Legal Remedies Against Illegal Importation and Parallel Imports in Russia

August 31, 2023

BRACE Law Firm ©

Illegal movement of goods across the customs border[1] implies moving goods across the EAEU customs border outside the places where, in accordance with Article 10 of the EAEU Customs Code (the "EAEU Customs Code"), the movement of goods across the EAEU customs border must or may be carried out, or outside the business hours of customs authorities located in such places, or with concealment from customs control, or with false customs declaration or non-declaration of goods, or using documents containing false information about the goods, and (or) using identification means that are forged or relate to other goods. How can one protect against the illegal importation of goods and parallel imports?

Parallel import represents the importation of original goods marked with the rights holder's trademark into EAEU countries from abroad by importers without the rights holder's permission. It generates a conflict of interests between importers and rights holders claiming absolute powers to control parallel imports.[2] In Russia, parallel import became possible in 2022, when Federal Law No. 213-FZ dated June 28, 2022, On Amendments to Article 18 of the Federal Law On Amendments to Certain Legislative Acts of the Russian Federation, introduced changes. According to these changes, the use of results of intellectual activity expressed in goods (groups of goods), the list of which is established by the Ministry of Industry and Trade of the Russian Federation, as well as the means of individualization with which such goods are marked, does not constitute a violation of the exclusive right to the results of intellectual activity or means of individualization.

The obligation to pay import customs duties and taxes in case of illegal movement of goods across the EAEU customs border arises upon the importation of goods into the EAEU customs territory[3] for persons illegally moving the goods. Persons participating in the illegal movement, if they knew or should have known about the illegality of such movement, and upon importation of goods into the EAEU customs territory—also persons who acquired ownership or possession of illegally imported goods, if at the moment of acquisition they knew or should have known about the illegality of their importation into the EAEU customs territory — bear joint and several liability for the payment of customs duties and taxes with the persons illegally moving the goods. In case of illegal movement of goods across the EAEU customs border, customs duties and taxes are payable in the amount as if the goods were placed under the following customs procedures:

• Upon importation of goods into the EAEU customs territory: the customs procedure of release for domestic consumption without the application of tariff preferences and benefits regarding the payment of import customs duties and taxes;
• Upon exportation of EAEU goods from the EAEU customs territory: the customs procedure of export without the application of benefits regarding the payment of export customs duties.

Introduced sanctions restrictions contributed to the development of various schemes for importing goods, including parallel imports. In this regard, the Government of Russia adopted Resolution No. 506 dated March 29, 2022, On Goods (Groups of Goods) in Respect of Which Certain Provisions of the Civil Code of the Russian Federation on the Protection of Exclusive Rights to Results of Intellectual Activity Expressed in Such Goods and Means of Individualization with Which Such Goods are Marked Cannot Be Applied. This Resolution established that the Ministry of Industry and Trade of Russia, based on proposals from federal executive bodies, approves the list of goods[4] (groups of goods) regarding which the provisions of the Civil Code of the Russian Federation (the "Civil Code") do not apply, provided that said goods (groups of goods) were introduced into circulation outside the territory of the Russian Federation by the rights holders (patent holders),[5] or with their consent. Specifically, the following provisions do not apply:

• Article 1252, Protection of Exclusive Rights;
• Article 1254, Specifics of Protection of Licensee's Rights;
• Clause 5 of Article 1286.1;
• Article 1301, Liability for Violation of the Exclusive Right to a Work;[6]
• Article 1311, Liability for Violation of the Exclusive Right to an Object of Related Rights;
• Article 1406.1, Liability for Violation of the Exclusive Right to an Invention, Utility Model or Industrial Design;
• Subclause 1 of Article 1446;
• Article 1472, Liability for Violation of the Exclusive Right to a Production Secret;
• Article 1515, Liability for Illegal Use of a Trademark";
• Article 1537, Liability for Illegal Use of a Geographical Indication and Appellation of Origin of Goods.

A mandatory condition for the list of goods (groups of goods) regarding which the provisions of the Civil Code do not apply is the introduction of said goods (groups of goods) into circulation outside the territory of the Russian Federation by the rights holders, or with their consent. That is, the goods must have been legally introduced into civil circulation outside the Russian Federation. Authorization to import goods designated in the list under parallel import rules implies that for the sale of goods in the Russian Federation, the seller/importer does not need to obtain the consent of the trademark rights holder in the Russian Federation. Now, goods protected by a trademark can be purchased from a foreign rights holder and brought into Russia without obtaining consent for such importation from the official distributor in the Russian Federation. Before May 2022, it was necessary to obtain written permission from the rights holder to import and sell goods with a registered trademark in the Russian Federation. This permission had to be submitted to the customs authorities, which carried out customs clearance and released the goods into commercial circulation.

Principle of Exhaustion of Exclusive Rights in the Context of Protection Against Parallel Imports and Illegal Importation of Goods

It is important to note that the use of a trademark by other persons regarding goods that were introduced into civil circulation in the Russian Federation directly by the rights holder or with their consent does not constitute a violation of the exclusive right to the trademark.[7] Furthermore, the principle of exhaustion of the exclusive right to a trademark (EAEU trademark) applies in the territories of the member states. According to this principle, the use of a trademark (EAEU trademark) regarding goods that were legally introduced into civil circulation in the territory of any of the member states directly by the trademark (and/or Union trademark) rights holder or by other persons with their consent is not a violation of the exclusive right to the trademark (EAEU trademark).[8]

In recent years, the Russian economy has faced global economic challenges. In this regard, a Strategy was developed taking into account the current assessment of macroeconomic and microeconomic processes and national goals defined by strategic documents in force in the Russian Federation. To implement this, a plan for regulatory and legal work, as well as an action plan for the implementation of the Strategy,[9] was developed. To develop competition in the Russian Federation, the implementation of a set of measures aimed at protecting the rights of "parallel importers" when importing original products of the trademark rights holder into the Russian Federation is envisaged. Such measures include forming legal approaches to assess the bad faith of rights holders when exercising and protecting intellectual rights in relation to "parallel importers," and promoting the introduction of the international principle of exhaustion of rights to trademarks in the Russian Federation and the EAEU.

National exhaustion of rights means that within the territory of a specific state, the exclusive right to a trademark placed by the rights holder on a specific good, subject to legal protection in that state, is exhausted from the moment the good is first introduced into civil circulation directly by the rights holder or with their consent in that state. Regional exhaustion of rights implies the exhaustion of the rights holder's exclusive right to a trademark within the customs territory of several states. Under international exhaustion of rights, the exclusive right to a trademark is recognized as exhausted regarding a specific good from the moment of its first introduction into civil circulation directly by the rights holder or with their consent in the territory of any state.

The Constitutional Court of the Russian Federation[10] recognized the provisions of Clause 4 of Article 1252, Article 1487,[11] Clauses 1 and 2, and Subclause 1 of Clause 4 of Article 1515 of the Civil Code as not contradicting the Constitution of the Russian Federation, because according to the constitutional-legal meaning of these provisions:

• The national principle of exhaustion of the exclusive right to a trademark, established by the federal legislator within the discretion granted to them, applies in conjunction with the regulation of the principle of exhaustion of rights by international treaties to which the Russian Federation is a party, including Clause 16 of Annex No. 26 to the Treaty on the Eurasian Economic Union;
• It does not exclude the court's power, acting based on Articles 17 (Part 3) and 55 (Part 3) of the Constitution of the Russian Federation and in accordance with Clauses 3 and 4 of Article 1, and Clauses 1 and 2 of Article 10 of the Civil Code, to refuse fully or partially the application of consequences of importing into the Russian Federation without the trademark rights holder's consent a specific batch of goods on which the trademark was placed by the rights holder themselves or with their consent and which was legally released into circulation outside the Russian Federation. This applies in cases where, due to the rights holder's bad faith behavior, the application of such consequences at their request may create a threat to the life and health of citizens or other publicly significant interests. Furthermore, the rights holder's adherence to a sanctions regime against the Russian Federation or its economic entities established by any state outside the proper international legal procedure and in contradiction with multilateral international treaties to which the Russian Federation is a party, expressed in the position taken by the rights holder regarding the Russian market, may in itself be considered bad faith behavior;
• It does not assume the application, upon importation into the Russian Federation without the trademark rights holder's consent of a batch of goods on which the trademark was placed by the rights holder or with their consent, of the same measure (severity of consequences) of civil liability as for the importation of counterfeit goods (on which the trademark was placed not by the rights holder and not with their consent), if under the circumstances of the specific case this does not entail losses for the rights holder comparable to losses from the introduction of counterfeit goods into circulation;
• Goods on which the trademark was placed by the rights holder themselves or with their consent, imported into the Russian Federation without the rights holder's consent, may be withdrawn from circulation and destroyed as a consequence of violating the exclusive right to the trademark only in cases of their inadequate quality and (or) to ensure safety, protect the life and health of people, and protect nature and cultural values. It is important to note that legislatively, parallel import into the Russian Federation is generally not permitted; however, in the event of a dispute, the court, taking into account the specific circumstances of the dispute, may refuse to apply the consequences of such import.

The constitutional-legal meaning of the provisions of Clause 4 of Article 1252, Article 1487, Clauses 1 and 2, and Subclause 1 of Clause 4 of Article 1515 of the Civil Code, identified in the Resolution of the Constitutional Court of the Russian Federation No. 8-P dated February 13, 2018, is universally binding, which excludes any other interpretation in law enforcement practice.

Civil Law Methods of Protecting Intellectual Property Rights

Within the Eurasian Economic Union, member states take actions to protect rights to intellectual property objects, including in accordance with the EAEU Customs Code, as well as international treaties regulating customs relations and acts constituting EAEU law. Member states cooperate in the protection of rights to intellectual property objects and ensure the protection of rights to them in their territory in accordance with international law, international treaties and acts constituting EAEU law, and the legislation of member states.[12] The protection of exclusive rights to the results of intellectual activity and means of individualization in Russia is carried out, in particular, by filing claims in the manner prescribed by the Civil Code:[13]

• Recognition of the right – against a person who denies or otherwise does not recognize the right, thereby violating the rights holder's interests.[14]
• Suppression of actions violating the right or creating a threat of its violation – against a person performing such actions or making necessary preparations for them, as well as against other persons who can suppress such actions. A claim for the suppression of a violation (Subclause 2 of Clause 1 of Article 1252 of the Civil Code), expressed in the illegal use of domain names identical or confusingly similar to a trademark (Subclause 5 of Clause 2 of Article 1484 of the Civil Code), may be stated as a requirement to prohibit the use of a domain name in a certain way (for example, obliging the removal of information about specific types of goods on the relevant website or ceasing addressing to the website).[15]
• Reimbursement of damages – against a person who illegally used the result of intellectual activity or means of individualization without concluding an agreement with the rights holder (non-contractual use) or otherwise violated their exclusive right and caused them damage, including violating their right to remuneration provided for by Article 1245, Clause 3 of Article 1263, and Article 1326 of the Civil Code.[16]
• Seizure of the material carrier – against its manufacturer, importer, custodian, carrier, seller, other distributor, or bona fide purchaser.
• Publication of the court decision on the committed violation with an indication of the actual rights holder – against the violator of the exclusive right.

Administrative Methods of Protection Against Illegal Importation of Goods and Parallel Imports

The arrival of goods into the EAEU customs territory and customs operations related to such arrival are regulated by Chapter 14 of the EAEU Customs Code. Importing goods without clearance in violation of customs legislation entails administrative liability, which is regulated by Chapter 16 of the Code of Administrative Offenses of the Russian Federation (CAO RF):

• Article 16.1. Illegal Movement of Goods and (or) Vehicles of International Transport Across the Customs Border of the Customs Union.[17]
• Article 16.2. Non-Declaration or False Declaration of Goods.[18]
• Article 16.3. Non-Compliance with Prohibitions and (or) Restrictions on the Importation of Goods into the EAEU Customs Territory or into the Russian Federation and (or) Exportation of Goods from the EAEU Customs Territory or from Russia.[19]
• Article 16.7. Submission of Invalid Documents When Performing Customs Operations.[20]
• Article 16.21. Illegal Use of Goods, Their Acquisition, Storage, or Transportation,[21] etc.

Invalid documents are understood as forged documents, documents obtained illegally, documents containing false information, documents relating to other goods and (or) vehicles, and other documents having no legal force.[22]

In most cases, when committing offenses related to the illegal importation of goods, administrative liability occurs in the form of a fine, with or without possible confiscation of the goods that were the subject of the administrative offense. Under the sanctions of Articles 16.1, 16.2, 16.18–16.21 of the CAO RF, the amount of the administrative fine depends on the value of the goods that were the subject of the administrative offense.[23]

The possibility of declaring goods illegally imported into the EAEU territory is provided for by the EAEU Customs Code, which regulates the performance of customs operations regarding goods that were illegally moved across the Union's customs border.[24] The legislation[25] of member states on customs regulation may establish the possibility of customs declaration, performance of other customs operations, and payment of customs duties, taxes, special, anti-dumping, and countervailing duties regarding goods that were illegally moved across the Union's customs border or the release of which was not produced by customs authorities in accordance with the Code. This applies where such actions resulted in non-payment of customs duties, taxes, or non-compliance with prohibitions and restrictions or measures to protect the internal market, and the goods were discovered by customs authorities in the possession of persons who acquired these goods in the Union's customs territory.[26]

Criminal Liability for Illegal Importation of Goods

The importation of goods into the EAEU territory and parallel import are associated with the necessity of paying customs payments,[27] which include import customs duties, export customs duties, value-added tax levied upon importation of goods into the EAEU customs territory, excise taxes (excise tax or excise duty) levied upon importation of goods into the EAEU customs territory, and customs fees. For non-compliance with customs rules, in addition to administrative liability, persons who violated the norms of customs legislation may be held criminally liable, for example:

• Article 193. Evasion of Duties to Repatriate Funds in Foreign Currency or the Currency of the Russian Federation.
• Article 194. Evasion of Customs Payments, Special, Anti-Dumping and (or) Countervailing Duties Levied on an Organization or an Individual.[28]
• Article 238. Production, Storage, Transportation, or Sale of Goods and Products, Performance of Works, or Provision of Services Not Meeting Safety Requirements.

Upon detection of illegal importation of goods, it is important to timely minimize the possibility of risks regarding liability for violation of customs legislation.

Illegal importation of goods into the territory of the EAEU and Russia has an adverse effect on the rights of rights holders protected by regulatory documents. The applied methods of protection, not only at the national but also at the international level, allow for identifying such violations, applying sanctions established by law, and reimbursing the damage sustained by rights holders.

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References

[1] Resolution of the Supreme Court of the Russian Federation No. 18-AD19-66 dated November 21, 2019. Claim: To hold liable under Part 2 of Article 16.1 of the CAO RF for concealment of goods from customs control by using caches or other means making the detection of goods difficult. Decision: The claim was satisfied, as the fact of movement of goods by the applicant across the customs border with concealment from customs control by using means making the detection of goods difficult was established.

[2] GOST R 58223-2018. National Standard of the Russian Federation. Intellectual Property. Antimonopoly Regulation and Protection Against Unfair Competition.

[3] Article 56 of the EAEU Customs Code.

[4] Order of the Ministry of Industry and Trade of Russia No. 1532 dated April 19, 2022, On Approval of the List of Goods (Groups of Goods) in Respect of Which the Provisions of Subclause 6 of Article 1359 and Article 1487 of the Civil Code of the Russian Federation Do Not Apply Provided That Said Goods (Groups of Goods) Were Introduced into Circulation Outside the Territory of the Russian Federation by the Rights Holders (Patent Holders), or with Their Consent.

[5] Resolution of the Thirteenth Arbitration Appeal Court No. 13AP-33024/2022 dated November 21, 2022, in Case No. A21-4427/2022. Rights holder's claims: Recovery of compensation for violation of the exclusive right to a trademark. Circumstances: The defendant sold goods (a set of toys) containing designations confusingly similar to trademarks, the exclusive rights to which belong to the plaintiff and were not transferred to the defendant. Decision: Satisfied in part.

[6] Resolution of the Intellectual Property Court No. S01-1763/2022 dated November 7, 2022, in Case No. A67-988/2022. Claim: Recovery of compensation for violation of exclusive rights to a trademark and works of fine art. Circumstances: Goods containing designations confusingly similar to the trademark and works of fine art of the plaintiff were sold in the defendant's retail outlets. Decision: The claim was satisfied, as the defendant did not present evidence confirming they had the plaintiff's permission to use the trademark and works of fine art belonging to the plaintiff; the fact that the exclusive right belongs to the plaintiff and the fact of its violation by the defendant through illegal use were confirmed by documents.

[7] Article 1487 of the Civil Code.

[8] Clause 16 of the Treaty on the Eurasian Economic Union. Signed in Astana on May 29, 2014.

[9] Order of FAS Russia No. 289/20 dated March 18, 2020, On Approval of the Action Plan for the Implementation of the Strategy for the Development of Competition and Antimonopoly Regulation in the Russian Federation for the Period up to 2030 (Stage I - 2020-2024).

[10] Resolution of the Constitutional Court of the Russian Federation No. 8-P dated February 13, 2018, In the Case of Verification of Constitutionality of Provisions of Clause 4 of Article 1252, Article 1487 and Clauses 1, 2 and 4 of Article 1515 of the Civil Code of the Russian Federation in Connection with the Complaint of Limited Liability Company PAG.

[11] Resolution of the Federal Antimonopoly Service of the Volga-Vyatka District dated February 6, 2013, in Case No. A43-14376/2012. Claim: Recovery of compensation for violation of exclusive rights to a trademark. Circumstances: The defendant illegally uses a trademark, the rights holder of which is the plaintiff. Decision: The claim was satisfied in part, as the fact of violation by the defendant of the plaintiff's exclusive rights to the trademark was proven. The amount of compensation was reduced to the minimum taking into account the principle of reasonableness and fairness, as well as taking into account the single use of the trademark, the cost of the purchased goods with this trademark, and the amount of income received from its sale.

[12] Clause 1 of Article 89 of the Treaty on the EAEU.

[13] Article 1252 of the Civil Code.

[14] Decision of the Istra City Court of the Moscow Region No. 2-4298/2022 dated December 12, 2022. Claim: Recognition of authorship. Decision: The claim was satisfied.

[15] Resolution of the Plenum of the Supreme Court of the Russian Federation No. 10 dated April 23, 2019, On the Application of Part Four of the Civil Code of the Russian Federation.

[16] Resolution of the Intellectual Property Court No. S01-489/2023 dated April 4, 2023, in Case No. A32-11647/2022. Claim: Recovery of compensation for violation of exclusive rights to photographic works. Circumstances: The plaintiff cites that a number of photographic works, the rights to which belong to them, were published by the defendant on a website on the Internet without the plaintiff's consent and without indicating the rights holder. Decision: The claim was satisfied in part, as it was established that the defendant committed a violation of exclusive rights to the disputed photographs by communicating them to the public without the rights holder's consent; the amount of compensation was determined taking into account the principles of reasonableness and fairness.

[17] Resolution of the Arbitration Court of the Moscow District No. F05-17915/2023 dated August 23, 2023, in Case No. A40-180147/2022. Claim: Cancellation of the resolution on holding liable under Part 3 of Article 16.1 of the CAO RF for communicating false information to the customs authority about the number of cargo packages, their marking, name, gross weight, and (or) volume of goods. Decision: The satisfaction of the claim was refused, as the fact of the applicant committing the imputed administrative offense is confirmed by the case materials, and the term and procedure for holding liable were observed.

[18] Resolution of the Arbitration Court of the Volga-Vyatka District No. F01-1888/2023 dated July 21, 2023, in Case No. A43-22306/2022. Claim: Cancellation of the customs authority's resolution on holding the company liable under Part 2 of Article 16.2 of the CAO RF for declaring false information about their customs value during customs declaration of goods (timber products). Decision: The satisfaction of the claim was refused, as it was established that foreign buyers actually made payments under agency agreements to the company, which nominally ceased to be the owner of the timber products and formally received payment for transporting other people's goods, but in reality, according to their economic essence, these payments represented payment for goods and, therefore, were subject to inclusion in the transaction value for the purpose of calculating customs value.

[19] Resolution of the Arbitration Court of the North-Western District No. F07-11737/2023 dated September 4, 2023, in Case No. A56-130891/2022. Claim: Cancellation of the customs authority's resolution on holding the company liable under Article 16.3 of the CAO RF for non-compliance with established prohibitions and restrictions on the importation into the customs territory of the Russian Federation of products subject to quarantine (fuel chips of coniferous species). Decision: The satisfaction of the claim was refused, as the presence of the event and corpus delicti of the imputed administrative offense in the company's actions was proven; the phytosanitary certificate submitted by the company is invalid due to the expiration of its validity period.

[20] Resolution of the Arbitration Court of the Far Eastern District No. F03-3250/2021 dated July 28, 2021, in Case No. A59-3265/2020. Claim: Cancellation of the resolution on holding liable under Article 16.7 of the CAO RF for submission of invalid documents when performing customs operations. Decision: The satisfaction of the claim was refused, as the submission of documents that did not reflect the actual value of the goods and served as the basis for understating the amount of customs duties and taxes payable was established; the company's guilt was established, and no violations of the procedure for bringing to administrative liability were found.

[21] Resolution of the Arbitration Court of the Far Eastern District No. F03-6779/2021 dated January 14, 2022, in Case No. A51-9663/2021. Claim: Cancellation of the resolution on holding liable under Article 16.21 of the CAO RF for the use of goods that were illegally moved across the customs border of the Eurasian Economic Union and in respect of which customs duties and taxes were not paid. Decision: The satisfaction of the claim was refused, as the fact of the entrepreneur's use of goods moved across the customs border of the Russian Federation without appropriate customs clearance and payment of customs payments was proven.

[22] Note 2 to Article 16.1 of the CAO RF.

[23] Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 79 dated November 8, 2013, On Certain Questions of Application of Customs Legislation.

[24] Article 86 of the EAEU Customs Code.

[25] Article 104 of Federal Law No. 289-FZ dated August 3, 2018, On Customs Regulation in the Russian Federation and on Amendments to Certain Legislative Acts of the Russian Federation.

[26] Resolution of the Arbitration Court of the Moscow District No. F05-5770/2019 dated May 24, 2019, in Case No. A41-72214/18. Claim: Cancellation of the resolution on holding liable under Part 3 of Article 16.1 of the CAO RF for illegal movement of goods across the customs border of the Customs Union. Decision: The satisfaction of the claim was refused, as the fact of the presence of the corpus delicti and event of the imputed offense in the company's actions was proven, and the procedure and term for holding liable were observed.

[27] Clause 1 of Article 46 of the EAEU Customs Code. [28] Resolution of the Third Cassation Court of General Jurisdiction No. 77-3005/2022 dated November 24, 2022. Sentence: Under Part 1 of Article 194 of the Criminal Code of the Russian Federation (evasion of customs payments). Resolution: Judicial acts were left unchanged.