The New Collateral Damage in the War in Ukraine: Intellectual Property

In a dramatic escalation of the rift between Russia and the West, the Russian Federation has issued an edict allowing its citizens to copy and use Western patents without payment or requiring authorization for use. Regulation No. 299, issued on and in effect as of March 6, amends the prior decree on licensing patents to state that Russians will pay 0 percent for patent use to those who reside in what Russia has defined as an “unfriendly nation.”

The Russian Federation has issued a list of 48 “unfriendly nations,” including the United States and Canada; the European Union (EU) member states; the United Kingdom (including Jersey, Anguilla, the British Virgin Islands, and Gibraltar); Ukraine; Montenegro; Switzerland; Albania; Andorra; Iceland; Liechtenstein; Monaco; Norway; San Marino; North Macedonia; Japan; South Korea; Australia; Micronesia; New Zealand; Singapore; and Taiwan.

More specifically, the regulation states:

“In relation to patent holders associated with foreign states who commit unfriendly actions against Russian legal entities and individuals (including if such patent holders have citizenship of these states, their place of registration, the place of their primary business activity, or the place of their primary profit from the activities are these states), the amount of compensation is 0% of the actual income of the person who exercised the right to use an invention, utility model, or industrial design without the consent of the patent owner, from the production and sale of goods, performance of work, and provision of services for the production, performance, and provision of which the corresponding invention, utility model, or industrial design was used.”

This change in law is unprecedented and has wide-ranging implications since the potential impact is not limited to companies that do business in Russia. For companies currently doing business in Russia and using patented methods or devices, Russian entities can continue to exploit patents without a royalty obligation or risk of liability. Moreover, since the regulation affects any patent owner residing in any of the “unfriendly nations,” even companies that do not currently do business in Russia may find their patents pirated by Russian competitors.

The impact of this new regulation is somewhat tempered by several factors. In view of Russia’s growing isolation, and the inability of foreign companies to market goods and services within the country, companies doing business in Russia will likely see greatly reduced or non-existing royalties, even without this new edict. Also, some Russian entities may look to the future and be hesitant to burn bridges with their foreign licensors.

In some cases, it may take time and scarce capital for Russian entities to copy patented processes, particularly where those processes haven’t been previously licensed in Russia. Moreover, if Russian entities try to export products that infringe a patent that is protected abroad, such exports will still be subject to legal action in the foreign jurisdiction.

The assumption that this situation is temporary but continues for an extended period of time leads to these questions:

• Once the international structure of patent protection has been broken within Russia (and perhaps its ally Byelorussia, which may well follow suit), can it be put back together?
• If so, how?
• What will be the impact of authorized infringements—both during this uncertain time and once the commercial world is restored to order?
• Will there be claims for retroactive royalties, or will these be expressly forbidden by Russian law?

Much will depend on what happens in the coming months and whether a diplomatic solution is eventually found. Patent owners in the “unfriendly nations” are well advised to seek legal advice. Patent owners with business interests in Russia must determine the intent of their Russian licensees. At the least, it is important that patent owners monitor the situation and the actions by Russian entities within their respective industries.

Things may get worse before they get better. TASS, a Russian news agency, reported on March 5 that the Ministry of Economic Development of the Russian Federation has suggested a similar change in law related to trademarks. International brand owners should watch developments carefully.

Jorge Espinosa is Florida Bar Board Certified in intellectual property law and serves as chair of the intellectual property section at GrayRobinson. He has been practicing domestic and international intellectual property law for over 30 years.

From: Daily Business Review