'BAD' insights: Navigating the UK and EU sanctions regimes in IP

Welcome to the latest episode of Gowling WLG's Global Intellectual Property podcast where we discuss a range of topics to help you protect your brands, creations and inventions.

James Stunt: Hello. My name is James Stunt. I am an associate in the EU, Trade and Competition team at Gowling WLG, specialising in international trade issues.

I will be speaking today on the topic of international sanctions, which has been very much a hot topic over the course of the past year. This is an area of law which is increasingly complex and is very fast moving and so unfortunately this session will be very much 'tops of the waves' of the topic. The purpose of this podcast however is to highlight key points to keep in mind when managing sanctions risk, particularly from the perspective of managing intellectual property rights. In particular, I will set out an overview of what we mean by the term "sanctions", together with a current UK and EU sanctions regime that apply to Russia.

I will then discuss some key considerations for intellectual property rights holders, as well as some of the counter measures which have been imposed by Russia, which may impact such rights holders.

I will finish off this session with some suggested next steps to facilitate compliance activities.

I will start with a brief overview as to what we actually mean by the term "sanctions". Broadly speaking, sanctions are restrictions implemented against foreign governments, companies, groups, organisations, sectors and individuals in pursuance of certain foreign policy objectives. Typically, when we look at sanctions, it is possible to distinguish between two distinct categories of measures; namely trade sanctions and financial sanctions. The recent sanctions measures which have been introduced against Russia have however shown that the possible scope of sanctions prohibitions can go far beyond these categories, for example covering the provision of certain services to sanction persons.

Trade sanctions restrict movements of certain goods and technologies to sanctioned persons or to entire jurisdictions. In the case of the recent sanctions imposed on Russia by both the UK and the EU, the types of products and commodities which have been covered by trade prohibitions have expanded exponentially. Such prohibitions can cover activities relating to entire sectors particularly where those sectors are vital to the economy of the target jurisdiction. The most prominent examples of these are the defence and the energy sectors.

It is also important to note the sanctions regimes cover the provision of technical support in relation to prohibited commodities, as well as providing financial assistance or financing in relation to transactions involving prohibited goods. This means that sanctions may reach into all elements of the supply chain.

Financial sanctions are measures which target specific individuals or entities and most commonly take the form of asset freezers of certain designated persons. I will touch on what this means shortly.

So, why are sanctions so important? As I mentioned earlier sanctions are intended to pursue certain foreign policy objectives. As such, the penalties for breaching sanctions can be very severe. For the purposes of UK law, a breach of a trade sanction can give rise to imprisonment of up to ten years or an unlimited fine or both. A breach of financial sanctions can give rise to up to seven years imprisonment and/or a penalty of up to £1 million or 50% of the value of the funds and resources concerned, whichever is greater. European Counsel has very recently decided to establish common laws at an EU level, which will criminalise breaches of EU sanctions measures. The European Commission has put forward a proposal in this regard and we are awaiting the outcome of these measures. It is also really important to keep in mind that under UK and EU law, it is also an offence to circumvent any particular sanctions prohibitions. This is where a person intentionally participates in activities knowing that to do so would circumvent any particular prohibition or facilitate the contravention of this prohibition.

So, how do we get here? I will cover off some key provisions of the UK and EU sanctions regimes in relation to Russia, but before I go into the specifics it is first helpful to outline the development of these regimes.

Starting with the UK, the EU first implemented sanctions against Russia in March 2014, following Russia's annexation of Crimea. As the EU sanctions rules were applicable in all EU member states the UK simply implemented the EU's measures. This position remained largely unchanged throughout Brexit, where the UK transposed the existing prohibitions under EU law into its own domestic law. In the case of Russia, the relevant prohibitions were set out within The Russia (Sanctions) (EU Exit) Regulations 2019.

Russia invaded Ukraine on 24 February 2022. As a result, the UK and the EU, together with a number of jurisdictions including the US, Canada and Japan, have increased the scope of their sanctions regimes against Russia and have tightened the restrictions that apply to dealings involving Russia. Updates to the sanctions regimes have continued at a rapid pace as the conflict continues. The most recent amendment of the UK sanctions regime came into force on 16 December 2022 and it is the 17^th package of amendments since the war began. The UK has also announced a further package of sanctions measures which will, among other measures, expand the scope of the restrictions on providing services in relation to Russia.

Turning now to EU sanctions law, the relevant provisions of EU sanctions law are contained within certain regulations, the most important of which are regulation number 833 of 2014 and regulation number 269 of 2014. EU sanctions law applies where there is a link with the EU. This covers EU nationals, companies and entities, which are incorporated or constituted under the law of an EU member state. It also covers activities taking place either wholly or in part within the territory of the EU.

EU sanctions law has similarly undergone a number of amendments since the invasion began, with the EU Counsel adopting its ninth package of sanctions on 16 December 2022.

I will now take a look at some of key provisions of the UK and EU sanctions regimes and highlight how this might impact dealings involving intellectual property rights.

Under UK law, it is prohibited to deal with funds or economic resources involving a designated person and analogous prohibition is contained within the EU sanctions regime.

The concept of dealing is very broad and involves any transfer, use or simply holding funds or economic resources. "Funds" incorporates any financial instrument, the term "economic resources" is however incredibly broad applying to any tangible or intangible assets. This obviously includes intellectual property rights.

Finally a designed person is an individual or entity, which has been specifically targeted by the UK Government or by the European Commission as being subject to sanctions. This will typically be on the basis of the individual's involvement in certain activities or will include companies which are owned by such individuals.

What this means is EU and UK companies must not deal with intellectual property rights which are owned, held or controlled by a designated person. This would involve for example taking a licence to use such rights or receiving any fees, such as licencing fees in respect of the use of these intellectual property rights.

On the flip side, it is prohibited to make funds and/or economic resources available to a designated person. This means that it is prohibited to licence intellectual property rights where these will be made available to a designated person. The real issue of this prohibition however is not necessarily dealing directly with designated persons but rather dealing with entities which are owned or controlled by a designated person. This is because the concept of ownership and control can apply incredibly broadly to cover not only direct parent and subsidiary relationships but also circumstances where it will be reasonable to expect that a person has actual control in relation to the company. Practically, this requires companies to ensure that thorough due diligence is carried out before any dealings involving intellectual property rights, so as to ensure there is no involvement by a designated person, either directly or indirectly.

The second point to bring to your attention is the ability of businesses to continue safeguarding their intellectual property rights within Russia. Under UK sanctions law it is prohibited to provide financial services to the Russian Central Bank, specifically where those services are for the purposes of foreign exchange reserve and asset management. The Russian Intellectual Property Office Rospatent uses the Russian Central Bank as its bank. This has raised a query as to whether the fact that the Central Bank has been sanctioned means that payments can no longer be made to Rospatent in respect of the payment of official fees, which will be used to maintain intellectual property rights.

However, the Chartered Institute of Patent Attorneys has published that they have held meetings with the UK Treasury on this issue. According to their website it is the institute and understanding that fees can continue to be paid to Rospatent without fear of breaching sanctions, unless they are being paid by or on behalf of someone on the UK sanctions list. It seems therefore that for now it is possible to continue paying official fees to maintain intellectual property rights within Russia. However, businesses that currently have intellectual property rights in Russia should see confirmation that such payments remained permitted before making any such payments.

I will finish off by highlighting some further points to consider in relation to counter measures which are being imposed by Russia in relation to the international sanctions regimes. It should be noted that we are not qualified to advise on Russian law and this section is therefore based upon information from publicly available sources.

In April 2022, Russian enacted its decree number 299, which provides that Russian persons are allowed to use patented technologies or designs owned by intellectual property right holders in so called "unfriendly states" without seeking compensation or approval from the relevant intellectual property right holder.

"Unfriendly states" includes both the UK and the EU, as well as other jurisdictions which impose sanctions on Russia, such as the US.

In June 2022, Russia enacted decree number 322. This decree allows Russian persons to refrain from making intellectual property rights related payments, such as the payments of licence fees to foreign bank accounts which are held by intellectual property right holders resident in unfriendly states. The exception to this is where the foreign intellectual rights holder can sense the opening of a special 'O' type bank account within Russia. These regulations are obviously capable of significantly impacting the ability of intellectual property rights holders to protect their rights within Russia. As such, local law advice should be sought by those may be affected by these measures.

With these considerations in mind, what is next from a sanctions perspective? Unfortunately the war in Ukraine appears to show no sign of abating, meaning that we are likely to see further measures adopted by the UK and the EU throughout the course of this year. What this means is it is vital for businesses to make sure that they have an effective sanctions screening mechanism in place to make sure that they are not inadvertently dealing with sanctioned persons and entities. Businesses should also monitor any intellectual property rights which they may have in Russia to ensure that these can continue to be protected.

And finally, as international sanctions regimes continue to expand in scope with a greater focus on enforcement, all businesses should make sure that they have a comprehensive sanctions policy in place to avoid any inadvertent breaches of these regimes.

Thank you for listening. For more information, please contact Gowling WLG's EU, Trade and Competition team.

Thanks for joining Gowling WLG for this podcast. If you enjoyed this episode, be sure to check out our website at gowlingwlg.com for more useful insights and resources and do not forget to subscribe to ensure you join us for our next episode.