Legal Nature of Parallel Imports
Parallel imports are authentic—that is, not counterfeit—branded goods purchased in a foreign country and imported for sale in Russia by circumventing the authorized distribution channels. Parallel imports can lead to price drops and are a source of headaches for trademark owners and their authorized domestic dealers.
Parallel imports take advantage of the well-known “exhaustion principle” whereby a trademark owner’s exclusive right to control the distribution (and importation) of goods bearing its trademarks is considered to be exhausted once those goods have been sold in a certain territory with the owner’s initial permission.
Unique Opportunities to Combat Parallel Imports Under Russian Law
The exhaustion principle in Russia differs somewhat from that in other jurisdictions. Under Russian law, trademark rights regarding parallel-imported goods are deemed exhausted only if they were imported into Russia with the trademark owner’s consent. Previously sold goods that were imported without such consent—even though the trademark rights would be considered exhausted elsewhere, such as in the EU (of which Russia is not a member)—are not considered exhausted in Russia, and the trademark owner can enforce its rights accordingly. Thus, Russian law offers a significant advantage to trademark owners: the right to take legal action to prevent or stop the importation and sale of parallel-imported goods that were imported into Russia without the trademark owner’s consent.
Even if a trademark owner has not yet identified any instances of parallel imports into Russia but wants to take preventive measures, it can request that the customs authorities enter its trademark in the Customs Register of Intellectual Property Objects. Inclusion in the Register somewhat increases the likelihood that customs authorities will be able to identify parallel imports at the border and inform the trademark owner accordingly. Inclusion can also be helpful because if the trademark owner wishes to proceed with a civil action against the parallel importer, the owner will be on record as having taken proactive measures to prevent the unauthorized imports. Inclusion in the Register will not, however, cause the customs authorities to take any administrative action or impose any penalties against the parallel importer; the trademark owner remains responsible for enforcing its rights in a civil lawsuit. This situation is the result of a recent decision by the Supreme Commercial Court stating that the customs authorities may take administrative action only in cases where the public interest is directly affected. According to the court’s ruling, parallel imports are not considered to affect the public interest.
Conflicting Court Rulings with Respect to Remedies
Russian civil law offers several different remedies to trademark owners, such as import bans and/or orders that the offending goods be taken off the market and destroyed. The trademark owner may also claim damages or statutory compensation.
Russian courts have not yet reached a consensus regarding the availability of these legal remedies, so the outcome of litigation will likely vary in different cases. The lower courts traditionally have tended to side with the importers, while the appellate courts usually rule in favor of the trademark owners. More and more, the owner-favorable appellate decisions are becoming the prevailing view in Russia, especially since the Supreme Commercial Court recently considered and denied appeals in two cases (Krusovice, Case No. A40-60322/10-12-360, and Evian, Case No. A41-39651/09), upholding appellate court rulings that parallel imports infringe the rights of trademark owners.
Court Rulings Regarding Import Bans
Notwithstanding the statutory override of the traditional “exhaustion principle,” lower courts in Russia still tend to follow the traditional more generous concept: they deem the trademark owner’s rights to be exhausted, under Russian law, upon the occurrence of the initial sale of genuine branded goods, and payment of the purchase price, in a foreign country. For example, imports of KAYABA shock absorbers (Case No. A40-2250/09-51-27), GUINNESS beer (Case No. A40-85958/10-27-746), KRUSOVICE beer (Case No. A40-60322/10-12-360), VITTEL (Case No. A40-492/11-26-3) and PERRIER (Case Nos. A40-5568/11-26-41 and A40-17875/11-12-157) mineral water, and BMW automobiles (Case No. A41-42709/10) without the consent of the trademark owners were found to be legal, and the lower courts refused to impose import bans. (In the Perrier and BMW cases, appeals are still pending.) Nonetheless, some lower courts are beginning to side with the trademark owners. For example, lower courts have recently held that imports of S. PELLEGRINO mineral water (Case No. A40-12515/11-27-104), SEBASTIAN cosmetic products (Case No. A40-121895/09-110-843) and POULAN lawnmowers (Case No. A40-88008/10-110-750) were infringing, and imposed import bans.
Appellate courts adhere much more closely to the correct Russian definition of the “exhaustion principle” that favors the trademark owner. Parallel imports of BMW automobiles (Case No. A41-42709/10), PANASONIC tape recorders (Case No. A60-41915/2009), VITTEL (Case No. A40-492/11-26-3) and EVIAN (Case No. A41-39651/09) bottled water, UVEX safety helmets and glasses (Case No. A56-20519/2009), IBD brand cosmetic products (Case No. A55-15562/2010) and KRUSOVICE brand beers (Case No. A40-60322/10-12-360) were held to be infringing. The appellate courts ordered import bans except for the Evian and BMW cases (an appeal in the latter case is still pending).
Evidence presented in these cases that showed that the parallel-imported products were not intended for sale in Russia played a role in these courts’ decisions. The lower courts in the Krusovice case regarded the absence of evidence that the goods were destined for the Russian market as unconditional grounds for ruling in favor of the unauthorized importers. However, on appeal, the higher court noted that a trademark owner need not prove that the products in question were intended to be sold in any particular country. Moreover, the higher court placed the burden of proof on the importers to show that the products were indeed imported into Russia with the consent of the trademark owner.
Court Rulings Regarding Destruction of Infringing Goods
An order that infringing goods be removed from the market and destroyed can be issued only if the court deems the branded goods to be counterfeit. In this regard, Russian law (the Civil Code of the Russian Federation) contains two contradicting statutory definitions of that term. The first definition supports trademark owners that want to counteract parallel imports. It states that “if any use of goods on which any intellectual property is placed leads to a violation of such intellectual property rights, such goods are considered to be counterfeit goods” (Art. 1252 para. 4). The second statutory definition states that “goods on which a trademark was unlawfully placed are considered to be counterfeit goods” (Art. 1515 para.1). The latter definition does not encompass parallel-imported goods, as they are genuine goods on which trademarks were lawfully placed.
Russian court decisions have reflected this definitional contradiction. The more sophisticated recent decisions—for example, in Panasonic, S. Pellegrino and Sebastian—support the first definition, stating that a product bearing a trademark “is deemed counterfeit if the trademark owner’s rights are infringed by the sale of the product.” In these cases the courts ordered the destruction of parallel-imported goods, relying on the first statutory definition to deem such goods counterfeit. In the Sebastian case, evidence that the parallel-imported products were not intended for sale in Russia (e.g., the goods failed to comply with Russian labeling requirements in that the packaging text was only partially translated into Russian) also played a role in the court’s decision. On the other hand, in Guinness and Vittel, parallel-imported goods were found to be not counterfeit. In those cases the court cited the second definition and held that a product bearing a trademark is counterfeit only if the trademark “is placed on the product without the trademark owner’s consent.” The Vittel decision has been appealed, and the appeal remains pending.
Court Rulings Regarding Damages or a Statutory Compensation
Even though under Russian law a trademark owner that has been injured by parallel imports can file a claim for damages, in practice such claims are rare because damages must be proven and the burden of proof is difficult to meet.
A more practical solution than trying to prove damages is for the trademark owner to claim statutory compensation in any amount of its choosing against the importer, ranging from EUR 250 to EUR 125,000. However, the court has the right to reduce the compensation in any particular case in its own discretion. In Uvex, the court awarded the full amount claimed, EUR 2,500. Similarly, in Panasonic, the plaintiff demanded EUR 5,000 and the court awarded the full amount. In Sebastian, the plaintiff’s demand of EUR 12,500 against each of two parties—a legal entity that had sold infringing goods and an individual from whose website infringing goods were sold—was substantially reduced: the court awarded only EUR 1,250 against the entity and EUR 250 against the individual. In the IBD and BMW cases there were similar reductions.
Claims Against Parallel Importers: An Abuse of Right?
The lower courts in Krusovice, Perrier and Vittel actually rejected the trademark owners’ claims as abusive because, in their view, such claims, if granted, would lead to a restriction of competition. However, the Supreme Commercial Court rejected this reasoning in Krusovice. Vittel is still pending.
In order to protect their rights in Russia, trademark owners should apply a three-pronged strategy. First, they should register their trademarks with the Russian Customs Register of Intellectual Property Objects. Second, they should implement effective measures to monitor the Russian market so as to identify parallel imports. Third, they should pursue their rights by taking legal action in civil courts when appropriate. However, trademark owners must bear in mind that differing interpretations of the law, especially at the lower court level, may lead to different results in comparable cases and thereby may necessitate a resort to appellate proceedings to obtain a favorable result.
Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.
© 2012 International Trademark Association