The Russian Constitutional Court has expressed its position on the compensation of costs incurred by the parties to administrative proceedings that involve IP rights
Pepeliaev Group advises that the Russian Constitutional Court has adopted a Resolution establishing the possibility of costs being compensated which were incurred under administrative proceedings relating to a dispute over legal protection of IP rights and means of identification.
Costs that a party has incurred during administrative proceedings over a dispute may be awarded against a losing party if a decision that has been adopted by the Federal Service for Intellectual Property (in Russian, abbreviated to as ‘Rospatent’) is challenged in court. Further, such costs should be compensated according to the rules for compensating legal costs as stipulated by commercial procedure legislation. Such a conclusion follows from universal principles of reasonableness and proportionality in allocating such expenses based on the outcome of previous administrative proceedings.
The Constitutional Court’s Resolution came into force as of the date when it was officially published, i.e. from 13 January 2023. For the purpose of implementing it, the First Deputy of the Chairman of the Russian Government A.R. Belousov instructed federal executive authorities to devise relevant proposals as to how legislation should be amended.
Purpose and content of the adopted Resolution
The Resolution is aimed at filing the gaps in regulating the issue of compensating costs a party may incur within the framework of administrative proceedings when a dispute is considered over legal protection being granted to IP and means of identification. Under current legal regulation, such costs (for example, patent attorneys’ fees) are not treated as part of legal costs if a resolution relating to an administrative case is challenged in court. Furthermore, such costs being recovered as losses cannot be recognised as an effective remedy.
Court defence is an important but not the only instrument for protecting rights, including IP rights, granted by the state. Legislation also provides for an administrative defence procedure which is implemented with the engagement of a state authority competent in a specific area (Rospatent will be such competent authority with regard to disputes relating to legal protection being granted to IP). The administrative procedure, in turn, can be both out-of-court (alternative) which interested parties may voluntarily resort to instead of applying to court and a pre-trial procedure which is mandatory before a person applies to court.
Please note that there are certain practical impediments relating to the implementation of the administrative defence procedure, including with regard to fees for legal services being compensated.
The Resolution states that at present the Constitutional Court has formulated legal positions on the matter of legal costs being compensated (clause 3 of the regulations). It has been further stressed that costs arising out of a dispute being settled out of court are not legal costs and nor should they be compensated under Chapter 7 of the Russian Civil Procedure Code, Chapter 10 of the Russian Administrative Procedure Code and Chapter 9 of the Commercial Procedure Code. It follows from these legal positions that if either a complaint-based or another mandatory pre-trial procedure for settling a dispute is pursued, the costs incurred, including costs involving fees for legal services, are treated as legal costs and are to be compensated. The corresponding position rests on the fact that the claimant did not have an opportunity to exercise its right to apply to court without incurring any costs (articles 94 and 135 of the Civil Procedure Code, articles 106 and 129 of the Administrative Procedure Code and articles 106 and 148 of the Commercial Procedure Code).
Citing its position that was formulated previously, the Constitutional Court pointed out that that position was expressed when there were no legal provisions concerning the compensation of costs that were essentially procedural costs, specifically those involving payment of a legal representative's fees, i.e. when there was a clear gap in regulation.
In practice, there are certain hurdles to applying this position, by analogy, to the legal relationships that arise in connection with Rospatent resolving disputes in the area of IP rights. Such hurdles, specifically, stem from the following factors. First, the absence of specific legal provisions in IP legislation which would regulate the grounds, procedure and amounts of costs subject to compensation which parties to administrative proceedings have incurred. Second, the absence of various administrative procedures for regulating the distribution of ‘administrative’ costs (i.e. those relating to administrative proceedings). The Resolution also stresses that property-related rights of individuals and legal entities may be restricted by a federal law. Consequently, the gap in regulation which precludes the exercise of constitutional rights or impedes such exercise assumes constitutional importance and requires a proper legal response.
The Constitutional Court concluded that article 1248(2) of the Civil Code and article 106 of the Commercial Procedure Code do not correspond to articles 19 (part 1), 35 (part 1), 44 (part 1), 45 (part 1), 46 (part 1) and 55 (part 3) of the Russian Constitution and that a special legal mechanism should be devised for such category of costs to be compensated.
What to think about and what to do
We recommend that you familiarise yourself with the content of the Constitutional Court’s Resolution and the justification of the position it has formulated.
It should be noted that the federal legislature has received a proposal to amend current legal regulation in line with the Resolution. Considering that amending legislation may take a rather long time, including because many federal executive bodies (including Russian Ministry of Education and Science, the Russian Ministry of Economic Development, and the Federal Service for Intellectual Property) must be involved in developing relevant legal provisions, it is advisable to closely monitor law enforcement practice established by courts.
Until legal regulation is amended, a court (if Rospatent’s resolution is challenged in court) may award against a losing party the costs that a party may incur under administrative proceedings involving a dispute over legal protection being granted to IP and means of identification by following the rules for compensating legal costs based on the universal principles of reasonableness and proportionality of distributing such costs based on the outcome of the previous administrative proceedings.
It is essential to promptly and fully document all costs relating to administrative proceedings, together, of course, with other costs relating to litigation.
Help from your adviser
Pepeliaev Group’s experts provide full-fledged legal support in relation to both court and administrative disputes involving challenging or protecting IP rights and, taking into account the content of the Resolution, stand ready to provide assistance in substantiating the need for having assumed the relevant costs (such as opinions of experts and specialists, reports on sociological research and others).
Among our firm’s specialists are patent attorneys who are registered with Rospatent and who have been for many years successfully providing legal support with regard to administrative disputes before the Rospatent’s Chamber for Patent Disputes as well as in court disputes involving challenging non-regulatory acts (resolutions) issued by Rospatent.
 Constitutional Court’s Resolution No. 1-P dated 10 January 2023 “On a case regarding an examination of whether article 15 and article 1248(2) of the Russian Civil Code and article 106 and part 1 of article 110 of the Russian Administrative Procedure Code are constitutional in relation to a claim of limited liability company Nika-Petrotech”.