The letter to President of Russian Federation Dmitry Medvedev

Filed in Company News

Dear Mr. President,

Your efforts to reform the Russian economy through modernization of its industries and giving high priority to the development of high tech businesses continue to give hope to the patriots that Russia will be able to overcome the difficulties of the transition period and take the rightful place among the developed countries.

I also support your efforts in fighting corruption because I believe that, due to its widespread nature in Russia, corruption poses a serious threat to the national security. The problem stems from the fact that public officials who are bribed into either illegal actions or lack of action, not only squander national resources, but also cause erosion of the social fabric, promoting unethical relations in the sphere of regulations that have no future.

A citizen of Russia and the U.S.A., I live mostly in New York, and I am engaged in developing and introducing the latest state-of-the-art technologies in such sectors as energy saving, downstream hydrocarbons, fuel efficiency, and development of new materials.

The main capital of my company Discount Provider of USA, Inc., the detailed information of which can be found on its website, is inventions of Russian scientists. When applied, these innovations have a tremendous economic effect, resulting in significant costs reduction. However, this is not beneficial for Russian monopolists as they are not interested in better prices at the end of the value chain and in creating conditions for cost transparency.

Despite these specifics of the Russian business, some innovations, such as incineration of low grade heating oil with water admixture (black heavy oil, mazut, have been put to use in a great number of large and medium boilers, as well as many heating and power plants.

The technology implementation is a special process in that none of the enterprises benefits from the disclosure of any information about given technology because fuel efficiency translates into unrecorded profits and, consequently, none of the enterprises that have implemented the technology in Russian Federation pays any licensing fees to patent holders.

It was obvious to me that until necessary mechanisms are in place in Russia to ensure compliance with law, any efforts directed at attracting investments to finance innovations will be in vain. A few projects controlled by powerful public officials cannot impact the economy and contribute to its restructuring because they will not change the system responsible for facilitating this process.

In the developed countries, intellectual property in modern businesses, especially those heavily depending on technologies, constitutes 70% or more of the capitalization value of an enterprise. Without a reliable mechanism that will push it into public circulation there will be no motivation for innovations. In essence, putting into public circulation means exercising intellectual property rights, whether forcibly or on the basis of good will and agreement of all parties involved.

Realization of intellectual property rights in Russia on the basis of good will is not possible, unless such transactions are fictitious and serve as a cover-up for something else, because it has never been done before. This leaves the enforced method; however, this also presents a problem, because the process of realization of patent rights in Russia could face insurmountable obstacles arising from the drawbacks of existing laws that allow the review of disputes by the administrative organs instead of judicial ones, thus creating a situation where the very body issuing a patent may later question its validity.

I know that this situation will change in the near future and the authority to review (settle) patent disputes, including those concerning patentability, will be given to a newly created judicial organ, but I don’t believe that this will be enough as the judicial system is as corrupted as other systems.

I’ve decided to set up a precedent that would reveal the darker side of the government regulation system in this sphere so that it would become clear what is happening and the right decisions could be made.

Perhaps, some will find me naïve, but I do believe that your intentions are sincere and I would like to offer you whatever help you might need in your efforts.

My company has acquired two Russian patents from Russian inventors for the utility models “Container” and “Sheet Material”, both developed in 2003. Within the past seven years these patented innovations have been put in use in Russia and abroad. Currently, a lot of modern equipment designed for such use fall within the scope of these patents. It is because of these specifics which, unfortunately, most patents granted by the Rospatent (Federal enforcement authority on intellectual property of the Russian Federation) do not have, the top officials of this agency have come up with a derogatory in their view label: “killer patents”.

There was a legal dispute involving the patent “Container”; however, it didn’t attract enough attention because the patent infringer was a small enterprise in Saint Petersburg.

The specifics of these patents are in that their application in a piece of machinery or device can be detected with the help of objective investigation on high precision equipment, and indisputable proof of its use can be obtained when all the important features of their independent claim are equivalent to the features of the device under examination.

In order to make the dispute public, representatives of my company filed a lawsuit against one of KIA dealers engaged in sales of KIA automobiles in St. Petersburg because the dealer had violated patent rights involving the “Sheet Material” patent.

The basis for the claim was the examination of certain parts of car bodies, namely the front fenders of six different models. The examination provided proof that all the parts included the features specified in the independent claim of the said patent. This means that the patent had been exploited and the law requires that the importer enter into a license agreement with, and pay license fees to, the patent holder.

The case was reviewed by the Arbitrage Court of the City of St. Petersburg and Leningrad Region by Judge A.E. Filippov.

In brief:

  1. The defender didn’t question the results of the examination of the parts (fenders) which provided proof that the parts included all the features specified in the independent claim of the patent.
  2. Despite the fact that the lawsuit (case) documents contained sufficient information for the judge reviewing the case, the latter commissioned the patent rights examination to answer questions that he himself had the responsibility to answer and make appropriate decision, especially because many of these questions referred to the patentability rather than the case itself. Answers to the other questions were obvious from the documents of the case. This caused an unjustified delay and allowed the defendant to settle the case through an administrative rather than judicial organ by disputing the legality of the patent grant.
  3. The decision of the Patent Dispute Chamber to recall the patent is unsubstantiated and obviously non-compliant with the current law, as anyone with common sense can see from the dispute materials presented on the site.
  4. The results of the patent rights examination, dictated by the court and conducted by the Moscow Center of Judicial Examinations (with fees in the amount of 450000 rubles), did not confirm the patent rights violation (infringement) on the grounds that the “Sheet Material” patent protecting the use of the material with unique specifications, based on the expert opinion of V.L. Vasilevski, A.M. Kleiman, and E.A. Kotitsina, did not apply to the fender part made of the sheet material with these specifications. Curiously, the Patent Dispute Chamber that reviewed this issue didn’t find it possible to come to such an absurd conclusion and, although it did invalidate the patent, its decision was based on different absurd conclusions.

The patent was revoked and I can tell with certainty that the cost to revoke a patent is $100,000 and to reinstate it in one of Moscow district courts that review disputes of this nature by appealing the decision of the Russian Patent Office costs about the same. And such practice has taken on gigantic proportions in Russia.

Because opposing a patent for some absurd reason can become a valid basis to revoke the patent, you can imagine what kind of a gravy train these patent disputes, lasting for periods of up to the term of a patent, have become for Rospatent officials. But I won’t let myself get involved in a case that may be won, even if I am right, only through bribes.

As a result, the level of Russian patent rights protection suffers because the inventors lack incentives to patent their inventions properly, knowing that their intellectual property rights may be revoked with a bribe.

From the speech you delivered on the patent topic, I understand that you are gravely concerned about what’s happening in the country. And what’s happening is that a bunch of public officials from Rospatent developed a lucrative business: to grant and revoke patents for bribes.

The facts I presented above can be easily verified by placing a request with a patent counseling company like «Gorodisski & Co.» to invalidate any patent falling into the statutory category of the «best Russian inventions» (such category exists in the Rospatent database).

The lack of demand for quality patents further hinders the development of proper methods of granting patents and this is why most of patents granted in Russia fail to secure property rights for their holders, even if the court makes lawful decisions.

And if a patent cannot protect property rights, it is nothing more than a piece of paper. Even if there are major scientific advances, patents with this kind of level of protection will not secure these advances, especially outside Russia. The only exceptions are patents that are granted not as the means of protection of property rights, but as a mechanism for laundering federal funds allocated for R&D. Such patents are introduced as a result of good will and agreement of all the parties involved.

Sometimes the very fact of patent granted as a result of some intellectual activity can become the reason for money laundering. Curiously, Mr. Kvasenkov is the sole owner of over 5000 this kind of patents that “protect” various recipes used in the production of marmalade and other “life sustaining” foods by listing different combinations of ingredients used for these products and their quantity in grams. Such great inventors are many. Currently, there are about 150,000 valid patents in Russia, from which it is not difficult to conclude how Rospatent spends federal funds when it has a whole department constantly engaged in reviewing patent claims from one and the same inventor.

Upon analyzing the situation where they tried to ensure patent protection for the Kalashnikov machine gun using the conventional methods of protection which, believe me, is an everyday task for Russian specialists that I know, the true state of affairs in this very important area becomes clear.

This brings about an obvious question: Does it make sense to invent a costly technological product, putting the entire infrastructure in place, when you know that you won’t be able to ensure protection of your intellectual property? It is quite clear that the rights will go to those who are in a position to file claims with 100% protection of the rights. This has been the case with many great scientific Russian inventions in the past two centuries.

On the other hand, Russia has many specialists who are way ahead of their advanced foreign fellow colleagues when it comes to the development of new ways of granting patents allowing to patent any promising innovations before they have been introduced, and guarantee the rights protection not only in Russia, but internationally.

The patent for the utility model “Sheet Material” revoked by the officials was an example of such protection, when old, known attributes are applied to new use. This method of patent grant is widely accepted in all the developed countries and every specialist would like to take advantage of it which is not always possible.

I am certain that the revocation of this patent had a grave impact on the Russian federal budget directly in the form of uncollected income tax on licensing fees and indirectly, as a missed opportunity to increase GDP. This increase would be a given in the environment of rising prices for imports that directly compete with similar products of Russian producers. It’s important to mention that this inevitable price increase would stem from the market response to additional expenses in connection with licensing fees and not from administrative measures, thus relieving the Russian government from being accused in protecting their own producers, even when that, too, could be justified.

I felt it was my duty to inform you on the situation and anyone else interested in the future of the reform and in reviewing the documentation pertaining to the above case. All the materials including the content of the arguments presented by both sides are displayed on my company website under “News” so that you and the Motherland could identify your “heroes”.

Sincerely, President of “Discount Provider of USA, Inc.”
Boris Nikitine.