. Muranov stated that in Soviet times, a
unitary enterprise could unquestionably be “the exclusive holder of a trademark.”
Id. at 44:20-44:22.
71
Id. at 45:7. However, Mr. Muranov later acknowledged on crossexamination that the real divide concerned distinguishing rules about rights in rem
from intellectual property rights. Mr. Muranov could not cite any case that
squarely held that a unitary enterprise could hold a trademark outside of operative
management. See id. at 78:9-79:16. Nor, in fairness, could Mr. Gladyshev find a
case squarely holding the opposite. See id. at 176:23-177:5.
72
See id. at 44:15-16. Mr. Muranov also points to a trademark
registration in Chatka, a brand name for a Russian canned crab company, to show,
allegedly, that FTE can and has held other trademarks outside of operative
management. See id. at 54:16-55:10.
23
According to Mr. Muranov, this duality changed with the
Amendment, which states that the rules of Section 2 of the Civil Code, a section
which, in part, governs the ownership rights of unitary enterprises, do not apply to
intellectual property rights.73 Although the Amendment, which went into effect
after the passage of Decree 69 and the execution of the Assignment, is not
retroactive, Mr. Muranov claims that it supports FTE by clarifying that there is
now only one way, not two, for a unitary enterprise to hold the exclusive right to a
trademark: outside of the regime of operative management.74 Because Mr.
Muranov interprets the Amendment as a clarification in the law – not a change in
the law – he insists that retroactivity is not a problem; FTE was always permitted
to hold trademarks outside of operative management.75
However, assuming arguendo that FTE could not hold the trademarks
outside of operative management, and that the Amendment does not apply, Mr.
73
In support of the Amendment’s relevance to the issues in this case,
Mr. Muranov states that in 2008, former Russian president Dmitry Medvedev
created a commission to recommend major changes to the Civil Code. In 2009, the
commission recommended “excluding any confusion of the[] two legal regimes [of
intellectual property and rights in rem].” Muranov Rep. ¶ 69. However, Mr.
Muranov does not provide any evidence linking this general 2009 recommendation
to the passage of the Amendment.
74
See id. at 46:25-47:7.
75
See id.
24
Muranov believes that the Assignment and Decree 69 give FTE the Russian
Federation’s prior, irrevocable consent to dispose of trademarks at FTE’s
discretion, leaving FTE with sufficient ownership rights in the trademarks at issue
to have Lanham Act standing. The basis for his argument is Article 297 of the
Civil Code, which states that a unitary enterprise may dispose of its property “with
the consent of the owner of the property.”76 Mr. Muranov translates the Russian
text of the Assignment as the Russian Federation transferring “full rights” in the
trademarks at issue to FTE – this language constitutes the “consent” required by
Article 297.77 And, while a valid prior consent usually requires some degree of
specificity regarding the nature of the consent pursuant to Article 157.1, the
omission of certain terms may be permissible depending upon the relationship of
the parties.78
2.
SPI’s Expert
Mr. Gladyshev dismisses Mr. Muranov’s historical perspective and
76
Russian Civil Code art. 297.
77
See Summations Tr. 73:11-73:16. Mr. Gladyshev disputes Mr.
Muranov’s translation of the Assignment, reading the phrase triggering consent not
as “full rights,” but as rights “to the full extent.” Day 1 Tr. 114:18-115:8. Mr.
Gladyshev therefore contends that, because of the legal restrictions of operative
management, the “full extent” of FTE’s rights falls short of full, exclusive rights to
the trademarks. See id.
78
See Day 1 Tr. at 106:6-106:8.
25
the relevance of the Amendment to the trademarks at issue, instead offering a
straightforward, seemingly simplistic structural analysis of certain Civil Code
provisions to support his position that FTE still holds the trademarks under
operative management. None of these provisions are contained within Section 2 of
the Civil Code – the section affected by the Amendment.
Mr. Gladyshev’s argument proceeds as follows. Article 1226 of the
Civil Code (in Part 4, which addresses intellectual property rights) defines
“intellectual rights” as “includ[ing] an exclusive right that is a property right.”79
Article 113 of the Civil Code, which defines the rights of unitary enterprises, states
that a unitary enterprise is a “commercial organization which has not been granted
the right of ownership of the property assigned to it by the owner.”80 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 128, which defines “objects in civil law rights” to include “other property,
including property rights.” Accordingly, trademark rights must be “property” that
can only be held by a unitary enterprise in operative management.
To the extent that Decree 69, the Assignment, and the Amendment
79
Russian Civil Code art. 1226 (emphasis added).
80
Id. art. 113 (emphasis added).
26
conflict with the above provisions, Mr. Gladyshev believes that the proper method
of interpreting Russian law favors defendants. According to Mr. Gladyshev, where
Civil Code provisions conflict, the earlier, foundational ones – in Section 1 – apply
over, or at least inform the interpretation of, later ones, and where the Civil Code
conflicts with decrees, the Civil Code prevails.81
As for the Amendment, Mr. Gladyshev testified that the only
published legal analysis regarding FTE’s ownership rights in intellectual property
since the enactment of the Amendment clarifies that FTE does not, and cannot, own
state property, tangible or intangible.82 Specifically, the Rosalcohol Note states:
“Russian state unitary enterprises . . . [are] not [] the owners of the state property
and state intellectual property.”83 Instead, defendants insist that the Amendment
and Article 128 of the Civil Code are consistent – both make clear that “things”
associated with trademarks are distinct from those trademarks, and the Amendment
81
See Gladyshev Decl. ¶¶ 37-39.
82
See October 2014 Rosalcohol Explanatory Note, SPI Hearing Ex. 4
(“Rosalcohol Note”) (“Because foreign courts find it difficult to understand the
essence of the Russian state unitary enterprises which, not being the owners of the
state property and state intellectual property, act to protect it and use it on their
own behalf . . . .”) (emphasis added). Rosalcohol, the organization that published
the note, is itself an arm of the Russian Federation, its rough U.S. equivalent being
the Food and Drug Administration. See Day 1 Tr. at 146:24-147:1.
83
Id.
27
merely signals that the remedies available under Part 1, Section 2 do not apply to
certain trademarks and intellectual property associated with underlying rights in
rem with which they are associated.84
Mr. Gladyshev also rejects FTE’s alternative argument regarding
consent. At bottom, Mr. Gladyshev contends that there is no such concept in
Russian law as “a blanket consent.”85 Mr. Gladyshev posits that allowing blanket
consent pursuant to Article 297 would defeat the entire operative management
scheme. For this reason, Article 157.1 of the Civil Code confirms that consent
must include basic terms and conditions of a specific transaction for which consent
is being sought.86 FTE’s own expert admits that the Assignment did not include
these basic terms.87 Finally, apart from the specific consent provisions of the Civil
Code, Mr. Gladyshev quarrels with Mr. Muranov’s translation of the Assignment
as transferring “full rights;” instead, he reads the Assignment to transfer rights to
the “full extent” of the law.88 Thus, he concludes that whatever rights the Russian
Federation transferred to FTE pursuant to the Assignment are limited by the Civil
84
See Day 1 Tr. 117:9-117:21.
85
Id. at 155:4-5.
86
See id. at 156:10-156:15. See also Russian Civil Code art. 157.1.
87
See Day 1 Tr. at 105:12-17.
88
Id. 114:18-115:8.
28
Code and the relevant restrictions of operative management, consent
notwithstanding.
3.
Allied Domecq’s and WGS’ Expert
On behalf of Allied Domecq and WGS, Mr. Newcity offers an
additional argument: even if the Assignment effectively transferred exclusive
rights to the trademarks at issue to FTE, the Assignment did not transfer to FTE the
right to sue for past damages on those trademarks. Mr. Newcity offers several
arguments in support of this contention, but they all boil down to this: regardless
of the law regarding rights to trademarks, the right to sue for damages for past
infringement is undeniably a property right subject to operative management.89
B.
FTE Cannot Hold Trademarks Outside of Operative
Management
Based on the evidence before the Court, I find that FTE cannot hold
exclusive rights to trademarks outside of operative management. This has not been
an easy decision. 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 of the laws of a
foreign country – which I can only review in imperfect translation – when those
sections have not yet been addressed and defined by the courts of that country. But
89
See Newcity Decl. ¶ 27.
29
Rule 44.1 requires me to determine the relevant foreign law in a dispute pending in
a U.S. court. While I can rely on all available sources, and credit whatever expert
testimony I choose, there is one thing I cannot do which would be the most helpful.
I cannot certify these unsettled questions of Russian law to the Russian courts. 90
Given the increasing frequency with which high-stakes international disputes are
litigated in U.S. courts, especially in this one, I agree with the sentiments expressed
by Judge Raymond Lohier of the Second Circuit in a recent concurring opinion: it
may be prudent for Congress to consider developing an international certification
process similar to our domestic one “pursuant to which federal courts may certify
an unsettled and important question of foreign law to the courts of a foreign
country.”91 While creating and implementing such a system would present many
obstacles, both legal and practical, the policy concerns implicated by the current
90
During opening statements, I inquired about the applicability of forum
non conveniens, a doctrine potentially helpful to courts facing similar
predicaments. See Day 1 Tr. at 13:22-14:15. In response, FTE represented that
because it seeks an order directing the U.S. Patent and Trademark Office to change
trademark registrations – relief an alternative Russian forum could not grant –
forum non conveniens does not apply. See id. Based on this representation, I
decline to pursue the applicability of forum non conveniens further. See Piper
Aircraft Co. v. Reyno, 454 U.S. 235, 254 (1981) (noting that where the remedy
available in the alternative forum is so “inadequate or unsatisfactory that it is no
remedy at all,” a case should not be dismissed for forum non conveniens).
91
Terra Firma Investments (GP) 2 Ltd. v. Citigroup Inc., 716 F.3d 296,
301 (2d Cir. 2013) (Lohier, J., concurring).
30
case warrant further consideration.
1.
Mr. Muranov’s Argument Lacks Sufficient Support
Mr. Muranov’s argument, which hinges on a distinction between
rights in rem and the legal regime of intellectual property, while persuasive at first
blush, lacks sufficient support in Russian case law and the Civil Code. Because the
instant case is factually distinguishable from all of the Russian cases Mr. Muranov
and Mr. Gladyshev cite in support of their respective arguments regarding FTE’s
ownership rights in trademarks, I must rely predominantly on the Civil Code.92
There is indeed some support in the Civil Code for Mr. Muranov’s
core argument. Article 128, the all-important “bridge” defendants must cross from
Article 1226’s definition of intellectual rights as a “property right” to Article 113’s
restriction on unitary enterprises’ property ownership, seems to make some
distinction between rights in rem and intellectual rights. Reading Article 128 in its
entirety, there is a separate clause appearing after the key one, “other property,
including property rights,” which describes “protected results of intellectual
activities and similar forms of individualized creativity (intellectual property).”93
92
Both Mr. Muranov and Mr. Gladyshev agree on the Civil Code’s
supremacy relative to governmental decrees and other sources, including
scholarship. See, e.g., Muranov Rep. ¶ 24; Gladyshev Decl. ¶ 39.
93
Russian Civil Code art. 128.
31
This clause appears after “work and services,” which is clearly not property. The
clause before “other property, including property rights” describes clear rights in
rem, such as “things.”94 Therefore, Mr. Gladyshev’s selective focus on “other
property, including property rights” elides a possible distinction in this key
provision between tangible property and intellectual property.
The problem for Mr. Muranov and FTE, though, is that there is little
or no support in case law and other provisions of the Civil Code for this
distinction. While Article 1478 and Law 161 suggest that a unitary enterprise can
hold trademarks, the context of Law 161 undermines Mr. Muranov’s argument. At
most, I can conclude that FTE may be entitled to hold a trademark representing its
own identity.95 There is simply no law or Russian case that explicitly states, or
even mildly implies, that a trademark assigned to a unitary enterprise is a form of
property that can be held outside of operative management.96 And, given the
94
Id.
95
See Law 161 art. 2 (noting that a unitary enterprise, which is defined
as “a commercial organization not having the right of ownership of the property
given to it,” can have a “round seal with its full corporate name . . . is entitled to
hold stamps and blanks with its firm name, its own emblem as well as the
trademark . . .”).
96
The Chatka trademark that Mr. Muranov focuses on merely shows
that a trademark can be registered in FTE’s name – not that FTE can hold an
exclusive right to it outside of operative management. See Summations Tr. 60:360:9.
32
numerous Civil Code provisions and cases reciting the heavy restrictions on
unitary enterprises’ ownership rights, it would stand to reason that if an exception
for trademarks or intellectual property existed, it would be explicitly codified.
2.
The Amendment Does Not Clarify or Confirm FTE’s Legal
Capacity to Hold Trademarks Outside of Operative
Management
To that end, Mr. Muranov argues that the distinction is codified – at
least as of October 1, 2014 – in the Amendment. The Amendment does state that
the rules of Section 2 do not apply to intellectual rights. 97 To be sure, some of the
provisions of Section 2, though not all, govern the property ownership rights of
unitary enterprises.98 And, in 2009, a Russian Federation commission tasked with
proposing changes to the Civil Code recommended making a general distinction
“between the exclusive right, which belongs to the state institution, and the right of
operational management as a kind of rights in rem.”99 Finally, and perhaps most
convincingly, the Amendment seems a fitting resolution to the scholarly debate
within the historical framework Mr. Muranov described in his testimony.
97
See Russian Civil Code art. 1227.
98
However, there are numerous other provisions in other sections of the
Civil Code governing these rights as well, including Section 1, which the
Amendment does not affect.
99
Muranov Rep. ¶ 69.
33
Unfortunately for FTE, there is no concrete evidence, case law, or
statutory language supporting Mr. Muranov’s stance on the purpose of the
Amendment. Section 2 of the Civil Code contains many provisions that have
nothing to do with unitary enterprises. And, while Mr. Muranov’s report notes that
in 2009 a Russian Federation commission recommended that legislators more
clearly distinguish between intellectual property and rights in rem regimes, there is
no evidence that the Amendment was drafted in response to this recommendation.
Nor is there any evidence that the legislative body – the drafters and revisers of the
Civil Code – ever considered the recommendation, which emanated from the
American equivalent, roughly, of the executive branch.100 Mr. Muranov makes an
unsupported leap from a vague 2009 recommendation to the conclusion that a 2014
Amendment specifically adopted a five-year-old recommendation.101 Because Mr.
Muranov cannot point to much more than a mere recommendation or scholarly
debate regarding the rights in rem and intellectual property distinction as it pertains
to unitary enterprises’ ownership rights, I cannot conclude that the Amendment
truly “clarified” or “confirmed” anything, which, given its lack of retroactivity, it
100
See Day 1 Tr. at 35:4-35:18.
101
Perhaps owing to the flimsiness of the connection in his report, Mr.
Muranov never elaborated on it during his testimony at the hearing. Mr.
Gladyshev briefly addressed this connection and summarily dismissed it. 150:24151-8.
34
must do in order to support FTE’s standing.
Also harmful to Mr. Muranov’s position is the Rosalcohol Note. To
the extent a major scholarly debate exists – and that I should read the Amendment
as contributing to the resolution of it – the only official Russian legal position
regarding unitary enterprises’ ownership rights in trademarks published after the
Amendment took effect still states that a unitary enterprise cannot own physical
property or intellectual property, including trademarks. Mr. Muranov’s only
response is that the drafters of it were mistaken.102 But it is unlikely that
Rosalcohol, a respectable arm of the Russian Federation, would issue a legal
opinion contradicting the Amendment after it took effect, and after the scholarly
debate had presumably ended.
A possible explanation is that Rosalcohol never considered the
Amendment as having any impact on the debate, in the same way that Mr.
Gladyshev did not consider the Amendment in his expert report. Maybe the
Rosalcohol Note’s post-Amendment release was simply fortuitous timing for
defendants. However, the Rosalcohol Note could just as easily, if not more easily,
be viewed as additional evidence in support of the Amendment’s irrelevance.
Rosalcohol and Mr. Gladyshev never considered the Amendment because the
102
See Day 1 Tr. at 98:3-98:14.
35
Amendment did not influence the debate. If this debate was prevalent prior to the
Amendment – and for Mr. Muranov’s argument to carry the day, then it must have
been prevalent – why would the Russian legislature not address the issue directly?
I am not convinced that the legislative body would draft the Amendment to resolve
a major debate with significant historical underpinnings regarding the rights of
unitary enterprises without so much as using the term “unitary enterprises” in the
language of the Amendment, or even referencing a specific article or set of articles
in the Civil Code governing unitary enterprises. All that the Amendment offers in
this regard is a broad reference to Section 2 of the Civil Code, only a few articles
of which refer to unitary enterprises. Mr. Muranov’s explanation for the
Amendment is not sufficiently persuasive.103
Finally, the structure of the Civil Code lends additional support to Mr.
Gladyshev’s position. Even if the provisions of Section 2 have been affected by
the Amendment, the provisions of Section 1, which the Amendment does not
affect, are essentially the building blocks of the Civil Code and control all other
parts of it.104 Therefore, it is fair to read the Part 4 definition of “intellectual
103
This is not to say that I fully accept defendants’ argument regarding
the Amendment’s impact on remedies available under Section 2. But ultimately,
defendants do not need to prove the Amendment’s purpose – FTE has the burden
of proving it has standing.
104
See Gladyshev Decl.¶ 37.
36
rights” – an “exclusive right that is a property right” – as controlled by Article 128,
in Part 1, which defines “property rights” as a subset of “other property.” Again,
while this structural argument is not flawless, it is more credible than Mr.
Muranov’s argument. Either way, I conclude that the Amendment does not clarify
the pre-existing scheme controlling property rights. For these reasons, I cannot
find as a matter of Russian law that FTE now holds the trademarks at issue outside
of operative management.
C.
The Assignment Is Not a Blanket Consent
The question of whether the Assignment could operate as blanket
consent for FTE to dispose of the trademarks at will is somewhat easier to resolve.
While Articles 296 and 297 of the Civil Code undoubtedly contemplate giving a
unitary enterprise enough ownership rights in property to dispose of such property
with proper consent, the legal sufficiency of such consent is governed by Article
157.1.105 As confirmed by a Russian court, for prior consent to be valid under
Article 157.1, the consent must contain a requisite degree of specificity regarding a
transaction – specificity that, by Mr. Muranov’s own admission, is lacking here.106
FTE’s attempt to paint the specificity required by Article 157.1 as an unfair gloss
105
See Muranov Rep. ¶ 123.
106
See Day 1 Tr. at 103:19-104:2.
37
on the more general consent provision of Article 297 is undermined by Mr.
Muranov’s own report, in which he recognizes that prior consent is “deemed given
validly” “in accordance with . . . Article 157.1.”107
FTE cannot dodge the weight of authority and the Civil Code to find
legally effective blanket consent. Mr. Muranov attempts to cherry-pick language
for the relevant Russian case interpreting Article 157.1, noting that the omission of
certain terms of the transaction for which consent is sought may be permissible
depending upon the relationship of the parties. 108 But he cannot point to any case
or provision of the Civil Code to show that the relationship between the Russian
Federation and FTE is one in which the omission of such terms would be
permissible. If no such case or Civil Code provision exists, it is for good reason –
permitting blanket consent would effectively defeat the scheme of operative
management, the purpose of which, as the Second Circuit has already held, is to
enable the Russian Federation to retain ownership rights in property it entrusts in
unitary enterprises.109
I am troubled by the language of the Assignment, which, whether
107
Muranov Rep. ¶ 123.
108
See Day 1 Tr. at 106:6-106:8.
109
See FTE IV, 726 F.3d at 77.
38
translated as “full rights” or rights “to the full extent,” evinces the Russian
Federation’s intent to effectuate proper consent. But that intent does not carry with
it the force of Russian law. Mr. Muranov has not identified a single instance in
which prior blanket consent in the style of the Assignment is permissible; Mr.
Gladyshev has pointed both to the Civil Code and a recent case confirming the
limitations on such consent. Ultimately, FTE has the burden to show not only that
the Russian Federation intended through the Assignment to consent to the
disposition of the trademarks at any time, but that such blanket consent could be
legally effectuated in accordance with the Civil Code. FTE has satisfied its burden
with respect to the first prong, but not with respect to the second. 110
D.
The Assignment Did Not Transfer to FTE the Right to Sue for
Past Damages
FTE has not provided the Court with any convincing evidence that the
110
During the cross-examination of Mr. Newcity, counsel for FTE argued
that the 2002 Decree, by which the Russian Federation assigned the trademarks to
FTE via operative management, contained the language “without right to
assignment” – language that even Mr. Newcity acknowledged would be surplusage
if it was not possible to give FTE prior consent to dispose of the trademarks. See
Day 2 Tr. at 41:16-43:2. However, the significance of that clause, and whether it is
surplusage, is not fully clear, nor is it enough to persuade me that blanket consent
could be given. It may be, as Mr. Newcity points out, that the Russian Federation
desired to reinforce that it was not granting consent as to a specific transaction at
that time. See id. In addition, the Russian case interpreting Article 157.1 is from
2014, twelve years after the issuance of the 2002 decree. Therefore, current
Russian law appears to prohibit prior blanket consent in this context.
39
right to sue for past damages can be held outside of operative management. Mr.
Newcity’s testimony elucidates that this right can only be held in operative
management. Likely anticipating such a conclusion, FTE submitted a postsummations letter asking the Court for leave to brief the issue of whether holding
the right to sue for past damages in operative administration is sufficient for
Lanham Act standing.111
Further briefing is unnecessary. When the Second Circuit issued its
decision, the only claims against Allied Domecq and WGS, held in the context of
operative management, were for past damages, yet the court upheld the dismissal
of those claims.112 The Assignment and Decree 69 do not change the Russian law
on the implications of holding claims for past damages in operative management.
The result here is therefore the same: FTE lacks standing under the Lanham Act to
sue Allied Domecq and WGS on claims for past damages.
E.
The Act of State Doctrine Does Not Apply
The Act of State Doctrine does not apply to this case. The law is
straightforward: the doctrine “does not prevent examination of the validity of an
111
See FTE Post-Summations Ltr.
112
See FTE IV, 726 F.3d 62.
40
act of a foreign state with respect to a thing located . . . outside of its territory.”113
Decree 69 is an act of the Russian Federation addressing U.S. trademark rights,
which, as a matter of law, are located within the U.S., not Russia.114 Decree 69
itself confirms this. Specifically, the decree “pass[es] to [FTE] the rights of the
Russian federation for the trademarks that contain such verbal symbols as
“Stolichnaya” and/or “Stoli” used within the territory of the United States of
America.”115
During summations, counsel for FTE avoided well-settled case law
regarding the doctrine’s inapplicability to acts of state concerning U.S. trademark
rights, relying instead on the very general pronouncement in Underhill v.
Hernandez, the 1897 Supreme Court decision from which the doctrine sprung.116
113
Restatement (Second) of Foreign Relations § 43(1). Accord Boland,
614 F. Supp. at 1173 (noting the inapplicability of the act of state doctrine to
another trademark case in this district, affirmed by the Second Circuit and denied
review by the Supreme Court, because “the trademarks in question, registered in
this country, had a local identity and situs apart from the foreign manufacturer”).
114
See Films by Jove, 341 F. Supp. 2d at 212 (noting that courts “view
the situs of the right to use a trademark . . . to be in that nation granting the . . .
right to use the trademark itself rather than in that nation in which the . . . company
. . . given the right to use the trademark . . . is located”).
115
Decree 69, Ex. 1 to Gladyshev Decl. (emphasis added).
116
See 168 U.S. 250, 252 (1897) (holding that “the courts of one country
will not sit in judgment on the acts of the government of another, done within its
own territory”).
41
FTE urges the Court to view Decree 69 purely as an intra-territorial transfer of
rights, not as an extraterritorial taking. Either position is fatal for FTE, though,
because even if I view Decree 69 as an intra-territorial transfer of rights, the rights
being transferred are, by the very language of the decree and as a matter of law,
U.S. rights. U.S. courts have uniformly declined to apply the doctrine to cases
where, through acts of state, foreign governments make declarations regarding
ownership rights of U.S. trademarks, even when those rights are being transferred
from the foreign actor to another foreign entity in that actor’s territory. 117
Therefore, the Act of State Doctrine is inapplicable to Decree 69.
F.
A Final Thought
I conclude this discussion section as I started it. This case presents the
difficult challenge of interpreting a new foreign law that has not yet been addressed
by the courts in that country. In the short run, the parties to this action could
benefit from a de novo appellate review of this decision – I have little doubt that
FTE will seek such review. But in the long run, a better system should exist to
address the problem of U.S. courts interpreting issues of first impression under
foreign law.
117
See 12 A.L.R. Fed. 707 § 14(b). See also supra note 64.
42
VI.
CONCLUSION
For the foregoing reasons, this case is dismissed for lack of subject
matter jurisdiction.
SO ORDERED:
Dated:
New York, New York
November 24, 2014
43
-AppearancesFor Plaintiffs:
Marc L. Greenwald, Esq.
Jessica A. Rose, Esq.
Leron Thumim, Esq.
Quinn Emanuel Urquhart & Sullivan LLP
51 Madison Avenue, 22nd Floor
New York, NY 10010
(212) 849-7000
Daniel H. Bromberg, Esq.
Quinn Emanuel Urquhart & Sullivan LLP
555 Twin Dolphin Dr., 5th Floor
Redwood Shores, CA 94065
(650) 801-5000
For SPI:
Emily J. Henn, Esq.
Philip A. Scarborough, Esq.
Covington & Burling, LLP
333 Twin Dolphin Drive, Suite 700
Redwood Shores, CA 94065
(650) 632-4700
Bingham B. Leverich, Esq.
David M. Zionts, Esq.
Covington & Burling, LLP
1201 Pennsylvania Avenue, N.W.
Washington, DC 20004
(202) 662-6000
For Allied Doemcq:
David H. Bernstein, Esq.
Carl Micarelli, Esq.
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Michael Schaper, Esq.
Rayna S. Lopyan, Esq.
David Sandler, Esq.
Debevoise & Plimpton, LLP
919 Third Avenue, 31st Floor
New York, NY 10022
(212) 909-6000
For WGS:
William M. Merone, Esq.
Kenyon & Kenyon LLP
1500 K Street, N.W. Suite 700
Washington, DC 20005
(202) 220-4270
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