On March 6 the Russian Federation issued Decree No. 299, under which owners of patents, utility models and industrial designs related to foreign states that commit hostile acts against Russian companies and individuals would not be entitled to compensation for infringement of these rights.

The list of unfriendly states published by Russia includes the US, Canada, EU countries, the UK, Ukraine, Montenegro, Switzerland, Albania, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, and North Macedonia, as well as Japan, South Korea, Australia, Micronesia, New Zealand, Singapore, and Taiwan.

The Russian government is looking to exercise the compulsory licensing provision stipulated under article 1360 of the Civil Code of the Russian Federation. Russia is using the mechanism of “expropriation of IP rights”—similar to its mechanism of a “compulsory licence”, intended to mitigate the results of economic sanctions imposed on the country.

Articles 1360 and 1362 allow the Russian government to permit the use of inventions, utility models and industrial designs without the consent of the rights owners in the interest of national security.

The Russian government submitted a law revising article 1360 on November 22, 2019, allowing the government to give a compulsory licence without a judicial procedure notwithstanding the lack of express provision.

According to the law: “The Government of the Russian Federation has the right in case of emergency to provide a defence and security, a protection of life and health of the citizens to allow the use of an invention, utility model, or industrial design without the consent of the patent holder provided that he is given notification as soon as possible, and with the payment of appropriate compensation. The procedure for determining such compensation and the terms for its payment will be approved by the government of the Russian Federation.”

Further amendments

On March 3, 2020, the Russian government introduced another bill to further amend article 1360, which reads: “The Government of the Russian Federation has the right, in the cases and on the conditions provided for by an international treaty of the Russian Federation, to make a decision on the use of an invention for the production in the territory of the Russian Federation of a drug for the purpose of exporting it without the consent of the patent holder with notifying him of this as soon as possible and with the payment of appropriate compensation.

“The Federation’s decision must contain information on the volume of production of the drug determined by the needs of the foreign state, to whose territory the drug is to be exported. The package of such a drug must have a special designation.

“The procedure for sending the notification specified in item 1 of this article, the grounds and procedure for making a decision and determining its validity, the procedure for determining the period of validity of the decision, as well as the procedure for determining the amount of compensation and the procedure for its payment are approved by the government of the Russian Federation in accordance with an international treaty of the Russian Federation.”

The aim of the move

The “compulsory licensing” stipulated by the bill is more similar to “expropriation” due to the lack of required compensation under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

It is aimed, among other things, at preventing and mitigating the effects of sanctions on the Russian Federation. The new regulation is not justified as previously by the need to ensure drug security in Russia in connection with the global COVID-19 pandemic, but as a repercussion for the international economic sanctions against Russia in connection with the invasion of Ukraine.

This is also a continuation of previous decisions and political moves. In 2018, the Moscow City Commercial Court awarded a licence to use a patented medicine of Celgene International Holdings Corporation in connection with the cancer drug Lenalidomide-Nativa, in response to a claim brought by a local generic business Nativa.

In February 2019, the same court awarded Nativa a second compulsory licence for the use of Sunitinib, a medication covered by a Eurasian patent co-owned by Pfizer's Sugen and Pharmacia & Upjohn.

Russian registered IP owners

The new regulation amends the already existing provisions on the methodology for determining the amount of damages to be paid to the patent owner in the event of a decision to exploit an invention, utility model or industrial design without consent, and utility model or industrial design without its consent, and the mode of payment.

With respect to holders of patents connected with foreign countries who commit hostile acts against Russian legal entities and individuals (including, if such patent holders have citizenship of these countries, if their place of registration, place of pre-judicial business activity or place of their pre-judicial profit from such activity are these countries), the amount of compensation shall be 0% of the actual income of the person who: has exercised the right to use the invention, utility model or industrial design without the consent of the patent holder, from the production and sale of goods, the performance of work and the rendering of services for the production, performance and rendering of which the relevant invention, utility model or industrial design was used.

This new regulation is more far-reaching than previous decisions on granting compulsory licences to boost domestic generic medicines production. The main effect may be the risk of marginalisation of the Russian market. We cannot exclude the risk that Russia may be reduced to a market that is purely reproductive and based on slavish imitation.

This may also restrict the transfer of technology to Russia, which is already prohibited by the European Commission. It may discourage large stakeholders such as those from Japan and the US.

Foreign IP owners

This new provision concerning the compulsory licensing of patents seems not to be compliant with TRIPS. Russia is a member of the World Trade Organization (WTO), so compulsory licensing must follow the requirements of article 31 of the TRIPS agreement.

Article 31 of the TRIPS agreement states that where WTO member states provide in their patent legislation for compulsory licences the following provisions must be made:

• Each case must be decided on its own merits;
• The applicant for the compulsory licence must have made efforts to take a licence from the patentee on reasonable commercial terms;
• The scope and duration of the compulsory licence must be limited to the purpose for which it was granted, such that it may be terminated or amended if the circumstances which led to the grant of the compulsory licence change or cease to exist; in the business unit that enjoys the compulsory licence;
• The patentee must be paid adequate remuneration for use under the compulsory licence;
• The decision to grant a compulsory licence and the determination of what is adequate remuneration shall be subject to judicial review;
• Where a compulsory licence is granted in order to enable a second patent to be exploited, the invention claimed in the second patent must involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent and the patentee of the first patent must be entitled (on reasonable terms) to a cross-licence in respect of the second patent.

The new law does not comply with article 31 of the TRIPS Agreement, which sets forth the requirements for the compulsory licensing of patents, including the obligation to pay “adequate remuneration in the circumstances of each case, taking into account the economic value of the authorisation“ (article 31(h) of the TRIPS Agreement).

If enforced, the main effect of this law will be uncertainty for owners of IP in the territory of Russia, over the enforcement of their rights and gaining profit through the licensing system, as well as protection against unfair copying.

What might happen next?

Article 73 of the TRIPS agreement provides for the security exceptions that states can invoke to defend their non-compliance with the agreement. This is a unique provision in the context of international IP law. During a “time of war or other emergency in international relations”, article 73(b)(iii) allows a state to take “any measure it judges necessary for the defence of its fundamental security interests”.

The exact breadth of this security exception was unknown until recently, and a number of nations believed that these exceptions were self-judging and non-justiciable.

Fortunately, two WTO dispute settlement panels have recently studied and interpreted General Agreement on Tariffs and Trade (GATT) article XXI(b)(iii) and TRIPS Agreement article 73(b)(iii). In Russia, Traffic in Transit (2019), article XXI(b)(iii) of the GATT was interpreted, and in Saudi Arabia, Intellectual Property Rights, article 73(b)(iii) of the TRIPS Agreement was devised (2020).

There is a further security exception in article 73(c) of the TRIPS Agreement: to prevent a member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

It is debatable whether Russia has a standpoint under article 73(b)(iii) TRIPS. This mechanism may be (theoretically) invoked against the “mechanism of expropriation” based on an emergency situation that means “suspension of the IP rights enforcement obligation”, which derives from article 41 of TRIPS towards numerous states in order to protect their essential security interests. States involved in sanctions against Russia may also discuss invoking article 73(c) TRIPS.

The TRIPS agreement is annex 1C of the Marrakesh Agreement Establishing the WTO, signed in Morocco on April 15, 1994. Russia’s exclusion from IP protection organisations is directly related to international agreements related to IP that bind states. It is possible that one of the first such agreements could be TRIPS, an agreement made between all members of the WTO.

In the US, several bills seek to revise Russia’s membership in the WTO, which could subsequently lead to a review of the validity of TRIPS in Russia.

Of course, the TRIPS agreement, of which Russia is a member, also provides for the possibility of other signatories to the TRIPS agreement to initiate a dispute against Russia, which would be heard and settled before a special WTO panel.

Finally, patent proprietors will still be entitled to enforce their rights through different means, including through international treaties for the promotion and protection of foreign investments, or “investment treaties”.

Investment treaties provide protection to investments made in a state’s territory by stakeholders from other countries based on protection standards, including (in most cases) the right to adequate compensation in cases of direct or indirect expropriation and the option to submit claims against the host state of the investment to international arbitration.

According to a common definition, “investment” in investment treaties means any kind of asset and, in particular, but not exclusively, includes IP rights, goodwill, technical processes, and know-how.

Agnieszka Sztoldman is an adjunct professor in intellectual property law at the Faculty of law, University of Wrocław in Poland and an attorney-at-law specialising in IP and life sciences. She can be contacted at: a.sztoldman@taylorwessing.com