- Improvements in Russia’s IP landscape, as trademark registrations up by 28%
- Gap widens between rising domestic filings and declining foreign filings
- Robust Russia-China relationship: Russian filers target China and vice versa
In this week’s country data report, we turn our attention to Russia, analysing the country’s most important industries, key filing statistics and how the country’s brands have fared against the backdrop of a troubled economy and increasingly tense political climate.
An evolving IP landscape in spite of a bleak economic outlook
The last few years have been a turbulent period for Russia. As a largely commodities-driven economy that is especially dependent on oil exports, the economy has struggled with the combination of falling oil prices and international sanctions from various countries, which arose in 2014 as a result of Russia’s military intervention in Ukraine. Once considered among the most promising emerging markets in the world (along with fellow ‘BRIC’ countries Brazil, India and China), the last three years have been characterised by deep recession and the country no longer possesses the same economic lustre as before. While it has managed pull itself out of recession, low oil prices and further sanctions will likely keep the economy stagnant. As such, even though Russia may have avoided the economic collapse that was predicted by some, many commentators believe the country’s outlook remains bleak.
Against this backdrop, the trademark landscape in Russia has also undergone a dramatic change over the last decade. Since the country’s IP laws were consolidated under Part IV of the Civil Code between 2006-2008, a myriad of legal updates, amendments and decisions have reshaped the playing field for rights holders. Some of these changes may have had a detrimental effect on brands, such as decisions that have seemingly limited the scope of trademark protection or regulations that arguably complicate the process of enforcement, but on the whole noticeably the IP ecosystem has noticeably improved. For example, the creation of an IP-specialised court and the continued modernisation of systems at the IP office (Rospatent), which recently announced a discount for digitally filed applications, are clear signs of a country committed to the development of its IP system. Rospatent falls short in several areas compared to many other trademark offices in World Trademark Review’s innovation index of IP offices (see table below), but it is plain to see that it has been taking significant steps to improve both itself and the wider trademark scene.
As a prime example, the ongoing measures taken by Rospatent to foster a more accessible environment for trademark registrations – such as improving examinations, the elimination of excessive requirements and reducing the terms for consideration – have evidently worked, with a significant 28% rise in the number of marks registered in 2016 compared to the year prior (see graph below). Hence, notwithstanding the many challenges for trademark owners operating in Russia, there is reason to be optimistic from a branding perspective (and for those advising them), as it becomes easier to both establish and protect trademark rights in Russia.
Number of trademark applications and registrations at Rospatent – 2012-2016 (view full-size here):
These pro-IP moves are mirrored in the enforcement arena. The country remains a major hub for counterfeit goods and it regularly features under the ‘Priority Watch List’ of the US Trade Representative’s (USTR) Special 301 Report (including the 2017 report). This is a problem that has also been exacerbated by Russia’s economic troubles. But on this front there is good news, too. Russian Customs has quickly evolved into a sophisticated and well-regulated machine for seizing counterfeit products. Brand owners are therefore encouraged to work with Customs (such as listing their trademarks on the Customs Register) to confine the potential damages of copycat goods.
Brand leaders – oil and gas giants struggle to maintain brand value
Russia’s lack of industry diversification is readily apparent from the list of its most valuable brands. Among its top ten, half operate in the oil and gas industry: Gazprom, Lukoil, Rosneft, Surgutneftgas and Tatneft. And despite a growth in oil prices in 2016, the top companies in this space have found it challenging to maintain or improve their brand value (see table below).
Lukoil has suffered the sharpest decline in brand value, as it begins a drive to sell off its foreign assets and focus on domestic production as a result of the continued sanctions. Deloitte’s 2017 Russian Oil & Gas Outlook Survey notes that half of the experts, professionals and corporate executives it surveyed are optimistic about the future of oil prices. However, 80% also expect more stringent government regulation in the industry, while almost half believe that local oil and gas projects will see greater involvement from foreign companies due to high capital intensity and complicated access to funding. Indeed, in spite of the sanctions, many foreign companies have already made the move into Russia to help develop some of the country’s unconventional oil resources. This could potentially help to reinvigorate the value of the leading brands in this sector.
Top ten brands in Russia by brand value (Brand Finance Russia 50 2017):
As it stands, though, the Russian oil and gas brands above have, on average, experienced a decline in value since 2013. Yet Gazprom is proactively seeking to buck this trend – both in terms of the number of trademarks registered and new brands created per year. Gazprom comes out on top for both categories (although more noticeably in the number of new brands created) even when compared to the other top four brands in Russia, according to data from intelligent web-based trademark platform, TrademarkNow:
Number of new brands created per year for Russia’s five most valuable brands – 2010-2016 (view full-size here):
Gazprom’s concerted marketing and branding efforts include an assortment of sponsorship deals, especially in football with partners such as the UEFA Champions League and the 2018 FIFA World Cup. The latter will be held in Russia, and we previously mentioned in our sports industry data report that brand owners in the sporting world may be eyeing the country for this reason. Gazprom’s determination to build out its brand may have contributed to the resilience of its brand value – at only 6%, its drop in brand value was the smallest among the big Russian oil and gas players. By the time the final whistle is blown on the 2018 World Cup, it may have reversed this decline.
Unlike the other brands in the top ten, Sberbank’s brand value has surged, cementing its place at the apex of the table. Its brand appreciated by 23% over the last year, mainly thanks to its forward-looking and technology-focused approach. Yandex, the country’s biggest search engine, recently announced that it plans to set up an e-commerce joint venture with Sberbank. This is a promising development for the banking giant, considering the e-commerce market in Russia has experienced roughly 22% year-on-year growth and is expected to be worth €16 billion by the end of the year.
The rapid rise of e-commerce in Russia should catch the attention of brand owners, particularly those in the retail sector, since foreign online retailers now account for a third of the Russian market. But, this booming market is being dominated by Chinese online stores with 90% of goods purchased abroad coming from China, based on a study from the Association of Online Retail Companies (AKIT). As we explore further below, Chinese brand owners clearly see the potential of the Russian market.
The rise of local competition as foreign filings fall
In response to international sanctions, Russia retaliated with sanctions of its own, most notably with an embargo on Western food products. The resulting narrowing of the markets has led to increased competition among local entities and a greater emphasis being placed on domestic production (although the effect this has had on particular sectors has varied). This resulted in an increased flow of trademark applications for both goods and services. Thus, despite turmoil in the wider economic and political landscape, overall trademark applications at Rospatent have remained fairly consistent – even as foreign filings have fallen.
Applications by origin at Rospatent – 2012-2016 (view full-size here):
In 2013, immediately before the Ukrainian crisis, foreign trademark filings made up 47% of the total applications; by 2016, this had dropped to 36%. The widening gap between domestic and foreign filings is further underscored by the fact that 24 of the top 30 applicants of 2017 (to date) are Russian individuals or entities, according to trademark searching and watching platform, CompuMark.
For most foreign countries, the number of applications into Russia has fluctuated over recent years, but Chinese filings have strongly bucked this trend (see graph below). China and Russia’s increasingly close ties have led to growing investments from the former, while imports from China have also risen steadily – as of 2016, these make up over 20% of Russia’s total imports, as stated by a report from EY. Natalia Gulyaeva, head of Hogan Lovells’ IP, media and technology practice, avers that “the current level of cooperation [between the two countries] and the growing interest of Chinese businesses in the Russian market means it is the perfect moment for new Chinese companies, which act as not only manufacturers but also sellers and suppliers, to draw the attention of Russian consumers”.
Applications from US and Chinese applicants at Rospatent – 2012-2017 (view full-size here):
Interestingly, the United States is the only other country to have shown a noticeable increase in filings as of late, even as its relationship with Russia reaches ‘a dangerous low’. The gradual descent of US filings from 2012 to 2015 reflects the uncertainty felt by US brand owners amidst the political and economic uncertainties that have plagued Russia. But, 2015 was a turning point as the situation in Russia began to stabilise. As Eugene Arievich, head of Baker McKenzie’s CIS IP practice, suggests, at this point “US business may have taken a longer-term view of the necessity to protect their IP rights in Russia as the failure to protect trademarks now could have a negative impact on the enforcement of rights in Russia once the dust settles”.
It is worth mentioning that the single most prolific filer in Russia, Azamat Ibatullin (who has filed over 400 trademarks so far this year), has a track record of attempting to register trademarks of well-known brands and filing lawsuits against the companies that own them. In fact, Businessinvestgroup, a company of Ibatullin’s, has also filed more trademark cases in Russia than any other entity, according to service provider and global IP case law database, Darts-IP. Even those brands not yet operating in Russia should keep a close eye on local applications.
China – the destination of choice for Russian brand owners
In terms of where Russian rights holders are themselves looking toward for expansion, China takes centre stage. While the level of Chinese imports in Russia has climbed, so too has the number of domestic products exported to China (as noted from the same EY report). Similarly, the renewed interest from US brand owners in the Russian market is mirrored by the stock Russian brand owners put in the United States. Despite the tense political relationship between the countries, both markets are evidently too significant for brand owners to ignore – even in the face of the unpredictability of the Trump administration.
Russian filings by IP office – 2016 (view full-size here):
The other top jurisdictions are countries belonging to the Eurasian Economic Union (EAEU): Armenia, Belarus, Kazakhstan and Kyrgyzstan. Although questions have been raised as to whether the establishment of the EAEU has been a success story, Russian brand owners clearly see potential in developing their IP rights in these countries. Further, the plan to develop a Eurasian regional trademark registration system has already been put into motion – earlier this year Russia announced that it will ratify the agreement that will introduce the CES trademark, which would cover all the territories of the EAEU member states. It is hoped that the system will be implemented by early 2018 and rights holders will be able to obtain legal protection simultaneously in all member states by submitting one application – on paper or electronically – to any of the national offices of member states. There are also plans for an EAEU Customs Code and register, enabling more streamlined enforcement across the region. Attention from brand owners in the EAEU member states is therefore unlikely to wane in the near future.
Although Ukraine is the fifth most popular location for Russian filings, these applications are, as of 2017, almost purely via the Madrid System (see graph below). Direct applications through the Ukrainian IP office have seen a steep decline since the Ukrainian crisis, as uncertainty hangs over the prospects of Russian businesses operating in the country. Arievich notes that the remaining international applications can be explained by “the relatively low per-country cost of using the Madrid System and the tendency of Russian applicants to historically cover the whole former USSR region”.
Number of applications by Russian applicants in Ukraine – 2010-2017 (view full-size here):
While far from fighting fit, Russia has ably dispelled the notion that it would suffer from an economic collapse as a result of international sanctions and an over-reliance on oil exports. As stability has slowly returned to the country, so too have we seen a rebound in filings from the United States – an especially positive development for domestic law firms with strong US client bases. China, however, remains the key storyline both in terms of where Russian applicants are looking toward and as the major source of filings into Russia. Doubts have been cast over the country’s growth prospects, but at least from a branding perspective, there is reason to be cautiously optimistic.
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