The Constitutional Court of the Russian Federation published a decision in which it explained the procedure for recovery damages for trademark infringement and indicated in which cases the court has the right to reduce it.
In 2019, Masternet Corporation JSC and Zubr OVK CJSC applied to the Arbitration Court of the Rostov Region with a claim against Inna Simakina. The defendant sold on the market five measuring tape and three paintbrushes with images imitating the Stayer and Zubr trademarks owned by the plaintiffs.
Russian legislation provides the right holder, at his choice, to demand compensation for illegal use of TM in the amount of two times the value of the goods on which it was used, or two times the price for legal use. The plaintiffs demanded compensation in the amount of 400 thousand rubles ($5.7 thousand) from the defendant, providing contracts with third parties, according to which they pay 300 thousand rubles for the right to use three trademarks, including Stayer, and 100 thousand rubles for a similar right to Zubr trademark.
The court of the first instance considered that the amount of compensation requested by the plaintiffs contradicted the principles of reasonableness and fairness, having reduced the amount of compensation and collected from the defendant 100 thousand rubles. The court indicated that the defendant had brought to trial for the first time and did not know about the illegal use of TM, and the price of the items she sold was low.
The plaintiffs filed an appeal.
The 15th Arbitration Court of Appeal suspended the proceedings and applied to the Constitutional Court for an explanation on the mechanism for reducing the amount of compensation, considering all the circumstances of the case.
The Constitutional Court noted that the norms of compensation for the violation of intellectual rights must comply with the principles of justice, equality, and proportionality. The discrepancy between the amount of compensation for the seriousness of the offense is contrary to the Constitution, which prohibits punishment that degrades human dignity.
The Constitutional Court stated that the norms of the Civil Code contradict the Constitution to the extent that they do not allow the court to independently establish the amount of compensation, even if it is many times greater than the real damage from the offense that can be calculated. The court also recalled that in 2014, changes were made to the Civil Code, which allowed, if one action violated the rights to several TMs at once, to reduce the amount of compensation to 50% of the minimum compensation for all infringements. But the courts often do not apply this rule if it is an infringement of only one sign, the Constitutional Court admitted.
The jurisprudence proceeds from the fact that the double cost of using the rights is the only amount of compensation stipulated by the law and the court has no right to change it. In 2018, the Constitutional Court pointed out that if the application of a specific rule clearly puts one of the parties in a more advantageous position, then the court should be guided by the principle of the balance of interests of the parties.
The Constitutional Court noted that the recommendations from this provision are not yet fully reflected in the legislation, which raises questions of the courts. In conditions of legal uncertainty, the inability for the court to reduce the amount of compensation, even if there are grounds for this, may lead to a violation of constitutional rights and guarantees.
The court concluded that before the relevant amendments are made to the law, the courts have the right to reduce the amount of compensation in such cases by no more than half (that is, up to the cost of the legal use of the trademark).