Present and future of intellectual property
20 September 2022

Present and future of intellectual property

of foreign right holders in Russia.

In a context of economicrestrictive measures against Russian Federation, Russian Government today sets itselfaims and main objectives, focused on employmentretention, supporting manufacturing and business activity of legal entities and individuals-entrepreneurs, business and customers,introducing legislative acts, having restrictivecounter measures.

Anticipating anxiety of foreign partners and colleaguesregarding the supporting and protectiveness of IP in Russia, it seems to beimportant to tell first of all about following.  

To date there is none of legislative act,which contains any guidelines aboutcancellation of IP in Russia, IP hijacking or limits of IP rights belonging toforeign right holders, about permissiveness, lawlessness and legitimacy ofinfringement of IP rights belonging to anybody. All current contracts are stillstaying in force and do not lapse without the special expressed will of the parties. All registered IP rights of foreign right holders inRussia continue in full force and effect, even in conditions of actually suspension of the activity. In particular, in accordance with the Article 1486 of the RussianCivil Code, the early terminationof trademark is possible only in case if the right holder do not use its trademarksfor 3 years continually.

The authoritativeRussian Intellectual Property Rights Court (IPR Court) continues its workwithout any changes. IPR Court is still ruling legal disputesin the sphere of IP rights objectivelyand fairly.

In case if at the beginning,because of the false impression oflawlessness, there will be increase of offences of law,such conflicts, as usual, will be considering in courts under the currentlegislative, which do not allow infringement of IP right even in conditions of world events.

As an example, there is acase about prohibition of selling smartphones with Samsung Pay in Russia. Underthe court of first instance decision South Korean company «Samsung Electronics»and its Russian affiliated company were prohibited to sell61 models of  smartphones with SamsungPay in Russia.However, Ninth Arbitration Court of Appeal dismissed the decision of the courtof first instance. Inspite of the fact, that some people falsely consideredthat mentioned decision was made because the plaintiff - Swiss company Sqwin SA- is a company from «unfriendly countries», in fact the decision of NinthArbitration Court of Appeal had nothing to do with sanctions measures and theorigin of the parties to the dispute. Mentioned decision was based only on the factthat in case materials there were no evidences of the fact of infringement.

At the same time, the decisionof Arbitration Court of the KirovRegion under the case № А28-11930/2021 about IP right on work of visual art -drawings Peppa Pig, Daddy Pig, sparked a lot of controversy and debate, ratherbecame the isolated case and will hardly be supported by law and judicialpractice. At current tine the representatives of right holder Entertainment OneUK Limited are going to claim that decision in higher instance.

There is an analysis ofthe current situation below.

1.         Legal analysis of legislative changes.

March, 08, 2022 the Federal law № 46-FL "On Amendments of certain legal acts of Russian Federation" (hereinafter – 46-FL) came into force. That 46-FL covers such branches of law as insurance las, corporate law, urban planning law, educational law, social security law, including regulation on pensions, medical law regarding the circulation of medicines, the sphere of lending, and also touches upon the implementation of state and municipal control in relation to small and medium-sized entities entrepreneurship.

In a whole, regulation of this law in these areas are aimed at supporting citizens, as well as legal entities engaged in entrepreneurial activities in Russia. 46-FL includes rules regarding some relaxation of the control or liability of entrepreneurs, aimed at supporting their existence in the context of restrictive economic measures against the Russian Federation.

46-FL does not pass by the sphere of intellectual property. Thus, paragraph 13 of Article 18 of 46-FL touches upon the protection of intellectual property rights.

 «Article 18

1.      Establish, that Government of the Russian Federation in 2022 have the right to make decisions, which cover:

13)   a list of goods (groups of goods), in respect of which certain provisions of the Russian Civil Code on the protection of exclusive rights to the results of intellectual activity expressed in such goods, and the means of individualization with which such goods are marked, cannot be applied».  

In other words, mentioned Article grants the Government of the Russian Federation two main powers:

1)      to specify a list of goods or groups of goods;

2)      to specify provisions of the Russian Civil Code, which cannot be applied to mentioned list of goods or groups of goods.

46-FL does not provide the information about particular groups of goods and provisions of the Russian Civil Code, however, we can predict that first of all it means medical goods and pharmaceutical products, supplies of which to the territory of the Russian Federation have been stopped due to sanctions measures.

However, we pay your attention to the following:

·         Rightlimited in time

Provisions of p. 13 of Article 18 46-FL means the right, but not the obligation of that Government of the Russian Federation.  That right is limited in time: for the period of 2022, that is, it is valid until December, 12, 2022. Therefore, it is not at all certain that the Government of the Russian Federation will use such a right.

·         Priority of international law

It should also be taken into account that today Russia continues to be a party of the main international treaties in the field of intellectual property law, including the Berne Convention for the Protection of Literary and Artistic Works of 1886, the Paris Convention for the Protection of Industrial Property of 1883, the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) 1994.

Taking into account that in the hierarchy of sources of law, the norms of international law prevail over national legislation, which is in keeping with Part 4 of Art. 15 of the Constitution of the Russian Federation, it can be concluded that the decisions of the Government of the Russian Federation, which can be taken within the framework of paragraph 13 of Art. 18 46-FL, cannot have any influence on the operation of the provisions of international treaties, as well as the provisions of the Russian Civil Code adopted as part of the implementation of international treaties. In addition, decisions of the Government of the Russian Federation that are contrary to international regulation may be declared invalid.


The second legislative acts, touches upon the protection of intellectual property rights, becomes the Decree of the Government of the Russian Federation dated March 06, 2022 No. 299 “On Amendments to Clause 2 of the Methodology for Determining the Amount of Compensation Paid to a Right Holder When Deciding to Use an Invention, Utility Model or Industrial Design without it consent, and the procedure for its payment” (entered into force on March 07, 2022) (hereinafter – Decree of the Government of the Russian Federation No. 299).

The paragraph, which the clause 2 of the specified methodology is supplemented by, is as follows:

«In relation to patent holders associated with foreign states who commit unfriendly actions against Russian legal entities and individuals (including if such patent holders have citizenship of these states, or the place of registration, the place of their primary business activity or the place of their primary profit from the activity are these states), the amount of compensation is 0 percent of the actual proceeds of the person who exercised the right to use an invention, utility model or industrial design without the consent of the patent owner, from the production and sale of goods, performance of work and provision of services, for the production, implementation and provision of which the relevant invention, utility model or industrial design has been used».

We taking your attention that Decree of the Government of the Russian Federation No. 299 touches upon the issues of compensation in the form of compulsory licensing, and not in relation to violations of exclusive rights. Compensation for violation of exclusive rights is still calculated on the basis of the Russian Civil Code and is associated with the need to restore the property status that existed before the violation.

It should be noted that the provisions of the 46-FL and Decree of the Government of the Russian Federation No. 299 are not clearly formulated and, in fact, fix only the right of the Government of the Russian Federation to impose certain restrictions. Taking into account that such a right is granted without regard to other provisions of the law, including international regulation, it is likely that the actual application of these provisions will be limited.


2.      Compulsory licensing instead of legalization of pirated software.

This issue was the subject of discussion in the Government of the Russian Federation, however, despite the sanctions measures, the proposal to legalize piracy of foreign software was not supported. This means that civil, administrative and criminal liability for the use of unlicensed software in Russia remains.

Instead, it is planned to use a legal mechanism for compulsory licensing for foreign software. Such a mechanism is enshrined in Art. 1239 of the Russian Civil Code: «In the cases provided for by this Code, the court may, at the request of the interested person, decide to grant this person, on the conditions specified in the court decision, the right to use the result of intellectual activity, the exclusive right to which belongs to another person (compulsory license)».

This measure is used in cases of emergency and provides for the payment of compensation to right holders. However, in relation to foreign right holders from «unfriendly countries», the Government of the Russian Federation is considering the fact that such persons will not be compensated for the forced use of their software. In particular, the provisions on this are provided for in Decree of the Government of the Russian Federation No. 299, cited above.

It should be said that the mechanism of compulsory licensing will be applied only until Russian developers create their own software that can replace the software of foreign right holders.


3.         Legalization of parallel import.

Another measure that does not imply violation of the exclusive rights of foreign right holders is the issue about the legalization of parallel import, which is under discussion today. The issue of parallel import has long required resolution in the Russian Federation, according to the opinion of the Federal Antimonopoly Service of the Russian Federation (hereinafter – FAS), but nowadays it has become even more relevant.

This measure is based on the principle of international exhaustion of the right to trademarks, the essence of which is that the exclusive right to a trademark is subject to exhaustion if the product, which is marked by it, is introduced into civil circulation by the right holder in any country or by another person with his consent. Thus, an importer importing original products, although without the consent of the copyright holder, but already once introduced by him into civil circulation in any country, will not be considered a violator, unlike an importer importing counterfeit products.

Earlier, in February 2018, the Constitutional Court of the Russian Federation issued Resolution No. 8-P, which actually legalized parallel import in Russia. For example, in its decision, the Constitutional Court of the Russian Federation prohibited the withdrawal from circulation and destruction of original goods of good quality.

At present, the FAS has sent a corresponding draft resolution to the Government of the Russian Federation.

In addition, the FAS, Russian Patent Office, together with other departments and industry representatives, draw up proposals for a list of goods for parallel import. The full list of goods will be determined by the Government of the Russian Federation in the near future. Experts believe that machinery and equipment, copy machines, as well as high-tech equipment - microcircuits, chips and other electronics, can first of all be included in this list.

Goods related to medicines and medical devices are of no less importance. The import of them has been stopped due to sanction measures against the Russian Federation. Thus, on March 22, the State Duma of the Russian Federation adopted in the third reading Amendments to the Federal Law of April 12, 2010 No. 61-FL “On the Circulation of Medicines”, which allows importing into Russia drugs registered in the country in packages intended for circulation in other states. Self-adhesive labels containing information about the drug in Russian will be applied to imported drugs.

It will be possible to destroy goods imported into Russia within a parallel import only if they are of inadequate quality or in order to ensure safety, protect human life and health, protect nature and cultural values.


4.         The future of companies with foreign participation leaving the Russian market

At present time there is no current law in Russia, which allows to carry out the nationalization of property in accordance with Art. 235 of the Russian Civil Code. For foreign companies leaving the Russian market, there are proposed some case scenario, which are covered in the draft law “On external administration for managing an organization”.

In the case if foreign shareholders owning at least 25% decide to stoppage the work of the enterprise and leave the Russian market, then external management mechanisms begin to work regarding them.

The draft law provides, as one of the options, the appointment of an external administration to manage the enterprise, in the role of which the state development corporation "VEB.RF" is appointed, and for financial organizations - the state corporation "Deposit Insurance Agency". At the same time, the owner of the shares will be temporarily limited in the right to dispose of them, transactions with them will require the consent of the managing organization and the Federal Tax Service.

As an alternative, trust management is envisaged: shares of foreign shareholders can be transferred to the management of Russian partners with the subsequent possibility of returning to the Russian market.

The establishment of external management will imply the possibility of a subsequent sale of a share at an auction and, at the same time, will mean that all obligations under transactions for the use of objects of intellectual property rights will remain, unless otherwise specified in the terms of their termination. Regarding the proceeds from auctions, it is proposed in the draft law «On the External Administration for the Management of an Organization» that the proceeds from the auctions, minus expenses incurred and payments to creditors, are sent to the owners, or are kept «until the moment when obstacles to their enumeration are disappeared».

Such an approach will keep the ability of «bona fide owners» to participate in the management of the company and will contribute to the preservation of the enterprise, not only as a property complex, but also as an organizational business model.


5. Agreements on the use of intellectual property rights: renewal and prohibition of unilateral termination.

One more legislative initiative to support business during the period of sanctions is currently being considered in the State Duma of the Russian Federation. It is about amendments to the law on the enactment of Part 4 of the Russian Civil Code, namely:

·         Prohibition to changing or termination the agreements related to the using of rights to the results of intellectual activity and means of individualization, unilaterally.

·         The terms of agreements with foreign right holders on the use of intellectual property rights are extended for the duration of restrictive measures against the Russian Federation.

The necessity for such changes is due to the fact that foreign counterparties may act in bad faith and unilaterally terminate previously concluded agreements or refuse to extend such agreements due to «unfriendly actions». The only exception will be cases where the other party significantly violates its obligations under these agreements.

At the same time, Russian legal entities and individuals themselves will have the right to notify the other party of their unilateral refusal to extend the agreement for the period of sanctions.

It is important to note that the mentioned draft law is proposed to be given retroactive effect, that is, it will apply to all legal relations that arose from February 24, 2022, as well as to obligations, the deadline for which came after February 23, 2022. Changes will not be made directly to the Russian Civil Code, and the proposals of the draft law will be set out in the special Federal Law, which will be applied exclusively in the current situation of economic instability.


To sum up, nowadays the absolute priority for the Russian Government is to take the necessary measures to employment retention in connection with the exit of foreign companies from the Russian market, the social welfare of citizens, and support for entrepreneurs to ensure the effective functioning of businesses in the face of sanctions.

It should be understood that with the total withdrawal of foreign companies from the Russian market, the vacated niche will be immediately occupied by Russian entrepreneurs supported by the Russian Government. The growth of regional brands, the IT industry, and local business in general are predicted. Under such circumstances, the registered and protected by appropriate documents intellectual property rights of foreigners in Russia remains important, and therefore one should not neglect the registration of patents in Russia for new developments, as well as the registration of trademarks. 


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