The country’s leaders are again discussing the issue of legalizing parallel import.

For many years, legalization of parallel import has been a matter of argument in Russia. The Federal Antitrust Service of Russia is an avid supporter of this initiative and has prepared a draft law amending Part IV of the Civil Code to allow parallel import starting from year 2020.

The legalization issue is emerging once again in the current economic situation – a possibility of legalizing parallel import starting this year is currently being discussed with the First Deputy Chair of the Government Mr. Igor Shuvalov.

In Russia, the national principle of exhaustion of exclusive rights^[1] is applied. Under this principle, the rightholder’s exclusive rights to a trademark are deemed exhausted only once the respective products are placed on the Russian market.

In the Eurasian Economic Union (the “EEU”), functioning since January 1, 2015, the regional principle of exhaustion of exclusive rights is applied. The principle enables the use of a trademark for products that are legally placed on the market of any member state of the EEU directly by the trademark owner or other entities acting on its behalf.^[2]

These provisions are fixed in the Eurasian Economic Union Treaty which, due to its international nature, prevails over national laws.

At present, two schemes aimed at early amendment of the order which is effective in Russia and the EEU are under discussion:

• Keeping the regional principle of exhaustion of exclusive rights subject to certain deletions and exclusions for certain sectors (as regards parallel import on the pharmaceuticals and medical products market and  the auto parts market);
• Amending the Eurasian Economic Union Treaty so as to apply the international principle of exhaustion of exclusive trademark rights, subject to certain deletions (parallel import may be restricted for those investors which can prove their eligibility for such an exclusion). Under the international principle, once a product is sold in any country, the rightholder is deprived of its right to establish in the future the terms and conditions for new owners for selling such product.

Risks for companies

It is expected that the legalization of parallel import will at first lead to changes in trade strategies of foreign companies doing business in Russia and then will inevitably lead to changes in schemes of cooperation with contracting parties.

There are different strategies for minimizing damages from the legalization of parallel import: introducing amendments to distribution agreements, ceasing the use of traditional selective distribution schemes, etc.

It is important to keep in mind that any change in a trade policy may lead to potential exposure to antitrust risks primarily relating to the ban on agreements limiting competition in the course of cooperation with distributors. This is the reason why it is so important to take into account requirements of the antitrust legislation when developing new trade strategies and policies, as well as relationship models applicable to contracting parties.

Note that the antitrust legislation does not allow:

• Actions that prohibit distributors from using parallel-imported goods;
• Setting a requirement that distributors and retail networks sell separately the goods supplied by the exclusive and other distributor;
• Impeding the importer’s use or provision of information which is to be placed on the product label or packaging as required by laws of the country of import;
• Other actions which lead or may lead to restriction of competition.

Distributors should also bear in mind that their independent actions groundlessly discriminating parallel importers may be classified as unfair competition.

For instance, distributors are prohibited from maintaining the price for a product supplied under an exclusive contract by impeding a parallel importers’ purchase of such product on external markets for purposes of its further sale in Russia.

This provided, activities of companies doing business on transborder markets should also meet requirements of the EEU antitrust legislation effective since January 01, 2015.

Taking into account that the authorities concerned are treating the issue of legalization of parallel import as highly important and are giving it the utmost attention, it is reasonable for companies to start thinking already about changes in their trade policies and related legal risks that may arise.