[GuestPost] Opinion: Patent trolling threatens the market of taxi aggregators in Kazakhstan

 

Merpel does not like this form of taxi

Friend of the Kat and Legal Head of Delivery for Gett in Moscow, Konstantin Voropaev has been following some developments out of Kazakhstan relating to an uptick in litigation in the taxi-app space.  

Over to Konstantin for the story and his take on the developments:

"Some may associate businesses whose primary aim is to assert patents in litigation to obtain license revenue with the Eastern District of Texas or the Unwired Planet decision in the UK, and not think about cases further afield from Marshall, Texas or London.  However, many such business have been popping up in Kazakhstan.  One such business appears to be that of G-Taxi, whose presence in Kazakhstan has only been made public in connection with litigation.  So what is going on?  Let’s start at the beginning.  

Background 

One of the first mobile phone taxi hailing apps that made a splash in Kazakhstan was InDriver. After a while, it was replaced by the Russian company, YandexTaxi, and then Uber. These two largest services merged their platforms a couple of years ago, which influenced the taxi market in Russia, Armenia, Belarus, Kazakhstan and several other Commonwealth of Independent States countries. Also in 2019, another international player entered the Kazakhstan market - the Estonian taxi service Bolt (formerly Taxify), which so far only operates in Nur-Sultan. These mobile services have significantly expanded the market, transferring most of Kazakhstanis from public transport to taxis. In the near future, Didi Chuxing, the world's largest online transport platform by the number of users also intends to enter the Kazakhstan market.  So the market is busy, growing and lucrative.  Cue our story.  

At the end of May, the Specialised Inter-District Economic Court of the former capital of Kazakhstan, Almaty, ruled to ban Yandex.Taxi and block its permission to operate in Kazakhstan. The court’s decision was made public only recently and has already raised many questions from the legal community, discussed below.  

According to the case materials, the plaintiff is a Kazakh company called G-Taxi which received, under an exclusive license, the right to use the patent for the utility model “Automated Taxi Ordering System”.  The patent is valid until 21 December 2023. The essence of the claims is that Yandex.Taxi infringes patent rights by using the automated taxi ordering system since the licensing rights for the system are owned by G-Taxi. As explained below, it is not clear that G-Taxi actually operates a taxi or transport business.

This patented system consists of a GPS tracker built into a mobile device, a mobile application for the user and driver, and a server application for processing. According to the plaintiff, Yandex.Taxi provides services which, without permission, use all the features of its utility model.

The judge ruled in favor G-Taxi, in part, and granted an order to terminate access to Yandex.Taxi’s services in Kazakhstan, as well as to restrict access to service applications in the AppStore and Google Play.

The Court’s decision and subsequent questions

The Civil Code of the Republic of Kazakhstan establishes that the patent owner (and exclusive licensee) has the exclusive right to use the utility model protected by the patent at their own discretion; other persons are not entitled to use the utility model without the permission. Violation of the exclusive right of the patentee includes any unauthorised method of introducing into civil circulation a product made using a patented utility model.

According to the requirements of the Patent Law of the Republic of Kazakhstan (hereinafter referred to as the Law), any unauthorized person using a protected object of industrial property in contravention of the Law is considered to have violated the exclusive right of the patent holder. At the same time, a new product that has entered the market will be presumed to have been introduced legally (in accordance with the requirements of patent law), unless proven otherwise.  

Having outlined these general provisions of civil law, the judge proceeded to describe the G-Taxi’s utility model patent, issued by the Ministry of Justice of the Republic of Kazakhstan.

The court found that Yandex.Taxi’s services had all the features of G-Taxi’s utility model. Yandex.Taxi argued that this conclusion was not correct, since the plaintiff’s utility model did not reveal its structural elements that would otherwise comprise the formula of the utility model (e.g. the technical way of accepting a taxi order). The court disagreed with this argument, stating that a description of its features and associating them with any structural elements was not required and held that Yadex.Taxi had infringed the patent.

Analysing this decision, first of all, the question arises as to how it was possible to register this patent? The subject matter of the patented invention must be new at the time of filing a patent application. G-taxi filed its application in 2015, although such platforms have already been widely known since the 2000s around the world. Suffice it to say that the startup Zingo in 2003, through mobile technologies, began to connect passengers and drivers. Zingo automatically searched for the nearest taxi driver for the passenger. In 2007, another startup, Zimride, was launched in the United States. Zimride worked in co-op long-distance travel and used the Facebook service. Lyft emerged from Zimride in 2012, Uber’s main competitor in the US market. 

The second question is whether G-Taxi aimed to protect their intellectual property rights and market, or to obtain IP protection in order to obtain licence fees? Why is this question salient? Because G-Taxi’s commercial affairs in Kazakhstan appear quite vague. The open sources of information reveal that for seven years of work the Kazakhstani company paid only KZT5,700 in taxes ($ 13.30 : KZT2,100 ($ 4.90) in 2016 and KZT3,600 ($ 8.40) in 2018, and the number of employees is fewer than five people.

Furthermore, this is not the first time G-Taxi sued Yandex. In 2019, the Almaty City Court ruled that it was not established that Yandex used the utility model “Automated Taxi Ordering System” in civil circulation without permission.  In 2018, the Almaty courts also dismissed G-Taxi’s claim against the Russian entity “Leader”.  The Almaty City Court ruled that G-Taxi had an exclusive right to use at their own discretion the utility model for which the title of protection was issued in August 2016.  Leader, however, has been using an automated taxi ordering system via the Internet since 2015 (a year earlier) and, accordingly, the claim was dismissed.  

As noted above, there is no evidence of business associated with G-Taxi other than litigation; which is the only context in which G-Taxi has been mentioned on the Kazakh market.  These facts lead this author to the personal opinion that G-Taxi's business model is focused solely on extracting revenue through licensing and litigation.  This would not be a rare occurrence in Kazakhstan. 

Patent trolling in post-Soviet era

The term "patent trolling" - which can be used interchangeably with the less vivid “Patent Assertion Entity (PAE) or “Non Practicing Entity (NPE)” - is used worldwide to refer to situations when individuals or legal entities buy and issue patents in their own name, without being involved in the production and use of intellectual property. After that, the business model is that they wait until the point in time when certain technologies develop on the market to the required level of revenue and entrenchment to make licensing demands profitable.  That is when these entities start demanding compensation from market players for the use of the technology.  A patent or trade mark troll’s strategy consists of finding potential defendants who find it less expensive to negotiate a settlement rather than litigate.

“Patent trolling” has been used actively since the beginning of the 1990s in the territory of the post-Soviet space, especially in Russia, when large corporations were served with several lawsuits from patent holders for already well-known and popular items.  For example, in October 1999, a patent was published in Russia for the invention of the "Glass vessel", the description of which fully corresponds to an ordinary glass bottle. The patentee tried to demand from the companies producing beer and soft drinks, licensing fees in the amount of at least 0.5% of the proceeds. That patent was canceled by the decision of the Chamber for Patent Disputes. The second well-known history of patent trolling in the Russian Federation is associated with a patent for an invention and three patents for useful models with the general name "Vehicle shock absorber".  This entrepreneur tried to get substantial sums in euros from foreign companies - manufacturers of automobile shock absorbers. Among the infringers of the entrepreneur's patent rights were: the Japanese company Kayaba, the German company ZF Trading and the American company Gates. 

The Appeal Court revoked the position of the lower court

Back to our story.  Fortunately, on July 3, the Court of Appeal overturned the court's decision to ban Yandex.Taxi from operating in Kazakhstan, recognizing the claim to be unfounded.

The Court of Appeal's key holding was that the lower court incorrectly conducted a comparative analysis of the utility models of the plaintiff and the defendant.  The appellate court also noted that the claims of the plaintiff's utility model were formulated extremely broadly, which did not allow one to properly establish the scope of legal protection determined by the formula.

As a result of a comprehensive analysis, it was concluded by the Court of Appeal that the plaintiff's utility model was not used by the respondent in principle, since between the functions of the plaintiff’s and defendant’s mobile application there are significant differences in the search and ordering of a taxi.  In particular, the defendant's mobile application uses an independent electronic hardware and software device that has no characteristics in common with the plaintiff's utility model, and a special website is available for the defendant's application drivers, which has no equivalent in the plaintiff's utility model.

Hence, the decision of the court of the first instance was revoked.  G-Yaxi has the right, within 6 months, to appeal the decision of the appeal instance.  This author suspects that they appeal.

In lieu of conclusion

Kazakhstan, like the majority of post-Soviet countries, is still a country that is very interested in attracting foreign investors. This guest Kat questions any desire to attract investors by creating a special international dispute resolution center in Nur-Sultan which deals with this type of patent litigation.   In any event, it should be a concern to those seeking to attract foreign investment that the intersection between imperfect IP legislation and the aggressive tactic of local non-practicing entities can negatively influence an investor's decision to start a business in Kazakhstan.  

But, of course, the decision of the court of appeal instance is a wise move towards a fair system of intellectual property rights protection and without any doubt gives the disputing parties more sense of legal certainty and the level of scrutiny of patent claims that the court will now require before granting such orders in the future. "