Changes in the approach to reimbursement of the expenses for the administrative out-of-court procedures of consideration of the nullity actions with the RU PTO in view of the recent Constitutional Court Ruling

Changes in the approach to reimbursement of the expenses for the administrative out-of-court procedures of consideration of the nullity actions with the RU PTO in view of the recent Constitutional Court Ruling

The first half of 2023 brought some significant court decisions that further affected patent practice in Russia in general.

Let us review some recent decisions that have taken place and make the conclusion on their further impact on the Russian IP legislation.

First of all, we should mention the Ruling of the Constitutional Court^[1] of January 10, 2023, relating to verification of the constitutionality of Article 15 and paragraph 2 of Article 1248 of the Civil Code of the Russian Federation, Article 106 and part 1 of Article 110 of the Arbitration Procedure Code of the Russian Federation in connection with the complaint filed by one of the Russian oil companies that was refused reimbursement of the expenses for consideration of the nullity action in the RU PTO by the courts of all instances. Said Ruling initiated a disputable change in the long-term approach on impossibility of claiming the damages from the losing party in the RU PTO while considering the nullity action.

The previous concept, based that any person may file a nullity action against a granted patent, was that the expenses, incurred in connection with the consideration of the nullity action in the Chamber for Patent Disputes of the RU PTO, are related to the administrative (out-of-court) procedure for resolving the dispute, and therefore are not legal expenses, neither they can be attributed to the costs associated with obligatory pre-trial procedure for resolving the dispute.

Considering the case, the Constitutional Court noted the following:

• such a gap can also lead to a decrease of fair right holder’s activity to participate in administrative proceedings, opposing the arguments of the nullity action which is against to the goals and objectives of introducing by the legislator an administrative form of protection of infringed or disputed IP right;
• the right to state (including judicial) protection of intellectual property turns out to be unreasonably limited, since the costs incurred by a party during administrative proceedings when considering a dispute in relation to IP objects are not regarded in the system of current legal regulation as an integral part of judicial costs, and their recovery as damages cannot be recognized as an effective remedy;
• there is also no general (universal) regulation of the distribution of administrative costs for various administrative procedures as, for example, in the legislation on administrative procedures of some foreign states.

In view of such conclusions, the Constitutional Court obliged the legislator to elaborate, within a reasonable term, a special legal mechanism for reimbursement of this category of expenses, considering the mentioned Ruling. The Constitutional court ruled that until appropriate changes are introduced into the current legal regulation, the costs incurred by a party during an administrative proceeding on consideration of the nullity action may be attributed to the losing party in case the RU PTO decision is further appealed to the court. Expenses for consideration of the nullity action are to be awarded according to the rules for reimbursement of court expenses provided for by the arbitration (economical) procedural legislation, based on the universal principles of reasonableness and proportionality of the distribution of such expenses, taking into account the results of the previous administrative proceedings.

On June 28th, 2023, the Government of the Russian Federation, following the corresponding Ruling of the Constitutional Court, introduced the bill № 390361-8 with proposed amendments to Article 1248 of the Civil Code of the Russian Federation by adding a new paragraph, stating that in case of consideration of the dispute in the administrative proceedings in the RU PTO, the expenses, connected with the compliance with such administrative proceedings, should be awarded to the party, in favor of which the RU PTO decision is adopted from the other party. So, the bill went beyond the boundaries of the Ruling and proposed to reimburse the expenses even where there is no further appeal filed with the court against the RU PTO decision on the nullity action.

What expenses are proposed to be claimed from the losing party:

• patent fees and duties;
• expenses, that contain fees to be paid to the experts, specialists, and translators;
• expenses for payment of the reasonable attorney’s fees (of patent attorneys, attorneys-at-law, other representatives);
• further expenses, connected with the consideration of the dispute.

The bill further states that where the claims are satisfied partially, the expenses are to be reimbursed proportionally to the claims satisfied.

The bill is still being considered in the State Duma, but there are many discussions occurring between practitioners on the impact thereof on the patent system.

Although some practitioners consider such amendments as promising, others point out that, in general 80% of the nullity actions that are filed with the RU PTO are rejected, so additional financial risks would lead to a reduction of the nullity actions being filed by medium and small size companies.

Since the patent is an exclusive right granted to the right holder for public disclosure of the patentee’s invention and allowing the patentee to use and prohibit others from use without permission of said right, it is important to have fair and uncomplicated system providing a possibility to reconsider, whether this right was legally obtained, since the person, filing a nullity action, is not acting in favour of their own interests but also in favour of interests of the society.

There are still a lot of questions connected with the recent amendments and it is not clear enough how it would work in practice as well as what amounts are to be awarded by the courts as expenses, but, for sure, the amount of the nullity actions filed will be reduced.

For an abstract

The recent Ruling of the Constitutional Court turned over the system of impossibility of reimbursement of the expenses for the consideration of nullity actions in the RU PTO resulting in introduction of the amendments to the corresponding part of the Civil Code of the Russian Federation

^[1] the highest judicial body of constitutional control in the Russian Federation, exercising judicial power by his own and independently through constitutional proceedings in order to protect the foundations of the constitutional system, fundamental rights and freedoms of man and citizen, to ensure the rule and direct effect of the Constitution of the Russian Federation throughout the territory of the Russian Federation (Art.1 of Federal Constitutional Law of July 21, 1994 N 1-FKZ “On the Constitutional Court of the Russian Federation»).