Responsibility in 3D: Distributor, Dealer, Domain
You have a domain, we have a trademark. Or a tale about how distributors put themselves on the hook because of brands in domains.
Due to the constant development of market relations, goods and services have long been provided to consumers not only according to the “producer-consumer” model, but also through intermediaries, which include distributors and dealers. Despite the fact that in the current civil legislation of the Russian Federation the distribution agreement is not singled out as a separate type of agreement, nevertheless, such subjects of market relations have found suitable legal structures for their business relations within the framework of already existing types. Within the framework of this material, we do not plan to look for and present differences in the legal status of a distributor and a dealer, but we propose to consider situations in which such subjects of market relations may be held liable for violating exclusive rights in relation to means of individualization in relation to a domain name.
Let's imagine the situation.
There is a manufacturer of a product that has a corresponding trademark to individualize its product. In order to develop a customer base of consumers of its goods, such a manufacturer attracts an intermediary - a distributor - to sell its goods, with whom it concludes a corresponding agreement. In turn, the distributor, in order to more effectively sell the purchased batch of goods, registers a domain name and creates a website for selling such products (first option) or creates a corresponding section on his existing website dedicated to this product (second option).
In relation to such a situation, the question arises: can a distributor legally use the trademark of a product manufacturer to sell a product that was previously legally acquired (i.e. not a counterfeit product) if a corresponding license agreement has not been concluded between such a distributor and the product manufacturer (who is also the owner of the trademark in relation to such a product) in relation to such a trademark? And if the distributor cannot, then what liability can be imposed on him?
The question about the domain name is related to the fact that distributors often create websites about the products they sell, and often use trademarks of manufacturers of the products both as illustrations on websites and in domain names for such websites and other means of addressing on the Internet.
Examples of such distributors:
https://www.mont.com/ru-ru/vendor/adobe
https://www.bmw-borishof.ru
http://www.asbis.ru/drweb
The above questions are, in fact, not as simple and straightforward as they may seem at first glance. To answer them, the following should be noted.
Since, as stated above, the law currently does not provide for special rules regarding distribution relations, much depends on how the parties have qualified their agreement and what content they have put into it.
As we know, the granting of the right to use a trademark is formalized in the form of concluding a corresponding license agreement (see Article 1489 of the Civil Code of the Russian Federation). In this case, based on the freedom of contract, the parties can legally formalize the provision of such a license either by concluding a separate (license agreement) or by including the relevant provisions on the license in a more complex agreement. Regardless of the option chosen for formalizing such a transaction, the parties will need to register the granting of such a right, as provided by law (see Article 1490 of the Civil Code of the Russian Federation).
Therefore, if a distributor wishes to legally use such a trademark in relation to a product and be calm about the fact that the manufacturer of the product will not come to him with claims or lawsuits regarding such use, then it would be better to immediately eliminate possible uncertainty by concluding an appropriate agreement between the distributor and the manufacturer to obtain a license to use the trademark.
If the distributor has not entered into a licensing agreement with a trademark owner, the following should be kept in mind. An analysis of the provisions of current legislation and established judicial practice allows us to conclude with a certain degree of confidence that the very fact of a distributor purchasing or receiving in another form a product from a manufacturer (either directly from him or through intermediaries), who has a trademark in relation to the corresponding class of his product, for its subsequent sale does not automatically grant the distributor the right to use such a trademark.
Let us turn to judicial practice, which we will consider in the form of theses.
1. The existence of a dealer agreement does not indicate the right to grant the use of a trademark
To begin with, it is worth keeping the following in mind. The courts directly determine that the existence of a dealer relationship does not indicate the right to grant the use of a trademark to third parties. This was verbatim determined in the decision of the Arbitration Court of Kemerovo Region dated May 30, 2016 in case No. A27-23979/2015.
Decision of the Arbitration Court of Kemerovo Region dated May 30, 2016 in case No. A27-23979/2015
The defendants did not provide evidence that Hypertherm, Inc. had entered into an exclusive license agreement for the use of trademarks with anyone, including the persons listed by the defendants - Avtogen Group of Companies LLC, TSK Avtogentekhno LLC, and S-AVT LLC. At the same time, the existence of a dealer relationship does not indicate the right to transfer the use of a trademark to other persons, and the submitted agreements do not confirm the purchase of the goods referred to in the claims.
Therefore, if the dealer has entered into a corresponding agreement with the manufacturer, but the agreement does not mention the granting of the right to use the trademark by third parties, then the dealer does not have the right to dispose of it in this way.
The next point may seem self-evident, but the courts have noted it separately, so it is worth noting it now.
2. Use of a trademark by a dealer will be an infringement if the dealer agreement has already expired.
Similar conclusions were made by the court and recorded in the ruling of the Seventh Arbitration Court of Appeal dated December 29, 2014 in case No. A45-11171/2014 and the decision of the Arbitration Court of the Sverdlovsk Region dated January 20, 2016 in case No. A60-33840/2015. This follows from the general principles of the operation of an agreement, according to which the right granted under a contract remains in force as long as the contract itself is in force, unless otherwise specified in it. If the agreement has terminated and there were no other conditions in the contract regarding the preservation of such a right in force, the right is recognized as terminated.
Therefore, if a party to an agreement previously had the right to use a trademark, but the agreement has terminated, then such party may well be considered an infringer when further using the trademark. And since such a right is granted precisely by contract, the absence of an agreement means the absence of the right itself.
Therefore, if the right to a trademark was not initially granted under an agreement, then the initial use of the trademark by a dealer or distributor will have the characteristics of unlawful use.
Ruling of the Seventh Arbitration Court of Appeal dated December 29, 2014 in case No. A45-11171/2014
The defendants' arguments about the existence of long-term dealer relations between Solar LLC and I. V. Kondratyev, and the entrepreneur's obligation to advertise the plaintiff's goods based on such relations, do not refute the fact of illegal use of the disputed trademark, since the last dealer agreement expired on 01.01.2013.
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Under such circumstances, the court's conclusion that Relief Plus LLC and individual entrepreneur Kondratyev I.V. used, without the permission of the copyright holder (plaintiff), on documentation, in offers for sale on the Internet, including in the domain name, the designation "Solar" or "SOLAR", which is similar to the point of confusion with the plaintiff's trademark and are identical, respectively, is justified, which is a violation of the plaintiff's exclusive right to the trademark.
Thus, the use of a domain name, which is understood as actions to register and directly use a domain name (administration, delegation and other actions), identical or similar to the point of confusion with a trademark, is a violation of the exclusive right to a trademark or other means of individualization of legal entities, goods, works, services and enterprises.
Decision of the Arbitration Court of the Sverdlovsk Region dated January 20, 2016 in case No. A60-33840/2015
The defendant's reference to the existence of dealer agreement No. D03-06/14 dated 16.06.2014 between the plaintiff and a third party, according to which the third party was granted the right to conduct an advertising campaign, including via the Internet, as well as the fact that the defendant - AQUAFOCUS LLC, in turn, purchased this product from the dealer, i.e. the third party, advertised it and was engaged in its assembly and installation, is untenable and is not taken into account by the court, since this dealer agreement was terminated in June 2014.
Therefore, it is important for dealers and distributors to monitor the validity period of their agreements, under which they are granted the rights to use trademarks of manufacturers of the goods they sell.
In the same ruling of the Seventh ACA, the court also noted the following interesting point regarding business prudence:
3. A dealer should be aware of the registration of trademarks by the manufacturer of the goods
Ruling of the Seventh Arbitration Court of Appeal dated December 29, 2014 in case No. A45-11171/2014
The Court of Appeal takes into account that individual entrepreneur Kondratyev I.V., being a dealer of Solar LLC for a long time after the registration of the trademark, acting reasonably with a sufficient degree of care, should have known about the circumstances of such registration.
This example suggests that dealers and distributors must exercise sufficient caution and be aware of trademarks in relation to the products they purchase for subsequent sale, otherwise the court may consider such negligence in favor of the trademark owner. In practice, this can be expressed either in monitoring database of registered trademarks for new ones, or in requiring manufacturers of goods to promptly notify about the registration of their trademarks.
4. A dealer may not include a third party's trademark in a domain name solely on the basis of a dealer agreement with another person.
If a dealer decides to register a domain name that contains both the manufacturer's trademark and other words, it is important to ensure that such other words do not represent registered trademarks of third parties. Otherwise, the use of such a domain name will be a violation of their rights, and the presence of a dealer agreement will not be a full protection for the dealer in terms of compliance with the rights of such third parties. In this situation, we should refer to the following example from judicial practice:
Ruling of the Ninth Arbitration Court of Appeal dated September 27, 2011 N 09AP-17621/2011-GK in case N A40-3066/11-51-26
However, based on the provisions of paragraph 1 of Article 1229, Article 1484 of the Civil Code of the Russian Federation, the appellate court finds the defendant's arguments that the defendant's rights to the domain name www.bmw-autokraft.ru arose earlier than the priority date of the plaintiff's trademark under certificate No. 416302 and earlier than the date of its acquisition by him on the basis of the alienation agreement of the exclusive right to trademark No. 224630 by its original owner as untenable, with reference to the fact that the defendant is an official BMW dealer in the territory of the Russian Federation, since these circumstances do not indicate the consent (permission) of the plaintiff as the owner of the trademark to use the trademarks belonging to the plaintiff.
Since the plaintiff did not give the defendant permission to use the trademarks that belonged to him, the appellate court considers the plaintiff's demands to prohibit the defendant from using the designation "AUTOKRAFT" on the website www.bmw-autokraft.ru when providing services for the sale of goods (promotion of goods), repair and installation of equipment; to prohibit the defendant from using the designation "AUTOKRAFT" in the domain name bmw-autokraft when providing services for the sale of goods (promotion of goods) are justified.
Thus, arguments about the existence of a dealer agreement may not be recognized as circumstances that would indicate the consent (permission) of third parties as holders of trademarks for their inclusion in a domain name that also contains the trademarks of the manufacturer of the goods, which is in a contractual relationship with the dealer.
As for the liability that the distributor may bear, it is determined by law and can be determined by contract. If we talk about contractual liability, here the parties have the right to independently determine the type and amount of such liability (for example, liability may include a condition on early termination of the distribution agreement, payment of a fine in a certain amount, etc.). If we talk about liability under the law, then we should refer to Article 1515 of the Civil Code of the Russian Federation, which defines liability for violation of the exclusive right to a trademark.
It should be borne in mind that judicial practice knows of cases where a manufacturer of a product managed to recover from a distributor the maximum amount of compensation for violation of the exclusive right to a trademark, one of which is given below in the text.
5. Registering a domain for resale of goods may be a violation of exclusive rights to a trademark and unfair competition
If a distributor has lawfully purchased products from the trademark owner and has decided (for more successful sales) to register a domain name that is identical to such trademark or similar to it to the point of confusion, such actions by the distributor to register the domain name and administer and promote such a site on it carry considerable risk for the distributor. Such actions may be considered a violation of exclusive rights to a trademark, as well as unfair competition.
Thus, the following court document is of interest, which was issued in the case of the ONEGA trademark (it was registered for the implementation of the Onega physiotherapy device for blood pressure stabilization) and the domain name onegagipertonik.ru:
Ruling of the Fifth Arbitration Court of Appeal dated October 19, 2011 in case No. A51-5935/2011
As follows from the case materials, the products (devices for stabilizing blood pressure) sold by the defendant through retail trade, as well as through the website “onegagipertonik.ru”, are identical to the products manufactured by the plaintiff under the trademark “ONEGA”. Moreover, the said products are purchased by the defendant from the plaintiff.
Consequently, the defendant's possession of rights to administer the domain "onegagipertonik.ru" provides the defendant with a real opportunity to attract potential consumers of the plaintiff's products to his domain.
Thus, the very right to administer a domain, the implementation of which depends only on the will of the defendant, creates a threat of violation of the plaintiff's right to a trademark and is an obstacle for the plaintiff to use his trademark on the Internet.
Under these circumstances, the panel of judges concludes that the defendant violated the plaintiff’s exclusive rights due to the illegal use of a designation that is confusingly similar to the plaintiff’s trademark, “ONEGA”.
In this regard, the claims regarding the prohibition of the defendant from using the trademark “ONEGA” and designations similar to it to the point of confusion in the domain name “onegagipertonik.ru” are subject to satisfaction.
The text of the court document does not directly state that the defendant was the plaintiff’s authorized distributor or that a corresponding agreement was concluded between them. However, the text directly states that the products sold by the defendant through its website are identical to the plaintiff’s products, and, moreover, they were purchased by the defendant from the plaintiff. The court concluded that the defendant's possession of rights to administer a domain whose name is confusingly similar to the plaintiff's trademark provides the defendant with a real opportunity to attract potential consumers of the plaintiff's products to its domain.
The court considered such actions to be a violation of exclusive rights to a trademark and unfair competition. The defendant was ultimately held liable in the amount of 5,000,000 (five million) rubles in monetary compensation for the illegal use of a trademark in a domain name.
See here a sorted collection of domain disputes in Russia
In light of the above information, it can be noted that if a person or legal entity plans to become a distributor of a certain product and is at the stage of agreeing on an agreement on the terms of cooperation under Russian law with its manufacturer, such person or legal entity should:
- decide whether, as a distributor, it will use the name of such products or other elements of individualization of such products in any way on the Internet, and if so, in what way (in particular, in the name of a domain name or other method of network addressing)
- obtain information from the manufacturer whether it has registered trademarks or has filed applications for such registration in relation to the product of interest to the distributor
And if the distributor has plans to register a domain with the product name, and the manufacturer has corresponding trademarks, it is time to agree with him on the terms of use of such trademarks. Of course, a distributor (especially in cases where the manufacturer does not agree to provide a license for trademarks) may come to the conclusion that its use of a trademark is legally permissible even without the consent of its copyright holder (see paragraph 3 of Article 1484 of the Civil Code of the Russian Federation), but the distributor should not forget about the risk of such actions being recognized as a violation of the exclusive right to a trademark, as well as unfair competition (as was the case in the example with the Resolution of the Fifth Arbitration Court of Appeal dated October 19, 2011 in case No. A51-5935/2011).
Here you can find the compensations issues in respect to domain disputes in Russia