Russia sanctions force attorneys into tricky positions

The sanctions that followed Russia’s invasion of Ukraine landed multinational brands in a complex and troubling legal landscape, lawyers heard yesterday (May 17) at the International Trademark Association Annual Meeting.

“Brand owners are now essentially besieged with sanctions lists and decisions that regulatory bodies are making. And are required to comply with those mandates on an almost instantaneous basis,” explained  David Kappos, partner at Cravath, Swaine & Moore, who moderated a panel discussion on Managing IP assets in today’s regulated global environment.

“Not a lot of time is necessarily given to reach compliance, and that compliance involves management of IP assets, involving registration, use, distribution, and enforcement.

“We’re in an environment where there’s zero tolerance for mistakes. And companies and their advisors have to make their way through this very difficult environment,” Kappos explained.

If a client calls their legal counsel and says: ‘I’ve just learned we have to get out of a country’ —what do you do?”

“There is no easy answer,” replied panellist and CMS partner  Eleanor Merrett, who said she had received an increase in the number of those calls over the last 12-18 months.

“It touches lots of different areas of IP-rich businesses’ operations. To a certain extent, every business is having to focus very heavily on it because not only are there financial implications, but there are significant PR considerations to getting this wrong.”

That said, it is positive that the client is calling and engaging with the subject, said Merrett, who added that she had seen “much more senior stakeholder involvement” with her clients, often to do with what may ordinarily be straightforward trademark renewals.

“Those who know your customer and your client checks are increasingly important. Being able to evidence that you have looked through all of the sanctions provisions and made an informed decision off the back of it is extremely important as well.”

In-house perspective

Merrett said UK and EU companies have been “extremely cautious” in their approach to sanctions, particularly regarding Russia.

“I’ve had conversations with clients who are actively exiting markets and having to unpick existing relationships with countries linked to the sanctioned country.”

From the in-house counsel perspective, the situation can be nuanced. Kappos turned to Serena Lim, soft IP and litigation counsel at the  Ant Group, and asked how a person in her position manages the situation.

Interestingly, Lim was circumspect about instantly shuttering an operation in the face of sanctions. “We’ve got to take a step back before we conclude that something will go wrong,” said Lim. “Not all activities are prohibited. Is it definitely a no-go or are there approvals you need to get in place from the regulators, in order to make that activity legal?”

The Ant Group legal counsel said it was important to weigh up the options, such as speaking with regulators, before exiting a market—a decision that in itself can have negative implications.

Merrett agreed, highlighting a case in the UK’s High Court of England and Wales (likely, but not confirmed,  Celestial Aviation Services v Unicredit Bank (London Branch)) where the court said that contractual obligations that were entered into prior to sanctions must be fulfilled.

A company cannot simply claim force majeure as a result of international sanctions to get out of a contract, particularly if a decision is being made on commercial grounds, the panel said.

“Sanctions are also lifted at some point, so you need to have a plan,” added Merrett.

Lim said that this fact could be useful when delivering what could be sensitive news to stakeholders within a company who may not want to exit a country.

“It’s a different approach for different companies,” explained Lim, noting the differences between conservative-leaning companies and others, which may be bolder.

“It’s not about presenting the worst case but something that maybe [they] can live with. For some managers, this brand or product is their baby and they don’t want to give it up. So if you can offer a plan to perhaps re-enter a country later it can help.”