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Russian IPR — Will Change Become a Priority?

January – March 2005
By Peter Necarsulmer

Peter Necarsulmer President and CEO, CIPR Chairman & CEO, The PBN Company

Two events occurred in early 2005 that show why observers of Russia’s efforts to improve intellectual property rights protection (IPR) sometimes feel like they are on a rollercoaster.

On January 31, 2005, following a meeting between Russian Minister of Economic Development and Trade German Gref and U.S. Trade Representative (USTR) Robert B. Zoellick, U.S. Ambassador to Russia Alexander Vershbow, said that prospects for completing bilateral talks on Russia’s accession to the WTO were good because, "the situation has improved thanks to Russia’s taking almost all the necessary legislative measure to ensure intellectual property rights." Ten days later, the International Intellectual Property Alliance (IIPA) announced that it had recommended that USTR designate Russia as a "Priority Foreign Country" in 2005 in its annual "Special 301" review of intellectual property protection, and that Russia’s GSP benefits be immediately suspended. IIPA stated that Russia’s copyright piracy problem "remains one of the most serious in the world" and that "little progress has been made over the years regarding this egregious situation."

So who’s right? The U.S. Ambassador, who expresses optimism that Russia is on the right track and showing signs of improved IPR protection, or IIPA, which is pressing the U.S. government to place trade sanctions on Russia because of its piracy problems?

"RUSSIA IS EXPERIENCING AN EPIDEMIC OF FAKE GOODS, BOTH INDUSTRIAL AND COPYRIGHT."

The answer is both. Russia has made tangible improvements in IPR protection over the past several years, particularly in enacting legislative initiatives that meet international standards. To imply that Russia’s record of IPR protection has not improved over the past decade is simply not true. However, while the laws have been strengthened, enforcement remains weak resulting in Russia’s ongoing piracy and counterfeiting problems.

Piracy and Counterfeiting: A Growing Epidemic

First, the bad news: According to IIPA, piracy rates among most sectors are estimated at around 80 percent and conservative estimated losses exceed $1.7 billion. In its 301 filing, IIPA wrote "piracy continues unabated in the domestic market and pirate exports continue to spread across both Eastern and Western Europe."

Russia is experiencing an "epidemic" of fake goods, both industrial and copyright. Forty-two thousand special investigations conducted by Russian Federation Service for Consumer Rights Protection and Welfare over nine months in 2004 revealed fake goods in 31 percent of cases.

The volume of counterfeit canned milk, meat and fish, cheese, vegetable oil, butter, margarine, mayonnaise, mineral water, alcoholic products and other goods removed from sale has been steadily growing. According the Ministry of Economic Development and Trade, the share of counterfeit meat products exceeds 20 percent, and every third trade outlet inspected sold counterfeit mineral water. The withdrawal of counterfeit coffee from sale has increased to 24 percent from 17 percent on the year.

In addition, approximately 30,000 orders suspending the sale of counterfeit products were issued. Footwear manufactured by unidentified producers accounted for 57 percent of such products, textile garments for 56 percent, and leather products for 32 percent.

IPR protection in audiovisual products, music, video and film distribution is still a serious concern. In Russia, nine out of ten DVDs sold are counterfeit copies, and American movies can be bought on DVD for under $3, while a legal CD costs about $5 to $8.Demonstrating one example of the extremity of DVD and CD piracy, on a visit to Moscow in July 2004 to discuss IPR issues, U.S. Deputy Secretary of Commerce William Lash walked out of the Kremlin and bought a fake Windows 2003 software program and a counterfeit famous brand cigarette lighter.

Counterfeit medicines are also increasingly available to Russian consumers. Medicine can be legally licensed, despite belonging to another producer. One of the biggest problems is the lack of coordination between the licensing of medicine at the Ministry of Health and the trademark/patent office (Rospatent). A mandatory pre-check with the Ministry of Health would fix this.

While the number of cases initiated against counterfeits increased in 2004, the number of cases taken to court remained small, which shows the insufficiency of law enforcement and legislative measures. This shows that rights holders and consumers who suffer most from counterfeiters are not active in protecting the consumer market from counterfeit products. In contrast, rights holders who proactively participate in collective efforts to address IP infringements and to improve IP laws and enforcement efforts through public-private partnerships, business and professional associations, are likely to suffer fewer problems.

In 2004, any IP policy and legislative momentum garnered was stalled with the changes in the Russian government — including the reassignment of Rospatent’s Director General Alexander Korchagin, and replacement with Boris Simonov as director of the newly created RF Federal Service for the Protection of Patents and Trademarks. The work of the Intergovernmental Commission on Intellectual Property was disbanded, and only reconstituted several months after the Fradkov government was formed.

The government reorganization also had impact on combating fake goods in the consumer marketplace. The primary government consumer market watchdog for counterfeits, Gostorginspecsia, was transferred to the Russian Federation Service for Consumer Rights Protection and Welfare. However, in its new role, the new Federal Service's major priority is sanitary inspection, not addressing fake goods in the consumer market. As a result, several highly qualified IP specialists resigned or were dismissed.

The scale of counterfeit products’ circulation on Russia’s consumer market and the damage they pose is a very serious threat not only to rights holders and consumers, but also to Russia’s economic development, public morale and international prestige.

Reasons for Optimism:

Despite these discouraging signs, there is no denying that steady advances have been made to improve IPR protection in Russia, and more are on the way this year. President Putin signed into law the Federal Law "On Changes to the Russian Federation Law on Copyrights and Related Rights", bringing Russia nearly into compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and other international treaties. State Duma Deputy Pyotr Shelisch also held a public hearing late last year in the State Duma to accept recommendations from IP rights holders on his proposed national legislative program "Civil and Criminal Mechanisms to Protect the Consumer Market Against Counterfeit and Fake Goods." Both of these moves signified a new, if small, achievement in IPR advancement in Russia.

A hopeful development in Russia was the reestablishment of the IP Inter-Governmental Commission, chaired by Prime Minister Mikhail Fradkov, to coordinate the government's IP policies. The Commission was greeted with some skepticism in the West, as this is not the first time that the Russian Government announced the formation of an IP commission. In one of the first major initiatives, Fradkov held a meeting of the Commission for Counteracting Intellectual Property Rights Violations in December and announced a massive (nine million rubles) IPR advertising campaign to begin later this spring. The goal of the campaign is to help persuade consumers not to buy pirated goods and also to remove distributors of counterfeit products from the streets. However, since that time, there is little evidence to show that the Fradkov Commission will be any more active than previous inter-governmental commissions announced in the past with great fanfare but with little or nothing to show for their work.

Seized counterfeit goods are destroyed

Russia's greatest IP challenge continues to be enforcement of IPR. However, there have been notable successes against counterfeiters by law enforcement authorities. For example, in October 2004, the Ministry of Internal Affairs organized the public destruction of over 40 million fake cigarettes valued at approximately $5 million near the location of a seized factory in Ryazan, a city southeast of Moscow (CIPR attended as the representative of the trademark owners). In December, police raided another fake cigarette factory in southern Russia, seized millions of cigarettes and production equipment and materials, and arrested several criminal suspects, which led to court convictions. Of the 2.4 million audiovisual products inspected by regional divisions of Rospatent and the Russian Ministry of Internal Affairs during the first nine months of 2004, one million product items worth 200 million rubles were removed from sale.

The Ministry of Internal Affairs stopped illegal operations at 325 enterprises, including at 10 CD factories. Five thousands criminal charges were filed, 21,000 people were called to administrative responsibility, and counterfeit products, equipment as well as other valuable property worth 1.6 billion rubles were seized.

As a result of inspections held at 3,800 enterprises producing and selling medicines and healthcare products, 127 criminal cases were initiated, 1,200 people were brought to administrative responsibility, and counterfeit products, equipment as well as other valuable property worth about 4 million rubles were seized.

On the Horizon:

Trucks containing cigarettes were seized as part of anti-counterfeiting operations

The work of the U.S.–Russia Bilateral Working Group on IP has recently been intensified with a videoconference held between officials in Washington, DC and Moscow in mid-February and additional meetings are planned for the spring. The U.S. continues to press for Russian Government action on copyright protection, the need for significant improvement on the government’s enforcement of IP laws across the board — copyright, patents and trade-marks — and that Russia develops TRIPS consistent language for data protection and geographic indications.

As bilateral meetings with the United States on Russia's WTO accession continue, the Russian government is likely to enact specific legislation and enforcement actions to address IP protection and enforcement issues raised by the U.S. government and private companies. Specifically, the State Duma "Recommendations On Civil and Criminal Mechanisms to Protect Consumer Market Against Counterfeit Goods" addressed at the Russian State Duma in November will be advocated for heavily this year, which should lead to new initiatives, including legislative amendments, organizational measures, and public education programs.

This is a very important and significant legislative initiative. It has the support of several key ministries, services and agencies, with key consumer organizations in the lead and the support of business and IP organizations, with CIPR playing a leading role.

As important, this initiative can be instrumental in addressing several major IP problems that plague international and domestic trademark owners, particularly bad faith registrations. Enacting a "first in time, first in right" provision, as required in TRIPS, would be a major step towards solving this problem. "First in time, first in right" means that a trademark that is protected first, whether it is a trademark or a Geographic Indication, should take precedence over and prevent the use of any conflicting subsequent trademark. Similarly, the fight against the export of fake goods could be supported by enacting an ex officio provision in the Customs Code.

"THE ANSWER LIES IN RUSSIAN RIGHTS HOLDERS AND CONSUMERS FINDING COMMON PURPOSE WITH INTERNATIONAL RIGHTS HOLDERS TO PRESSURE THE RUSSIAN GOVERNMENT TO ENFORCE ITS LAWS."

On January 20, 2005, the final recommendations were approved by the State Duma Committee "On Civil, Criminal, Arbitrary and Procedural Legislation, and will now be submitted to the Presidential Administration and all relevant Federal Agencies. These recommendations hope to accomplish several items, namely: to close the legislative gaps in the law, particularly to the production, transportation and distribution of fake goods; expedite key draft legislation in the Law on Trademarks, Administrative and Criminal Codes, Customs Code, Laws on Licensing Certain Activities and Copyright and Related Rights; develop national public awareness and education programs; provide special training for enforcement authorities and judges; consolidate efforts of government, consumers and copyright and industrial property owners; and finally, to better coordinate federal and regional anti-counterfeiting activities.

The next obvious step is to create a working group of representatives of relevant government bodies, self-administrated bodies, the Chamber of Commerce and Industry of Russia, and associations of rights holders and consumers to develop a draft nationwide anti-counterfeiting program.

In sum, Russia needs to improve the enforcement of its own IP laws or risk trade sanction by the United States. However, even those who press for trade sanctions know that international pressure alone will not result in significant improvement in IP protection. The answer lies in Russian rights holders and consumers finding common purpose with international rights to pressure the Russian government to enforce its laws.

While copyright piracy and product counterfeiting remains prevalent nationwide, Russia's legislative improvements and incremental steps toward more effective enforcement should be recognized and encouraged. The cooperation between the Russian consumer groups, domestic and international business and professional organizations and public-private partnerships is the model. All of those groups are committed IP constituencies, and are working closely with Russian government policy-makers, regulators and law enforcement officials on a daily basis to improve IP laws and enforcement practices. This is the surest path to sustained progress.