Ready to buy


On October 29, 1929, the American stock market collapsed, marking the beginning of the longest, widest, and deepest economic depression in a century. Over the decade, most countries around the world, rich and poor, suffered from plummeting industrial production and climbing unemployment.

The Soviet economy, though, was growing by leaps and bounds. ‘Now I want it clearly understood that I am neither Communist nor Bolshevist, I am definitely a capitalist and an individualist,’ Gibson Jarvie, president of the United Dominion Trust, wrote in 1932. ‘Russia is forging ahead while all too many of our factories and shipyards lie idle and approximately 3 million of our people despairingly seek work.’

Russia was buying machinery and technology, and many western specialists found work here. Soviet industrial giants, the pride of the socialist economy, were built with the help of German, American, and British companies. ‘We are fifty or a hundred years behind the advanced countries,’ Stalin said, ‘we must make up this difference in ten years.’ By 1937 industrial production increased four times and the number of engineers, five times.

‘The progress made in machine construction cannot be doubted, and the celebrations of it in the press and on the platform, glowing as they are, are not unwarranted,’ wrote The Financial Times, ‘Russia is producing today all the machinery essential to her metallurgical and electrical industries; has succeeded in creating her own automobile industry; has established her own tool-making industry from small precision instruments to the heaviest presses.’

President Dmitri Medvedev’s plan is not less ambitious. On the International Economic Forum in Saint Petersburg he proclaimed that Russia will soon become the place ‘where people from all over the world will come in search of their dreams’ and ‘where the well-being and quality of life will be ensured not so much by natural resources as by innovation’.

He made it clear that Russia is ready to buy, massively, new technologies. Seventy years ago, General Electric, DuPont, Radio Corporation of America, and Ford Motor Company were invited; now Google, Cisco, Nokia, and Intel are Russia’s dearest friends (fewer machines, more know-how).

Russia’s ability to produce intellectual products has gone down even compared with the late Soviet Union.

In an ironical twist of history – more than 200,000 scientists and God knows how many engineers have left Russia during the last two decades - Russia’s ability to produce intellectual products has gone down even compared with the late Soviet Union. The country has regressed to where it was as an innovative economy in the 1920-s.

Against this background Medvedev’s promises of low taxes and softening bureaucratic nonsense in a small, specially designated area, Skolkovo, are bound to feel inadequate. Though taxes are important – we tend to tax less those activities we want to encourage – what ‘the market’ wanted to hear was a promise, however firm it may be, that the property rights, and by this we mean intellectual property, will be protected. This Dmitri Medvedev could not provide. Changing the system overnight is beyond his power, and, probably, anyone else’s.

The law of intellectual property is based on certain fundamental assumptions. It does not, for instance, apply to science or ‘ideas’. The thesis adopted by the French Constitutional Assembly as a preamble to the Patent Law of 1791 that ‘every novel idea whose realisation or development can become useful to society belongs primarily to him who conceived it’ was ridiculed and, eventually, rejected. An idea per se does not give its creator special rights.

In contrast to property in things, intellectual property is not control of an idea but rather control of a market for things embodying the idea. Those who do so-called ‘fundamental science’ can achieve eternal glory, or even the Nobel Prize, but not royalties.

IP rights, on the other hand, are the products of a competitive race for commercial success. While fundamental research is supported by the state, innovation is a business venture funded by the market. This notion, as trivial as it may seem, at various times was challenged in Russia and the West. The idea that financing innovation through the system of patent law, that grants a temporary monopoly to an inventor, is a foundation of the western industrial revolution and a result of a heated debate.

In July 1851, the London Economist, for instance, wrote that ‘what the community requires is, that inventors be rewarded; that skilful men who contribute to the progress of society shall be well paid for their exertions. The Patent Laws are supported because it is erroneously supposed that they are means to this end.’ It seems that we now know what our civilisation would have been like should this view prevailed.

This parallel universe was the Soviet Union. The country, where all industry was owned by the state, implemented the system which aimed to support innovation through public funding: the idea, ironically, has nothing to do with socialism rather with the good old free-trade, free-enterprise principles. ‘Certificate of Authorship’ was granted to inventors entitling them to rewards from the government if and when their inventions were actually used.

It seems that we now know what our civilisation would have been like should this view prevailed

The Soviet Union did well in fundamental science, but practice was its weak spot. Russian scientists Nikolay Basov and Alexander Prokhorov won the Nobel Prize for inventing laser. Nonetheless, today, fifty years on, the Russian Academy of Science is buying lasers abroad. Modern telecommunications, including the Internet, mobile phones or even CD-players, became possible, in part, because of heterotransistors invented by Zhores Alferov. None of his discoveries was commercialised in Russia.

Russia goes round in circles in its modernisation policy. In the absence of a long, well-established tradition the somewhat muddled shape of Russian intellectual property law is likely to continue for a while. Yet, Dmitri Medvedev is trying to extract the best of what the Russian legal system can offer. Specialised intellectual property courts are to be established. His protégé Anton Ivanov, the Head of the Supreme Arbitraznhy (Commercial) Court, is promoting the precedent as a source of law and that should build up uniformity in the courts’ practice. Over time, the settings for an innovative economy will be built. But it won’t be an easy ride.


June 28, 2010
text: E. Istomina
picture: NatalyArt -




TEXT: Eugene Arievich, partner, Baker & McKenzie

It is indeed amazing how from being totally unknown or at least a narrow interest topic intellectual property has made its way to the front pages within a relatively short time in recent Russian history. Almost every day there is a new piece in the media on trademark and patent disputes, copyright squabbles between descendants and successors-in-title, and the usual incantations on the importance of innovation. The question though is whether all this is in earnest or not..

The response to the question varies depending on the IP involved. Trademarks were the first IP that hit the ground running. This is because they are easier to understand and manipulate, because they are on products, not in them; because they are a natural communication tool; and also because there was a relative trademark vacuum in Russia as opposed to developed economies. Because of the deficiencies in both the legislation and – more so – its application, as well as the lack of practical market understanding on the part of the Russian trademark registration authorities, trademark piracy soared.

It peaked around the end of 1990s and the early 2000s, after which it somewhat subsided, partly as a result of administrative interference, and partly as a result of sound court rulings, which in their turn followed a strong push from abroad. Trademark piracy has not totally disappeared, however. Trademark pirates have become much more sophisticated: They do not simply steal others' marks; they adopt them for use for goods and services that at first appear dissimilar to those of the original owner, and take advantage of the formalistic approach of the Russian examination and judicial authorities, which are not taught to identify the goodwill behind mere words and images.

Counterfeiting is another issue. While rampant at the outset, it to some extent bridled, more through the effort of Russian customs than the Ministry of the Interior (MVD). However, of late trademark owners are facing new threats due to different factors. First, the Supreme Arbitrazh Court ruled that parallel (grey) importation is not an administrative offense, which ruling not only deprived foreign trademark owners of a cheap and efficient tool to stop grey goods’ importation, but also made it more difficult to fight counterfeiters at the border because often for the customs the identity of the importer is the sole factor in deciding whether goods are genuine or not. The second threat is from the Customs Union.

There are several problems associated with it as far as IP protection is concerned. For example, if a trademark is only protected in Russia and not in Belarus and/or Kazakhstan, it would be a no-brainer for a counterfeiter to import his goods through such other country and the customs would not serve as an obstacle. Or take the exhaustion of rights principle. Currently in Belarus and Russia it is national, meaning that while it is impossible to stop original goods being imported without authorization of the trademark owner by way of customs initiated proceedings, it is still possible to obtain an injunction by way of a civil law suit. In Kazakhstan, however, the exhaustion of trademark rights is international, meaning that all goods originally placed on the market by the trademark owner or on its permission anywhere in the world are legitimate. The difference in regimes jeopardizes the effectiveness of the system.

Patents are a different issue. They require large investment and commitment. As they say in the East: "No matter how often you say "halvah" it won't become any sweeter". Only long-term investment into innovation will really serve to turn inventions into money. There are already examples of state-owned corporations, like Rosnano, that appear to understand the potential of patents and their role in transforming the economy from a natural resources-based one to a technological society. But at present, with R&D resources seriously depleted it perhaps makes sense to look into patent licensing as a fast means of availing oneself of progressive technologies available elsewhere.

A good sign that Russia is changing its attitude towards IP is the adoption on January 1, 2008 of Part IV of the Civil Code - dedicated to IP regulation. It is definitely a serious step forward as it sets a uniform legal framework for protection of IP rights. It may not be ideal but it is a basis to build upon. Now the next step, which is no less important, is the enforcement system, including courts, competition authorities for unfair competition matters, customs, and specialized MVD units. They all exist and handle IP matters but need more training, dedication and consistency. On the judicial side, setting up a specialized Patent Court that the Chairman of the Supreme Arbitrazh Court champions appears to be a good move.

Russia is not an IP heaven, but is not an IP hell either, still, some kind of purgatory.



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