Russian Parallel Imports Regulations
June 14, 2023
On March 29, 2022, the Russian government adopted Resolution No. 506, which authorized the Russian Ministry of Industry and Trade to identify goods for parallel import to Russia. On May 6, 2022, the Russian Ministry of Industry and Trade published Order No. 1532, an extensive list identifying goods from prominent Western brands for parallel import.
Order No. 1532 covers over 50 categories of goods.
The list appears to aim to get around Western sanctions prohibiting the supply to Russia of luxury goods. The Resolution expands on Russian law 46-FZ, enacted on March 8, 2022, empowering the Russian government to exclude certain goods from standard civil intellectual property rights.
What Are Parallel Imports?
Parallel imports, or gray-market goods, are branded goods that are imported and sold in a market without the trademark owner’s consent to sell in that particular market. Such goods have been lawfully produced with the trademark owner’s permission for sale in one territory, but then are imported for sale from the authorized territory into an unauthorized territory.
Exhaustion of IP Rights
Generally, once a trademark owner places a branded good for sale in a particular territory, the trademark owner cannot stop resale of that product in the same territory. The trademark owner has exhausted its IP rights in the branded good upon first sale.
Two types of exhaustion systems exist:
- Under a “national exhaustion” regime, exhaustion occurs within a given market when a branded good has been placed for first sale in a specific country or region by the trademark owner or with the trademark owner’s consent.
- In an “international exhaustion” system, a trademark owner exhausts its rights in any and every market once a branded good is placed for first sale somewhere in the world by the trademark owner or with the trademark owner’s consent.
Notably, Resolution No. 506 allows the Russian Ministry of Industry and Trade to selectively apply international exhaustion principles to the prominent Western brands listed in Order No. 1532. In contrast, the Russian Civil Code incorporates national exhaustion principles, as does the Eurasian Economic Union, of which Russia is a member.
Application of Western Sanctions
In response to Russia’s invasion of Ukraine, the U.S. and its partners have imposed a range of sanctions against Russia, including with respect to the supply of luxury goods.
Implications & Recommended Risk Mitigation
Companies potentially subject to Order No. 1532 should closely monitor whether their goods are being imported into Russia under the new parallel imports scheme, as such activity could present significant sanctions risk and adversely impact a company’s brand.
Sanctions Risks
Sanctions breaches are subject to significant penalties. Furthermore, under U.S. sanctions, and more recently UK sanctions, authorities can levy penalties on a strict liability basis.
Should a company’s items end up in Russia in contravention of applicable sanctions, the company could face penalties, even where the activity took place without the company’s consent. Regulators may scrutinize the company’s sanctions policy and whether the company took steps to seek to prevent the diversion of its products to Russia.
Brand Impact
In the event of gray-market activity in Russia, the company could face not only negative press, but also all that goes with being a brand manufacturer in terms of quality control, honoring warranties, liability for defects, and other consumer protection regulations.
An added complication is the mixing of counterfeit goods with legitimate goods meant for sale outside Russia. Anything that compromises the integrity of a brand owner’s trademark can cause consumer confusion and damage the goodwill in the brand owner’s mark.
Risk Mitigation Steps
IP rights holders potentially impacted by Order No. 1532 should consider the following risk-mitigation steps:
- Incorporation of sanctions-related terms and conditions into contracts
- Implementation of sanctions compliance policies and procedures
- Monitoring of potential gray-market activity as described in media reports and social media
- Proactively sending cease and desist letters to unauthorized trademark users
- Conducting periodic audits to assess the flow of the company’s products and whether counterparties are handling the products in accordance with the terms of relevant contracts
The link to the full article in its original form can be found here.
Reproduced with permission. Published Aug. 2022. Copyright 2023 by Bloomberg Industry Group, Inc. (800-372-1033) http://www.bloombergindustry.com
David Perry (LAW ’99) is a partner at Blank Rome in the firm’s Philadelphia office. He concentrates his practice on the creation, protection, defense, and licensing of intellectual property. He also serves as the co-chair of the firm’s Intellectual Property & Technology Practice Group.
Fatema Ghasletwala (LAW ’21) is an associate at Blank Rome in the firm’s Philadelphia office. She concentrates her practice on intellectual property and technology matters.
Anthony Rapa is a partner at Blank Rome in the firm’s Washington, D.C. office. Rapa leads Blank Rome’s National Security team.