27 March 2018
Russian Court Okays Parallel Imports to Counter "Illegal" Sanctions
Court decree seen as charter for illicit imports, with sanctions deemed a 'damaging violation' of Russia's rights.
The practice of "parallel importing" has effectively been legalised in Russia, with the country's judiciary apparently viewing it as an acceptable means of circumventing the "unfriendly" and "illegal" sanctions imposed by the EU and US. The ruling stems from a decision by the Constitutional Court to overturn an earlier verdict by the Kaliningrad Region's Arbitration Court that had appeared to criminalise such imports.
The earlier case focused on a local Kaliningrad hospital that had sourced a supply of the special paper required for its Sony-branded ultrasonic testing equipment from an unofficial dealer in Poland. In theory, all such supplies should come from the Sony Corporation Russia, the official intellectual property rights (IPR) holder for the whole of the Russian Federation.
While the local court had found in favour of Sony Russia, the Constitutional Court, the Russian judicial body responsible for overseeing the interpretation and application of the country's legal code, came out in support of the hospital. Overall, the court ruled that any attempt by individuals or businesses to comply with the "illegal" sanctions imposed upon the country was both "unfriendly" and "an extremely damaging violation" of Russia's rights.
In effect, this gives the country's courts carte blanche to negate IPR whenever those rights are exercised in a way that could be deemed to be detrimental to Russia's interests. This basically acts as a charter for parallel importers to distribute any products within Russia in instances where the IPR holder has declined to supply such products.
Following the ruling, a number of legal experts have interpreted its application and nuances in light of its likely impact on IPR holders and the parallel import trade. Overall, it has been seen as not entirely dispensing with the rights of authorised importers, but rather as ending their existing monopoly within Russia.
Additionally, the court's decision is not seen as giving the go-ahead for the mass import of items that have not undergone the adaptions required for compliance with Russian consumer law. Finally, any loss of exclusive import rights is not seen as disbarring the IPR holder from taking action against any trademark breaches related to counterfeit items.
Overall, though, the decree is seen as setting a precedent for future instances where World Trade Organisation (WTO) members impose sanctions on one another, with third party WTO nations obliged to follow suit in order to escape veto and sanction from those countries initiating the punitive action. In such a scenario, the legalisation of parallel importing provides a loophole for third parties, while not entailing any official transgression.
Less convolutedly, the move is also seen as rebuke to the WTO. Earlier, as part of its accession to WTO membership in 2011, Russia had notably clamped down on parallel imports.
The practical upshot of all of this, meanwhile, is that competition will increase in certain Russian and Eurasian Economic Union product categories as the level of illicit – but unchecked – imports soars. This will be particularly the case in those sectors where securing required safety certification and other approvals is not deemed prohibitively time-consuming or expensive.
In particular, it opens up opportunities in the consumer electronics, garments and textiles, household goods, car parts and accessories, food and beverage, watches and clocks, stationery, furniture, sanitary ware and lighting sectors. It will also act as an added impetus to any e-commerce operators already engaged in the export of "greyish" product lines to Russia.
In certain sectors, however, the ruling is likely to have little impact. This will be particularly the case for cars, motor bikes, medical equipment and supplies, pharmaceuticals, personal-care items, construction materials and industrial equipment. In all such instances, high certification costs and complicated approval procedures will render parallel imports economically unsustainable.
For any Hong Kong suppliers or distributors looking to capitalise on this apparent free-for-all for parallel importers, it will merely be a case of returning to practices that were commonplace in the late 1990's and early post-millennium period. Back then, many exporters made considerable profits by offering wider ranges and more competitive prices than authorised importers.
Leonid Orlov, Moscow Consultant