STOLI Vodka Trademark Dispute Gets Distilled

In a recent case out of the Second Circuit Court of Appeals a trademark dispute of the STOLINAYA mark was before the court again.  This time the focus was on standing as it relates to a foreign government and its actions. The case is Fed. Treasury Enter. Sojuzplodoimport v. Spirits Int’l B.V. (144721cv(L) 2015 2nd Cir.). ( Available Here)  Previously, in 2013 the Second Circuit dismissed a similar lawsuit between the parties. (See Fed. Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., 726 F.3d 62, 66 (2d Cir. 2013)). The facts and procedural history are long, but the crux of the decision is based on some high level legal concepts having less to do with trademark law and more to do with the principle of comity and the act of state doctrine.

    The dispute is between the Federal Treasury Enterprise (FTE), an agency of the Russian Federation, who asserts an interest in the Stolichnaya vodka trademarks. FTE claims that the Defendants unlawfully misappropriated and commercially exploited the trademarks in connection with the sale of vodka and other spirits in United States. As a result they pursued claims under section 32(1) of the Lanham act. The District Court dismissed all of FTEs claims determining that FTE did not have standing and that FTEs other non-section 32(1) claims were barred by both res judicata and laches in light of the prior litigation and rulings.

    In the instant case the Second Circuit Court of Appeals determined that the doctrine of comity and the act of state preclude the US from invalidating an action of foreign sovereign with respect to the transfer of rights among its branches or entities on the ground that the transfer is invalid under the law of that foreign sovereign. The Second Circuit Court of Appeals determined that the District Court improperly reviewed whether the assignment from the Russian Federation to FTE was valid under Russian law and as a result vacated the dismissal of FTEs section 32(1) claims for lack of standing. The Second Circuit cited that under principles of international comity U.S. courts refuse to review acts of foreign governments and deferred to proceedings taking place in foreign countries allowing those acts and proceedings to have extraterritorial effect in the United States. The Second Circuit found that declaring the actions of the Russian government in violation of its own law would be an affront to the government of a foreign sovereign. The Court went on to note that even the inquiry into whether Russian law permitted the assignment of its rights to FTE would be a breach of comity. Ultimately, the Second Circuit determined that extending comity to the Russian Federation’s assignment to FTE would not undermine any policy or interest of the United States which has no stake in the instrumentality of the Russian Federation in connection with the trademarks at issue. As a result it determined that under considerations of international comity the court was precluded from adjudicating the validity of the assignment.

    Next the Second Circuit moved to the “act of state” doctrine. The Court explained that this doctrine “precludes any review whatever of the acts of the government of one sovereign state done within its own territory by the courts of another sovereign state.” The lower District Court reasoned that the act of state doctrine does not apply when the act of the foreign sovereign concerns United States trademark because the trademark is a property interest located within the United States. However the Second Circuit explained that public policy concerns over the possible effect on property are not present because neither the decree nor the resulting assignment of trademark rights from the Russian Federation to FTE impaired anyone’s property rights or affects the jurisdiction of the United States courts to decide the competing claims to ownership of the marks. The Second Circuit determined “the allocation by governmental decree of such rights as the Russian Federation may have, and the designation of the government entity that has power to assert or defend them, is an internal act that augments no commercial interest of the Russian Federation and impairs no commercial interest of anyone else.” The Court reasoned that the Russian Federation acted as a government allocating its rights to assert legal claims to FTE which is a branch of the sovereign itself. As a result under the act of state doctrine the Second Circuit further determined that it cannot review the efficacy of the assignment.

Finally, the Court then turned to the claims of res judicata and laches. The Second Circuit noted that both res judicata and laches applied as to all of the non-section 32(1) claims.

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