The Second Circuit recently issued its latest ruling in a long-running legal battle over the trademark rights to the STOLICHNAYA trademark. In this latest decision in the 12-year dispute, the Court ruled that an agency of the Russian Federation has standing to sue the record owners of the U.S. trademark registration and its distributors in federal court under § 32(1) of the Lanham (Trademark) Act.  Section 32(1) affords the owners or assigns of federally registered marks standing to sue for trademark infringement.

The history of the STOLICHNAYA trademark reflects Russian history and current events themselves. The brand was launched in the Soviet Union as early as the 1940s.  In 1969, a Soviet state enterprise called V/O-SPI obtained a U.S. trademark registration for the trademark STOLICHNAYA for vodka.  V/O-SPI, as the trademark owner, licensed the mark to various distributors in the United States over the years.  At the time the Soviet Union started to dissolve around 1989-1990, its various state-owned businesses were spun into private enterprises. V/O-SPI’s directors and managers thus privatized and reorganized the business under a new name “VAO-SPI” (later renamed “VVO-SPI” and controlled by “SPI”),  the defendant in this case.  Vladimir Putin became President of the Russian Federation in 1999, and effectively re-nationalized many successful, earlier-privatized businesses. It was around this time that a Russian court held that VVO-SPI was not validly privatized under Russian law and that the Russian Federation, as successor to the Soviet Union, was the true owner of the STOLICHNAYA trademark.  In 2002, the Russian Federation formed FTE to function as the successor to VVO-SPI.

In 2004, FTE filed suit against SPI (the owner of the STOLICHNAYA trademark registration) in the Southern District of New York alleging, inter alia, trademark infringement under § 32(1) of the Lanham Act.  The district court dismissed that claim because the STOLICHNAYA trademark was incontestable under § 8 of the Act.  (FTE I).  Trademarks registered for five years or longer cannot be challenged based on ownership or descriptiveness. The Second Circuit vacated and remanded, holding that the “incontestability doctrine posed no obstacle to FTE’s challenge to defendants’ claim of ownership in the Marks absent a demonstration that defendants had received the Marks through a valid assignment.” (FTE II).

In the next round, SPI again successfully moved to dismiss the § 32(1) claims on the ground that FTE lacked statutory standing to sue as a “registrant” or “assign” under the Lanham Act. (FTE III).  FTE appealed, arguing that it was an “assign” of the Russian Federation, to which the trademark was properly registered, and therefore had standing to assert § 32(1) claims.  The Second Circuit affirmed the dismissal, holding that the Russian Federation retained too great an interest in the marks to FTE to qualify as an “assign.”  (FTE IV).

Following FTE IV, and evidently in response to it, the Russian Federation issued a Decree assigning the trademarks to FTE.  Thereafter, FTE brought this lawsuit, again asserting § 32(1) claims.  Again, the district court held that FTE still lacked statuary standing to bring its § 32(1) claims — this time, because the trademark assignment was invalid under Russian law.  On this appeal, the panel of Second Circuit judges held that it was error for the district court to so decide.

“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 panel observed.  The panel went on to counsel that the district court ruling was out of bounds due to both the doctrine of comity and the doctrine of acts of state, both of which require that U.S. courts defer to the foreign government bodies on issues affecting those countries.  The Court held, “[e]xtending comity to the Russian Federation’s issuance of the Decree and execution of the Assignment would undermine no policy or interest of the United States, which has no stake in which instrumentality of the Russian Federation asserts trademark claims over the Marks.”

The district court below had reasoned that the act of state doctrine does not apply when the act of the foreign sovereign concerns a United States trademark because the trademark is a property interest located within the United States. The Circuit Court was unimpressed with the line of cases the district court relied on to reach this conclusion: a line of cases concerning foreign sovereigns confiscating property in the United States, finding those cases inapt here because “neither the Decree nor the resulting Assignment impaired anyone’s property rights or affects the jurisdiction of the United States courts to decide the competing claims to ownership of the Marks.”  The Court proceeded to state, “in any event, the line of ‘confiscation’ cases does not undermine application of the act of state doctrine here: the Decree works no confiscation, in form or effect; rather it transfers whatever rights the Russian Federation may already have in the Marks in FTE”  (emphasis in original).

Taking a registered trademark away from one owner and giving it to another may be viewed as an act that “impair[s] [some]one’s property rights.” Further, the Circuit avoids that issue in its next sentence, characterizing such an act as one that merely “transfers whatever rights the Russian Federation may already have.…”  On the other hand, Defendants’ true dispute lies with the act of the Russian Federation in issuing its Decree assigning the Marks to FTE.

Given the important international comity and trademark issues involved, we probably have not heard the last of this dispute, in the Second Circuit or Supreme Court.