On December 13, 2016, the Constitutional Court announced a ruling on a case regarding examination of the constitutionality of Articles 1301 and 1311 and Clause 4 Article 1515 of the Civil Code of the Russian Federation (the “Civil Code”) and specified the following: in exceptional events, the courts are entitled to reduce the amount of compensation being recovered below the minimum threshold established by the law.

Currently, the protection level of rightholders’ exclusive rights to intellectual property is growing; however, at the same time, exclusive rights are still being violated by unfair participants of civil turnover.

For violation of IP rights, rightholders are entitled to request that damages be compensated or a penalty be recovered.

Article 1515 of the Civil Code provides three possible ways to establish the amount of compensation for violating exclusive rights:

- In the amount from 10,000 to 5,000,000 rubles, to be determined at the court’s discretion based on the nature of a violation;

- Double the cost of goods bearing a trademark illegally;

- Double the cost of the right to use a trademark, determined based on the price which under comparable circumstances is usually collected for lawful use of the trademark.

Until the present, the issue on possibility to reduce the amount of compensation being recovered under Subclause 1 Clause 4 Article 1515 of the Civil Code (in the amount from 10,000 to 5,000,000 rubles) for violating IP rights based on Article 1515 of the Civil Code, was an open one, and the amount of compensation awarded by a court could not constitute less than 10,000 rubles.

Prior to the ruling of the Constitutional Court, there were two main positions related to possibility of reducing the amount of compensation under Article 1515 of the Civil Code below the minimum threshold established by the law:

- Position of the Intellectual Property Court[1]: the sanction provided by Article 1515 of the Civil Code is of compensatory nature and is obviously aimed at restoring the property interests of an entity affected by a violation, and therefore, cannot be aimed at its enrichment and can be reduced below the lowest threshold established by Article 1515 of the Civil Code.

- Position of Commercial Arbitration Courts[2]: compensation must be recovered even if the amount of damages inflicted is equal to zero. If it is proven that the rightholder’s damages are equal to zero, the amount of compensation shall be reduced to the lowest threshold, but in any event compensation should be recovered.

That provided, the Intellectual Property Court and the Commercial Arbitration Courts had a question regarding the possibility of reducing the compensation.

Background of the query to the Constitutional Court. The Commercial Arbitration Court for Altai Krai filed a query with the Constitutional Court which is now considering the following cases:

- CJSC Aeroplan filed a claim on recovering from entrepreneurs (O.N. Bakhmat, N.N. Selezneva, E.S. Tikhonova)[3] compensation in the amount from 50,000 to 60,000 rubles for illegal use of trademarks copying the characters of the Fiksiki animated cartoon series, with the cost of counterfeit toys constituting 200 rubles;

- LLC Kvadro-Publishing filed a claim against entrepreneur (Yu.V. Lubiva) on recovering compensation for violating the exclusive rights to Stas Mikhailov’s musical works in the amount of 859,000 rubles,[4] with the cost of a CD constituting 75 rubles. Previously, Non-Commercial Partnership (NP) Edelveis filed a claim against Yu.V. Lubiva on recovering compensation for violating exclusive rights in protection of the “Masha and Medved” trademark (in Russian “Маша и Медведь,” meaning “Masha and the Bear”). The amount of compensation being recovered under this case was reduced by the same Commercial Arbitration Court for Altai Krai to the minimum threshold provided by Article 1515 of the Civil Code.[5]

Position of the Commercial Arbitration Court for Altai Krai: recovering substantial compensation from the participants of civil turnover without considering the actual circumstances of the offence and material losses of the plaintiff does not correspond to the principles of rationality and justice, restricts competition and freedom of economic activity and entails an adverse effect for small business operations.

The Commercial Arbitration Court for Altai Krai proposed the following criteria for establishing the amount of compensation being subject to recovery from the defendant, which were taken into account by the Constitutional Court[6]: the nature of the committed violation, insignificant period of illegal use of intellectual property, extent of the violator’s guilt, absence of violations of the rightholder’s exclusive right committed by the entity earlier, absence of evidence and calculations of the claimant’s losses caused by the defendant’s actions, small price of goods and small volume of goods sold by the defendant, the claimant’s possibility to lay claims not only against the seller of goods, but also against the goods manufacturer; also, the court proceeds from the principles of rationality and justice and considers the proportion of the compensation to the consequences of the violation.

Position of the Constitutional Court:

- The recovery of compensation under Article 1515 of the Civil Code is simultaneously a punitive sanction pursuing the public goals of preventing offences, and a private institute;

- Civil law liability is based on the principles of justice and commensurability, which means the following:

a.      An entity shall be provided an opportunity to prove its actions on preventing illegal use of exclusive rights;

b.      The liability shall be differentiated, depending on gravity of the illegal act, amount and nature of the damage caused, extent of the violator’s guilt and other substantial circumstances which are significant for individualizing the punishment;

That provided, the courts are entitled to reduce the amount of compensation claimed based on Article 1515 of the Civil Code below 10,000 rubles, subject to circumstances specified in paragraph 10 of the Ruling of the Constitutional Court. The norms of Articles 2, 7, 8 (Part 1), 18, 21 (Part 1), 34 (Part 1), 39 (Part 1), 46 (Part 1) and 55 (Part 2) contradict the Russian Constitution.

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 [1] Ruling of the Intellectual Property Court dated December 25, 2013 on case No.А40-221/2013, Resolution No.8953/12 of the Presidium of the Russian Supreme Court dated November 20, 2012.

Irina Onikienko   Partner   St. Petersburg   Теl.: +7 (812) 346 79 90

Elena Berger   Senior Associate   St. Petersburg   Теl.: +7 (812) 346 79 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Onikienko or Elena Berger, Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues. 

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