The measures taken by the Russian government to restrict intellectual property have caused great concern among companies and IP counsel.
Russian Decree No. 299/2022 of 6 March 2022 amended an existing rule on compensation for the use of patents, utility models and designs of others in areas where the government authorises such use without the owner's consent for reasons of national security. According to the amendment, if the rights in question consist of patents belonging to subjects linked to a list of countries considered hostile (in practice, those that have applied sanctions to Russia or to citizens thereof, led by the United States, the European Union and the United Kingdom), such compensation, normally consisting of a royalty (which in Russia is already minimal – 0.5%) should be considered zero and therefore not due.
A second regulatory measure, adopted by the Russian Parliament on 8 March 2022, under No. 46-FZ, more generally authorises the Russian government to identify a series of products, considered essential, for which the rules of protection of IP rights may be derogated, again by the government.
This second rule makes it almost impossible for companies based outside of Russia to find viable and effective legal instruments to protect themselves from these new measures. In fact, even the provision for Russian distributors or licensees of obligations to protect the relevant IP rights (which IP owners often include in these types of contracts) can be frustrated.(1)
Companies based outside of Russia and their IP consultants are thus committed to devising new strategies to defend their IP rights, both judicial and contractual, that are capable of containing the risks of infringement in the new scenarios created first by the covid-19 pandemic and now by the war. The provision of clauses providing for recourse to alternative dispute resolution or international arbitration – to be held outside the countries of destination of the goods – has proven to be particularly appropriate in helping IP rights owners to resolve contractual IP disputes so far. In many cases, companies have also been sending semi-finished products to the destination country to be completed on site, which also helps to reduce transport costs. However, in such cases, companies may need to transfer (and therefore effectively protect, both legally and in terms of safeguards) their own know-how for such completion of production.
However, in the context of the war, even these usual contractual tools, in dealings with local licensees and distributors, will find obvious difficulties in the enforcement process, at least when it is not possible to rely on guarantees that can be enforced out of Russia, or to resort to insurance systems. This will inevitably increase costs and make IP rights owners less competitive.
It will therefore be even more crucial than in the past to defend against counterfeiters directly in the copycats' countries of origin. For this purpose, IP rights owners should identify counterfeit products online and trace the supply chain, so as to identify their sources of production and reconstruct the flow of money derived from these activities (the so-called "follow the money" strategy). This is done with the aim of trying to seize the proceeds of counterfeiting, depriving those involved of their earnings and thus reducing their economic convenience, and to attack the producers directly, blocking the illegal activity at the base and saving the costs necessary to attack the counterfeiters in the countries of final destination of the fake products.
For further information on this topic please contact Cesare Galli at IP Law Galli by telephone (+39 02 5412 3094) or email ([email protected]). The IP Law Galli website can be accessed at www.iplawgalli.it.
Endnotes
(1) For example, a request for protection of a cartoon character owned by a British company was recently dismissed as a form of "abuse of rights" (the United Kingdom is one of the countries that have imposed economic sanctions on Russia).