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| Soniya Shah |
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| Ming-Tao Yang |
But the sanctions by the U.S. and other countries following the invasion as well as the retaliatory, anti-patent enforcement measures by Russia are causing companies to reevaluate their short-term and long-term plans, while raising questions about the future of patent procurement and enforcement in Russia.
Government Sanctions and Impacts on IP
In March, Russia issued its Decree No. 299. The decree represented the first, significant impact on IP rights by zeroing out the enforcement value of certain Russian patents owned by entities and individuals in 48 countries. The affected patent owners in these countries get 0% compensation for patent infringement activities that occur in Russia, as long as the Russian government deems the patent infringement necessary for national security or for the protection of its citizens' life and health.
Previously, Article 1360 of the Russian Civil Code authorized certain patent infringement to occur without the consent of the patent owner, but Article 1360 provided for compensation for the patent owner. Now, under Decree 299, "[u]sing an invention, utility model, or industrial design in the event of extreme necessity linked to the interests of national security" or for the "protection of citizens' life and health"[2] can occur without prior license and with statutory compensation.
The 48 listed and affected countries include the U.S., European Union countries, Great Britain, Ukraine, Japan, South Korea, Taiwan, Singapore, Australia and New Zealand, among others.[3] Assigning a 0% compensation for patent infringement not only wipes out the enforcement value of the affected patents but also permits, if not encourages, widespread and permanent patent theft.
For example, any Russian entity or individual who was previously excluded from making and selling competing products safeguarded by patent rights may now manufacture, offer to sell, sell and use technology protected by issued Russian patents under the decree, all without any compensation to the patent owner.
The decree also casts a wide net regarding the affected patent owners, hitting "a citizen of, is registered in, or has a primary place of business or profit" in any of the 48 listed countries.
While Decree No. 299 and Article 1360 on their face are limited to national security interests or for the "protection of citizens' life and health," these categories can have broad implications.
Depending on how the decree is enforced, many patented technologies can be deemed to affect, albeit in different degrees, life, health or national security. Indeed, Article 1360 does not appear to have specific restrictions on which types of patents, such as classification numbers, specific industries or particular product types, may fall within the realm of national security or affect Russian citizens' life and health.
Therefore, the decree may, in its actual implementation and at the discretion of Russian authorities, affect a broad range of patents, and the lack of clarity may impact essentially all patent owners.[4] In addition to deepening concerns about how the decree may zero out the values of the affected patent rights, many trademark owners, including those in fashion, luxury goods, electronics and food industries also share concerns about how future Russian measures may impact valuable and well-established trademarks.
The decree as it currently stands already eliminates protection for patented industrial designs, making it free for anyone to copy designs ranging from cars and consumer goods. It remains to be seen how broadly the decree will be applied and whether future decrees will be issued or expanded to eliminate compensation for infringement of other IP rights, including trademarks and copyrights.
As a second impact, financial sanctions by the U.S. and other governments also limited companies' and individuals' ability to make payments to major Russian banks and financial institutions, regardless of the purpose of the payments. These initial sanctions would have impacted many IP-related transactions, such as prosecuting and maintaining IP rights, acquiring IP and other assets, paying royalties and paying Russian law firms for IP-right-related services, including IP enforcement.
Those measures are now dialed back with General License 31, issued by the U.S. Department of the Treasury's Office of Foreign Assets Control.
General License 31 authorizes:
- "The filing and prosecution of any application to obtain";
- "The receipt of";
- "The renewal or maintenance of"; and
- "The filing and prosecution of any opposition or infringement proceeding with respect to a patent, trademark, copyright, or other form of intellectual property protection, or the entrance of a defense to any such proceeding."[5]
In other words, General License 31 enables U.S. companies to not only prosecute, acquire and maintain patents but also enforce patents and defend against patent infringement actions.
However, it remains unclear whether one may enter other financial transactions where IP is a related or indirect component or consideration. Companies should consider the potential limitations of General License 31 when it comes to IP-related transactions such as joint technology development contracts, nonexclusive licenses, settlement payments, corporate restructuring affecting IP or IP holdings, and mergers and acquisitions driven by IP rights.
Therefore, companies should still plan ahead, plan around or plan for delayed implementations when it comes to IP-related transactions in Russia not explicitly authorized by General License 31.
As a third impact, the patent offices of various countries have ceased their usual and regular communications with the Russian patent office. These communications not only facilitate patent prosecution activities, but also affect the typical and regular cooperation among various countries to protect IP rights, guide IP policies and encourage innovations.
Specifically, the U.S. Patent and Trademark Office announced on March 22 that, following similar measures by the European Patent Office, it ceased all cooperation with Rospatent, the Russian patent office.[6]
Under General License 31, while the USPTO is authorizing certain intellectual property-related interactions,[7] the license is limited.
For example, on the prosecution front, the Patent Prosecution Highway Program has been discontinued at Rospatent, and all applications that were previously part of the program through Rospatent will be examined normally.
On the nonprosecution front, the lack of communication and cooperation with Rospatent and several other affected offices, including the Eurasian Patent Organization and the national intellectual property office of Belarus,[8] will likely impact the inter-patent-office measures on IP enforcement, policy and cooperation.
Strategic Considerations
As Russia weakens intellectual property rights by limiting companies' ability to enforce patent rights and permitting certain patent infringement without compensation, infringement of patents will be on the rise and will rise quickly.
Because the patent rights affected under Decree 299 are now free-for-all, there will be long-term impacts, such as causing price erosion, having unlicensed and inferior products flood the market, and a general lack of respect for IP rights. Any of these impacts could create an IP rights crisis for companies with a significant share of affected IP rights in Russia.
Every action invites a reaction, but whether certain reactions present viable solutions remains to be seen. While these impacts are significant, it may be too early to abandon patents, cease pending ongoing prosecutions and eliminate new applications in Russia It remains unclear how long each of these sanctions will last and how broad they may become.
In addition, we do not know how long the war will last and what the Russian government and other governments will do following the conclusion of the war.
The length of the war and the postwar Russian business world and market will not be the same as before. Regardless, it's important to consider reprioritizing the strategic value of Russian patents in view of their short- and long-term values to your or your clients' businesses, and revamping interim measures.
Notably, despite the later issuance of General License 31, these executive orders remain in place:[9]
- 14024 — blocking property with respect to specified harmful foreign activities of the government of the Russian Federation;
- 14066 — prohibiting certain imports and new investments with respect to the Russian Federation; and
- 14068 — prohibiting certain imports, exports and new investments with respect to the Russian Federation
In other words, there are various and specific limitations directed to sanctioned entities, new investments in Russia, and the importation of certain products that go beyond the specific limits of General License 31.
Conclusion
Change is not new to IP professionals, as evolutions in technology, law and market are a constant part of our profession.
What remains unchanged is change itself, and the landscape of all sanctions against and by Russia will continue to evolve with new developments, adjustments and experiments.
While short-term responses and reactions may offer a Band-Aid fix, companies with business interests in Russia should focus on long-term strategies and solutions. This is of particular importance because these sanctions and decrees will have long-term effects.
While the future of Russian patents may seem gloomy, companies should not dismiss their Russian patents prematurely, especially in industries that may remain relevant, prosper or grow exponentially.
For example, energy, agriculture, electronics and cybersecurity had been economic pillars of Russia before its invasion of Ukraine, and they will likely remain so in the near future.
In addition, many companies have foreign affiliates or partners that are unaffected by these sanctions, and they have a unique opportunity and distinct advantage to continue, leverage from, or even expand their patent prosecution and enforcement measures. While some patentees are suffering, others are in a unique position to prosper and advance.
In addition to uncovering these opportunities, many of the key foundations for building a strong and viable patent portfolio remain the same. Companies should continue to diversify, both in technology and territory, to reallocate in response to changes in priorities, to identify future opportunities as opposed to current difficulties, and to remain market- and future-focused.
Having a long-term plan with short-term tweaks that can withstand the test of time remains the key to success in the ever-changing IP landscape in Russia.
Soniya Shah is an associate and Ming-Tao Yang is a partner at Finnegan Henderson Farabow Garrett & Dunner LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://www.statista.com/statistics/1148098/number-of-granted-patents-russia/.
[2] https://www.wipo.int/edocs/lexdocs/laws/en/ru/ru004en-part4.pdf.
[3] https://www.natlawreview.com/article/kremlin-s-intellectual-property-cold-war-legalizing-patent-theft-decree-299; see also Decree No. 299 in Russia. http://publication.pravo.gov.ru/Document/View/0001202203070005.
[4] https://www.lidings.com/media/legalupdates/novaya-redaktsiya-stati-1360-grazhdanskogo-kodeksa-rf/.
[5] https://home.treasury.gov/system/files/126/russia_gl31.pdf.
[6] https://www.uspto.gov/about-us/news-updates/uspto-statement-engagement-russia-and-eurasian-patent-organization.
[7] https://www.uspto.gov/about-us/news-updates/update-interactions-rospatent.
[8] https://www.federalregister.gov/documents/2022/04/04/2022-06885/termination-of-global-patent-prosecution-highway-with-rospatent.
[9] https://home.treasury.gov/system/files/126/russia_gl31.pdf.
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