Analytics Legal analytics

In this review, we consider the requirement of possessing exclusive rights, which may be made for a tender participant, and what opportunities are there for the protection of the right holder’s exclusive rights when they are violated as a result of a tender.

I. Interpretation of Law No. 44-FZ,[1] in terms of the requirement of the presence of exclusive rights – if the purchase of the rights to the results of intellectual activities is not expected, the declaration by the procurement participant about possessing rights is not necessary

The requirement in tender documentation of possessing exclusive rights is permissible, even if there are no intentions for acquiring the rights to the results of intellectual activity. However, in this case, the procurement participant need not declare the possession of exclusive rights.

• Conclusion from legal precedents: the provisions of Law No. 44-FZ, which establishes the requirement of possessing exclusive rights , clearly indicate those cases in which this should apply, and the introduction of this requirement should not mislead the participants
  

At the same time, the declaration of possession of exclusive rights is not required, in cases where it is not expected that the customer will acquire the rights to the results of the intellectual activity.

Decree of the Arbitration Court of the Ural District dated 25.01.2016 No. F09-11392/15 on case No. A07-8299/2015

Customer in the tender documentation stipulated the following requirement for the procurement participants: procurement participants must possess exclusive rights to the results of intellectual activity, if in connection with the execution of the contract the customer acquires the rights to such results.

The competition authority considered that this requirement should not have been included in the tender documentation, if the object of the procurement does not provide for the transfer of rights to the results of intellectual activity.

In resolving the dispute, the Court found that Law No. 44-FZ establishes the requirement of possession by procurement participants of exclusive rights, if such rights are subsequently transferred to the customer. The Court also found that in this case, the object of the procurement was the execution of the maintenance of roads, which did not involve the acquisition by the customer of the rights to results of intellectual activity. Nevertheless, the procurement participant provided a declaration of being in possession of exclusive rights. Considering the above, the Court acknowledged that the application of the participant  cannot be interpreted unambiguously, since it implies the transfer of exclusive rights to the customer, which is contrary to the object of the procurement (the application was eventually rejected).

The Court thus rejected the argument of the Federal Antimonopoly Service, that the establishment of the requirement of possession of exclusive rights is not required, if the object of procurement does not include the transfer of such rights. The Court pointed out that Paragraph 8, Section 1, Article 31 of Law No. 44-FZ[2] stipulates those cases in which it should be applied, and therefore its inclusion in the requirements for procurement participants did not mislead them.

• Conclusion from legal precedents: Establishment in the tender documentation of requirements of possessing exclusive rights complies with the law, if the procurement shall not result in accrual and transfer of any exclusive rights. In this case, the participant can simply not declare this requirement.
  

The decision of the Kemerovo OFAS Russia dated 29.07.2015 on case No. 296/Z-2015

The OFAS received a complaint from a participant of an electronic tender as to the provisions contained in the tender documentation. According to the applicant, the tender documentation did not meet the requirements of legislation. In particular, the requirement to provide a declaration of being in possession of exclusive rights was unfounded, since the object of the procurement did not contain rights to results of intellectual activity.

Having considered the complaint, the OFAS concluded that the applicant’s complaints were unfounded. The competition authority said that the object of the procurement was the execution of works. Thus, the participant of the procurement had the right not to submit a declaration on possessing exclusive rights. However, at the same time, according to the OFAS, the very existence of such a requirement in the documentation is consistent with the law, even if the object of procurement does not imply the existence or transfer of any exclusive rights.

2. The requirement of possessing exclusive rights  is not allowed, if there is no expectation of purchasing the rights to results of intellectual activity

Conclusion from legal precedents: The requirement of the possession by procurement participants of exclusive rights is not justified if it is contrary to the very object of the procurement.

The decision of the Chelyabinsk OFAS Russia dated 12.11.2015 on case No. 762-zh/2015

The competition authority has established that the customer must specify the requirement of the possession of exclusive rights by procurement participants, if such rights are to be transferred to the customer.

In the absence of such a specification, the presence of such specified requirements is not consistent with the law for after the delivery the customer does not receive the exclusive rights to the object of the procurement. The FAS concluded that the customer included inappropriate information on its requirements for the content and structure of the application and as a result violated the provisions of Paragraph 2, Section 1, Article 31 of Law No. 44-FZ.

II. Compensation in case of violation of the exclusive rights due to tenders: the size of compensation was significantly reduced

• Conclusion from legal precedents: in the event of unauthorized use of a trademark (even in cases where products with such trademark are supplied pursuant to a state contract), the right holder shall be entitled to claim damages, as well as demand to cease the use of the trademark. At the same time, when determining the amount of compensation, the court must take into account, among other things, the price of the respondent’s state contract, the special social significance of the goods, the maintenance of a balance of interests and restoration of the violated rights of the plaintiff.
  

Judgement of the Court for Intellectual Property Rights dated  13.05.2015 No. S01-360/2015 on case No. A45-12967/2014

In this dispute the plaintiff demanded to recognize the actions of the defendant on the use of trademarks as being in violation of its exclusive right, to prohibit the defendant from selling goods marked with the trademark of the plaintiff, and to recover 5,000,000 roubles compensation for the unlawful use of trademarks.

The courts had established that the defendant had imported goods, marked with the trademarks of the plaintiff, within the framework of a state contract. Later on, the goods were transferred to one of the institutions of the Ministry of Healthcare of the Russian Federation. The defendant did not deny the fact of using the plaintiff’s trademarks.

The courts also found that between the plaintiff and the defendant there existed no agreement on the use of trademarks or service marks that are confusingly similar, and therefore, their use was illegal.

The court of first instance granted the claims (the defendant’s actions were recognized as having violated the exclusive rights of the plaintiff to the trademarks, the court banned the sale of goods marked with the trademarks of the plaintiff), while reducing the amount of compensation to 1,000,000 roubles.

When determining the amount of compensation, the court took into consideration, among other things, the price of the defendant’s state contract (33,000,000 roubles), the special medical and social significance of the goods, the use of which requires warranty service and consulting services for the operational setup, and preserving of the balance of interests and restoring of the violated rights of the plaintiff.

• Conclusion from legal precedents: The amount of compensation may be reduced if the court finds that the defendant has admitted the violation and took reasonable steps to prevent or stop the violation. At the same time, the non-participation of rights holders themselves in the tenders can serve as one of the justification to decrease the amount of compensation.
  

Judgement of the Eighteenth Arbitration Appeals Court dated 25.02.2016 No. 18AP-15298/2015, 18AP-15425/2015 in case No. A76-5078/2015

Note: This case is currently pending before the Court for Intellectual Property Rights (Decree of the Court for Intellectual Property Rights dated 25.05.2016 No. S01-436/2016 on case No. A76-5078/2015)

In this case the plaintiffs demanded to forbid the defendant from taking any action on the introduction into circulation of goods marked with the trademarks, the exclusive rights of which are owned by the plaintiffs. In addition, they demanded the payment of compensation to each of them of 1,000,000 roubles.

The court of first instance granted the plaintiffs’ claims, regarding the imposition of bans on the introduction of goods into civilian circulation, but reduced the amount of compensation to 425–450 thousand roubles to each of the plaintiffs.

The plaintiffs did not agree with the amount of the compensation, and appealed this part of the decision made by the court of first instance. In particular, the plaintiffs argued that the court of first instance had incorrectly established the nature of the violation. The co-plaintiffs substantiated their claim by the fact that the amount of compensation they were seeking corresponded to the essential character of the violation of the exclusive rights to a trademark, according to Paragraph 4, Article 1515 of the Civil Code of the Russian Federation.

It should be noted that the defendant did not agree with the size of the collected compensation, and demanded that it be reduced. The defendant substantiated its demands by the fact that, in determining the amount of compensation, the court should have taken into consideration the unintentional nature of the action, as well as the respondent’s admission that he had indeed violated the rights of the plaintiffs.

The courts have found that the defendant did not have any rights to use the trademarks of the plaintiffs. In the absence of such rights, the defendant unlawfully delivered to state budget institutions products marked with the trademarks of the plaintiffs.

However, in determining the amount of compensation, the courts had taken into account the recognition of violations by the defendant and the actions taken by him on the establishment of the legal origin of the goods, the fact of voluntary cessation of breaching of the rights of the plaintiffs. The courts had not established the circumstances, bearing evidence of the infringement of the rights of the plaintiffs by the actions of the defendant (for example, the plaintiffs had had an opportunity to participate in relevant electronic tenders), and therefore the conclusion of a state contract with the defendant, according to the Court, did not cause damages to the plaintiffs.

• Conclusion from legal precedents: Compensation is not to be a penalty imposed against the violator of the exclusive rights of the rights holder, and must be commensurate with the amount of damages that the breach caused.
  

Judgement of the Court for Intellectual Property Rights dated 31.07.2015 No. S01-787/2014 on case No. A40-47237/2013

In this case at issue was the banning of the use by the defendant of a trademark of the plaintiffs, and compensation for committed violations. In particular, the plaintiffs were seeking compensation of 435,600 roubles, and the seizure and destruction of equipment bearing the trademarks of the plaintiffs, as well as the publication of the court decision on this violation in the “Bulletin of the Ministry of Emergency Situations of Russia”.

The court found that the trademark rights were violated as a result of a public tender, on the basis of which the defendant was declared the winner of the tender. As a result, he was awarded a contract for the supply of equipment (the cost of equipment was 108,000 roubles).

The court concluded that the defendant, without the consent of the plaintiffs, had used, on the goods sold, designations confusingly similar to the trademarks of the plaintiffs. According to the court, such acts present an obstacle for the plaintiffs in the use of their trademarks in the Russian market, and consequently, the demands for compensation should be satisfied.

The court found that the defendant infringed the exclusive rights of the plaintiffs. As a result, the defendant may no longer use the trademarks of the rights holders, and had to pay 50,000 roubles as compensation. The plaintiffs considered that the amount of the set compensation did not restore their property status, and would allow the defendant to again violate their rights.

However, in determining the amount of compensation, the court proceeded from the nature and circumstances of the offense, and the principles of reasonableness and fairness, as well as proportionality of compensation for the consequences of the breach.

The Court for Intellectual Property Rights further noted that compensation is not considered as a penalty. The Presidium of the Supreme Court of the Russian Federation has adopted a similar position in the Decree dated 20.11.2012 No. 8953/12.

[1]           Federal law dated 05.04.2013 No. 44-FZ “On the contract system in the procurement of goods, works and services for state and municipal needs” (hereinafter referred to as the “Law No. 44-FZ”).

[2]           This provision stipulates that the customer establishes uniform requirements for all procurement participants of being in possession of exclusive rights to the results of intellectual activity, if in connection with the execution of the contract the customer will acquire the rights to such results, except contracts to create works of literature or art, performances, to finance the rental or showing of national films.