The Fight Over STOLI Vodka Brand Continues and Likely Heads to U.S. Highest Court

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The Fight Over STOLI Vodka Brand Continues and Likely Heads to U.S. Highest Court

The U.S. legal system is currently adjudicating at least two high profile cases that, I dear to say, have geopolitical implications. One case is in a D.C. federal court where former Yukos Oil shareholders are asking the court to enforce a $50 billion award against Russia issued by a Permanent Court of Arbitration tribunal in 2014. (The award is worth around one-quarter of Russia’s total government budget.) The Arbitration tribunal found that Russia engaged in an illegal campaign to disband Yukos and transfer its assets to the state-owned oil company Rosneft. Russia urges the D.C. federal court to dismiss this lawsuit saying it never agreed to arbitrate the claims. The case is Hulley Enterprises Ltd. et al. v. Russian Federation, case number 1:14-cv-01996, in the U.S. District Court for the District of Columbia.

The second case is the one involving the ownership of the iconic STOLICHANYA vodka brand (or STOLI) in United States and the right to sell this popular vodka brand in U.S. The Sputnik Blog® discusses some of the salient points of this litigation saga and latest developments.

The STOLI case has a long history, several court decisions and a complicated set of facts. In a nutshell, in the U.S. the dispute started when the Russian government filed a lawsuit in 2004, through its agency, a government-owned entity, to reclaim the ownership of the mark in U.S. from SPI Group. The brand STOLICHNAYA used to belong to the Soviet government. "Stolichnaya" is Russian for "from the capital." The Soviets created a legal entity, which had marketed vodka under that brand both domestically and abroad, since 1944 and prior to the collapse of the Soviet Union. The state-owned entity, The All-Union Association Sojuzplodoimport ("V/O-SPI";), registered a trademark for "STOLICHNAYA" with the United States Patent and Trademark Office in February 1969 (Registration No. 865,462), as the primary STOLI brand (the STOLI Marks”).

In early 1990s, the Soviet government began reforms to change its centralized planned economy into a market economy, and state-owned enterprises were privatized. As the privatization legislation was only being drafted, V/O-SPI was purportedly privatized by its directors and mangers under the new name “VAO-SPI.” VAO-SPI later became controlled by SPI, the defendant entity.

In 2000s, the Russian government under President Putin began to scrutinize many of the murky privatization deals of the 1990s, and courts found the privatization of V/O-SPI illegal. The court held that ownership of the STOLI Marks had remained with Russia. The Russian government created a legal entity, the Federal Treasury Enterprise Sojuzplodoimport ("FTE";), that the Russian government authorized to own and enforce its rights to the STOLI brand. The legal battles over the popular brand outside Russia ensued.
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Sputnik Blog® already wrote about one of the STOLI decisions in U.S. (though from a different angle). In 2013, in a prior suit, a New York judge dismissed the complaint of the Russian government on formal grounds, without even reviewing the merits of the case. On August 28, 2013, the Court of Appeals affirmed the district court’s decision that FTE lacked standing to bring a lawsuit in a U.S. court.

In 2013, this Blog questioned the rationale of the LGBT activists who boycotted the STOLI brand over Russia’s alleged mistreatment of gays. The posting Is Stoli Really a Russian Vodka? discussed the case Federal Treasury Enterprise Sojuzplodoimport, et al. v. SPI Spirits Ltd., et al., case number 11-4109, 726 F.3d 62, 85 (2d Cir. 2013). This Blog noted that the Russian government did not suffer from the LGBT boycott at all, because Russia did not (and still does not) control the STOLI brand in United States, where all the boycott effectively occurred.

Recently, there have been developments in the STOLI case. On January 5, 2016, the U.S. Court of Appeals for the Second Circuit (that includes New York) reversed the district court ruling that FTE lacked standing to assert trademark infringement claims.

The Appeals Court reversed the prior district court’s decision in part, specifically the part in which the district court ruled that the assignment through which the Russian government transferred “entire right, title, and interest in and to the [STOLI Marks]” was invalid. The Appeals Court applied two legal doctrines one of which is international comity. Under international comity, courts should refuse to review actions of foreign governments, unless those actions would be contrary to the policies of the United States. The Appeals Court found no countervailing policy interest to justify the district court’s decision, and sent the STOLI case back to the district court.

What the Appeals Court essentially said is as follows. "Listen, Ms. Judge, you cannot tell the Russian government that it violated its own law. The Russian government probably knows better whether or not its decree is legal, and whether the assignment is valid. It’s none of our business to evaluate the Russian government’s acts. We must presume that they are valid under Russia’s own law." Makes sense, doesn’t it?

Victory to the Russkies? Not so fast. First, the Appeals Court said no word on the merits of the case. It did not even hint which side has superior rights to the STOLI Marks: the Russian government/FTE or SPI. It only held that Russia’s agency FTE had the standing. In fact, the Court stressed that “whether those rights, if validly assigned, prevail against alleged infringers is very much an issue confided to the United States courts; the distinct question whether the government of a foreign sovereign has effectively and legally allocated its rights and powers among its agencies and instrumentalities under the foreign sovereign‘s law, is not.” (Emphasis added.) So, even though Russia’s FTE is probably going to have its “day in court,” it does not necessarily mean it will prevail.

Second, the defendants, SPI Group et al., on April 4, 2016, requested a stay of the entire STOLI litigation pending a “planned petition for a writ of certiorari” from a Second Circuit ruling in January. So, the defendants are asking that the U.S. Supreme Court take on the issue whether Russia’s FTE has standing to sue. FTE surely will oppose this move. It would undoubtedly be very interesting to see how the U.S. Supreme Court would rule on this issue. However, there is no certainty that the case would even get to the Supreme Court. What is certain is that this move by the defendants means more delay before an ultimate resolution. And, for the time being, the defendants continue to exploit the STOLI brand in U.S.

Thus, Russia appears to have won the battle, but it is not necessarily winning the war. The STOLI legal battle increasingly is becoming to look more like a frozen conflict, the state of affairs that certainly benefits the defendants, not Russia.

Legal theories aside, how do you think the U.S. courts should decide? Shall the U.S. rule that the STOLI brand should be returned to the Russians? Is there a risk that the U.S.-Russia confrontation may intensify if the Russians do not get their vodka brand back, and on top of that the U.S. rules that Russia must pay $50 billion to the former Yukos shareholders?

Text © Maxim A. Voltchenko 2016

* This piece is not intended to be a review of U.S. law. This posting may not necessarily represent the views of the author’s employing law firm. Although every effort has been made to verify the accuracy of items in the Sputnik Blog®, readers are urged to check independently on matters of specific concern or interest.