Russian IP Animus stokes risk and uncertainty as companies recalibrate

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Western companies trying to protect everything from drug patents to cartoon brands in Russia fear IP protection there could become unworkable as instability from Moscow’s war in Ukraine mounts.

Russia’s response to the sanctions was to say that intellectual property owned by companies from countries it deems unfriendly will not be protected. As a result, Russia could be flooded with fakes, which could also be exported to other markets, lawyers say.

The business and legal uncertainty is also making it harder for companies to invest in starting or maintaining operations, as there are signs that Russia’s IP regime could collapse, at least as far as foreign companies are concerned.

“It’s going to be awful,” said attorney Dan Harris of Harris Bricken Sliwoski LLP, which helps companies do business in emerging markets. “There will be no IP protection in Russia.”

Increased risk

Russia issued an order on March 6 allowing the use of patented inventions owned by many foreign companies without compensation. Days earlier, a Russian court had dismissed a lawsuit aimed at protecting Peppa Pig trademarks because the cartoon character’s copyright owner is based in the UK, which is on the unfriendly countries list.

It is unclear how long the patent order will remain in effect. But Russia’s handling of intellectual property increases the risk for many companies considering this market in the future, lawyers say.

Companies “will be reluctant to jump back in and go back to business as usual,” said Kory Christensen, a patent attorney at Polsinelli PC, who works with international companies.

In the short term, lawyers are advising their clients to examine their portfolio of Russian patents. Companies must decide whether to continue paying fees needed to maintain those patents in the hope that the March 6 order will be lifted before the patents expire.

“These clients have invested a significant amount of money in these filings, both financially and through research and development,” said patent attorney Vadim Cherkasov of McCarter & English LLP. “It’s difficult for them to step back and give up these patents.”

The patent order hurts efforts to encourage innovation, Cherkasov said.

About a third of the roughly 35,000 patent applications filed with Russia’s intellectual property agency Rospatent in 2020 were from non-residents, according to the World Intellectual Property Organization. For comparison, the US had 600,000 applications this year.

“Even though this is only a temporary situation, it creates a lot of instability and shows these companies that there is potential for further instability in the future,” Cherkasov said.

trademark issues

Trademark attorney Mary L. Grieco of Olshan Frome Wolosky LLP said Russia was not a problem country for IP rights in the last 10 to 15 years before the war.

Grieco, which manages international portfolios, said it would still generally advise clients to “at least apply”, obtain and update registrations while letting them know there is a chance their rights will not be enforced.

“Russia is a first-to-file country rather than a first-to-use country, so without registrations there is nothing to protect,” she said. “We don’t know what it will be like in two years or in ten years.”

Grieco also pointed out that trademark laws are essentially consumer protection laws, so Russia’s actions against foreign companies can end up hurting Russian consumers. Along with car parts, food and personal care products could have safety implications if consumers are misled about their origin and contents, she said.

Russian trademark attorney Anastasia Skovpen who works for nestle in Moscow, said in an email she believes the published Peppa Pig brand dismissal would be reversed, although she didn’t rule out that it might start a trend.

She added that it was unclear how recent Russian measures against foreign companies would affect trademark rights. But it’s unlikely the government will ease trademark cancellations or shorten the three-year non-use period that leads to the abandonment, she said.

Isolation induced by invasions could encourage more counterfeiting, lawyers said.

Harris said Russian manufacturers would likely try to make counterfeit auto parts and medicines, along with fast foods like Big Macs.

Russians have already registered markings pointing to this.

MC Donalds withdrawn, and Russia proposed to nationalize abandoned companies. Shortly thereafter, a Russian fast-food chain registered a trademark that incorporated McDonald’s side gold arches into a new “Uncle Vanya” logo. A Starbucks trademark application has also been filed.

Svitlana Lebedenko, a legal researcher at the European University Institute, said Russians who register such marks that indicate exited companies may be franchisees looking to continue the business.

Before the war

In 2020, Russia was one of 10 countries put on a watch list by the Office of the United States Trade Representative on the grounds that it lacks consistent enforcement of intellectual property rights and that Russia is a thriving market for counterfeit goods.

But Lebedenko said IP in Russia is more complicated. Adoption of Western IP rules has not encouraged innovation in Russia because patent rights in the hands of crony capitalists can magnify the social harms of the patent system, resulting in high concentration of knowledge ownership, she argued in a paper published by the EUI in January .

She said that the Soviet state research and development system, despite shortcomings, has led to rapid industrialization, innovation and self-sufficient industries, including in the pharmaceutical industry. When the state collapsed, potential Russian innovators faced high licensing fees that created major barriers to entry, she said.

“Western IP rules stemming from the WTO’s TRIPS agreement have not lived up to their expectations in Russia,” Lebedenko said. “Innovation has now become more of a black box in Russia than it was under the Soviet system.”

Irene Calbolli, a law professor at Texas A&M University, said intellectual property in Russia before the invasion was “a kind of Wild West,” but the country was moving in the right direction.

She noted that Russia has acceded to a number of international intellectual property agreements, creating obligations to comply with global standards.

“Now they’ve gone completely in the other direction,” said Calboli, who specializes in international trade and comparative law. “Now they’re saying maybe they want to legally take away the law so they can do whatever they want.”

– With support from Matthew Bultman.

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