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Parallel imports sneak into Russia due to procedural loophole

February 1, 2017

In June 2016, a new law was introduced in Russia requiring a prospective plaintiff in a commercial dispute to send a pre-litigation demand letter to the prospective defendant at least 30 days before an action is filed. The purpose of the new law is to minimize needless litigation in cases where the dispute can be easily resolved.

In the first six months there have been a few unforeseen procedural conundrums, one of which involves parallel imports.

Russia remains a national exhaustion of rights country1. Only the brand owner or those authorized by the brand owner have the right under the Civil Code to introduce branded goods into commerce in the Russian Federation. The unauthorized importation into Russia of goods legally acquired elsewhere is a form of trademark infringement.

Until recently, parallel imported goods were often held up at the border by customs officials in cases in which the brand owner’s registered trademarks were recorded with customs. While customs officials would not seize parallel imports, they would detain them for at least ten days - enough time for the brand owner to file an infringement action and to request a preliminary injunction in the Commercial Court. In this way, the goods would never make their way into commerce.

With the new 30-day pre-litigation rule, it is no longer possible to freeze parallel imports at the border because customs officials will hold the goods for no longer than 10 days. Pre-action preliminary injunctions can only be for a maximum of 15 days. Assuming a demand letter is issued on the first day, assuming that the goods are detained for ten days by customs officials, and assuming that a pre-action preliminary injunction is sought on the tenth day after seizure, the goods can be detained for a total of only 25 days; this leaves five more days before the action can be instituted. The goods are therefore released into commerce on the 26th day, leaving only monetary damages as the practical remedy.

This parallel importation loophole, and other procedural challenges created by the new 30 day pre-litigation demand letter rule, were submitted for review to Russia’s Supreme Court in December 2016. The Supreme Court is empowered to issue practice note clarifications and directives regarding such problems and these are binding on all lower courts. The directive is not expected before April 2017.

 

[1] Under the Civil Code, Russia is a national exhaustion of rights country. By reason of the Eurasian Economic Union, Russia is now part of a regional customs union. In this context, Russia is more specifically a regional exhaustion of rights country along with Belarus, Kazakhstan, Armenia and Kyrgyzstan. 


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