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July 12 2010
The customs union between Belarus, Kazakhstan and Russia came into operation on July 6 2010, removing the customs borders between the three former Soviet republics, which are now members of the Commonwealth of Independent States. The new union offers advantages for businesses, which will operate in a single economic space; however, it also presents challenges, not least for trademark owners.
Since the creation of the independent states back in 1991, each of the three countries has maintained its own trademark registry. Russia is the richest, most economically developed and most highly populated of the three nations. It has attracted the most foreign investment and, as a consequence, many more trademarks have been registered there. Now that trade barriers are being dismantled, it is easy to imagine that goods bearing trademarks which are registered in Russia, but not in Belarus or Kazakhstan, might freely enter union territory from neighbouring territories, such as Poland in the west and China in the east. Such goods may be counterfeit or may simply be third-party merchandise bearing a trademark which is identical or similar to a mark registered in Russia. Until now, Customs prevented such goods from entering Russia. However, not all goods were held as a matter of course - the authorities detained goods only if they bore a trademark that was identical or confusingly similar to one recorded in the Customs Register of Objects of Intellectual Property. Trademark owners have complained - with good reason - about the long list of registration requirements, but the system has proved effective, as shown by the ever-growing number of trademarks (and, recently, some copyrights) appearing in the register.
Driven by the World Trade Organization accession requirements, Russia is developing its customs legislation. Among other things, the draft of the new Law on Customs Regulation contains provisions on ex officio customs control of intellectual property and faster trademark and copyright registration. However, these positive moves will prove useless if unauthorized goods start to enter Russia from Belarus and Kazakhstan.
Belarus and Kazakhstan maintain their own IP registers for customs control purposes, but these registers contain far fewer entries than their Russian equivalent. The reasons for this are varied, but the particulars of customs recordation and less stringent standards of control both play a part. However, regardless of the effectiveness of the border measures in Belarus and Kazakhstan, they will be entirely inapplicable in respect of trademarks not registered there. Thus, it is vital for trademark owners to protect their trademarks in all three countries through either national or international registration procedures.
The importance of such protection is underscored by the fact that the new Customs Code of the Customs Union - which Russia has already ratified - envisages the creation of a unified customs register of IP objects. Although the conditions of inclusion in the unified register have not yet been specified, a trademark will be excluded if it is not protected in all three states.
Another issue relates to the treatment of parallel (or 'grey') goods. Russia and Belarus apply the national exhaustion principle, whereas Kazakhstan's IP system acknowledges international exhaustion. The current proposal is to make exhaustion regional, as in the European Union, but to require each country to change its national laws - which is no easy task. In Russia, the Supreme Arbitrazh Court ruled in Porsche that administrative enforcement remedies do not apply to parallel imports. As such, it is likely that Russian customs control of parallel imports from the other two union members will effectively cease. This is a negative development, as rights owners will be reduced to relying on civil remedies, which are more difficult and less cost effective to pursue.
Many Russian and some foreign businesses should also be aware of a less obvious but still crucial issue: the split ownership of so-called 'Soviet brands'. This term refers to established and popular brands - typically of foodstuffs, beverages and pharmaceuticals - that were developed in the Soviet Union using government money. After the break-up of the Soviet Union in 1991, such brands were registered in each of the three countries by different local manufacturers. Some of these local manufacturers were subsequently acquired by multinationals. Some experts estimate that there are several thousands of these split brands. Until now, local owners of such brands have been able to repel competing namesake goods from neighbouring countries by means of customs controls, but this is no longer an option. As a result, there is likely to be a shift towards increased involvement of the police in both administrative and criminal trademark enforcement, as well as a surge in civil litigation.
For further information on this topic please contact Eugene Arievich at Baker & McKenzie - CIS Limited by telephone (+7 495 787 2700), fax (+7 495 787 2701) or email (firstname.lastname@example.org).
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Eugene A Arievich