By Sonal Lalwani
In this blogpost, Sonal Lalwani, a fourth year student at National Law University Jodhpur, explores the implications of retaliatory decrees relating to Intellectual Property Rights, issued by Russia as a response to economic sanctions by countries post the Ukraine invasion. She traces the use of similar measures since World War I, along with also discussing contemporary cases of implementation of these decrees by Russian judicial and executive authorities. She analyses these actions on the touchstone of Russia’s international obligations.
“The supreme art of war is to subdue the enemy without fighting” Sun Tzu
On 24th February, 2022 the Eastern European nation of Ukraine was attacked by its powerful neighbor Russia, an attempt that has since then been referred to as the “Russian Invasion of Ukraine”. The Russian government has chosen to label its unprovoked military invasion as a “Special Military Operation” undertaken for the freedom of the Russian speaking population residing in the territorially disputed Donbas region of Ukraine. Russian President Vladimir Putin has further termed this entire operation as a process leading to large scale criticism of the powerful leader all around the globe.
Russia’s unprovoked attack on Ukraine was met with unprecedented global hostility in the form of several economic and legal sanctions which has caused huge trouble for the former Soviet power. Many geo-political experts have also forewarned that Ukraine’s invasion might be the turning point leading to the next phase of the Cold War between the US and its allies and the Russian Federation.
Russia has further become the most-sanctioned country in the world surpassing several previous contenders for the position such as Venezuela, Iran and North Korea. The result is that Russia is facing both a shortage of currency and very high interests which is not sustainable for trade in any part of the world. Multinational companies such as Samsung, Apple, Netflix, Mercedes-Benz, H & M, Airbnb, Nike and several others have ceased their operations in Russia on humanitarian grounds closing up the markets in Russia.
In a recent essay, the former RBI governor Raghuram Rajan commenting on the economic sanctions placed on Russia wrote that;
“When fully unleashed, sanctions, too, are weapons of mass destruction. They may not topple buildings or collapse bridges, but they destroy firms, financial institutions, livelihoods, and even lives. Like military WMDs (weapons of mass destruction), they inflict pain indiscriminately, striking both the culpable and the innocent. And if they are used too widely, they could reverse the process of globalization that has allowed the modern world to prosper.”
The best example of this can be sanctions on Russia impacting the supply of cheap wheat to vulnerable countries in Africa and the Middle East. Russia is the world’s second-largest wheat producer and produces 85.9 million metric tons of wheat every year. The break-in supply chain has left wheat prices soaring across the world and has forced several of these resource deficient countries to direct the funds they could have utilised on Human Resource Development to purchase higher priced wheat to feed their growing populations.
The Russian Decree
These sanctions have not been just restricted to physical trade but have also impacted ancillary trade practices such as the protection of Intellectual Property. In retaliation to the exiting of over 400 multinational global brands from Russia; in early March of 2022, the Russian Ministry of Economic Development issued a decree stating that Russian companies are no longer bound to compensate owners of patents, utility models and industrial designs from “unfriendly” countries.
The list majorly includes the name of countries opposing Russia in the United Nations Security Council but also, surprisingly includes the name of certain countries that had enjoyed a strong economic relationship with Russia before Ukraine’s invasion, such as the UK, Switzerland and Monaco. Thus, Russia’s retaliatory decree is an unprecedented economic warfare strategy for today’s globalized world where Intellectual Property enjoys a special protection regardless of the territoriality and nationality of the Intellectual Property under the principles of the TRIPS agreement. The decree essentially legitimizes piracy and reproduction of Intellectually Property without paying the necessary remuneration.
The Trading with the Enemy Act, 1917
Russia’s move though surprising was not completely unprovoked considering Russia’s seclusion from a large portion of the global economy. It is even more astonishing to note that Russia is not the first country to adopt such a measure to protect its interests. The United States of America adopted a similar measure against Germany and Imperial Japan during World War – I when it introduced The Trading with the Enemy Act in 1917(‘TWEA’). The purpose behind this act was to prevent the accrual of any economic benefit to persons within enemy territory, weaken the enemy country economically, if possible, and prevent any improvement of its position.
The Act allowed the President of the United States to restrict any and all forms of trade with the enemy in times of war including authorised licensing of trademarks and patents and payment of royalty to copyright holders. The Act also explicitly restrained infringement against any Intellectual Property of the Enemy.
Section 10 of the TWEA permitted US firms to infringe enemy-owned patents if they helped the war effort. The act thus allowed U.S. firms to license German chemical patents in an age when German firms dominated the field of synthetic chemistry and were global leaders in the Pharmaceutical industry. An interesting example of this would be the infringement of Salvarsan, a German patent by the U.S. government. The drug was essential to the health and well-being of the U.S. Army as it was then the most effective treatment for syphilis, a Sexually Transferrable Disease (STD) that owes its origin to the sexual behaviour of the German, French and American army during World War – I.
One week before the Armistice at Compiègne on November 11, 1918, Congress amended the TWEA to confiscate all enemy-owned patents. By February 1919, German-owned patents were systematically licensed to US firms. The German state further in accordance with The Treaty of Versailles had to transfer the trademark of the popular pain-relieving medicine “Aspirin” to the US, France, Russia and Britain as part of its war reparations. Majority of the wartime sales of Aspirin[1] occurred in Germany before Bayer AG had transferred its manufacturing plant to the U.S. and accounted for around $ 25 million in profits. Some 2 million pounds equivalent, to nearly 3 billion five-grain tablets had been sold during the war making “Aspirin” one of the most profitable drugs of that period.[2] Thus, the Act acted as a boon for the U.S. Pharmaceutical industry which had without license copied patented formulas worth $ 8 million by the end of the war and emerged as a stiff competitor to the German Pharmaceutical industry.
IP enforcement and Russia
The implementation of the Russian government’s new decree translates into a similar scenario for countries that have been listed as Russia’s “unfriendly” global neighbours. There are chances these companies might see a repeat of what happened to Germany in 1917. It has also been speculated that the Russian government might grant trademarks belonging to these foreign companies to Russian oligarchs as a form of retaliation against multinational companies exiting the country.
This move would thus, allow Russian businesses to utilise famous trademarks and patents registered in these countries without making adequate payment for the same. The products and services of several global brands might be duplicated by Russian imitators against their consent violating both the economic and moral rights of the original owner of the Intellectual Property. This might be already true as demonstrated in what the world is now famously calling the “Peppa Pig” case.
The Russian courts had in fact already started implementing retaliatory Intellectual Property infringement policies against “unfriendly” countries before the Russian Ministry of Economic Development came out with a decree to enforce the same. The following case excellently demonstrates the Intellectual Property retaliatory practices of the Russian judicial and executive bodies.
On 03rd March, 2022 the Arbitration Court of the Kirov Region of Russia published a ruling in the case of Entertainment One UK Ltd. V. Ivan Vladimirovich Kozhevnikov that shocked IP enthusiasts around the world. The court retained both trademark and copyright infringement claims against Entertainment One UK Ltd. despite there being an existing claim worth 40, 000 Rubles filed for infringement of drawings of “Peppa Pig” and “Daddy Pig” two cartoon characters owned by Entertainment One UK Ltd., a subsidiary of the US toy giant Hasbio Incorporation. Entertainment One UK Ltd. had two trademarks No. 1212958 and No. 1224441 registered to protect the above-mentioned cartoon characters.
The company pleaded that “According to Article 62 (Part 3) of the Constitution of the Russian Federation, foreign citizens and stateless persons in the Russian Federation enjoy the rights and bear obligations on an equal basis with citizens of the Russian Federation, except in cases established by federal law or an international treaty of the Russian Federation.” Judge Andrei Pavlovich Slavinsky in response to this stated that the “restrictive” political and economic sanctions levied on Russia and its officials for their military invasion of Ukraine allow it to refuse the infringement claims brought by Entertainment One UK Ltd. Judge Slavinsky described the case as an “abuse of right” considering similar American and British sanctions imposed on Russia and thereby, dismissed the case.
The “Peppa Pig” case is not the sole example of encroachment of well-known trademarks in Russia since the Russia – Ukraine war began. Two weeks after Judge Slavinsky’s judgement, the Federal Service for Intellectual Property in Russia (Rospatent) received applications for registration of the fast food chain McDonald’s imitator brand called “Uncle Vanya”. The logo for the brand includes McDonald’s famous golden arches, but rotated 90 degrees and formed into the Russian letter “В,” which sounds like the English “V” for “Vanya.” The same applicant also, filed trademark applications for “Starbucks”, “Makdonalds,” and “Makdak” before the trademark registry. Similar applications have also been filed for other famous trademarks such as Instagram, IKEA, Chanel and Dior by several applicants across the Russian Federation.
These applications would usually fall neatly within the realm of trademark squatting i.e., the practice of third parties filing trademark applications for another company’s well-known marks, with the aim of either extorting the real brand owner or otherwise piggybacking on the appeal of that brand for its own gain and/or bad faith trademark filing. Such applications are usually barred from registration by the relevant trademark office, including Rospatent but, the same would not hold true now considering Russia’s retaliatory move to abandon the TRIPS agreement.
The TRIPS Agreement
The TWEA is commonly referred to as the predecessor of Article 31 of the TRIPS Agreement. The provision allows parties to the agreement to partake in “compulsory licensing”. This means that third parties are now allowed to produce a patented product without the consent of the right holder. Though the provision does away with the need for permission it does not provide any leeway in regards to the obligation on the part of the countries to pay the right holder their due compensation. The Russian Decree is special in that regard, because it does away with the requirement on part of Russia to pay the original creator of an Intellectual Property any amount of compensation.
Russia’s Most Favoured Nation (MFN) status is also under trouble as a part of this economic warfare. The Most Favoured Nation (MFN) principle of the World Trade Organisation (WTO) obliges a country to extend the same trading terms to every trading partner. The G7, the European Union, and NATO all have decided to revoke Russia’s Most Favoured Nation (MFN) status leaving the largest country in the world on the list of rogue nations such as North Korea, Syria and Afghanistan.
Conclusion
The following developments give a glimpse of the bleak future awaiting Russia in the global trading community. Investors might become wary of investing in the country because of their lack of trust in its leadership, and Russia might get cut-off from the rest of the world as the situation further develops. The revocation of Russia’s Most Favoured Nation (MFN) status would send a strong signal that the U.S. and NATO do not appreciate Russia as a viable business partner and are not receptive to any form of future trading between the West and Russia. This move would formally allow the U.S. and its allies to increase import tariffs or impose quotas on Russian goods, or even ban them, and to restrict services out of the country. They could also overlook Russian intellectual property rights in a similar manner that Russia has decided to do with them. The War has brought about one of the biggest turbulences in IP enforcement in the 21st century and has shaken the pillars that support global trade. The end of this war would leave a much different world than what we live in now, and the chances are that the coming years would transform the planet into a more segregated place than it was in the previous decades.
[1]J. McTavish, ‘What’s in a Name? Aspirin and the American Medical Association’, (1987) 61(3) Bulletin of the History of Medicine 343.
[2]Supra note 1.
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