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Parallel (gray) imports without the permission of the copyright holder to Russia: features of the legalization of shuttles

More than a month has passed since the Russian government legalized the so-called “parallel (gray) imports” at the legislative level. Internet users call this the official legalization of shuttles, which flourished in the Russian 90s of the XX century. In the article, we analyze what parallel import actually is, describe the history of its legalization in the Russian Federation, and why it is so needed right now.

 

The term "parallel import" means the import of genuine (this is important!) goods into the country without the consent of the owner of intellectual property rights. That is, entrepreneurs can buy goods in one country and sell them in another without documented consent from the copyright holder. At the same time, as a rule, officially permitted import into the country is carried out through product distributors - companies or individual entrepreneurs that carry out wholesale, small wholesale or large wholesale purchases of goods from large industrial manufacturing firms for subsequent sale of goods to retailers or dealers in regional markets.

 

History of legislative regulation in the Russian Federation.

Trademark legislation took shape in the Russian Federation in 1992, and it just allowed the import of goods by parallel import. In 1993, Article 74 was adopted into the Constitution of the Russian Federation, restricting the freedom of movement of goods exclusively in public, and not in private interests. In 1994, Russia and the European Union signed an agreement on partnership and cooperation, allowing parallel imports between the Russian Federation and the EU countries.

 

At the end of 2002, the Supreme Arbitration Court amended the Law on Trademarks and banned parallel imports. It was also banned in Russia by Article 14.87 of the Civil Code of the Russian Federation, which entered into force in 2008, according to which “the use of this trademark by other persons in relation to goods that were introduced into civil circulation on the territory of the Russian Federation directly is not a violation of the exclusive right to a trademark. by the copyright holder or with his consent. This is the so-called national principle of exhaustion of rights, when the owner of a trademark actually controls and monopolizes the market for his products in the country, deciding who and how will sell his goods. This principle applies not only on the territory of the Russian Federation, but also, for example, in the United States. There is also the international principle of exhaustion of rights, under which almost any market participant can import goods under a registered trademark, and not just those approved by the actual owner of the brand.

 

Talk of legalizing parallel imports began well before 2022 or even 2014. The main supporter of its introduction is the FAS. As Nikolai Kartashov, head of the Department for Control of Advertising and Unfair Competition of the FAS, pointed out in 2014, since 2009 the agency has consistently advocated the introduction of the international principle of exhaustion of rights. At a minimum, the problem of parallel imports was discussed back in 2009 at a meeting of the heads of the FAS and the Association of European Businesses (AEB) in the Russian Federation.

 

In 2011, First Deputy Prime Minister of the Russian Federation Igor Shuvalov held a meeting on the problems of parallel imports, during which the FAS proposed to introduce amendments to Article 14.87 of the Civil Code and Article 14.1 of the Law "On Protection of Competition" in order to allow any entrepreneurs to import goods into the Russian Federation who legally bought the goods. Later, the FAS once again called for the legalization of parallel imports already on the territory of the Customs Union (CU).

 

In 2012, the FAS stated that the national exhaustion principle leads to a monopoly of trademark owners in the market, including the deliberate manipulation of prices and assortment within the country to the detriment of consumers. The agency announced the need to legalize parallel imports, with the exception of companies localizing production on the territory of the Russian Federation, since parallel imports can devalue their investments. Also, the contract for brand development could become the basis for not using parallel imports in relation to the products of foreign companies. In 2013, the issue of parallel imports began to be very actively discussed in all domestic media. By the fall of 2013, the FAS was going to prepare a draft of the relevant regulatory legal act and begin its discussion. They planned to introduce parallel imports only together with the Republic of Belarus and Kazakhstan.

 

In 2014, the FAS allowed the legalization of parallel imports for a number of goods, primarily medical, in the period from 2016 to 2020. In the same year, the service introduced a corresponding bill. Later, the agency planned to legislate the right to parallel imports until 2024. In 2015, the list of priority goods for import from medical expanded to perfumes and cosmetics, auto parts, food and baby food, and personal care products. By 2020, the EAEU countries agreed to determine the exact list for parallel imports.

 

In 2016, a decision was signed by the Intergovernmental Commission of the EEC on the need to amend Article 16 of the Treaty on the Eurasian Economic Union, allowing the introduction of the regime of international exhaustion of rights in appropriate cases. These amendments were approved in 2017. Now the EAEU includes: Russia, the Republic of Belarus, Kazakhstan, Armenia and Kyrgyzstan. Moreover, in Armenia, even before joining the union in January 2015, the international principle of exhaustion of rights was applied to all categories of goods. In 2018, the Kaliningrad region volunteered to become an experimental platform for the introduction of parallel imports in order to test the fears of the FAS in a possible reduction in investments after the transition to the international principle of exhaustion of rights.

 

In 2018, an interesting legal incident also took place. The Constitutional Court allowed the Russian courts to recognize the importation of goods without the consent of the right holder in case of "bad faith of his behavior." The permission applies to cases where the right holder is “obviously acting in selfish interests”, that is, overpricing or creating a monopoly in the market, as well as when complying with the requirements of the right holder could endanger “constitutionally significant values”, for example, deliberately restricting access to vital goods or adherence to the regime of sanctions against the Russian Federation.

 

In 2020, a similar decision was made by the FAS regarding proceedings with auto parts manufacturers KYB Corporation and Daimler A.G. The plaintiffs tried to obtain permission to import original car parts purchased outside the Russian Federation, but their applications were not considered. The service recognized this as "an act of unfair competition, the prohibition of which is provided for in Article 14.8 of the Law on Protection of Competition." This is the first such decision of the department. Later, the Moscow Arbitration Court confirmed its legitimacy.

 

2022 in the history of the re-legalization of parallel imports in the Russian Federation.

It was not possible to implement plans to legalize parallel imports until 2022 due to legislative restrictions. For almost 10 years, the FAS has not been able to achieve a full resolution, with the exception of issues related to trade within the EAEU. And then the end of February 2022 came, the well-known geopolitical conflict began, which needs no introduction. Foreign companies began a mass exodus from the Russian market, both on their own initiative and as a result of sanctions imposed against the Russian Federation. On the horizon, there is a coming serious shortage of goods, including socially significant ones.

 

As a result, the Russian government again drew attention to the FAS initiative to introduce parallel imports, the need for which, as you understand, the service has been trumpeting for quite a long time. The department's predictions about the shortcomings and dangers of the national principle of exhaustion of rights have partially come true, especially against the background of the lack of a systematic development of the production of their own domestic counterparts in the Russian Federation.

 

The Ministry of Industry and Trade soon joined the work on the legalization of parallel imports. Together with the FAS, they developed a draft resolution on the partial abolition of liability for the importation of goods without the consent of the copyright holder. For such deliveries, the payment to the right holder of up to 5 million rubles and the disposal of goods in full were provided. In addition, the initiative was supported by Ozon and Wildberries marketplaces. FAS discussed legalization issues with them in mid-March this year. Marketplaces indicated that the initiative will have a positive impact on the SME sector, including socially significant goods.

 

On March 29, 2022, the Government of the Russian Federation legalized parallel imports, the corresponding decree came into force on the same day. From this moment, it is possible to import strictly defined products into the Russian Federation without obtaining permission from the copyright holder, manufacturer or dealer. The Ministry of Industry and Trade took up the definition of goods allowed for import.

 

On April 22, the Ministry of Industry and Trade approved a list of goods for parallel imports, which includes more than 200 brands. The agency announced its readiness to adjust the list if foreign companies remain in Russia. In early May, the Ministry of Trade and Trade published a specific list of product categories and brands. The document lists 96 positions, including toys, games and sports equipment (Xbox, Nintendo, PlayStation), watches of all kinds and their spare parts (Motorola, Sony, Apple, Siemens, Samsung, Acer), means of ground transportation (such as Tesla , Toyota, Volvo, Renault) and more. As indicated in the department, the brands listed in the list have not yet asked for an exception. However, the authorities expressed their willingness to respond promptly to such requests.

The sale of goods imported through parallel imports has already been allowed by marketplaces: Yandex.Market, Ozon and Wildberries. At the same time, Apple, Huawei and Samsung continue to certify new electronics in Rostest and the Radio Research Institute, despite statements about leaving the Russian Federation.

 

Why is it needed: pros and cons.

Obviously, now parallel imports are necessary to eliminate the future shortage of certain groups of goods or to protect against restrictions on the supply of goods to the country as a result of sanctions. But this is not the only reason why the FAS all this time sought to legalize this issue and move to the international principle of exhaustion of rights.

 

In 2019, the service noted that the legalization of parallel imports, first of all, allows solving the problem of price, quality and assortment discrimination by right holders against Russian consumers for any reasons, not necessarily of a legislative nature. And this is indeed one of the key shortcomings of the national principle of exhaustion of rights. As already mentioned, in fact, the right holder, at his discretion, regulates the volume of supplies, prices and regions of distribution of products, can cut off the country from supplies with virtually impunity, regardless of the category of goods. This is especially acute in conditions when the corresponding national productions and alternatives are not actually developing or growing fast enough in the Russian Federation.

 

Another plus mentioned by the FAS is that when parallel imports are allowed, restrictions on the activities of small and medium-sized businesses can be lifted, in particular, additional jobs can be created.

 

Now to the cons. Opponents of the FAS claim that the ban on parallel imports has reduced the amount of counterfeit goods imported into the Russian Federation and improved the business climate, but the service has a different opinion. The agency attributes the decrease in the number of counterfeit goods to the improvement of the work of the customs service and legislative regulation, hinting at a simple coincidence and the rule “after does not mean due”. In addition, there is a threat to foreign investment in the economy and limited warranty and service for the consumer.

 

At the same time, the FAS itself fears that with the legalization of parallel imports, the number of counterfeit goods will increase. These fears are refuted by the Federal Customs Service of the Russian Federation. In early May, the FCS assured that it has effective tools for protecting trademarks in Russia, so parallel imports will not open the country's borders for the import of counterfeit goods. As specified in the service, parallel imports will apply exclusively to the import of original high-quality products of right holders who refuse to participate in the generally established circulation of goods. Also, the head of Roskachestvo, Maxim Protasov, announced the organization's readiness to check goods imported as part of parallel imports. The first raid is planned for the summer of 2022 after the first big purchase, which will likely include outerwear and shoes, cosmetics, detergents, smartphones and TVs. The organization will select goods allowed for parallel import on the shelves of Russian stores, evaluate their quality and safety.

 

As for the other cons. On May 23, the Ministry of Industry and Trade named those responsible for warranty service of goods, electronics and equipment purchased under parallel import schemes. This obligation fell directly on sellers who import goods into the Russian Federation. Servicing can be done directly or through authorized service centers. There is no specific solution to questions about the threat to foreign investment, except for the already listed exclusion from the list of parallel imports of companies remaining in the Russian Federation.

 

Another minus not voiced by FAS is a possible increase in the cost of goods. Earlier, the service indicated that after the elimination of careful control by the employer and the monopoly on the trademark, the cost of goods should decrease, competition should increase. At the same time, in early May, experts from the Russian edition of Forbes suggested that after the legalization of parallel imports, the cost of computer equipment and electronics for the end consumer could increase by 20-40% due to the need to purchase goods in small batches so that the foreign supplier would not be blocked by the manufacturer, and the introduction the cost of delivering goods to Russia through complex logistics chains. China, as well as Kazakhstan, Kyrgyzstan and Armenia, which are members of the EAEU, will be used as workarounds.

 

Who can engage in parallel import of goods, and what does it mean?

In fact, any company or individual entrepreneur can now import goods under parallel import from the list of the Ministry of Industry and Trade, regardless of the desire of the copyright holder or product dealer in the Russian Federation. Companies that have not left Russia, respectively, will not fall under parallel imports, and nothing will change for them. Also, if the company decides to return, the Russian authorities are ready to meet halfway and limit parallel imports in relation to this brand.

 

The prices of goods will depend on the individual sellers' purchase and transportation costs. Most likely, the range of goods on the market will really grow, and there will definitely not be a shortage of goods. At the same time, there will be serious questions about their service, quality, or even banal localization into Russian. Whatever the FAS claims, with white imports it is much easier to control the quality of imported products and make claims against a single supplier and copyright holder. With the growth of the number of responsible sellers in the market, the search for the guilty can turn into an endless race with no clear global benefit.

 

According to CNews, the parallel import of supplies of equipment from Cisco, HPE and Dell that left the Russian Federation has already increased significantly over the past 2 months. It is possible to order and receive equipment only through some intermediaries abroad, who, in turn, have access to brokers who have previously purchased equipment from vendors in their warehouses. Brokers themselves may receive equipment through the purchase of the rest of the kits or the repurchase of equipment that was not fully paid for earlier by customers. They are sold with markups or discounts, which depends on the amount of the purchase, and then the percentage for this sale is charged by an intermediary or a chain of intermediaries.

 

The introduced measures can hardly be called a full-fledged transition to the international principle of exhaustion of rights, which the FAS sought. Rather, it is an attempt to encourage companies to continue doing business in the Russian Federation under the already agreed conditions. Otherwise, the products of the departed companies will still be imported into the country, only uncontrolled. The Russian Federation already experienced this experience in the 1990s, and foreign companies did everything to withdraw their products from this practice.

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