Anti-Counterfeiting – Demand will Always Fuel Supply

by Vladimir Biriulin,
Partner, Gorodissky & Partners

 

While few counterfeit goods actually originate in Russia, brand owners need to be aware of the protections in place to guard against the impact of infringements

No country is free from counterfeiting activity and it is highly unlikely that it will ever be completely eradicated. The issue at stake is thus the extent to which its effects can be mitigated. The level of counterfeiting activity depends on a number of variable factors. Although the term 'counterfeiting' usually refers to activities which infringe on trademarked products, it can also be applied to other IP rights. Counterfeiting activity can be divided into the following categories:

• copyrighted works (often called piracy);
• trademarks;
• patents (ie, inventions, designs, pharmaceuticals);
• appellations of origin; and
• plant varieties and animal breeds.

No trustworthy statistics on the extent of the problem in Russia are available, but it can safely be said that buying counterfeit goods in Russia is not difficult. Infringement depends greatly on the ease with which a product can be copied and on the revenue which can be generated thereby. Hence, copyright piracy is widespread because technological developments have made the copying of music and movies cheap and simple. Less easy to commit is trademark infringement, since a prospective counterfeiter requires the capacity to manufacture the product before labelling it with a fake mark.

A relatively small proportion of counterfeit goods therefore originate from domestic sources, which can be explained by Russia's relatively low level of industrial development. Most counterfeit products on the market come from China, members of the former Eastern bloc and the Baltic states. A small proportion originate in Western Europe.

Legislation and enforcement

Russia has all the necessary legal tools to deal with counterfeiting. The applicable legislation includes the Civil Code (which also covers intellectual property), the Code of Administrative Offences, the Criminal Code, and the Customs Code. Russia is also party to many international agreements on intellectual property. Infringement is the unauthorized use of a trademark, through either counterfeiting activity or parallel import. Depending on the nature and gravity of the infringement, administrative, civil or criminal remedies are available.

Administrative remedies

Unlike in many other countries, in Russia administrative enforcement of IP rights is available in addition to other enforcement options. Administrative enforcement is based on the Code on Administrative Offence, which states that unlawful use of a trademark is punishable by confiscation of the infringing goods and an administrative fine of up to approximately $1,300.

No damages can be claimed in administrative cases. Administrative action can be initiated by the police, Customs or the anti-monopoly body, or by the mark owner filing a complaint with one of the above agencies. These authorities will investigate the case and pass their findings onto the court. The anti-monopoly body itself considers the case and issues a judgment. Such decisions may be appealed in court.

Customs action and civil remedies

The Customs Code prohibits the entry of goods into Russia whose import would infringe trademark rights. Where products are found which infringe trademark law, Customs will initiate administrative action.

A trademark owner may apply for the inclusion of its trademark on the Customs Register. Upon inclusion of the mark in the register, Customs monitors the import of goods bearing that mark and, if in doubt over the legitimacy of goods, will suspend their release. If suspicious merchandise carries a mark that is included on the register, Customs may detain it for 10 days, with the possibility of extending this for a further 10 days. If the mark is not on the register, Customs can detain the products for three days only. Immediately following the declaration of suspicious products, Customs will inform the trademark owner or its representative about the suspected infringement and await instruction. In the absence of instructions to prosecute the case, Customs will release the goods. No administrative remedies are available in cases relating to parallel imports.

Before civil courts, mark owners may demand cessation of infringement, damages and recovery of profits generated by the infringer. In cases of trademark infringement, mark owners may demand compensation of up to approximately $200,000 instead of damages and destruction of the counterfeit goods and packaging. The court may decide to destroy the equipment and materials used to produce the infringing goods. The court may also order injunctive relief forbidding the defendant to perform actions related to the subject matter of proceedings or ordering the seizure of the defendant’s property. It may be necessary, prior to the injunctive relief, to provide security against possible damages of the defendant. The level of security will depend on the scope of the material claims. The court considers petitions for injunction no later than the day after they are filed by the claimant.

Injunction and compensation of damages are the most common remedies sought in court. Included in the definition of 'damages' in Russian law are:

• expenses which the trademark owner has incurred or will incur during the restoration of the violated right;
• loss or damage to its property (actual losses); and
• income lost which would have been generated under ordinary business conditions.

The trademark owner must prove the damages. Adequate evidence should be collected to show the damage suffered. The court may decrease the amount of claims if it finds that the trademark owner has not proved the level of damages which it is claiming. Attorneys’ fees are awarded by the court, at the request of the winning party, provided that they are reasonable.

Civil proceedings take between three and six months at first instance and about two years to go through the entire round of appeals. The expenses associated with obtaining a first instance judgment may amount to between $20,000 and $30,000.

Statistics

The following table shows a breakdown of damages awarded in civil trademark cases examined by the courts since 2004:

The following table shows a breakdown of fines imposed by commercial courts examining administrative trademark cases since 2004:

The following table shows a breakdown of damages awarded by the courts of common jurisdiction examining administrative trademark cases:

It is symptomatic of Russia's counterfeiting problems that no data is available for the years before 2004. The enforcement system began to work properly around the year 2000 and the number of cases has grown steadily since then.

A comparison of the statistics relating to civil trademark cases with those for administrative trademark cases reveals that administrative prosecution is more popular with mark owners. This can be explained by the fact that the administrative prosecution is four or five times cheaper than civil litigation and takes about two months. It also indicates that mark owners are often more interested in stopping infringement than in seeking redress for the damages suffered.

Criminal remedies

The Criminal Code establishes criminal penalties for trademark infringement. In order to qualify for criminal prosecution, the infringement must have caused significant damage (ie, at least $9,000) or be recurrent. Infringers facing criminal charges may be fined up to $17,000 or be imprisoned for up to six years. IP litigation procedure consist of the following stages:

• The plaintiff collects evidence.
• The plaintiff prepares its complaint.
• The parties attend a preliminary and substantive hearing.
• The parties may enter into conciliatory procedures and attempt to reach amicable agreement.
• The parties present their legal positions before the court at the main hearing. The court questions the parties and studies the available evidence.
• At the end of the hearing, the court retires to pass a decision. The substantive part of this decision – stating whether the claim has been rejected, accepted in full or accepted in part – is announced before the parties leave. The full text of the court decision is prepared by the court within five working days and sent to the parties. This is the final stage of consideration of the case before the first instance court.
• For one month following circulation of the full text of the court's decision, any of the parties may appeal to the court of appeal. If no appeal is filed during this period, the first-instance decision comes into force and may be enforced through bailiffs.
• The appeal procedure is shorter than that at first instance and most cases are decided in one hearing within a month of the appeal's filing. Appeals are considered by three judges. The appellate ruling comes into force immediately following its adoption.
• Within two months of the ruling it can be appealed to the Court of Cassation. The procedure is short and the decision comes into force immediately following its adoption. In addition, Russian law provides further measures in respect of legal entities that infringe IP rights. If a legal entity repeatedly or grossly infringes IP rights, the court may decide to liquidate it.

Online issues

Online trade is developing quickly. When products bought over the Internet infringe a trademark, it is often very difficult to track down the infringer because the goods are ordered online and delivered by a courier. In such cases it becomes necessary to involve the police and have them follow the courier back to the source of the infringing goods. Often, this premises is a rented warehouse whose owners are unaware of the activities being carried out there. The difficulties associated with this kind of infringement make prosecution more expensive.