IP as a political instrument in Russia

Kat friend Iana Kazeeva provides an enlightening discussion on steps taken by the Russian government and courts with respect to IP following the invasion of Ukraine.

In the spring and summer of 2022, following the international sanctions imposed upon Russia after its invasion of Ukraine, Russia introduced several landmark changes to its IP law, most notably to patent, trademark and copyright laws. The common denominator is the use of changes to the IP law as a political instrument towards states taking “unfriendly” actions against Russia.

One of the first enacted changes concerned the rules for calculation of the compensation paid to the patent owner in the event that an invention, utility model, or industrial design is being used without the patent owner’s authorization.

Particularly, where the patent owner is “related to a foreign state that takes unfriendly actions against Russian legal or natural persons”, the compensation to be paid to the patent owner has been reset to 0%. “Relation to a foreign state” includes citizenship of a state, having a place of incorporation, one's main business activity or one's main source of income in that state.

These rules were introduced in the 2021 amendment to Article 1360 of the Civil Code. Article 1360 enumerates situations in which the Russian government can allow use of an invention, utility model, or industrial design without the patent owner’s authorization. Before the 2021 amendment, such use was allowed only for reasons of public defense and security.

Under the amendment, such authorization from the patent owner was also not necessary in the event of a critical need related to public health. Notably, Article 1360 had never been applied in practice since 2006, the year of enactment of Part IV of the Civil Code covering IP rights.

Interestingly, several months before this amendment, the Government issued an order allowing a Russian legal entity, “Pharmasyntez”, to use Remdesivir, an antiviral medication used for treatment of Covid-19, without authorization of the patent owner, Gilead Sciences, Inc. The latter unsuccessfully contested this governmental order before the Supreme Court in May 2021.

Thus, the 2021 amendment to the Civil Code, initially enacted to enable usage of a Covid-19 medication, is now being used as a response to the international sanctions.

Another crucial change is abolishing the national regime of exhaustion of IP rights for certain goods and brands. The Russian Ministry of Industry and Trade published a list of goods and brands, for which national regime of exhaustion of patents (section 6 Article 1359 of the Civil Code) and trademarks (Article 1487 of the Civil Code) will no longer apply.

The list includes such well-known brands as Apple, HP, Panasonic, Siemens, Tesla, and Volkswagen. Essentially, Russia has adopted an international exhaustion regime, allowing parallel import of the goods and brands named in the list.

                                                                                Is anything here on the list?

This measure runs counter to the position on IP rights exhaustion regime taken by Russia in the early 2000s. Initially, neither the 1992 Law on Trademarks, Service Marks and Designations of Origin, nor the 1992 Patent Law, had provided that putting patented or trademarked goods onto the market within Russia exhausted IP rights. To ensure more legal clarity and make Russia more attractive for investors, these laws were amended in 2002 and 2003, respectively, thereby introducing a national regime of IP rights exhaustion. These provisions were further transferred into the Civil Code in 2006.

However, this was not the first move towards embracing international exhaustion regime in Russian law. In 2018, the Constitutional Court issued a ruling in a trademark case involving medical supplies produced by the Sony Corporation. In this ruling, the judges authorized lower courts not to sanction the import of goods without the right holder’s permission, when such goods had been put onto the market outside of Russia, and the right holder is acting in bad faith endangering Russia’s public interests.

The Constitutional Court highlighted that it is important to differentiate between fake goods, on the one hand, and original goods that have been imported without the authorization of the right holder, on the other hand. The judges also noted that a right holder’s compliance with international sanctions against Russia could be considered by the courts as acting in bad faith. This, in turn, can be a sufficient justification for a lower court to refuse to protect the right holder’s exclusive IP rights.

Similar logic has been recently applied by the Kirov Region Commercial Court. There, the court dismissed a claim brought by Entertainment One UK Limited, a company based in London, alleging that a Russian entrepreneur had infringed its copyright and trademarks by unlawfully using the image of Peppa Pig.

In its two-page decision, the court stated that, in light of the UK sanctions against Russia and because the company’s registered address is in the UK, the claimant’s actions, i.e., filing a claim, are “an abuse of right”. The judge referred to Article 10 of the Civil Code, which allows the court to refuse to defend a person’s rights where they are being exercised in bad faith.

                                                         It is exhausting, no matter how you look at it

However, Entertainment One UK Limited appealed, and, on 21 June 2022, a higher court overturned the decision, holding that both the Russian Constitution and international agreements guarantee the same level of protection of IP rights for foreign entities as for Russian entities. Therefore, the court of appeal concluded, the lower court had erred in holding that filing a claim could be considered as acting in bad faith.

Some Russian courts had followed the reasoning of the Peppa Pig case. For example, the Commercial Court of Sevastopol in Crimea, in its decision of 13 April 2022, ruled that the filing of a claim by a U.S. company, ABRO Industries, Inc. for protection of its exclusive IP rights, was an abuse of right. The claimant has already filed an appeal.

In the view of this author, even before the Peppa Pig case was reversed on appeal, the decision was treated more as a one-off exception rather than a landmark precedent. The upshot is that most Russian courts will still dismiss a respondent's argument on the basis of the origin of the claimants.

Thus, in April 2022, deciding on a case brought by a U.S. company MGA Entertainment, Inc. for protection of its trademark “L.O.L. SURPRISE!”, the Commercial Court of the Tomsk Region stated that both Russia and the U.S. are parties to the Berne Convention and 1989 Protocol Relating to the Madrid Agreement. Articles 5(1) and 4(1)(a) of the respective treaties guarantee the same level of protection of IP rights both outside, as well as within the country of origin, to all states that are parties to these treaties.

The court of appeal affirmed this decision in June 2022. For this reason, the Peppa Pig decision cannot serve as a judicial precedent.

Seen in this light, commercial courts in Russia have resisted turning copyright and trademark law into a political counter-measure against “unfriendly” states. However, the same cannot be said of the changes to patent and trademark law, namely, refusing compensation to patent owners from unfriendly states and abolishing the national regime of exhaustion of patents and trademarks.

Speaking of the IP rights exhaustion regime, under Article 6 of the TRIPS Agreement, every state is free to decide on the IP rights exhaustion regime to be applicable in its territory.However, according to Section 5(d) of the 2001 Doha Declaration on the TRIPS Agreement and Public Health, when deciding on the exhaustion regime as authorized by Article 6, all states must comply with the national treatment and most-favored-nation provisions stipulated in Articles 3 and 4.

Thus, refusing compensation to a patent owner based on its origin does not conform to Russia’s obligations under the TRIPS Agreement.

The picture in the upper middle is by Amin and is licensed under the Cretive Commons Attribution-Share Alike 4.0 International license.

The statue in the picture in the lower middle is the work of József Somogy and the picture is by Burrows, who has put it into the public domain.

IP as a political instrument in Russia IP as a political instrument in Russia Reviewed by Neil Wilkof on Thursday, September 15, 2022 Rating: 5

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