This article first appeared on WTR Daily, part of World Trademark Review, in November 2019. For further information, please go to www.worldtrademarkreview.com.

  • The national product labelling system, 'Fair Mark', has been expanded to cover the tobacco, footwear and pharmaceutical industries
  • The system should render the Russian market more transparent and help to reduce the volume of counterfeit goods
  • However, the implementation of the system has created a number of practical issues for market participants

What's new

In 2019 the national product labelling system, called 'Fair Mark', was expanded to cover the tobacco, footwear and pharmaceutical industries. The Russian government now requires sellers and manufacturers of the above products to label them with individual identification (ID) codes.

This system of ID labelling was first launched in 2016 as a pilot project to cover fur and pharmaceutical products as part of a government strategy to combat the sale of counterfeit or illegal goods. It is now moving on to the final stages of implementation. This system will be rolled out and will become mandatory for the jewellery, food, consumer goods, automotive, aviation and fuel industries; it will also cover electronics, children's products and construction goods, as well as machinery. In December 2019 ID labelling will also become mandatory for light industrial goods, perfume, car tyres, photo cameras and flashlights, and, shortly after January 2020, for all pharmaceuticals.

The Fair Mark system

Fair Mark is a unified national system for the digital labelling and tracking of goods. It works by assigning a unique ID number to every item that is imported and/or sold in Russia. This number is called a 'Data Matrix' code and makes it possible to trace the product from the moment of its creation or importation into Russia and to confirm its authenticity. The government has the right to add new products to the ID labelling list and to set the date when the number will become mandatory for market participants.

The Centre for the Development of Prospective Technologies (CDPT) will administer the labelling system. The CDPT will issue the codes, maintain a register of the retailers and manufacturers of those products and develop the National Catalogue of Goods, which will publicly store information on the registered goods.

Retailers and manufacturers whose products fall under the labelling requirement must register with the CDPT and request Data Matrix codes for their goods. When the product is distributed, the scanned data from the code will be registered in an electronic database. When the product is sold to the customer, the code will be automatically removed from the system. The codes are unique and cannot be reassigned to other products until after they have been removed from the first product.

Goods must be labelled with a code before they are imported or dispatched from the local manufacturer's premises. In the first case, either the importer or the manufacturer should take care to label its goods prior to submitting a customs declaration in Russia.

The Fair Mark system has already been tested on shoes, which became subject to mandatory ID labelling in July 2019. Market participants were required to register with the CDPT between 1 July and 30 September 2019. At the end of this transition period, the registration must take place no more than seven days from the day on which the participant started selling the shoes. Retailers and manufacturers must label each product before it enters the market and must re-label the product if the code is lost or damaged. Shoes that are not labelled can be sold until 1 February 2020, after which the sale of non-labelled shoes will become illegal.

Liability

The manufacture, acquisition, storage, transportation and sale of listed products without a Data Matrix code may result in administrative liability in the form of a fine of up to approximately $4,700. The same actions involving products with a high cumulative value may result in criminal liability, including a fine of up to $7,850, community service or imprisonment for up to six years and a fine of up to $15,700. Special provisions apply to tobacco and alcohol products.

There are new administrative liability provisions for missing or late registration and submission of data into the monitoring system for the transfer of goods. However, such provisions have so far only been applied to pharmaceuticals.

Practical issues

Although the labelling system aims to protect consumers from counterfeit goods, its implementation has created a number of practical issues for market participants:

  • Extra investments - labelling, scanning and recording labels with an electronic monitoring system requires an additional investment of time and money from all market participants, but for small businesses, such investments can be particularly onerous.
  • Added costs - the current fixed fee to generate a single code is $0.008 (excluding VAT), which does not initially appear to be burdensome. However, the in-house printing and application of the codes is not a viable option for every business, especially for foreign manufacturers. These procedures lead to increased costs of intermediary services.
  • Increased retail prices - the inclusion of the official labelling fee and associated costs in the final product price can affect the goods differently across various price categories (eg, fur coats and children's clothes): customers are less inclined to spend more on necessities. This reality leads them to buy lower-priced options that are offered at the expense of quality, which can in turn hurt small businesses.

Comment

Despite some implementation hiccups in the early stages, the Fair Mark system should render the Russian market more transparent and help to reduce the volume of counterfeit goods. The ability to track goods from the manufacturing stage to the time of consumer purchase should result in better quality control and eventually strengthen the protection of consumer rights and the prospects for lawful businesses.