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Despite tensions, now is not the time to disengage from Russia

There have been political tensions between Russia and many western nations for several years. Sanctions have been imposed on Russia since 2014, by the US and the EU as a result of their interpretation of the situation in Crimea and Eastern Ukraine, which Russia disputes.
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To add to that, we now have the extreme tensions surrounding the poisoning of an exiled Russian and his daughter in Salisbury, and an alleged chemical attack in Syria. Who knows how much further relations may have deteriorated by the time this article is published.

As if sharply deteriorating diplomatic relations is not enough, the Russian economy has struggled. Heavily dependent on oil and gas, Russia was hit hard by the collapse of oil prices in 2014. The value of the Ruble fell dramatically, with a consequent rise in inflation and fall in living standards. The economy went into recession for a couple of years, and has been struggling to regain growth since.

Against this poor geo-political and economic environment, trademark filings have held up remarkably well. Data from the Russian Patent and Trademark Office (Rospatent) shows filings by non-Russian entities still below a 2013 peak, but with the sharp drop in 2014 now largely reversed.

It makes perfect sense. Russia is still the biggest market that has yet to be fully engaged by world trade. There remains enormous potential in a growing middle class obtaining an increasing appetite for new products.

There is a significant risk, however, that the current environment will lead to many western employers turning their backs on Russia. Or Russia making it difficult to trade without localising businesses and making investments into the Russian economy. It follows that many western companies may neglect Russia when it comes to allocating precious IP budgets.

Marks for new products may not be filed. Existing marks may not be renewed. This may be attractive in the short term, but surely in the medium/long term such a policy is fraught with risk and anyone adopting it is in danger of being at a serious disadvantage when things, inevitably, improve.

We have faced similar situations, for varying reasons, over the years in many countries. A particularly interesting case in point is India. For wholly different reasons, India became an unattractive place for western companies to do business in the 70s and 80s.

At that time India adopted economic policies that were protectionist, and thus detrimental to western companies. Import restrictions, import duties, and rules under which foreign companies could own no more than 40% of the shares of Indian subsidiaries, led many companies to pull out.

Others adopted different marks for products in India so as not to lose control of important global assets. Such actions were understandable, but left a void which unscrupulous traders were quick to fill. When the situation improved in the 1990s, many returning companies found that third parties had gained a foothold in the market using marks the same as or very similar to their own. Trying to stop such use was difficulty, with defendants counterclaiming for cancellation of marks which had been unused for many years.

In India, the returning companies were assisted by the Indian judiciary who, in a common law system, invented the concept of “spill-over reputation”. This concept meant that lack of use in India, even for a lengthy period, would not be fatal if the marks reputation in other countries had “spilled-over” into India, through advertising in international media and visibility to travelling Indians for example.

But don’t expect such a response from the judiciary in Russia. To defend a non-use cancellation action in Russia you must be able to prove use by the proprietor in Russia. Advertising elsewhere and/or knowledge by Russians who have travelled abroad is simply not taken account of, and there is no reason to expect that rigid approach to change.

Similarly, anyone falling back on an unfair competition action because, for whatever reason, their copied mark is not registered by them in Russia, will find no cause of action without use in Russia. Simply, for there to be unfair competition in Russia there must first be competition in Russia.

These are undoubtedly extremely challenging times for anyone wanting to do business in Russia. But rights holders would be well advised to do their best to stick it out and keep their trademark portfolios in good shape if they want to be well positioned to enjoy the upturn when it comes.

Stuart Adams is Russia country manager at Rouse

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