After the invasion of Ukraine in February 2022, more than 10,128 sanctions on Russia were imposed, including the export ban of high technology products, dual use products and some other goods. Additionally, more than 600 world-famous brands have announced their exit from the Russian market.

To leave some goods and technologies available, the Russian government has applied some changes to the regulations on IP. In early March it also announced the list of “unfriendly” countries, which included most of Europe, as well as the US, Japan, Australia and more. Bearing this in mind, the situation with the pending protection of IP rights in Russia is worth exploring in more detail.

Compulsory licensing

On March 6, 2022, Russia announced the Decree No 299, by which the compensation for unauthorised use of IP objects for patent holders, who are registered in “unfriendly countries”, was established in the amount of 0% of the profit.

This applied to article 1360 of the Civil Code of the Russian Federation, according to which the government may, in case of necessity, decide on the use of the invention, utility model or industrial design without the consent of the patent holder.

Under article 8 of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), members may adopt measures necessary to protect public health and nutrition, provided that such measures are consistent with the provisions of this agreement.

At the same time, article 2 of the Paris Convention and article 3 of TRIPS grant national treatment to member countries. According to article 5 of the Paris Convention, the only purpose of compulsory licensing is to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent.

Article 31 of TRIPS provides a list of the demands for compulsory licensing to be legitimate, including adequate compensation to the patent holder. Therefore, Decree No 299 does not exactly correlate with the relevant provision of international law.

Russia has also announced the intent to legalise compulsory licensing for software programs and there is the same discussion around other copyright objects such as films and music.

Similarly, the national treatment is granted by article 5 of the Berne Convention for the Protection of Literary and Artistic Works. Article 13 provides equitable remuneration in case of compulsory licensing, and article 14 prohibits the compulsory licensing of cinematic works.

Article 11 of TRIPS grants authors and their successors in title the right to authorise or to prohibit the commercial rental to the public of originals or copies of their copyright works in respect of at least computer programs and cinematographic works. Hence, the compulsory licensing of such objects shall not be applied.

Therefore, the relevant legislative initiatives and proposals of the Russian Federation are controversial by international standards, granting fair compensation for the use of the IP objects.

Obviously, this right shall not be limited or denied for political reasons only or on the grounds of the location of the rights holder as it may lead to discrimination and reduce the interest in the further development of technological innovations and/or artistic expression in Russia.

Rise of infringing activities and the absence of protection

After the exit of many foreign companies from Russia, the rapid growth of trademark applications for the designations similar to well-known brands, such as ‘Uncle Vanya’ with McDonald’s stylistics and ‘IDEA’ in the style of IKEA, has been observed.

In May applications for ‘Lavazza’, ‘Persil’, and ‘Henkel’ were filed for the identical or similar classes of goods as the original brands. More “creative” options included ‘SuperBurger’ (in the style of HESBURGER), and ‘YaCloud’ (instead of iCloud) designations. The list is not extensive and can be continued with dozens of knock-offs filed for registration in just a few months.

Some goods with copied labels are already available on the market. For instance, Moscow beer and alcohol-free drinks company Ochakovo announced its new series of alcohol-free drinks, which are analogues of the famous Coca-Cola, Fanta and Sprite drinks accordingly.

Parallel imports

With the sanctions applied, the only way to get some goods into Russia was to transfer them illegally or semi-legally. This is how new Apple and Samsung devices, for instance, were sold there. On the link https://bezsankciy.ru a whole website is available, which proposes a service of “overriding the sanctions”.

However, the Russian government found an easier way to leave the goods of famous brands on the market. Resolution No 506 of March 29, 2022, and Decree No 1532 of April 19, 2022, allowed the parallel import of different goods (over 50 categories) from the unfriendly countries.

The goods of many famous brands, such as Xbox, PlayStation, Bentley, Mercedes-Benz, Porsche, Audi, Toyota, Lexus, Apple, Samsung, Philips, Intel, Microsoft, Garnier, and L’Oréal Paris may be now imported without the consent of the rights holders with the only condition that it was initially sold by the manufacturer in another country.

While it is not prohibited by any international agreements, this means that the rights holders’ consent is not needed for their goods to enter the Russian market. Rospatent stated that in this situation no interest will be infringed, and their companies will be able to provide themselves with the necessary goods and elements from the manufacturers, which for some reason decided not to sell their goods directly.

On the other hand, in the current situation, the rights holders should have a voice, for instance by clearly restricting the sale or resale of their goods in Russia, as Chanel did. In such case under the law, the legal grounds for such sales or resales of the goods in Russia will be certainly absent.

Additionally, the relevant changes may influence the popularity and the reputation of the international brands. As many companies adjust their products to the needs of the relevant sector of society, the expectations of the common Russian customer may be left unfulfilled.

For instance, the tastes and menus of international restaurant chains often differ from country to country, so products with the same name may have contrasting flavours.

Another example is digital goods, such as phones, computers, etc, which are also adjusted depending on the country (including the language of the device and the location of letters on the keyboard).

Furthermore, the warranties for such goods are often restricted by those countries only, where the manufacturer or its official distributor had initially sold their product. As a result, even in the case of parallel imports, the needs of the Russian population would not be fully satisfied.

Temporary management of foreign enterprises

There is already a draft of the law in Russia, permitting the external temporary management of the foreign corporations by the decision of court. According to article 8 of the draft, since the temporary administration was assigned, all the exclusive IP rights of the company as well as the licences to use the IP are reserved (ie, cannot be terminated).

Furthermore, if such rights were terminated after February 24, 2022, they should be restored. No compensation for the use of the IP is provided until the end of the temporary management.

This would mean the use of the trade name and the trademarks of the companies, as well as any other IP, without their consent. This would be in violation of article 16 of the TRIPS Agreement, granting the exclusive right of the rights holder to prevent all third parties from using in the course of trade identical or similar signs for goods or services, which are identical or similar to those in respect of which the trademark is registered, and article 21 of the TRIPS Agreement, where the compulsory licensing of trademarks shall not be permitted and the owner of a registered trademark shall have the right to assign the trademark with or without the transfer of the business to which the trademark belongs.

As a result, lots of companies are selling their assets in Russia. Such a decision was already made in relation to Renault, which was bought for miserly costs by the government.

McDonald’s and Shell are currently looking for buyers of their business. Selling assets seems to be the only possible way to leave Russia with at least some costs and prevent the infringement of IP rights.