The winding roads of parallel imports

In March 2022, the President of Russia signed Law 46-FZ authorizing the Government of the Russian Federation to draw up a list of goods that would be exempted from certain provisions of the Russian Civil Code. That meant parallel imports. Pursuant to the new legislation, the Ministry of Industry and Trade issued Order No. 1532 supplemented with an impressive list of goods now allowed for parallel import. The change significantly relaxed Russian customs rules with regard to original goods; the copyright holders only receive reports about counterfeit products now. The power to manage the list lies with the ministry – it can make changes depending on the shortage or availability of goods on the market, and can add or exclude goods from the list in case the supplier is present on the Russian market and they were included by mistake.

A customs officer takes a photograph in the goods inspection area. Photo by Vitaly Nevar/RIA Novosti

The harms and benefits of parallel imports have been debated for years. Such goods are usually cheaper than products marketed by the right holder, which is definitely an advantage. On the down side though – such goods are not covered by the manufacturer’s warranty, so when it comes to technical devices, the cost of their maintenance can be much higher. At the same time, many have a false impression that parallel imports mean the products are unlicensed, and potentially counterfeit. Let’s get the terminology straight first.

To fulfill the President’s instructions, amendments were made to two Civil Code articles. According to the new interpretation of paragraph 6 of Article 1359, from which the goods on the list were exempted, if a product patented in Russia has been imported into the country and introduced into civil circulation with the permission of the copyright holder, further resale of the said goods in Russia will not be an infringement of the rights of the patent holder. In turn, Article 1487, which no longer applies to such goods either, states that goods with a trademark registered in Russia and imported with the permission of the brand owner can be freely resold in Russia. Essentially, both articles concern exhausting rights to various objects while in reality, the overwhelming majority of cases concern exhausting rights to trademarks. Exhausting rights mean that the rights holder loses the exclusive right to prohibit further reselling of goods after the goods containing the trademark have been released into civil circulation.

It should be noted that there are three modes of exhausting rights, including national, when a product is sold to a specific country with the rights holder’s consent (subsequently, the product may be resold in the country without the intellectual property owner’s consent); regional exhaustion of rights, when the rule applies to a group of countries (for example, regional exhaustion of rights exists in the Eurasian Economic Union and in Europe. If a product is sold to one country of the union, reselling the product in other member countries does not violate the rights holder’s rights); and international exhaustion of rights, when a product legally sold to a country may be imported to others where international exhaustion is recognized. The international mode exists in the United States, Japan, China and some other countries. It is presumed, however, that the product is patented or protected by a trademark in the country of reselling.

Thus, when an entrepreneur purchases goods abroad and imports them to Russia without the knowledge of the rights holder – this is what is called parallel imports. The permission for parallel imports for goods listed by the Ministry of Industry and Trade does not infringe upon the rights of producers of original goods because they have willingly left the Russian market, and therefore, parallel imports is not a competition for them as they still receive revenue from selling these goods in other countries.

In Russia, parallel imports appeared after the transition to market economy in the early 1990s. At that time, foreign companies came to Russia and filled the market with goods the Soviet people had never seen. It required the adoption of a law on import regulation. The law on trademarks, adopted in 1992, prohibited parallel imports:

“The registration of a trademark does not give its owner the right to prohibit the usage of this trademark to other people in relation to goods that were released into civil circulation by the owner of the trademark or with their consent.”

At that time, this vague wording provided businesspeople with an opportunity to purchase goods at lower prices and bring them to Russia, thus competing with the trademark owner. Trademark owners fought parallel imports by filing lawsuits in accordance with the Administrative Offence Code, the Civil Code and even the Criminal Code.

Only in December 2022, Law No. 166-FZ was adopted, which introduced amendments to Article 23.

“The registration of a trademark does not give its owner the right to prohibit the usage of this trademark to other people in relation to goods that were released into civil circulation in the Russian Federation by the owner of the trademark or with their consent.”

This wording finally entrenched the national exhausting rights of trademark owners (later, regional exhausting rights within the Customs Union).

In the meantime, parallel importers promoted the permission of parallel imports and gained support of the Federal Antimonopoly Service. They suggested various ways to liberalize parallel import. For instance, to provide national exhausting right to those producers who localized their manufacturing in Russia, or to permit parallel import for certain types of goods such as car parts, medical equipment and pharmaceutical products. They also suggested removing the words “in the Russian Federation” from paragraph 4 of Article 1487 of the Civil Code (the Civil Code came into force in 2008 with all laws on intellectual property included in paragraph 4). These attempts failed.

Parallel imports are always about original goods produced by the trademark owner or its authorized licensee but imported in Russia without the consent of the trademark owner. If the original product is in demand, there may be those who choose to counterfeit it and pass it off as the original. Counterfeit goods always differ in a number of ways; they are cheaper and inferior in quality. However, it should be noted that sometimes a fake is so similar to the original that an expert may be required to detect a counterfeit product.

Upon arriving at the customs office, the goods are checked against Russia’s Customs Register of Intellectual Property. The register contains trademarks and copyright items included at the request of owners of the respective items, as well as the information on trademark owners and persons that were granted import permission. In case goods were imported by an unauthorized importer, customs officers immediately notify the rights holder, who informs the customs on whether the goods are original or counterfeit. In the latter case, the customs initiates legal action under the Code of Administrative Offenses.

If a certain trademark is not available in the register, the customs office sends a notification to the right holder and, depending on his response, either releases the goods or initiates an administrative case.

If a customs office receives authentic goods imported without the rights holder’s permission, it can initiate cases only in case of their improper quality and/or to ensure safety, protect lives and health of citizens, and protect nature and cultural values.

Otherwise, the goods may be re-exported. If the goods are of proper quality, legal action against the parallel importer in a civil court is futile.

Additional circumstances in favor of parallel imports emerged in 2022 after launching the special military operation in Ukraine. Certain foreign countries imposed sanctions on Russia, which responded with counter-sanctions. Numerous foreign companies chose to leave Russia, which led to a shortage of goods produced by the companies that withdrew from the market.

Parallel imports are allowed in many developed countries. All numerous discussions on parallel imports result from the lack of necessary goods in Russia. We should develop and utilize technologies required for production, and the issue of parallel imports will cease to be relevant. When asked about the exhaustion of intellectual property rights in China, a Chinese lawyer said, “China has an international exhaustion regime. We do not fear parallel imports. If we need something, we will make it on our own.” An exemplary attitude. It also suggests that the quality of goods sold by the rights holder or other persons without his consent, with the exception of certain cases, is no different.

As the market becomes saturated with domestically produced goods, we may exclude the wording ‘in the Russian Federation’ to eliminate inconsistencies with other articles and end discussions on harms and benefits of parallel imports.

By Vladimir Biryulin, Partner at Gorodissky & Partners Law Firm, Russian Patent Attorney, Head of Special Projects

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