Supreme Commercial Court decision
The issue of parallel imports has been discussed a lot in the last 10 years in Russia and judicial practice has changed, moving towards a more liberal attitude towards parallel imports. The driving force for this was the activity of a group of importers of spare parts for cars.
Before the Porsche Cayenne case considered in 2009 by the Supreme Commercial Court (later merged into the Supreme Court) parallel import cases could be handled by customs and it was considered an administrative offence. Customs were very efficient in initiating administrative court procedures against parallel importers and obtained judgments in favour of trade mark owners. Trade mark owners were interested in administrative prosecution because the bulk of the work was done by customs, hence the expenses for them were low. Besides, the goods imported into Russia without the permission of the trade mark owner were confiscated.
This lasted until customs detained a new car Porsche Cayenne, initiated and passed on the case to the commercial court and the court ruled to destroy the car because it had been imported without the authorisation of the trade mark owner. The Supreme Commercial Court decided that the provisions of the code on administrative offences could not be applied to original products, even those imported into Russia without permission of the trade mark owner, and civil action should be the only available option for trade mark owners. The Supreme Commercial Court explained that parallel import was a trade mark infringement but it did not menace public order and therefore it did not fall within the competence of a law enforcement body. It explained that the law contained sufficient liability measures that could be used by trade mark owners to protect their rights within the framework of civil procedure. The judgment of the Supreme Commercial Court implied that the Code of Administrative Offences could be used and that importers could be punished within the framework of administrative procedure only for goods that contain unlawful reproduction of the trade mark (counterfeit goods).
This landmark judgment changed court practice in Russia. Following this judgment, customs could only detain parallel goods for ten days (extendible to another ten days) and inform trade mark owners of the consignment containing parallel goods. The trade mark owners could initiate a civil case (which they often did) during that time and obtain a judgment providing for destruction of parallel goods and payment of damages/compensation by the parallel importer.
Trade mark owners initiated civil cases against parallel importers and the courts issued decisions in favour of trade mark owners awarding statutory compensation and destruction. Some of those decisions were appealed before the Supreme Court, which in its judgments excluded various interpretations of the law and confirmed the ban on parallel imports in Russia based on the national principle of exhaustion of rights provided by the Civil Code.
Changes proposed by the Federal Antimonopoly Service
A group of parallel importers interested in expanding their business found an ally in the Federal Antimonopoly Service of the Russian Federation and persuaded it that cancellation of the ban on parallel imports would allow Russian consumers to obtain the same goods at lower prices. This authority became very active in its attempts to legalise parallel imports and restrict trade mark owners preventing unauthorised importations. There were many discussions about this until it resulted in legalisation of parallel imports for goods that are not produced in Russia.
At the end of May 2015 the Federal Antimonopoly Service provided the Government with a list of goods for which it believes the international principle of exhaustion of rights should be introduced – pharmaceuticals, medical devices, automotive parts, cosmetics, perfumes, alcoholic beverages (except beer) and hygiene products, with the exception of companies that have localised production of those categories of goods in Russia. If production of those goods was localised in Russia the national exhaustion of rights should be retained.
The International Treaty of the Eurasian Economic Union
It has become clear that this approach will not work since Russia is a member of the Eurasian Economic Union (EAEU) and is a party to an International Treaty of the Eurasian Economic Union that in paragraph 16 of Annex 26 to the Treaty provides a regional principle regarding exhaustion of rights.
"The principle of exhaustion of the exclusive right to a trade mark and the trade mark of the Union shall be applied on the territories of the Member States, in accordance with which the use of a trade mark or the trade mark of the Union in relation to goods lawfully put into civil circulation on the territory of any Member State directly by the right holder of the trade mark and/or the trade mark of the Union or other persons with its consent shall not be regarded as a violation of the exclusive rights to the trade mark or the trade mark of the Union."
According to Article 15(4) of the Constitution of the Russian Federation and Article 7(1) of the Civil Code, international treaties are a component part of the legal system of the Russian Federation. If an international treaty or agreement of the Russian Federation stipulates other rules than those envisaged by law, the rules of the international agreement shall be applied. Therefore, in spite of the existence of the national principle of exhaustion of rights in the Civil Code the regional principle shall be applied as provided by the international treaty.
Constitutional Court decision
Further discussions regarding parallel imports will occur in light of the recent judgment of the Constitutional Court of the Russian Federation on February 13 2018. This introduced new rules for parallel import cases on the basis of its interpretation of the law after checking its compliance with the Constitution of the Russian Federation and the main principles provided therein.
The reason for consideration of this issue was a complaint filed with the Constitutional Court by a Russian company PAG Ltd which had been found by the Commercial Court liable for unauthorised importation of an original heat-sensitive paper bearing SONY trade mark for healthcare ultrasound machines in 2015 from Poland. According to the decision of the Commercial Court the imported goods must be destroyed and the importer must pay compensation.
Having analysed the conformity of the rules on exhaustion of rights with the Constitution of the Russian Federation, the Constitutional Court concluded that the respective rules of the national law (in particular Article 1487 of the Civil Code) do not contradict the main law and confirmed the principle of regional exhaustion of rights in Russia as part of the Eurasian Economic Union.
If an international treaty or agreement of the Russian Federation stipulates other rules than those envisaged by law, the rules of the international agreement shall be applied
According to the Constitutional Court, this principle, however, should not be applied automatically without consideration of all circumstances surrounding the case, including good faith. In this regard the Constitutional Court referred to the Civil Code and concluded that abuse of rights in any form shall not be allowed. In particular, the Constitutional Court ruled that it shall not be allowed that the trade mark owner abusively use his trade mark rights for restriction of importation of some selected goods of public interest such as drugs and life-support equipment. The owner should not overprice products in Russia in comparison with other countries.
The Constitutional Court also concluded that exemption of intellectual property rights from restrictions provided by antimonopoly law should not be interpreted as a justification for abusive behaviour by a trade mark owner (it is stated in Article 10 of the Law on Protection of Competition that the restrictions of this law shall not be applied to IP rights). A court may raise the issue of good faith of the trade mark owner who may have to prove that his lawsuit is not an abuse of trade mark rights. He will have to be able to justify his pricing policy for the Russian market and show that the ban on parallel imports will not jeopardise the health and life of people or a pose a risk to public interest. The Constitutional Court also noted that compliance of a trade mark owner with a foreign state's sanctions against the Russian Federation established without due international legal procedure and in contradiction with international treaties which Russia is a party to, may itself be recognised as unfair behaviour.
Recognising the right of a trade mark owner to prevent unauthorised importation of goods to Russia, the Constitutional Court ruled that the legal consequences with respect to importers of counterfeit or poor-quality goods and importers of original goods imported into Russia without permission of the right holder should not be the same. According to the Constitutional Court, when importing counterfeit goods labelled with a trade mark, the trade mark holder not only suffer losses in the form of lost profits, but also faces major reputational risks due to non-conformity of goods with anticipated characteristics and consumers' expectations. In this regard the Constitutional Court concluded that according to provisions of the current law (paragraph 4(1) of Article 1515 of the Civil Code) a court shall determine the amount of compensation to be awarded in favour of the trade mark owner at its own discretion depending on the circumstances of the case and taking into account that the losses of the trade mark owner in cases of parallel import are not as high as when counterfeit goods bearing the trade mark are imported.
Considering the right of a trade mark owner to claim confiscation and destruction of goods imported into Russia without his permission, the Constitutional Court came to the conclusion that there are no legal grounds for confiscation and destruction of goods put into circulation by the right holder in another country and imported into Russia without his permission (parallel import). This is in contrast to cases involving the importation of counterfeit goods. The destruction of goods, imported into Russia as a result of parallel import, shall be permitted only if they are of low quality or for reasons of security, safeguarding people's health and life, protecting the environment and cultural values.
From a practical point of view, the decision of the Constitutional Court means that it has become more complicated to enforce trade mark rights against parallel imports in Russia. Although it is still possible to claim a ban on importation of a particular consignment and statutory compensation, the court may not agree with the claims and partially or entirely dismiss the case against the importer if, due to unfair behaviour of the trade mark owner, it may jeopardise people's life and health or other public interests.
As a result, the trade mark owner is not deprived of his right to protect himself against parallel importers but he should put forward the arguments allowed by the judgment of the Constitutional Court as outlined above.
It is obvious that the decision of the Constitutional Court is a compromise. The Court could not introduce international exhaustion of rights because Russia is a member of the Eurasian Economic Union which adopted regional exhaustion. In order to legalise parallel imports it would be necessary to change the international commitments of Russia within the framework of the Eurasian Economic Union. However, the Constitutional Court mentioned in its judgment that a federal lawmaker is permitted to change the current legal regulations and its position with respect to parallel import with the purpose of ensuring access to goods on the Russian market at a fair price, looking at their importance for people's life and health, and other constitutional public interests. The lawmaker is entitled to make specific the national principle of exhaustion of rights and the regional principle provided by paragraph 16 of Annex 26 to the Treaty on the Eurasian Economic Union.
||Evgeny Alexandrov joined Gorodissky & Partners in 2005 and in 2015 was promoted to partner. He advises on both contentious and non-contentious matters. His expertise spans a wide range of areas, including licensing, parallel imports, false advertising and unfair competition. He represents clients before commercial courts, courts of general jurisdiction and law enforcement bodies. Projects handled by Evgeny include successful representation of major companies in patent and trade mark infringement cases. He is adept at handling multi-jurisdictional disputes.