Exhaustion of Fair Business Practice

Exhaustion of rights, a legal principle deeply rooted in many national laws, including those of Russia, is a concept that is not often discussed in the context of intellectual property (IP) infringements. It refers to the point at which the rights of the trademark owner are ‘exhausted’ or used up, typically after the first sale of the product.

Recent media criticism has incorrectly alleged that Russia waived the national exhaustion of rights when, in fact, the Russian Government issued a list of goods allowed for parallel import. When some companies left the Russian market in 2020, resulting in a shortage of their products, some products were permitted for parallel import to address this unexpected situation.

When a company returns to the market, its goods are excluded from the list on request. In any case, parallel import, a process where products are imported and sold without the trademark owner’s permission, is not legally allowed; however, some entrepreneurs either disregard the law or hope that permission for parallel import covers all goods.

Hongkong Sun Rise Trading Ltd. sued entrepreneur Mr Gordeev for infringement of its trademark (No. 497200). In its examination, the Court clarified that the entrepreneur had used the trademark on the goods offered for sale on its trading platform “market.yandex.ru”. The Plaintiff claimed RUB 280,000 of compensation.

The Respondent objected, stating that they had legally purchased the goods from Oldi Ltd. based on a supply contract. According to the Respondent, the contract was concluded with the official dealers of the Plaintiff, customs duties were paid, and other formalities were complied with. However, the Court clarified that the Plaintiff had not permitted for the Respondent to use their trademark on the Internet. The use of a trademark on the Internet constitutes an independent and separate use of the trademark, which requires the trademark owner’s special permission. Additionally, the supply contract submitted by the Respondent did not contain any provisions indicating that the trademark owner allows the use of their trademarks. The existence of a partnership with dealers does not warrant the use of a trademark.

The Respondent argued that the trademark rights for the goods had been exhausted. The Court, however, stated that the Respondent had not provided any documents that would enable the tracing of the chain of supply of goods from the trademark owner to the end buyer. Thus, the Court rejected the claim of exhaustion of rights for the trademark.

Since the evidence provided confirmed the unlawful use of the trademark, and the Respondent was unable to provide evidence of permission granted by the trademark owner to use the trademark, the Court recognized the compensation claim.

The Plaintiff found nine links featuring the trademark, indicating nine cases of infringement. The Court carefully calculated the amount of compensation and awarded RUB 108,000 (RUB 12,000 for each case of infringement). The Court also awarded court expenses in proportion to the Plaintiff’s claims.

Companies, as well as individual entrepreneurs, should be cautious when doing business with the use of someone else’s trademarks. No infringement may go unpunished if the trademark owner wishes to assert their IP rights.