On December 13, 2016, the Russian Constitutional Court has published its Ruling on constitutionality of certain articles of Civil Code regulating the legal nature of compensation as an IP remedy.
The constitutional review was requested by the Altai Arbitrazh Court. While considering numerous IP cases (Kvadro-Publishins v. Lubivaya, Aeroplan v. Vashkevich), the court found that all respondents (local entrepreneurs) had violated several IP assets by selling a few counterfeited items. Since every such violation entails at least a minimum IP compensation (10 000 RUB), the sums of compensation could amount to significant sums in case various IP assets are claimed.
In its request the Altai Arbitrazh Court criticized this mechanism, because it did not provide the courts with the discretion to reduce compensations, even when minor entrepreneurs were made respondents.
Upon careful examination of the request, the Constitutional Court declared the relevant provisions of arts. 1301, 1311, 1515 of Civil Code partly unconstitutional.
While compensation per se does not contradict the Constitution, the minimum compensation amount (10 000 rubles) shall be found unconstitutional if not reducible in case several infringements are committed by a minor entrepreneur (does not apply to legal entities).
Having recognized the minimum limit as unconstitutional, the Constitutional Court de facto established the criteria under which compensation may be reduced below the minimum limit:
- compensation substantially exceeds the amount of the right holder’s losses;
- entrepreneur infringes for the first time;
- infringement is not an essential part of an entrepreneur’s business.
Thus, the Constitutional Court has obliged the legislator to amend Civil Code with the tests enabling the courts to reduce the minimum compensation amount recovered from entrepreneurs.
In our opinion, this Ruling may significantly change the consideration of IP cases on recovery of compensations for violated infringements. The most effective way to override the tests is to present evidence of seriousness of every claimed violation.