Good Intentions: How to Protect Your Brand without Breaking the Law
Companies use various methods to protect their trademarks, but even those that appear legal can carry serious risks for a business.
St. Petersburg-based "Jafar Rus" LLC, the exclusive distributor of pipeline and shut-off valves from Fabryka Armatur "JAFAR" S. A. (Poland), used the JAFAR brand to promote its products. However, it never officially registered its rights to this trademark in Russia.
Sibir LLC took advantage of the situation. Having obtained the rights to the brand, the company informed businesspeople that Jafar Rus was essentially selling counterfeit goods.
Jafar Rus complained to the Novosibirsk Region Office of the Federal Antimonopoly Service (FAS), accusing Sibir of an act of unfair competition. Fabryka Armatur, it noted, has been using the disputed brand since 1975, and in its assessment Sibir has no rights to this trademark.
However, in March of this year the Novosibirsk FAS office found no violations in Sibir's actions. Jafar Rus then appealed the antimonopoly authority's decision to the Intellectual Property Court (IPC), which sided with the company from the Northern Capital.
Artyom Dmitrenko, managing partner at the law firm Dmitrenko & Partners, notes that companies often seek protection at the IPC: a court summons can create a resonance in the business community that the infringer would rather avoid.
"As a result, the infringer may take steps in favour of the party harmed by its actions, for example by offering additional compensation. This approach is particularly effective when the compensation awarded by the court does not cover the actual damage and lost profits", — the lawyer explains.
St. Petersburg-based Impextorg Hammelmann LLC, meanwhile, took a different route. The Russian subsidiary of the German group Hammelmann GmbH, one of the world's leading suppliers of high-pressure equipment, was forced to send information letters itself to potential customers — major mining and manufacturing companies that were running tenders for the purchase and maintenance of the German group's equipment.
This approach displeased PSK–Ural LLC from the Sverdlovsk Region. The Ural company applied to the St. Petersburg FAS office, accusing Impextorg Hammelmann of unfair competition. The antimonopoly authority found no violations in Impextorg Hammelmann's actions: the company was protecting the reputation of the brand it represents in Russia and was distributing only accurate information in order to shield customers from the consequences of using substandard spare parts and components for Hammelmann products.
Courts, the FAS and risks
However, according to Natela Ponomareva, managing partner at the law firm Natela Ponomareva & Partners, such methods of protection can certainly pose a great danger to the authors of these "cease-and-desist letters" themselves: "If, for example, a company is in the midst of a dispute over trademark rights, then such information, especially in the absence of convincing evidence of its accuracy, may be regarded as discrediting the product or its manufacturer / seller among potential consumers and may entail liability for those who distribute it".
For instance, if a market participant's actions are deemed to constitute unfair competition, the antimonopoly authority can hold the company administratively liable and fine it up to 500 thousand roubles, Artyom Dmitrenko clarifies.
In situations like these, when competitors send "cease-and-desist letters" to a company's counterparties, the injured party has various options for defence — for example, entering into a dialogue with those spreading the negative information.
However, Maxim Ali, partner at the law firm Maxima Legal, considers applying to the antimonopoly authority the most effective route: "In an “ordinary” dispute, the injured party files a claim directly with the court, and the judge takes a passive position and looks at what evidence each side has brought. If, however, the case is initiated by the antimonopoly service, it acts proactively and gathers the evidence itself".
This approach makes it possible to find out, for example, who is behind a particular website, from which IP addresses the messages were posted and which logs the social network's administration has kept, — information that is not easy for an ordinary market participant to obtain.
"Moreover, the antimonopoly authority often sends detailed requests for documents and explanations to the parties to the dispute. These cannot be ignored — doing so entails administrative liability", — adds Maxim Ali.
Paradoxical but true
As practice shows, such conflicts often arise precisely over trademark rights. Marina Pozhidaeva, lawyer at the law firm VERSUS.legal, cites the striking example of Avangard LLC. The company had used the designation "European Biscuits" since 2010 but only registered its rights to the trademark in 2019.
"Over that nine-year period there were several players on the confectionery market producing biscuits under this brand, yet none of them attempted to register the trademark and tie it to their own reputation", — says Marina Pozhidaeva.
Having obtained the rights to the brand, Avangard demanded compensation from its competitors and an end to the infringement of its exclusive rights to the brand. Moreover, in March 2020 Avangard applied to the Tula Region FAS office alleging that competitors had violated its exclusive rights.
However, Avangard's strategy, Marina Pozhidaeva points out, worked against it in this case. The antimonopoly authority found Avangard LLC in breach of competition law: the company must have known about its competitors' products on the same product market, which means that even when filing the trademark application it intended to compete unfairly by using the exclusive right to the trademark with the aim of causing harm.
Branding first, project later
"It is advisable to register a trademark not just at the outset, but in advance, so as to rule out any claims to the brand", — advises Elena Yufereva, CEO of Brandson Branding Agency. She illustrates her point with the story of an entrepreneur from Veliky Novgorod: in 2007 a young programmer created the website novjob.ru and began publishing local job vacancies on it.
Over 10 years of operation, the number of unique visitors reached 60 thousand a month, even though the city's population was only 220 thousand. However, an unscrupulous client decided to register the trademark novjob in order to blackmail the true owner, the expert says. And the entrepreneur had to go to court to prove his right to use the mark — otherwise the trademark holder could have sued and stripped the programmer of a domain that was generating financial benefits.
"Most often, the need to protect trademarks and, accordingly, reputation arises in markets with low product knowledge — due to limited awareness of what the original should look like, and in markets with a homogeneous product that is differentiated only by emotional added value (for example, in the case of chewing gum brands: the product is roughly the same, and the purchase decision is influenced by the brand)", — believes Elena Yufereva.
In Russia, counterfeit products infringing trademark rights are most common in light industry and in the cosmetics and perfumery, electronics, car parts and home improvement materials markets, summarises Marina Pozhidaeva, citing the European Commission's counterfeiting and piracy watch list. This is largely due to the high cost of original products, high royalty rates under licence agreements and the general decline in consumer incomes.
For example, official Smeshariki (Kikoriki) merchandise in the Riki Store online shop costs from 1.1 thousand roubles for a tote bag printed with a character to 3.2 thousand roubles for a hoodie.
"Faking the products is not difficult. The infringer prints the cartoon character on a similar item and sets the price well below the original, but above the production cost of the lower-quality product. Psychologically, it is easier for the consumer to buy counterfeit goods than to think about exclusive rights or to relish the knowledge of owning the original", — the expert concludes.
