Western countries have increasingly been sanctioning Russia in response to its invasion of Ukraine and brands are now boycotting the country. Consequently, Russia has started to respond with measures of its own. While it has not specifically stated that it will no longer enforce non-domestic trademarks, the Ministry of Economic Development’s overtures that the country may do away with civil liability for trademark infringement (particularly in connection with goods that are in short supply), combined with the increase of trademark applications targeted at non-native brands, is painting an ominous picture.
Already US brands such as Christian Dior, Chanel, Givenchy, Nike, Adidas, Puma, Levi’s, BMW, and Audi have been subject to an enormous number of bad-faith filings, and it is unclear how the Federal Service for Intellectual Property in Russia – commonly known as Rospatent – will react.
It is possible that if Rospatent permits these bad-faith filings to proceed to registration it may become extremely challenging, if not impossible, for brands to return to the Russian marketplace. For example, targeted companies may expect the bad-faith actors to register for similar domain names, create similar websites and social media accounts and increase imports of products and counterfeits. Non-native holders also run the risk that Russian courts will not provide assistance in any trademark infringement or enforcement actions. Thus, it is not impossible to imagine that these bad actors may hold famous marks and brands hostage with the intent of extorting licensing agreements.
The Russian market for luxury goods is quite small compared to those of other countries, but with the increased bad-faith filings and potential fallout, there remains a very real risk of reputational damage for brands. Already, the market for counterfeits in Russia is currently estimated to amount to $50 billion in sales per year, and it is likely that this number will go up as the number of counterfeits increases in the absence of control or enforcement. It would not be surprising to see Russia mirror China’s current market, which routinely sees a mix of grey market and counterfeit goods, the latter of which spill over into Western markets, including the United States and European Union.
Simply put, grey-market goods are authentic goods sold through unauthorized channels. They are typically seen in products that differ widely in price or availability across countries; the rise in e-commerce has led to a rise in grey-market goods as consumers seek cheaper prices through non-standard channels. Original manufacturers speak out against grey market goods, citing potential harm to branding/reputation, different warranty protection and difference in quality. Yet in areas where counterfeiting is rampant, such as China, the chance of buying a fake is considered to be lower if the goods come from overseas, leading to the import of grey-market goods from overseas personal shoppers, resellers or e-commerce sites.
It remains to be seen if this same pattern of grey-market popularity will emerge in Russia. Of course, many consumers of luxury products are seeking not only the name and logo of brands but also the quality of goods, so it is possible that the perceived value of Russian knock-off products, sold under the same luxury mark but by a different company and registered in bad faith, will also fall. It is also possible that the more loyal Russian clients of luxury brands are already accustomed to purchasing their products outside of the country, which may also lessen the surge of counterfeits. Regardless, it is impossible to tell at this time how luxury brands will fare, particularly if they are left to try to enforce their rights without the assistance of the Russian government. At this point, luxury brands should continue to monitor new filings for bad-faith trademark applications, particularly to the extent that the brands are no longer actively selling their goods in Russia.
This article originally appeared in World Trademark Review Weekly on April 7, 2022, and is reprinted with permission.