Bulletin of the ART DE LEX Dispute Resolution and Mediation Practice (Issue 3, 2019)

1. In April 2019, the Plenum of the Supreme Court of the Russian Federation adopted a voluminous resolution On the Application of Part Four of the Civil Code of the Russian Federation, which clarifies intellectual property issues.

The Resolution recognizes the problems arising in practice related to the widespread use of the Internet and computer technologies in general in the daily activities of society. Thus, the Resolution refers to such widespread violations of intellectual property rights on the Web as cyber-squatting (i.e., the registration of domain name rights that are identical to or confusing with a registered trademark or other brand identity) and the use of keywords in contextual advertising that likewise are similar to the protected means of individualization. The document mentions the possibility of the free citation of works, including photographic ones (para. 98), and a ban on the production and distribution of hacker programs and technical devices (para. 108).
In addition to resolving procedural uncertainties (extending even to issues of proof in IP disputes) and giving more detailed explanations of the rules contained in Part Four of the Civil Code, the Resolution seems intended to illustrate the applicability of the general provisions about obligations and contracts to these rules, as well as to interpret them in a systematic connection with other parts of the Code.
Thus, the Resolution clarifies the differences between the contract on the alienation of an exclusive right to the result of intellectual activity or means of individualization from a license contract. Paragraph 37 states that an alienation contract, providing restrictions on the use of the exclusive right, may be qualified as a license (Art. 431, Civil Code). In the absence of such a possibility, the contract is subject to invalidation in full or in part.

If the transfer of an exclusive right is subject to state registration, the effective date of the transfer is determined by the date of registration. In such a case, the obligations of the agreement on the disposal of an exclusive right arise from the agreement of the parties, regardless of registration (Art. 433, Civil Code).
The Plenum confirmed that the general provisions on the ratio of contractual penalties to damages in the event of breach of contract (para. 41) apply to license agreements.
Paragraph 45 of the Resolution describes the possibility of making an exclusive right as a contribution to the charter capital of a business partnership or company without the need to draw up a separate written contract, if the decision to create or contribute property to the charter capital specifies all the essential terms of a contract of disposal of the exclusive right. Without an agreement, the exclusive right may also be transferred in case of reorganization of a legal entity. The transfer is effective upon making a corresponding entry in the Unified State Register of Legal Entities (para. 50). At the same time, the Resolution emphasizes the practical necessity for state registration of such a transfer for a full implementation of the powers included in the content of the transferred exclusive right. Another example of the transfer of a right without a contract is the implementation of the right in enforcement proceedings through auctions. In this case, the transfer occurs at the moment of the signing the protocol on the results of the auction.
The Resolution also provides for the possibility of entering into contracts, the subject of which is the exclusive rights to the results of intellectual activity or means of individualization, which will be created (or arise) in the future (para. 47). The right is considered to have passed at the time determined by the contract, but not earlier than the creation of such a right. If the transfer of the right requires state registration, it is effective upon such registration.
The Resolution clarifies the distinction between two types of management of exclusive rights: trust management (Chapter 53, Civil Code) and collective management of copyright and related rights. The main differences are that a trustee has the right to exercise the powers of the exclusive right holder (the owner of the transferred property, Art. 1020, Civil Code), within the framework established by the contract and solely in the interests of the beneficiary; while the organization for the management of rights on a collective basis is not entitled to use the transferred rights.
Attention should also be paid to Paragraph 73 of the Resolution, which establishes the liability of persons using the object of intellectual property on behalf at the direction of a person who is violating the rights of the exclusive holder. However, such persons can avoid liability if they prove that they did not know and should not have known about the violation of the exclusive rights.

Paragraphs 77 and 78 of the Resolution define the persons responsible for the violation of intellectual property rights on the Internet. It is presumed that the owner of the site is a person directly using the results of intellectual activity or means of individualization placed on the site and, consequently, is the person responsible for the violations, unless it is proved that he acts as an information intermediary who is not guilty of violations. Unless proven otherwise, the owner of the site is presumed to be the administrator of the domain name that addresses the site.
If the court finds that the owner of the site changes the material to be posted, the question of whether he or she is an information intermediary depends on how active he or she is in shaping the material and whether he or she receives income from it. Significant processing of the material and actual receipt of these revenues may indicate that the owner of the site is not merely an information intermediary, but, instead, is a person directly using the relevant results of intellectual activity or means of individualization, and, consequently, a person responsible for violations of intellectual property rights.
The following sections of the Resolution provide guidance on certain types of intellectual property.
• For example, with regard to objects of copyright, the Resolution provides guidance on the issues of determining the creative nature of a work, the protection of derivative works and official works, the distinction between the ways of using the work, and cases of free use of the work without the consent of the author or other right holder and without payment of remuneration.
• In the field of patent law, the Resolution refers to: the concept of co-authorship of an invention, utility model, or industrial design; the condition of patentability of the object; the establishment of the patentee and the right of prior use; official inventions; the contestation of decisions of Rospatent and the federal executive body on breeding achievements; and to the invalidation of a patent.
• In the field of brand names, Paragraph 151 of the Resolution provides for the application of Article 10 of the Civil Code in cases of unfair behavior of a legal entity registered earlier than another, but which began to carry out specific activities for the purpose of exploiting the reputation of this second person, who had carried out these activities earlier.
• The section on trademarks and service marks provides detailed guidance on the issue of assessing the degree of possibility of mixing similar trademarks in order to establish an infringement of exclusive rights. It also describes the mechanism provided by competition legislation to object to the granting of legal protection to a trademark on the grounds that the actions of the owner of the right to acquire exclusive rights to such a trademark are recognized as unfair competition.
The Resolution is very informative and covers a wide range of intellectual property issues. A powerful document in terms of both text and regulation, which the legal community has long been waiting for, it is the result of the standardization of intellectual property enforcement practices over the past ten years. Now it will be easier for lawyers for build and support their arguments, because the Resolution eliminates the need to research and refer to numerous court decisions in different regions.
For more information (in Russian)

2. In June 2019, the Presidium of the Supreme Court of the Russian Federation issued a review of court practice in disputes from an independent guarantee. The Review supplements and clarifies certain issues not directly regulated by the Civil Code of the Russian Federation.

In general, the Review compiles positions that prevent banks from refusing, on insignificant grounds that do not affect the essence of the guarantor's obligations to the beneficiary, to pay money under issued guarantees. In the opinion of the Supreme Court, the courts should interpret the terms of guarantees in order to preserve the legal relations between the parties and not neglect to take into account the actual circumstances surrounding the issuance of the guarantee.
So, Paragraph 1 of the Review specifies that the obligatory written form of the guarantee, required by Article 368 of the Civil Code of the Russian Federation, does not mandate registration of the written agreement between the beneficiary and the guarantor (in particular in the written notice of acceptance of the guarantee).
Also, the Presidium stressed that the failure to specify the name of the beneficiary in the guarantee does not mean that the obligations under the guarantee did not arise (Art. 43, Civil Code). Moreover, if the guarantor himself sent the guarantee to the implied beneficiary, then started to fulfill the obligations under the guarantee, and created reasonable expectations on the side of the beneficiary in respect of these obligations, the guarantor may not declare that there was no guarantee (para. 3, Art. 432, Civil Code) (para. 2 of the Review).

Further, the Presidium concluded that, applying to the guarantee the general rules on conditional obligations and on the period of fulfillment of obligations (Arts. 15 and 314, Civil Code), the requirement to specify the guarantee period is satisfied if the parties did not agree on a specific date for commencement of the term, but indicated a different way of determining it that corresponds to a sign of certainty (e.g., a condition that the term begins to run from the moment the beneficiary pays the advance on the secured obligation) (para. 3).
With regard to the certainty of the amount to be paid under the guarantee, the position of the Presidium is that the amount is sufficiently certain if it can be ascertained accurately at the time of the guarantor's performance, even though the amount initially specified in the guarantee was not final and was subject to subsequent adjustment (para. 5).
Paragraph 7 of the Review reflects the second aspect of the principle of guarantee independence: the independence of the guarantor's obligation to the beneficiary from the obligations arising from the agreement itself between the guarantor and the principal of the guarantee. Accordingly, the existence or absence of a written agreement between the guarantor and the principal, or the invalidity of such a written agreement, does not affect the guarantor's obligations to the beneficiary. However, if the beneficiary, in such circumstances, knew that the guarantee agreement was null and void, but still demanded payment of the amount of the guarantee, the guarantor has the right to raise in defense the defects of the transaction (para. 8).
The principal has the right to charge the beneficiary the excess of the amount received by the beneficiary under the independent guarantee from the guarantor over the actual amount of obligations of the principal to the beneficiary (para. 16). In this paragraph, the Presidium confirmed that the independent nature of the guarantor's obligation to the beneficiary and the rules on the reimbursement to the guarantor of the amounts paid under the guarantee do not mean that the beneficiary is entitled to receive, at the principal's expense, funds in a larger amount than the amount due to the beneficiary under the contract. The principal may request the beneficiary to recover the funds received by the beneficiary without any counter-submission on his or her part.
In general, the new Review reflects established approaches to the interpretation of bank guarantees and the application of general and specific rules of civil law to them in judicial practice. Consequently, the Review does not contain any major changes in the legal principles governing this method of collateral.
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3. The Supreme Court (Judicial Chamber on Economic Disputes) rules that court expenses paid from borrowed funds by a prevailing party to the dispute are subject to recovery from another party in the case.

In the bankruptcy of the bank, a claim was filed for recovery of losses from the controlling debtor. After two rounds of consideration of the application, after which the claim was denied, one of the defendants filed a claim for reimbursement of attorney fees and expenses totaling 1,425,885 rubles.
The court of first instance granted the application in part and ordered the losing party to pay 500,000 rubles. The first appeal upheld the award. However, in cassation, the court questioned the legality of the reimbursement of expenses that had not been paid directly by the defendant, but by third parties who had provided the defendant with funds under the loan agreements. In other words, costs were awarded in the absence of proof that the defendant had paid them himself.
The court of cassation recognized that the attorney’s fees were not paid by the party who claimed reimbursement, but by a third party to fulfill a monetary obligation to the applicant, but this was not in itself a basis for refusing to satisfy the claim for the collection of costs for representative services. (para. 5, Information Letter No. 121 of the Presidium of the Supreme Arbitration Court of the Russian Federation, 12 December 2007, Review of Judicial Practice on Issues Related to the Distribution Between the Expenses for the Services of Lawyers and Other Persons Acting as Representatives in Arbitration Courts).
However, in the court's view, for such expenses to be recognized as incurred by the applicant, it is necessary for the person who paid the expenses to be the debtor of the applicant's obligations and not the creditor of the applicant.

The appellate opinion noted that the loan agreements and payment orders submitted by the applicant did not indicate that the defendant had incurred any expenses, and the possibility of incurring such expenses in the future in accordance with the settlement procedures with the lenders was beyond the scope of the case in question. The court found that the case file did not contain evidence that the third parties who had paid the remuneration to the representatives were his debtors at the time of the applicant's application to the court, and therefore overturned the lower court decisions and refused to order recovery of the defendant’s the court expenses.
The Supreme Court did not agree with the conclusions of the court of cassation and pointed out that, if the defendant had fulfilled his obligation, either directly or indirectly, to a person who had provided legal services to him in connection with the consideration of the case in the arbitration court, there was no reason to believe that his estate had not decreased. Consequently, there were no legal grounds for refusing to restore his estate through the application of the rules for reimbursement of court expenses.
According to the Judicial Chamber on Economic Disputes, the fact that the lender had transferred funds directly to the provider of legal services on the instructions of the borrower does not change the situation. By virtue of Paragraph 5 of Article 807 of the Civil Code of the Russian Federation, the loan amount transferred by the lender to the third party indicated by the borrower is considered to have been transferred by the borrower.
Consequently, the transfer of the loan proceeds by the lenders directly to a third party at the instruction of the borrower is a payment by the borrower. At the time the third party received the payment, cash was transferred from the lenders to the borrower and simultaneously from the borrower to the legal services provider. Thus, the payment for legal services is a defendant's expense, compensated under the rules for reimbursement of legal expenses.
The position of the Supreme Court allows for more flexible ways of financing representation in court proceedings.
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4. The Supreme Court (Judicial Chamber on Civil Cases) explains that a consumer may demand a refund of the amount paid for the goods outside the warranty period, but only during the service life of the product and only after having requested an elimination of its defects.

A citizen bought a smartphone. Within its lifetime, the phone stopped turning on. Expertise established that the product could not be repaired; it could only be replaced. This conclusion was sent to the smartphone importer by the citizen, together with a request to check the phone and return the purchase price. The inspection by the importer did not reveal any evidence of misuse by the purchaser, but it found out that the defect could be corrected. The importer refused to refund the purchase price and instead returned the phone and offered to eliminate the defect free of charge. The purchaser went to court.

The lower courts confirmed that since repairs are impossible, replacement is required. When the removal of the defect requires a complete replacement of the device, the disadvantage to the purchaser is significant and irreparable. So, the money paid for the phone has to be refunded.
The Supreme Court disagreed.
In a situation like this, everything should be done consistently. First, the consumer must demand that the fault be corrected. If the problem is not solved within 20 days, or if the defect cannot be corrected, the purchase price should be refunded. If the defect can be corrected by completely replacing the phone, rather than just replacing parts, this means that the defect can be eliminated, by replacement not repair. Therefore, the consumer is entitled only to replacement, not a refund.
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5. The Supreme Court (Judicial Chamber on Economic Disputes) explains that the right of claim against the debtor, included in the second stage of the register, retains priority in the order of assignment.

The founder of the debtor business concluded agreements with his employees to assign to him their claims for wage arrearages and paid them in full. Then, in the bankruptcy case, he announced that these claims were "included" in the second phase of the register as being in favor of him, instead of the employees.
The court of first instance granted the founder's application. The appeal and the district court disagreed. However, the Supreme Court considered such a succession in interests to be possible.
First of all, claims for unpaid remuneration of labor after the obligations are included in the register cease to be "personal,” which means that there is no prohibition on their assignment.

Secondly, such a fulfillment of the founder's obligations to his employees seems to be in good faith and does not violate the rights of third parties. Inclusion in the register with the assigned claim is the right of the assignee. Refusing such succession and transferring the negative consequences of the bankruptcy of the enterprise to the founder actually imposes subsidiary liability on him without any investigation of the grounds.
In addition, according to the Federal Bankruptcy Law, a creditor of the second order has no right to vote at the creditors meeting. Therefore, the assignment of, and legal succession to, the claim do not change the scope of rights and do not add opportunities for the founder to control the bankruptcy.
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6. The Supreme Court (Judicial Chamber on Economic Disputes) indicates which actions or omissions are sufficient to remove of an arbitration manager.

The courts of three instances declared illegal the failure of Borzov I.Y., the bankruptcy manager, to apply to the court to impose subsidiary liability on the debtor's controlling persons. However, the lower courts refused to grant a motion to remove Borzov I.Y. from the duties of the bankruptcy manager, even though they concluded that the manager had grounds to prepare such an application.
The Supreme Court overturned these three decisions.
Measures aimed at replenishing the bankruptcy assets (in particular, using the mechanism of subsidiary liability) are planned and implemented by the insolvency administrator, as a professional participant to whom the management of bankruptcy proceedings is entrusted. They are not the responsibility of the creditors or debtor.

Removal of a manager should occur when the manager’s violations of the law give rise to reasonable doubts about the manager’s ability to conduct bankruptcy procedures properly (par. 4, para. 56, Resolution No. 35 of the Plenum of the Supreme Arbitration Court of the Russian Federation, 22 June 2012, On Certain Procedural Issues Related to Consideration of Bankruptcy Cases).
The Judicial Chamber on Economic Disputes noted that the following actions or omissions of an arbitration manager may be considered to be doubtful and therefore sufficient for removal: failure of the manager to conduct a detailed assessment of the debtor's account; failure of the manager to verify the disposition of the proceeds from the sale of the debtor's property; failure of the manager to counteract the negative consequences of the creditor trying to neutralize the negative consequences of the manager's failure to act; and failure of the manager to verify the reasons for the decision of the debtor's bodies to change corporate relations or the corporate location.
The illegal inaction of Borzov I.Y. created a real threat of inflicting losses on the debtor and creditors due to the failure to perform a complete range of measures to protect the assets, as defined by the Federal Bankruptcy Law, and which also created the risk to their replenishment.
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7. The Supreme Court upholds the rejection of an abusive appellate complaint containing unacceptable and offenses statements against the judge.

The Murmansk Regional Court declined to consider a complaint against the Polar District Court of the Murmansk Region, which had refused to initiate proceedings against certain officials on alleged administrative violations Articles 6.4 and 6.6 of the Federal Administrative Offenses Code. Under Chapter 30 of the Code, a judge has the right to return a complaint against a decision on an alleged administrative offense if there are circumstances that interfere with its acceptance for consideration by the court.
The Murmansk Regional Court therefore rejected the citizen's complaint against the decision by the District Court judge to dismiss the case, pointing out that it contained inadmissible and offensive statements about the District Court judge.

Appeals about decisions on administrative offenses should not contain insults or other inadmissible statements that encroach on honor and dignity of the participants, the officials involved in the case, or the judge who made the decision that is being appealed. Complaints containing insulting and other unacceptable statements against judges, humiliating their honor and dignity, are abuses of the right to appeal. Under the general legal principles against the abuse of the legal process, an appellate complaint containing such expressions violates the law and may be rejected.
The Supreme Court supported the conclusion of the Murmansk Regional Court that the presence of insulting, inadmissible statements in a citizen's complaint against the judge who issued the ruling under appeal prevented its acceptance and consideration.
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8. The Presidium of the Supreme Court, on 29 May 2019, approved the Review of the Practice of Consideration in 2018 by Regional and Equivalent Courts of Cases on the Adoption of Children by Foreign Citizens or Stateless Persons, as well as Citizens of the Russian Federation Permanently Residing Outside the Territory of the Russian Federation.

The Review noted the following important trends in judicial practice concerning adoptions:
• In order to establish the fact that it is impossible to place a child in a family of citizens of the Russian Federation, the courts establish what measures have been taken by the child welfare and guardianship authorities, as well as other regional and federal agencies, to place children without parental care into families of citizens of the Russian Federation or into the families of the child’s relatives. In all cases, the courts determine whether a child has relatives or not, as well as the reasons why the child's relatives declined to admit the child to their families.
• When considering cases of international adoption, the courts examined the number of Russian citizens who had received information concerning the child and the reasons why they declined to adopt the child.
• The courts inquire about the child's attitude to the adoptive parents, about the possibility of leaving the institution, about his or her friends, and about the child’s desire to go with the adoptive parents to their home. If the child has relatives, the courts find out whether the child understands that in the case of adoption, the child will have to part with his or her natural family, and the courts ask whether the child wants to maintain contact with his or her relatives.

• In the course of the court proceedings in all cases, the courts find out the reasons for the applicants' decision to resort to the adoption procedure, as well as the grounds for their decision to adopt a child who is a citizen of the Russian Federation.
• In cases where the adopted child's age or state of health does not meet the recommendations given to the adoptive parents in the social and psychological report or in the certificate of suitability for adoption, the applicants must submit to the court additional documents confirming their ability to care for the child. In all such cases, the courts investigate whether the applicants have familiarized themselves with the medical documents of the adopted child, whether they understand the diagnosis, and whether they are ready to provide the child with the necessary medical care.
• When considering international adoptions, the courts examine the psychologist's opinion on the communication between the adoptive parents and the child to be adopted, and the duration and frequency of such communication.
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