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10 March 2022PatentsAgnieszka Sztoldman

Russia’s IP threat: what might happen next?

On March 6 the Russian Federation issued Decree No. 299, under which owners of patents, utility models, and industrial designs related to foreign states that commit hostile acts against Russian companies and individuals would not be entitled to compensation for infringement of these rights.

The list of unfriendly states published by Russia includes the US, Canada, EU countries, UK, Ukraine, Montenegro, Switzerland, Albania, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, North Macedonia, as well as Japan, South Korea, Australia, Micronesia, New Zealand, Singapore, and Taiwan.

The Russian government is looking to exercise the compulsory licensing provision stipulated under Article 1360 of the Civil Code of the Russian Federation. Russia uses the mechanism of “expropriation of IP rights”—similar to its mechanism of a “compulsory licence”, intended to mitigate the economic results of economic sanctions imposed on Russia.

Article 1360 and 1362 allows the Russian government to permit the use of inventions, utility models and industrial designs without the consent of the rights owners in the interest of national security.

The Russian government submitted a law revising article 1360 on November 22, 2019, allowing the government to give a compulsory licence without a judicial procedure notwithstanding the lack of express provision.

According to the law: “The Government of the Russian Federation has the right in case of emergency to provide a defence and security, a protection of life and health of the citizens to allow the use of an invention, utility model, or industrial design without the consent of the patent holder provided that he is given notification as soon as possible, and with the payment of appropriate compensation. The procedure for determining such compensation and the terms for its payment will be approved by the government of the Russian Federation.”

Further amendments

On March 3, 2020, the Russian Government introduced another bill to further amend article 1360, which reads: “The Government of the Russian Federation has the right, in the cases and on the conditions provided for by an international treaty of the Russian Federation, to make a decision on the use of an invention for the production in the territory of the Russian Federation of a drug for the purpose of exporting it without the consent of the patent holder with notifying him of this as soon as possible and with the payment of appropriate compensation.

“The Federation’s decision must contain information on the volume of production of the drug determined by the needs of the foreign state, to whose territory the drug is to be exported. The package of such a drug must have a special designation.

“The procedure for sending the notification specified in item 1 of this article, the grounds and procedure for making a decision and determining its validity, the procedure for determining the period of validity of the decision, as well as the procedure for determining the amount of compensation and the procedure for its payment are approved by the government of the Russian Federation in accordance with an international treaty of the Russian Federation.”

The aim of the move

The “compulsory licensing” stipulated by the bill is more similar to “expropriation” due to the lack of required compensation under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

It is aimed, among other things, at preventing and mitigating the effects of sanctions on the Russian Federation. The new regulation is not justified (as previously by the need to ensure drug security in Russia in connection with the global COVID-19 pandemic) but is justified as a repercussion for the international economic sanctions against Russia in connection with the invasion of Ukraine.

This is also a continuation of previous decisions and political moves.  In 2018, The Moscow City Commercial Court awarded a licence to use a patented medicine of Celgene International Holdings Corporation in connection with the cancer drug Lenalidomide-Nativa, in response to a claim brought by a local generic business Nativa.

In February 2019, the same court awarded Nativa a second compulsory licence for the use of Sunitinib, a medication covered by a Eurasian patent co-owned by Pfizer's Sugen and Pharmacia & Upjohn.

Russian registered IP owners

The new regulation amends the already existing provisions on the methodology for determining the amount of damages to be paid to the patent owner in the event of a decision to exploit an invention, utility model or industrial design without consent, and utility model or industrial design without his consent and the mode of payment.

With respect to holders of patents connected with foreign countries who commit hostile acts against Russian legal entities and individuals (including, if such patent holders have citizenship of these countries, their place of registration, place of pre-judicial business activity or place of their pre-judicial profit from such activity are these countries), the amount of compensation shall be 0% of the actual income of the person who: has exercised the right to use the invention, utility model or industrial design without the consent of the patent holder, from the production and sale of goods, the performance of work and the rendering of services for the production, performance and rendering of which the relevant invention, utility model or industrial design was used.

This new regulation is more far-reaching than previous decisions on granting compulsory licences to boost domestic generic medicines production. The main effect may be the risk of marginalisation of the Russian market. We cannot exclude the risk that Russia may be reduced to a market that is purely reproductive and based on slavish imitation.

This may also restrict the transfer of technology to Russia, which is already prohibited by the European Commission. It may discourage large stakeholders such as those from Japan and the US.

Foreign IP owners

This new provision concerning the compulsory licensing of patents seems not to be compliant with TRIPS. Russia is a member of the World Trade Organization, so compulsory licensing must follow the requirements of article 31 of the TRIPS agreement.

Article 31 of the TRIPS agreement states that where WTO member states provide in their patent legislation for compulsory licences the following provisions must be made:

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