Parallel imports at the crossroads

Parallel imports have long been an issue in Russia. For some time the status of parallel imports was obscure — the courts acted erratically, sometimes ruling in favour of the trademark owners, sometimes in favour of the parallel importers. Then, in order to clarify the situation, the law was changed to state unequivocally that trademark rights were exhausted only with regard to goods sold legally in Russia. The court practice was rectified accordingly, and the courts thus ruled against the parallel importers, with some rare exceptions.

In the meantime, the parallel import lobby did not sit on its hands — the strongest advocate of the principle of international exhaustion of trademark rights being the anti-monopoly body.

This issue has been hotly contested in Russia, complicated by the fact that the country is a member of the Eurasian Economic Union (which, until May 2015, consisted of Russia, Kazakhstan, Belorussia and Armenia). In May 2015 Kyrgyzstan officially became a member of the union, and it is expected that it will ratify the agreement within a month. There are no customs borders within the Eurasian Economic Union, meaning that there is free movement of goods between the member countries. The regime for the exhaustion of rights within the union is regional, and any changes sought in this respect would need to be approved by all member countries.

To complicate matters further, Russia has been experiencing an economic crisis over the past year, mainly due to falling oil prices. The rouble lost 30% of its value and prices went up accordingly. Against this background, the parallel import lobby sounded an alarm which was heard by the government. In late May Russian Prime Minister Dmitry Medvedev approved the legalisation of parallel imports, stating that such legalisation could become an important anti-recessionary measure. The government is planning to prepare proposals concerning the goods which should be allowed to be imported without the permission of the trademark owners. Some sources say that these will be pharmaceuticals, medical equipment and automotive spare parts. These goods are in most demand by consumers and it is believed that prices will decrease if such parallel-imported goods are allowed on the market. Accordingly, the government plans to preserve the principle of national exhaustion of trademark rights for goods whose production is localised in Russia. To this end, Medvedev instructed several ministries to prepare proposals for the legalisation of parallel imports. However, any proposals will have to be discussed with the other members of the Eurasian Economic Union.

In 2014 the Eurasian Economic Commission of the Eurasian Economic Union, recognising the importance of the issue, had set up a working group to prepare proposals regarding the principle of the exhaustion of IP rights. However, opinions on parallel imports differ within the commission. The commission investigated how the principle of regional exhaustion of trademark rights affects various economic indices in the member countries. It found that wholesale and retail prices were not affected that much by the principle of regional exhaustion. At the same time, regional exhaustion helps to keep down (by 75%) the share of counterfeit goods on the market. It improves the quality of sold goods and the availability of post-sales service.

Regional exhaustion creates more favourable conditions for foreign investment projects. If international exhaustion were to be introduced, the share of parallel-imported goods on the market would grow dramatically, according to the commission, which would greatly affect household electronics, cosmetics, automotive spare parts and pharmaceuticals.

The working group convened a number of times to discuss the issue of parallel imports, but did not go further than discussing the matter. The representatives of Russia, Kazakhstan and Belorussia spoke in favour of the regional exhaustion of rights, with exceptions for certain goods. Armenia was in favour of a gradual introduction of the international exhaustion of rights. The Eurasian Economic Commission also stated that exceptions for certain goods could not be decided nationally because this fell outside the competence of national bodies. Considering the differing opinions within the commission, it is difficult to predict the outcome of the Russian lobbyists' initiatives. It is clear, however, that many more discussions will follow.