SPI in high spirits after suit against STOLI marks is dismissed for lack of standing

By: Susan Natland and Brigette Chaput

In Federal Treasury Enterprise Sojuzplodoimport v SPI Spirits Ltd, the US Court of Appeals for the Second Circuit has affirmed the dismissal of a lawsuit over certain US registered trademarks related to Stolichnayabrand vodka, finding that a Russian state-owned company lacked standing to challenge use of the marks in the United States.

Stolichnaya, or Stoli, is a well-known and valuable Russian vodka brand that was originally state-owned. The protracted fight between Federal Treasury Enterprise Sojuzplodoimport (FTE) and SPI Spirits began when SPI gained control of several trademarks relating to the Stolichnaya brand following the collapse of the Soviet Union.

The Soviet Union granted PepsiCo a 10-year licence for the STOLI marks. FTE claims that, when the licence expired in 2001, the rights in the STOLI marks reverted to the Russian Federation, as successor to interests held by the Soviet-created state enterprises. Thereafter, FTE obtained certain rights from the Russian Federation in connection with the STOLI marks.

In 2004 FTE filed suit against SPI in the US District Court for the Southern District of New York alleging infringement of US trademark registrations for the STOLI marks in violation of Section 32(1) of the Lanham Act, 15 USC § 1114(1)(b), and the case has been dragging on since then. The case reached the Second Circuit when FTE appealed a district court decision that dismissed FTE’s claims finding that FTE had no statutory standing to sue SPI.

FTE appealed, contending that it was entitled to sue for infringement of the STOLI marks because the Russian Federation “entrusted” it with care of the STOLI marks, and that FTE is either the Russian Federation’s “assign” or “legal representative”. FTE also maintained that it was entitled to proceed because the Russian Federation had “ratified” the suit.

In a series of decrees over time, the Russian Federation endowed FTE with certain rights in connection with the STOLI marks. The issue was whether the rights granted to FTE rose to the level of allowing FTE standing to sue in relation to the STOLI marks with regard to Section 32(1) of the Lanham Act.

Centrally relevant to the case are three sources of documents conveying those rights:

1. FTE’s Charter, which was adopted by the Russian Federation in a March 2002 decree;
2. a July 2002 decree that governs FTE’s rights to various trademarks including the US registered STOLI marks; and
3. a January 2005 decree that addresses FTE’s right to prosecute suit in foreign jurisdictions.

Only registrants as statutorily defined have “statutory standing” to bring an action under Section 32(1). The Lanham Act defines registrants as embracing the actual registrant’s “legal representatives, predecessors, successors and assigns” (15 USC § 1127). The Second Circuit examined whether FTE has sufficient claim to the registered STOLI marks for FTE to be characterised as an “assign” or “legal representative” with standing to sue under Section 32(1) of the act.

Initially, the Second Circuit noted that Russian law is only relevant in helping determine the relationship between FTE and the Russian Federation vis-à-vis the marks, and that the US laws guide the determination of whether this relationship extends sufficient rights to FTE for it to be considered as an “assign” or “legal representative” with standing to sue under Section 32(1).

First, regarding whether FTE is an “assign” of the Russian Federation, the Second Circuit noted the following two legal requisites inherent in the concept of assignment under the Lanham Act:

1. the need for the relevant assigning document to be effected “by instruments in writing duly executed”; and
2. the need for the assignment to transfer an ownership interest in the marks at issue.

FTE relied on the charter and the decrees to support that an assignment occurred. However, the Second Circuit found that neither document represents a clear writing that effects an assignment of the STOLI marks from the Russian Federation to FTE. Rather, the Second Circuit found that the Russian law and the decrees direct that the Russian Federation retain formal title to the STOLI marks, and moreover, expressly reserve to the Russian Federation certain rights that are generally inherent in the concept of ownership. For example, FTE identified no constraints to the Russian Federation’s authority to use the STOLI marks itself, and the Russian Federation appeared to be free to withdraw FTE’s rights to use the STOLI marks and to grant others similar rights.

Therefore, the Second Circuit affirmed the district court’s finding that FTE is not an “assign” of the Russian Federation for purposes of the Lanham Act.

The Second Circuit also found that FTE was not a “legal representative” entitled to bring suit under Section 32(1) on behalf of the Russian Federation. The Second Circuit noted that, to serve as a “legal representative” on behalf of a trademark holder, a putative plaintiff must demonstrate both its legal authority to represent the owner and that the trademark holder is legally incapable of representing itself. Here, the Second Circuit found that FTE has not alleged that the Russian Federation was incapable of bringing suit on its own behalf, and therefore, this line of arguments by FTE failed.

Finally, the Second Circuit also held that the Russian Federation has not “ratified” this suit under Rule 17 of the Federal Rules of Civil Procedure because to ratify a suit, the real party in interest must (i) authorise continuation of the action and (ii) agree to be bound by its result, neither of which occurred.

Since FTE could not allege facts sufficient to satisfy any of the above requirements, the Second Circuit found that it was neither an assign of the Russian Federation nor the Federation’s legal representative under the terms of the Lanham Act, and therefore lacked standing under the Lanham Act. Accordingly, the Second Circuit affirmed the decision of the district court.

This article first appeared in World Trademark Review Daily, published by The IP Media Group, on September 16, 2013. To view WTR Daily online, please go to www.worldtrademarkreview.com.