Russian Vodka Dispute Sent Back to Lower Court

(CN) - Claims over Stolichnaya vodka trademarks must be reconsidered because a federal judge improperly considered whether a transfer of the marks was valid under Russian law, the Second Circuit ruled Tuesday.

In 1969, a Soviet-owned entity called the All-Union Association Sojuzplodoimport registered a U.S. trademark for the term "Stolichnaya," Russian for "from the capital" and used by the Soviet government to market vodka domestically and abroad.

The Soviet government then assigned the rights to the U.S. trademarks to PepsiCo in 1990.

When the Soviet Union officially dissolved in 1991, directors and staff of the former All-Union Association Sojuzplodoimport registered a Russian corporation called the Foreign Economic Joint Stock Company Sojuzplodoimport, or VAO-SPI, and transferred the All-Union Association's assets, including the Stolichnaya rights, to the new company.

PepsiCo apparently acknowledged VAO-SPI as the Soviet-owned entity's successor and referred to it as the owner of the Stolichnaya trademarks.

Through a complex series of transfers, the rights claimed by VAO-SPI were eventually sold to a Dutch company and its U.S. subsidiary, Allied Domecq International Holdings B.V. and Allied Domecq Spirits & Wine USA.

But the Soviet-owned All-Union Association continued to exist while VAO-SPI allegedly misappropriated and then sold the Stolichnaya rights.

Russia created Federal Treasury Enterprise Sojuzplodoimport, or FTE, in 2001 to recover its international vodka trademarks. FTE sued Allied Domecq and the group who allegedly sold it the trademark rights: Spirits International N.V., SPI Spirits Limited, SPI Group SA, Yuri Shefler and Alexey Oliynik.

A federal judge dismissed FTE's trademark infringement, misappropriation and unfair competition claims on the grounds that the trademarks had become "uncontestable" in 1974.

But, in 2010, the Second Circuit reinstated the trademark infringement, misappropriation and unfair competition claims, finding that the lower court ruling overlooked the question of whether the transfer of rights to Allied Domecq was a valid transaction or whether it was "tainted by fraud."

On Tuesday, the New York City-based appeals court vacated in part another lower court ruling, finding that it improperly considered whether standing to pursue trademark claims was valid under Russian law.

"The doctrines of comity and act of state preclude a United States court from invalidating an action of a foreign sovereign with respect to a transfer of rights among its branches or entities on the ground that the transfer is invalid under the law of that foreign sovereign," Judge Dennis Jacobs wrote for a three-member panel. "Accordingly, because the district court undertook to determine whether the assignment from the Russian Federation to FTE was valid under Russian law, we vacate the district court's dismissal of FTE's [Lanham Act] claims for lack of standing."

However, the Southern New York District Court correctly dismissed all other claims as barred by the doctrines of claim preclusion and laches, the Second Circuit ruled.

The federal appeals court remanded the case for consideration of FTE's trademark claims.

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