How Russian courts handle trademark exhaustion

Although the international exhaustion principle is due to expire in Russia at the end of 2021, it is still in effect regionally. This is significant as the smaller the scope of trademark exhaustion, the more opportunities there are to inflate prices and limit the offer of original products.

Article 1487 of the Civil Code of the Russian Federation states that trademark rights are not violated when goods bearing the mark are put into circulation in the territory of the Russian Federation directly by the rights holder or with its consent. However, due to Russia’s membership of the Eurasian Economic Union (EAEU), goods may also be put into circulation in the territory of the EAEU member states.

Notwithstanding this, rights holders often take action against sales of goods bearing their mark. In the case of the PASTHER mark, the plaintiff demanded compensation because the defendant, having purchased a certain amount of labelled products from the plaintiff, sold a significantly larger amount of these. The courts rejected the claim, finding that the extra products were also introduced into circulation by the plaintiff, but were purchased by the defendant through other sales channels.

However, the existence or absence of exhaustion of the trademark rights is not always obvious (eg, trademarks being displayed on the signage of a store that sells goods put into circulation by the trademark owner or with their consent).

In some cases, the IP Court has noted that the use of a trademark on a sign is an offence. In one instance, it was not proven that the sign on the defendant's store bearing the trademark AVTOVAZ COMPANY belonged to the owner of this trademark, or was made and placed on the facade with its consent. At the same time, there is a reverse practice, according to which use on the signboard is not recognised as a violation, since the exclusive right to goods sold in the store had been exhausted.

The key issue in cases involving exhaustion of rights is whether the rights holder consents to introduce goods into circulation. Most often, this is a licence/dealer/distributor agreement, but in rare cases, written approval of the trademark owner is also accepted.

For example, in one case (N C01-305/2016), the owner of the OREO mark found that the suspension of Customs’ release of goods was balanced by a letter from the rights holder’s representative stating that it did not object to the release of these goods in accordance with the established procedure.

In a case involving the marks ARGUS, VARDEX and SHAVIV,the court accepted a letter issued by the exclusive licensee of the marks as evidence of legal use. The letter established that the respondent "is an authorised organisation for the supply of products submitted by [the exclusive licensee of the goods]". Thus, the court found that the plaintiff itself gave the defendant the right to use the trademarks.

In another case (N C01-1144/2018), a non-exclusive licensee imported marked goods into the Russian Federation, without having applied for permission to do so. Therefore, the court recognised the goods as ownerless property, and subsequently the property of the port, which then sold them to the defendant. The court stressed that after the customs authority permitted the release of the declared goods, the licensee did not apply for the issue of this product from the port. This, however, does not negate the fact that the disputed goods were put into circulation with the rights holder's consent.

In some cases, courts have indicated that it is possible for an importer to prove that they have used a trademark legally with reference to Article 1487. This is due to the fact that "the product looks like the original one, the trademark is used in the form in which it is used by the copyright holder himself, and the right holder or his licensee is indicated as the manufacturer on the product (package)". At the same time, the rights holder has the right to challenge this stance, for example, by pointing out that the disputed goods were not produced by it or its licensee and confirming this by pointing out any discrepancies between the disputed goods and the goods produced by it or else the fact that it does not manufacture the disputed goods in general.

Next week, we explore a decision issued by the Constitutional Court with regard to parallel imports.