This content is from: IP Strategy

Primer: Russian IP law and practice rules post-Ukraine invasion

Managing IP summarises the IP-legal developments in Russia following its invasion of Ukraine and Western brands' subsequent withdrawal

Since the onset of Russia’s Ukraine invasion on February 24, the Russian government has introduced several measures to limit the scope of rights granted to intellectual property owners from foreign countries.

These measures included allowing compulsory licensing, permitting parallel imports, prohibiting foreign owners from unilaterally cancelling foreign licences, and much more.

The government has brought the measures to revive Russia’s economy after hundreds of global brands pulled out of the country or stopped producing in and exporting to Russia in response to its aggression.

Apart from global brands, several law firms have suspended their operations in the country, and prominent IP offices including the UKIPO, the EUIPO and the USPTO have cut ties with Rospatent – Russia’s IP office.

As a result, a few courts in Russia have supported the government and refused to enforce IP owned by foreign owners in the country, even though no existing law allows it.

Other judicial and quasi-judicial authorities, however, have decided disputes solely on the merits without considering the sanctions issued by foreign countries against Russia.

Compulsory licensing of patents and copyright

The first blow to IP owners came on March 6 when the Russian government passed a decree stating that rights owners from “unfriendly” territories were entitled to 0% of the proceeds from the production and sale of goods, performance of work, and provision of services if their IP has been used without their consent.

Russia’s prime minister Mikhail Mishustin confirmed the news in an announcement on March 7. The decree covered inventions, utility models and industrial designs.

See Managing IP story here

The government also approved a list of 24 foreign unfriendly states and territories, which included Australia, EU member states, Iceland, Japan, New Zealand, Norway, Korea, Singapore, Switzerland, Taiwan, Ukraine, the UK, and the US.

“Unfriendly” territories referred to jurisdictions that had sanctioned Russia or supported sanctions against it.

According to IP lawyers in Russia, the decree effectively allowed the Russian government to invoke Article 1360 of the Civil Code of the Russian Federation, which permits compulsory licensing by the government in the interest of national security.

More recently, however, the government has been planning to broaden the scope of Article 1360 through legislation.

Russian news publication Vedomosti reported on April 20 that the government was formulating a bill to extend the compulsory licensing provision’s ambit to include copyright.

It seems to be a reaction to foreign studios closing or suspending operations in Russia, which has caused substantial losses to the movie and video business in the country.

Under the proposed legislation, a Russian licensee would be able to apply to a court to obtain a compulsory licence if a business from an unfriendly country terminated a licence agreement arbitrarily.

Screenings of pirated movies have already begun in Russia, with a Moscow theatre holding an unofficial premiere of ‘The Batman’ about a week ago, as Hollywood film studio Warner Bros cancelled the official one in Russia.

Exempting goods from IP protection

Another blow to foreign IP owners came when Russian president Vladimir Putin signed a bill on March 9 that empowered the government to exempt certain goods from IP protection.

See Managing IP story here

An English translation of Article 18.13 of the legislation says: “The Russian Federation has the right to make decisions providing for a list of goods (group of goods) in respect of which certain provisions of the Civil Code of the Russian Federation on the protection of exclusive rights to the intellectual activity expressed in such goods, and the means of individualisation with which such goods are marked, cannot be applied.”

The law covered all types of IP rights, including trademarks, copyright, and patents, so was much broader in scope than the law on compulsory licensing.

The government, however, didn’t publish the list of goods sought to be exempted when it passed the legislation.

IP lawyers in Russia expected the new law to apply to goods such as medicines and software but noted that the broad wording allowed the government to interpret it however it wanted.

Irina Shurmina, IP counsel and head of digital law at CMS Russia, told Managing IP that the law could be interpreted to support parallel imports – purchasing branded goods from other territories and reselling them in the domestic market.

Allowing parallel imports and piracy

Shurmina’s prediction turned out to be somewhat true, with Russia’s prime minister Mishustin signing another decree on March 29 that allowed the parallel import of certain patented and trademarked products in Russia.

The decree aimed to counter the supply shortage of imported goods in the country byallowing Russian businesses to import such products from foreign countries without seeking the consent of rights owners.

See Managing IP story here

Under the decree, parallel imports into Russia were allowed only for goods that were already put in circulation outside of Russia with rights owners’ permission.

Russia’s competition authority, the Federal Anti-Monopoly Service (FAS) – which drafted the parallel import decree – said the measure “will develop competition between brands through an increase in the number of businesses that import goods to Russia, which will lead to a decrease in retail prices for these goods”.

Following this, the Russian government released a list of more than 50 categories of goods and their customs tariff numbers on April 19 that could be legally brought into the country through the parallel import route.

See Managing IP story here

The goods include mineral fuel, pharmaceuticals, cosmetics, soaps, chemical products, paper and cardboard merchandise, wool, textiles, medical devices, electrical machines and equipment, and toys.

The list was not just limited to products – it also named several brand owners whose goods that fall under these categories could be brought into Russia under the parallel import route.

These include major international companies, such as Apple, Bosch, Samsung, Siemens, Volvo, ABB, Electrolux, Philips, IBM, Lenovo, Schneider, 3M, Nintendo, Hitachi, and Western Digital, from so-called “unfriendly” countries.

China’s Huawei was also included in the list, even though the Chinese government has avoided taking a stand against Russia.

The list of goods has been sent to the Ministry of Justice for approval.

Ending arbitrary licence termination

The Russian government also took steps to stop foreign owners from terminating their IP obligations in the country.

The government’s position on IP licensing is reflected in at least two bills drafted by the government.

One of the bills, currently before the State Duma, would allow the government to seize IP and other assets of some foreign companies that have decided to leave or scale down operations in the country.

See Managing IP story here

The proposed law would apply to foreign companies with more than 100 employees or a valuation of 1 billion rubles ($9.1 million) in which individuals from “unfriendly countries” own at least a 25% stake.

The proposed legislation would allow the external administration to take control of and use IP belonging to the foreign company, as well as IP licensed to it.

On top of that, the government could also reinstate any IP licences that were revoked or cancelled on or after February 24 – when Russia began its Ukraine invasion.

On March 22, the government tabled another bill before the parliament to stop foreign companies from unilaterally terminating IP agreements, including licensing contracts.

See Managing IP story here

The bill proposed revising several Russian laws given the “unfriendly actions of foreign states and international organisations associated with the introduction of restrictive measures against citizens of the Russian Federation and Russian legal entities”.

It prohibited unilateral termination of, and amendments to, IP agreements for the period during which Western sanctions against Russia were pending, unless the non-terminating party breached the agreement significantly.

Even if a right to terminate or alter the terms of an arrangement was provided statutorily or contractually agreed between the parties, a party would not be able to exercise such a right once the new law enters into force.

On top of that, all IP agreements would be extended for as long as sanctions against Russia remain in force.

The government also proposed that the new law should take effect retroactively from February 24.

Conflicting court decisions

The Russian government’s actions to limit or curtail IP owners’ rights have also received significant support from some courts in the country.

The first and the most infamous one was probably a March 3 decision delivered by Judge A P Slavinsky at the Arbitration Court of the Kirov Region.

See Managing IP story here

In this case, the court dismissed claims that the ‘Peppa Pig’ and ‘Daddy Pig’ trademarks had been infringed, without looking into the merits of the plaintiff’s arguments.

The court said that sanctions issued by Western countries had “prejudicial significance” on the dispute.

The order said that the actions of the plaintiff – Canada-based entertainment company eOne’s UK arm – constituted an abuse of rights because of the sanctions issued by Western countries, including the UK, against Russia.

However, eOne managed to secure victory in another IP dispute against a Russian individual on March 18, easing foreign rights owners’ concerns that arose from the earlier decision.

See Managing IP story here

In this case, eOne had filed an opposition against a trademark application for a logo with an element similar to eOne’s ‘Gaston the Ladybird’ character from the popular children’s show Ben & Holly’s Little Kingdom.

Rospatent had sided with eOne in August 2021 and refused registration, prompting the Russian applicant of the disputed trademark to file an appeal before the IP court.

The court solely considered the merits of the case, and not the home jurisdiction of eOne, holding that eOne’s petition to protect its violated IP rights could not be an abuse of rights and dismissing the appeal.

There have been few other decisions in IP cases and domain name disputes by courts and Rospatent in the past couple of months upholding foreign rights owners’ IP claims.

However, some other courts in Russia continue to deliver politically coloured decisions.

For example, the Commercial (Arbitrazh) Court of the City of Sevastopol, Crimea, recently rejected a lawsuit for trademark infringement filed by a US company for the same reason as the Kirov Court.

It noted: “Taking into account the restrictive measures against Russia and location of the plaintiff (the US), the court finds that plaintiff’s actions aimed at obtaining financial compensation while Russian residents do not have the same opportunities in the US constitute abuse of rights.”

While there is nothing to support the “abuse of rights” proposition adopted by the Kirov and Sevastopol courts, Russian lawyers believe some decisions will continue to be affected by geopolitics while others will be decided fairly.

Future troubles

As the war continues, the measures taken by the Russian government and the uncertain IP enforcement environment might help local players and the Russian economy in the short run but will likely affect the return of global brands to Russia in the longer term.

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