Potential Remedies for Russia’s Suspension of Intellectual Property Rights of Foreign Investors | King and Spalding

Potential Remedies for Russia’s Suspension of Intellectual Property Rights of Foreign Investors: International Investment Arbitration

Foreign investors in Russia may have recourse under international investment treaties for damages suffered as a result of recent Russian actions that interfere with an investor’s intellectual property rights: file a claim for arbitration directly against the Russian state. If the requirements of an applicable treaty are met, an investor may seek remedies from an international arbitral tribunal independent of the Russian state ranging from interim measures of protection to a permanent injunction and damages for the full value of its loss. These protections are potentially available to validly registered intellectual property owners in the pharmaceutical and life sciences, energy, franchising and hospitality, software, music and film, games and more.

Russia’s dismantling of intellectual property rights held by nationals of “hostile countries”

Reacting to the consequences of its invasion of Ukraine, including significant economic, trade and political sanctions, and the announcement by hundreds of multinational corporations of their intention to reduce or halt Russian operations, Russia imposed its own set of “anti-sanctions measures”. » retaliatory measures against so-called « hostile countries ».1 These include measures that nullify protections previously afforded to intellectual property rights holders. King & Spalding reported on the retaliatory measures imposed by Russia on March 11, 2022.2

In particular, on March 6, 2022, Russia issued a decree according to which Russian patent holders who are registered, do business or hold the nationality of “hostile countries” are no longer entitled to any compensation for the compulsory license of their patents. This decree effectively suspends the enforceability of any patent held by nationals of “countries hostile” to Russia.

Russia has taken or threatened to take further retaliatory measures and to implement additional policies aimed at infringing intellectual property rights in accordance with its decree of February 28, 2022 imposing “special economic measures in connection with actions hostile actions of the United States of America and associated foreign states and international organizations.” This decree and other Russian anti-sanctions retaliatory measures have already been cited by Russian courts and in administrative decisions: March 3, 2022, a Russian court flatly dismissed – as an “abuse of rights” – the trademark infringement claims of the British owner of the “Peppa Pig” trademark. This conclusion was based solely on the “hostile” status of the British trademark owner On March 12, 2022, a Russian entity sought to register a trademark for a logo very similar to McDonald’s famous golden arches. McDonald’s appears to be the tip of the iceberg, as Russia scrambles to meet demand for products sold by multinational corporations that have scaled back or ended their operations in Russia following the Russian invasion of the ‘Ukraine.

What is the role of investor-State arbitration?

In addition to other measures that may be available to investors whose registered intellectual property rights have been harmed by Russia’s actions,3 some investors may have a private right of action against the Russian state under a bilateral or multilateral investment treaty.

Although there is no bilateral investment treaty between Russia and the United States, Russia has concluded investment treaties with 24 of its “hostile countries”: Albania, Austria, Belgium, Bulgaria, Canada, Czech Republic, Finland, France, Germany, Greece, Hungary, Italy, Japan, Lithuania, Luxembourg, Netherlands, North Macedonia, Norway, Republic of Korea, Romania, Singapore, Switzerland, Ukraine and United Kingdom.

While these treaties provide varying levels of protection, they generally require Russia to provide investors from countries with which it has investment treaties with certain protections, including protections against expropriation, discrimination, and unfair treatment. More importantly, an investor who is aggrieved by a violation of a Russian treaty – whether perpetrated by the executive, legislative, government agency or other organ of the Russian state – may be entitled to file a claim for arbitration directly against Russia and to have this claim decided by a tribunal composed of arbitrators independent of the Russian State. The investor can apply to this arbitral tribunal for remedies ranging from interim protective measures to permanent injunctions and pecuniary damages.

For example, Article I(1)(d) of the Sweden-Russia BIT defines an “investment” as “any type of asset, invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance to its legislation, and includes in particular[…]intellectual property rights, as well as technology, know-how and goodwill. Article I(2)(ab) defines an “investor” as “any natural person who is a citizen of a Contracting Party according to its laws” and “any legal person constituted according to the laws of a Contracting Party”. Article III provides substantive protections, including fair and equitable treatment, national treatment, and most-favoured-nation treatment, while Article IV regulates expropriations and prohibits expropriations unless they are in the public interest, non-discriminatory, due process, and “accompanied by the payment of prompt, adequate and effective compensation”. Article VIII allows an investor who is unable to resolve a dispute amicably within six months of written notification to Russia to file a claim for arbitration in accordance with rules promulgated by the United Nations Commission for international trade law (“UNCITRAL”).

An award against Russia is enforceable in courts outside Russia in one or more of the 165+ jurisdictions signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) where Russia owns assets. However, we note that a challenge will be to identify Russian state assets that are both outside Russian territory and subject to collection.

Events in Russia are rapidly unfolding and foreign holders of intellectual property rights in Russia should immediately assess the avenues available to them (including the structure of their foreign investments in Russia) and take all necessary measures to protect their intellectual property rights registered in Russia. Investor-state arbitration can provide powerful remedies for accredited investors.

1http://ips.pravo.gov.ru:8080/default.aspx?pn=0001202203070001 (Decree of the Government of the Russian Federation of March 5, 2022 No. 430-r, identifying as “hostile” nations the following nations: Australia, Albania, Andorra, Great Britain, Member States of the European Union, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, United States, Taiwan, Ukraine, Montenegro, Switzerland and Japan).

2See our client alert on Russia allowing the nationalization of companies intending to leave the country in protest against Russia’s invasion of Ukraine at https://www.kslaw.com/news-and-insights/ russia-moves-closer-to-nationalizing-companies-intend-to-leave-russia.

3Russia is a party to a number of multilateral treaties that provide for the protection of intellectual property rights, including, for example, the Agreement on Trade-Related Aspects of Intellectual Property Rights (as amended by the Protocol of 2005 Amending the TRIPS Agreement) (the “Berne TRIPS Agreement”), the Paris Convention for the Protection of Industrial Property (the “Paris Convention”), the Berne Convention for the Protection of Literary and Artistic Works (the “Berne Convention”) and the Patent Cooperation Treaty (the “PCT”). In addition, owners of intellectual property used in operations in Russia should consider strategies to mitigate a negative enforcement regime in Russia by using available extraterritorial measures to contain and limit the scope and impact of the counterfeit.

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