On the Legality of Parallel Import in Russia
A post published last week on amendments to the Legislation on legal entities clearly demonstrated the relevance of legal information for representatives of small businesses and founders of startups. Our partners, Vetrov & Partners Law Firm, are ready to continue to regularly cover current issues related to the legal side of iT-entrepreneurship and registration of intellectual property rights.
The new post is devoted to what many startups start with, in order to earn money on the launch of the project - trade and procurement activities. For example, the supply of new models of the popular iPhone to Russia, which has always been one of the last in the "line for iPhones."
It should be noted right away that there is no legal definition of “parallel imports”. Meanwhile, based on prevailing international practice, parallel import is usually understood as the import of “branded” products into the country, where these products are not sold by the brand owner or another person with the consent of the owner.
Now we can dwell in more detail on the distinguishing features of parallel imports.
Firstly, the importer means any person importing original products, and not entities authorized by the brand’s copyright holder (official distributors, dealers, etc.).
Secondly, imported products have distinctive (unique) markings.
Thirdly, there is no permission of the trademark holder to import products (putting into circulation), that is, the importer and copyright holder are not in a contractual relationship.
Consider the classic scheme with the participation of a Russian businessman.
A Russian businessman travels abroad, where he buys a batch of original goods for further sale on the Russian market. The entrepreneur is driven by a natural desire to save money, as well as to find the most advantageous offer, acceptable conditions for cooperation.
After all, buying goods at an inflated price from an official distributor is much less profitable than paying a lower producer price, set, for example, for third countries.
It turns out that the entrepreneur does not use the official channel (acting through official distributors in the country of their location), but "parallel". Hence the name of the whole mechanism - “parallel import” or “gray import”. However, in this part, suppose the reader of this material has received confirmation of the information he already has.
Next, we turn to the most interesting question. Is parallel import legal in the Russian Federation?
To answer this question, it is worth starting with the disclosure of the main category used in the question under consideration, namely with the principle of exhaustion of rights.
The essence of this principle is as follows.
If the rightholder has sold (introduced into civil circulation) his products, then he loses the right to dictate to the new owners of the product the conditions for its sale, to make claims arising from violation of trademark rights (for example, to pay compensation), and to prevent further resale of goods.
The consolidation of this principle is due to the desire to ensure equality between the interests of the copyright holder and the interests of the state (society).
In total, there are three varieties of the principle of exhaustion of rights (hereinafter also the IPP): national, international and regional.
The national principle provides for the exhaustion of the exclusive rights of the copyright holder only subject to the introduction of goods into circulation within the country. Despite the repeated sale of goods abroad, for the import of goods into the country with a valid national PIP, the consent of the trademark owner is required. Or in other words, the introduction of goods into circulation in the country of production of goods means the exhaustion of exclusive rights to a trademark only in this country, and not automatically in all other countries of the world.
The international principle implies the exhaustion of the exclusive right to a trademark in relation to products that have been put into circulation, both in the country of production of the goods and in any other country in the world.
The regional principle differs from the international one on the basis of territoriality; the sale of “branded” products on the territory of one of the regions entails the exhaustion of the exclusive right to the brand in other regions.
In the Russian Federation there is a national principle of exhaustion of exclusive rights, in the EU - regional, and, for example, in China - international.
In Russian law, the national IPP is directly enshrined in Art. 1487 of the Civil Code of the Russian Federation, which provides for the exhaustion of the exclusive right to a trademark in relation to those goods that were put into circulation on the territory of the Russian Federation directly by the copyright holder or with his consent.
It turns out that the import of goods with the original labeling in the Russian Federation must be obtained the consent of the brand owner.
According to the current Russian legislation, any use of a trademark without the consent of the copyright holder is illegal (Article 1484 of the Civil Code of the Russian Federation). This article provides only an indicative list of possible ways to use a trademark.
The importation of products marked with a trademark is an independent form of use of a trademark.
Importing original products without the consent of the brand’s copyright holder is an illegal use of the brand of the copyright holder, for which civil liability is provided.
The copyright holder of the trademark has the right to use the protection methods that are provided for by the general norm - Art. 1252 of the Civil Code of the Russian Federation (requirement for recognition of the right, prohibition of use, etc.), as well as special - Art. 1515 of the Civil Code of the Russian Federation (claim for loss or compensation).
The above rights apply to foreign trademark holders whose rights have been violated as a result of the parallel import of their products into Russia. Most often, copyright holders affected by parallel imports make demands on the importer to prohibit the introduction of labeled products into circulation, including a ban on the import, sale, offer for sale, as well as a requirement to pay compensation. The amount of compensation claimed usually varies from 1 million rubles. up to 5 million rubles. True, courts usually award only half of the amount claimed.
So the court satisfied the requirements of the companies-owners of the LONGINES, OMEGA, RADO trademarks to recover compensation from the defendants for the offer to sell original watches in the Russian Federation, although to a lesser extent from the claimed amount - 2.5 million rubles. in favor of each of the plaintiffs. At the same time, the court did not accept the argument of one of the defendants about the impossibility of spreading the territorial principle of exhaustion of rights to the Internet network (determination of the Supreme Arbitration Court of the Russian Federation on the refusal to transfer the case to the Presidium of the Supreme Arbitration Court of the Russian Federation dated July 15, 2014 No. VAS-12583/13).
In judicial practice, one can also find record low amounts of compensation that the trademark holder presents to the importer. For example, in one of the cases, the copyright holder of the trademark for medical equipment demanded that the importer pay compensation in the amount of 20 thousand rubles. (Judgment of the Intellectual Property Rights Court of June 19, 2014 in case No. A76-17672 / 2013).
But the copyright holder of the KRUSOVICE brand was not lucky, the court reduced the amount of compensation from 1 million rubles. (10 thousand rubles for each fact of violation - 100 bottles were imported with the original marking) up to 30 thousand rubles. (Resolution of the Administrative Court of the Moscow District of February 25, 2013 in the case No. A40-23850 / 12-27-216).
Can the copyright holder require the importer to withdraw from circulation the original goods imported by him and destroy them.
These requirements, namely, withdrawal from circulation and destruction at the expense of the infringer, may be declared by the copyright holder of the trademark only in relation to counterfeit goods. According to the current norm (Article 1515 of the Civil Code of the Russian Federation), counterfeit goods mean goods on which the trademark is illegally placed or a designation similar to it to the degree of confusion. In other words, counterfeiting is always fake.
For example, in a well-known case involving the copyright holder of the Porsche Cayenne S brand, the court did not find grounds for recognizing imported cars as counterfeit. After all, the cars had the original marking, which was applied by the copyright holder. (Decree of the Supreme Arbitration Court of the Russian Federation of 03.02.2009 in the case No. A40-9281 / 08-145-128).
The subject of parallel imports is not a counterfeit product because it was produced and labeled without violating the exclusive rights of third parties. This means that copyright holders cannot punish importers with the help of civil liability sanctions provided for the sale of counterfeit goods. So, the manufacturer of motor oils “MAGNATEC” and “EDGE” went to court with a lawsuit against the company “KASTROL LIMITED”, in particular, with demands for the seizure and destruction of illegally imported products, calling it counterfeit. Meanwhile, the court refused to satisfy the requirements for the reasons stated above (Resolution of the Intellectual Property Rights Court of October 24, 2013 in case No. A53–33004 / 2012).
Not always parallel import was outside the civil field. So, three years ago, the courts were more loyal to violators than to indignant copyright holders of brands. The number of refusals in claims significantly prevailed over the number of judicial acts issued in favor of copyright holders. The motivation of the judges was as follows: since the copyright holder of the brand introduced the goods into circulation abroad, it means that there was an exhaustion of his exclusive rights, which means that his requirements are inappropriate. Thus, for some reason, the courts adhered to the international principle of exhaustion of exclusive rights with the national principle actually enshrined in Russia. Not surprisingly, most of these decisions were overturned by higher courts.
Definitely, for parallel importation, some sanctions of civil liability apply to violators, but what about administrative responsibility measures?
For illegal use of a trademark administrative liability is provided (Article 14.10 of the Code of Administrative Offenses). From the arbitration practice, in particular from the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated February 17, 2011 No. 11, it is clearly seen that the sanctions of Art. 14.10 Administrative Code applies only to persons engaged in the production, sale of counterfeit goods. Thus, entrepreneurs practicing parallel imports can easily exhale, they do not promise administrative liability for the illegal import of unique goods.
We described above what legal levers can be used by copyright holders whose rights have been violated as a result of parallel imports. And what counter-arguments are most often used by violators?
Here are some of them.
The violator’s argument that he is importing goods not for commercial sale gives the impression of just babbling and is immediately rejected by the courts as unfounded.
The key argument in the position of the defendant is his argument that the actions of the copyright holder are aimed at restricting competition, and there is nothing more than an abuse of the right. In fact, the arguments presented reflect the position of the FAS, which actively advocates the legalization of the type of import in Russia. A positive effect from this would be expressed in stimulating competition, expanding the channels for the supply of goods, as well as in satisfying the interests of the end consumer.
Naturally, all of the above does not at all meet the interests of international companies that want to have a monopoly on their products and quietly dictate the conditions for their sale to distributors.
So far, representatives of small businesses, even with the support of the FAS, cannot lobby for amendments to the Civil Code of the Russian Federation that would legitimize parallel imports. Whether the approach of the legislator will change, as well as judicial practice on this issue, time will tell. Especially after the merger of the Supreme Arbitration Court and the Armed Forces of the Russian Federation. In the meantime, small importers should be wary of only litigation in arbitration, as a result of which they can easily and unobtrusively part with a tidy sum.
Ask questions of interest to you on legal topics in the comments, we will definitely answer the most important ones in the next posts of our weekly legal column on the VCStart.com collective investment platform blog .
The new post is devoted to what many startups start with, in order to earn money on the launch of the project - trade and procurement activities. For example, the supply of new models of the popular iPhone to Russia, which has always been one of the last in the "line for iPhones."
Parallel import
It should be noted right away that there is no legal definition of “parallel imports”. Meanwhile, based on prevailing international practice, parallel import is usually understood as the import of “branded” products into the country, where these products are not sold by the brand owner or another person with the consent of the owner.
Now we can dwell in more detail on the distinguishing features of parallel imports.
Firstly, the importer means any person importing original products, and not entities authorized by the brand’s copyright holder (official distributors, dealers, etc.).
Secondly, imported products have distinctive (unique) markings.
Thirdly, there is no permission of the trademark holder to import products (putting into circulation), that is, the importer and copyright holder are not in a contractual relationship.
Consider the classic scheme with the participation of a Russian businessman.
A Russian businessman travels abroad, where he buys a batch of original goods for further sale on the Russian market. The entrepreneur is driven by a natural desire to save money, as well as to find the most advantageous offer, acceptable conditions for cooperation.
After all, buying goods at an inflated price from an official distributor is much less profitable than paying a lower producer price, set, for example, for third countries.
It turns out that the entrepreneur does not use the official channel (acting through official distributors in the country of their location), but "parallel". Hence the name of the whole mechanism - “parallel import” or “gray import”. However, in this part, suppose the reader of this material has received confirmation of the information he already has.
Next, we turn to the most interesting question. Is parallel import legal in the Russian Federation?
To answer this question, it is worth starting with the disclosure of the main category used in the question under consideration, namely with the principle of exhaustion of rights.
The essence of this principle is as follows.
If the rightholder has sold (introduced into civil circulation) his products, then he loses the right to dictate to the new owners of the product the conditions for its sale, to make claims arising from violation of trademark rights (for example, to pay compensation), and to prevent further resale of goods.
The consolidation of this principle is due to the desire to ensure equality between the interests of the copyright holder and the interests of the state (society).
In total, there are three varieties of the principle of exhaustion of rights (hereinafter also the IPP): national, international and regional.
The national principle provides for the exhaustion of the exclusive rights of the copyright holder only subject to the introduction of goods into circulation within the country. Despite the repeated sale of goods abroad, for the import of goods into the country with a valid national PIP, the consent of the trademark owner is required. Or in other words, the introduction of goods into circulation in the country of production of goods means the exhaustion of exclusive rights to a trademark only in this country, and not automatically in all other countries of the world.
The international principle implies the exhaustion of the exclusive right to a trademark in relation to products that have been put into circulation, both in the country of production of the goods and in any other country in the world.
The regional principle differs from the international one on the basis of territoriality; the sale of “branded” products on the territory of one of the regions entails the exhaustion of the exclusive right to the brand in other regions.
In the Russian Federation there is a national principle of exhaustion of exclusive rights, in the EU - regional, and, for example, in China - international.
In Russian law, the national IPP is directly enshrined in Art. 1487 of the Civil Code of the Russian Federation, which provides for the exhaustion of the exclusive right to a trademark in relation to those goods that were put into circulation on the territory of the Russian Federation directly by the copyright holder or with his consent.
It turns out that the import of goods with the original labeling in the Russian Federation must be obtained the consent of the brand owner.
According to the current Russian legislation, any use of a trademark without the consent of the copyright holder is illegal (Article 1484 of the Civil Code of the Russian Federation). This article provides only an indicative list of possible ways to use a trademark.
The importation of products marked with a trademark is an independent form of use of a trademark.
Importing original products without the consent of the brand’s copyright holder is an illegal use of the brand of the copyright holder, for which civil liability is provided.
The copyright holder of the trademark has the right to use the protection methods that are provided for by the general norm - Art. 1252 of the Civil Code of the Russian Federation (requirement for recognition of the right, prohibition of use, etc.), as well as special - Art. 1515 of the Civil Code of the Russian Federation (claim for loss or compensation).
The above rights apply to foreign trademark holders whose rights have been violated as a result of the parallel import of their products into Russia. Most often, copyright holders affected by parallel imports make demands on the importer to prohibit the introduction of labeled products into circulation, including a ban on the import, sale, offer for sale, as well as a requirement to pay compensation. The amount of compensation claimed usually varies from 1 million rubles. up to 5 million rubles. True, courts usually award only half of the amount claimed.
So the court satisfied the requirements of the companies-owners of the LONGINES, OMEGA, RADO trademarks to recover compensation from the defendants for the offer to sell original watches in the Russian Federation, although to a lesser extent from the claimed amount - 2.5 million rubles. in favor of each of the plaintiffs. At the same time, the court did not accept the argument of one of the defendants about the impossibility of spreading the territorial principle of exhaustion of rights to the Internet network (determination of the Supreme Arbitration Court of the Russian Federation on the refusal to transfer the case to the Presidium of the Supreme Arbitration Court of the Russian Federation dated July 15, 2014 No. VAS-12583/13).
In judicial practice, one can also find record low amounts of compensation that the trademark holder presents to the importer. For example, in one of the cases, the copyright holder of the trademark for medical equipment demanded that the importer pay compensation in the amount of 20 thousand rubles. (Judgment of the Intellectual Property Rights Court of June 19, 2014 in case No. A76-17672 / 2013).
But the copyright holder of the KRUSOVICE brand was not lucky, the court reduced the amount of compensation from 1 million rubles. (10 thousand rubles for each fact of violation - 100 bottles were imported with the original marking) up to 30 thousand rubles. (Resolution of the Administrative Court of the Moscow District of February 25, 2013 in the case No. A40-23850 / 12-27-216).
Can the copyright holder require the importer to withdraw from circulation the original goods imported by him and destroy them.
These requirements, namely, withdrawal from circulation and destruction at the expense of the infringer, may be declared by the copyright holder of the trademark only in relation to counterfeit goods. According to the current norm (Article 1515 of the Civil Code of the Russian Federation), counterfeit goods mean goods on which the trademark is illegally placed or a designation similar to it to the degree of confusion. In other words, counterfeiting is always fake.
For example, in a well-known case involving the copyright holder of the Porsche Cayenne S brand, the court did not find grounds for recognizing imported cars as counterfeit. After all, the cars had the original marking, which was applied by the copyright holder. (Decree of the Supreme Arbitration Court of the Russian Federation of 03.02.2009 in the case No. A40-9281 / 08-145-128).
The subject of parallel imports is not a counterfeit product because it was produced and labeled without violating the exclusive rights of third parties. This means that copyright holders cannot punish importers with the help of civil liability sanctions provided for the sale of counterfeit goods. So, the manufacturer of motor oils “MAGNATEC” and “EDGE” went to court with a lawsuit against the company “KASTROL LIMITED”, in particular, with demands for the seizure and destruction of illegally imported products, calling it counterfeit. Meanwhile, the court refused to satisfy the requirements for the reasons stated above (Resolution of the Intellectual Property Rights Court of October 24, 2013 in case No. A53–33004 / 2012).
Not always parallel import was outside the civil field. So, three years ago, the courts were more loyal to violators than to indignant copyright holders of brands. The number of refusals in claims significantly prevailed over the number of judicial acts issued in favor of copyright holders. The motivation of the judges was as follows: since the copyright holder of the brand introduced the goods into circulation abroad, it means that there was an exhaustion of his exclusive rights, which means that his requirements are inappropriate. Thus, for some reason, the courts adhered to the international principle of exhaustion of exclusive rights with the national principle actually enshrined in Russia. Not surprisingly, most of these decisions were overturned by higher courts.
Parallel Import and Administrative Responsibility
Definitely, for parallel importation, some sanctions of civil liability apply to violators, but what about administrative responsibility measures?
For illegal use of a trademark administrative liability is provided (Article 14.10 of the Code of Administrative Offenses). From the arbitration practice, in particular from the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated February 17, 2011 No. 11, it is clearly seen that the sanctions of Art. 14.10 Administrative Code applies only to persons engaged in the production, sale of counterfeit goods. Thus, entrepreneurs practicing parallel imports can easily exhale, they do not promise administrative liability for the illegal import of unique goods.
We described above what legal levers can be used by copyright holders whose rights have been violated as a result of parallel imports. And what counter-arguments are most often used by violators?
Here are some of them.
The violator’s argument that he is importing goods not for commercial sale gives the impression of just babbling and is immediately rejected by the courts as unfounded.
The key argument in the position of the defendant is his argument that the actions of the copyright holder are aimed at restricting competition, and there is nothing more than an abuse of the right. In fact, the arguments presented reflect the position of the FAS, which actively advocates the legalization of the type of import in Russia. A positive effect from this would be expressed in stimulating competition, expanding the channels for the supply of goods, as well as in satisfying the interests of the end consumer.
Naturally, all of the above does not at all meet the interests of international companies that want to have a monopoly on their products and quietly dictate the conditions for their sale to distributors.
So far, representatives of small businesses, even with the support of the FAS, cannot lobby for amendments to the Civil Code of the Russian Federation that would legitimize parallel imports. Whether the approach of the legislator will change, as well as judicial practice on this issue, time will tell. Especially after the merger of the Supreme Arbitration Court and the Armed Forces of the Russian Federation. In the meantime, small importers should be wary of only litigation in arbitration, as a result of which they can easily and unobtrusively part with a tidy sum.
Ask questions of interest to you on legal topics in the comments, we will definitely answer the most important ones in the next posts of our weekly legal column on the VCStart.com collective investment platform blog .