Russian Federation: Jurisdictional Uncertainty In Internet Disputes In Russia

Last Updated: 8 April 2019
Article by Viktor Gerbutov
Most Read Contributor in Russian Federation, April 2019

Russian civil procedure is characterised by the existence of two systems of courts hearing civil matters: arbitrazh courts and courts of common jurisdiction. Civil procedure in arbitrazh courts is governed by the Arbitrazh Procedural Code ("APC"), whereas the procedure in courts of common jurisdiction is governed by the Civil Procedural Code ("CPC").

Arbitrazh courts are generally competent to hear cases involving economic or business disputes. At the same time, unless Russian statutes provide otherwise1, arbitrazh courts hear such disputes only when the dispute involves legal entities and individuals registered as entrepreneurs. Courts of common jurisdiction hear all those disputes that do not fall under the competence of arbitrazh courts. Therefore, disputes involving private individuals are normally heard by courts of common jurisdiction.

The above competence rules have been effectively in force starting from around 20152.

Accordingly, starting from 2015 nearly all disputes concerning trademark infringements on the internet involving Russian individuals not registered as entrepreneurs have been heard by courts of common jurisdiction.

Given that in most cases domains in Russia are registered in the name of such individuals, the majority of domain disputes in Russia were heard by courts of common jurisdiction. Actions regarding infringing content of internet sites against such individuals also fell within their competence.

However, the situation suddenly changed in September 2018 when the Business Disputes Division of the Russian Supreme Court ("Business Disputes Division") in Cilek Mobilya Anonim Sirketi v Magnola Trade and Khrisanov (ruling dated 4 September 2018, case no. A40-155357/2012) ("Magnola Trade") opined that, by virtue of clause 9 of Article 247(1) of the APC3, if the claimant in the dispute is a foreign company and the dispute is connected with the protection of IP rights of that company where such rights were violated when registering domain names in Russia (e.g. .ru domains), the dispute is to be heard by the arbitrazh court irrespective of whether the defendant individual is registered as an entrepreneur or not.

Therefore, according to the Business Disputes Division, clause 9 of Article 247(1) of the APC provides for the competence of Russian arbitrazh courts in domain disputes upon claims of foreign IP owners. This is so even when the defendant domain owner is a private individual not registered as an entrepreneur.

In February 2019 the Presidium of the Russian Supreme Court refused to re-consider Magnola Trade.

Russian arbitrazh courts are generally recognised to be more suitable for hearing internet disputes than courts of common jurisdiction. Nevertheless, it should be concluded that in fact Magnola Trade has worsened IP protection of foreign IP owners in Russia and undermined the predictability of the results of internet disputes. The rules distributing the competence between the arbitrazh courts and the courts of common jurisdiction became extremely controversial and vague, which makes it impossible at the moment to choose a correct legal venue for such disputes.

The competence rules which were in force until Magnola Trade were supported and upheld by numerous resolutions of the Russian Supreme Court, including of its Plenum, Presidium and several divisions, including the Business Disputes Division4. Starting from 2015, most of the lower courts generally followed this approach.

Therefore, in Magnola Trade the Business Disputes Division actually deviated from the previous position of the Supreme Court. However, the resolutions of the Supreme Court reflecting its previous position were not abolished and remain formally in force.

After Magnola Trade it is absolutely unclear which Russian courts are in fact competent to hear internet disputes involving infringements of IP rights owned by foreign companies.

First of all, such uncertainty is relevant for domain disputes.

On the one hand, despite the fact that Magnola Trade is the most recent authority and the Presidium of the Supreme Court refused to re-consider it, the still effective resolutions of the Plenums of the Supreme Court and of the Presidium of the Supreme Court as well as numerous previous rulings of the Supreme Court's divisions constitute a more powerful authority as a whole.

Consequently, if an IP owner brings a lawsuit in the arbitrazh court, there is a high risk that Magnola Trade may be ignored by the judges of the first instance and/or appeal courts and therefore the arbitrazh courts will refuse to consider it on the merits as lacking competence.

For example, in Levi Strauss & Co. v Kalenova (ruling dated 20 February 2019, case no. A40-36691/19-105-215),the Arbitrazh Court of Moscow refused to accept the domain dispute for consideration since the defendant was not registered as entrepreneur. On 1 April 2019 the appeal court upheld this ruling. Similarly, in International Environmental Group GembH v Rotarash (judgment dated 17 January 2019, case no. А40-187525/18-5-772) the Arbitrazh Court of Moscow stopped the proceedings in the part of the claims relating to the non-registered individual. On 24 March 2019 this judgment was upheld by the appeal court.

On the other hand, another scenario seems also quite possible: if an IP owner brings a lawsuit to a court of common jurisdiction, based on Magnola Trade the judges may also decide to refuse to accept the case for consideration.

Even if the judge of the first instance court ignores Magnola Trade, there is a risk that the appeal judges may follow it.

As a result, at present, there is a practically irreversible risk that the initial legal venue chosen by the IP owner (a lawsuit in an arbitrazh court or court of common jurisdiction) may be recognised by courts of the first instance and/or of upper instances as an improper one, and the legal procedure will be stopped. The IP owner will then have to initiate a new trial before a different court after spending several months (or even years) in the initial competence fight.

Of course, the repeated action will most likely be accepted and heard on the merits. However, time and costs spent for the initial proceedings would not be compensable.

Furthermore, in the context of internet disputes, it is particularly important to take timely interim measures to exclude transfer of a disputed domain to other parties after the commencement of court proceedings. Otherwise, after such a transfer a court judgment upon the initial claim may become unenforceable in the end. Furthermore, new defences (e.g. good faith use) may be available for a new domain owner. Various defence tactics involving a transfer of the disputed domain are still very popular among Russian cyber squatters whose purpose is usually not to win the proceedings but to delay them to the maximum and increase the costs as much as possible so that the IP owner will eventually prefer to buy out the domains instead of pursuing lengthy and expensive litigation.

Termination of initial court proceedings because of the court's lack of jurisdiction will lead to cancellation of the interim measures granted and therefore the domain may be transferred to a new owner.

Thus, competence uncertainty in domain disputes gives rise to significant risks for foreign IP owners.

Apart from domain disputes, the uncertainty described is also relevant to other internet disputes.

Based on Magnola Trade, it could be argued that the other competence gateways established by Article 247 of the APC (e.g. mere Russian residence of the defendant) are also sufficient for distribution of competence between arbitrazh courts and courts of common jurisdiction. Therefore, from the perspective of Magnola Trade any lawsuit by a foreign IP owner-legal entity against any Russian defendant should be brought before the arbitrazh court. It is, however, doubtful that this logic will be supported by Russian courts.

If the effect of Magnola Trade should be limited to domain disputes (so that only domain disputes with foreign claimants must be heard by the arbitrazh courts), it will cause even greater problems in practice, since quite often actions for domain and content infringements are combined in single proceedings, so it would be unclear which courts would be competent for a combined action. Parallel litigation in several courts upon such actions would be clearly inconvenient.

Therefore, Magnola Trade significantly undermined the predictability of internet disputes in Russia.

At present, an extensive and detailed Resolution of the Plenum of the Russian Supreme Court on IP disputes is being prepared.

According to the current draft of the Resolution, all the trademarks and company name actions would be heard by the arbitrazh courts irrespective of the status of the parties involved. With respect to the other actions, general competence rules would apply. This means that the competence rules regarding the trademarks and company name actions would be changed again and courts of common jurisdiction would not have competence over them any longer.

Should this Resolution be adopted (as is expected very soon), the uncertainty caused by Magnola Trade will be resolved. However, the problem of a proper legal venue for actions combining trademark and copyright claims would still exist as the current draft does not regulate it in any case.

In light of the current uncertainty (and envisaged change of the competence rules by the Plenum Resolution), it appears to be reasonable to suspend commencement of new proceedings involving Russian individuals not registered as entrepreneurs until the Resolution of the Plenum of the Supreme Court is adopted.

Footnotes

[1] One of the exceptions to the general competence rules is that the Moscow City Court, being a court of common jurisdiction, hears disputes arising from most copyright infringements on the internet irrespective of the participants where interim measures were adopted by the Moscow City Court within a special procedure established by the CPC. Such actions are not relevant to and are not considered in the present paper.

[2] Before 2015, most arbitrazh courts and some courts of common jurisdiction generally followed the rule established by the Russian Supreme Arbitrazh Court (SAC) (the former highest court in arbitrazh courts system) that all economic disputes, irrespective of the status of their participants, must be heard by arbitrazh courts. In August 2014 the SAC was liquidated, therefore, as explained below, its position was later overturned by the Supreme Court.

[3] Article 247 of the APC provides for jurisdictional gateways for Russian arbitrazh courts in disputes involving foreign elements and does not actually distribute the competence between the arbitrazh courts and the courts of common jurisdiction. According to Article 247(1), arbitrazh courts hear business disputes involving foreign companies in particular if the defendant resides in Russia or has property located on the territory of Russia (clause 1), if the dispute arose from relations connected with the registration of domain names on the territory of Russia (clause 9), and in any other circumstances where there is a close connection between the disputed legal relations and the territory of Russia (clause 10).

[4] Rulings of the Supreme Court of the Russian Federation No. 18-KG16-184 of 24 January 2017; No. 304-ES16-17998 of 24 March 2017; No. 5-KG15-153 of 17 November 2015; Review of judicial practice of the Supreme Court of the Russian Federation No. 1 (2014) established by the Presidium of the Supreme Court of the Russian Federation as of 24 December 2014; Explanations by the Supreme Court of the Russian Federation of 24 March 2004 "Answers of the Judicial chamber for civil cases of the Supreme Court of the Russian Federation No. 41-B11-4 of 19 July 2011; No. 91-KG12-7 of 22 January 2013; No. 25-KG13-3 of 10 December 2013; joint resolutions of the Plenums of the Supreme Court of the Russian Federation and of the Supreme Arbitrazh Court of the Russian Federation No. 12/12 of 18 August 1992 and No. 6/8 of 1 July 1996.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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