Intellectual Property Rights, Trademarks and Russian Customs

The protection of intellectual property rights, trademarks and copyrights are hot topics for the Russian Federation as it tries to join the World Trade Organization. Anybody who has ever spent any time in Russia walking through the barakholki, or clothing and sundry markets, knows first-hand that the Land of the Firebird is also the Land of Imported Chinese Knock-offs Sold at Really Low Prices. In St. Petersburg, the Apraskin Dvor, right off Sennaya (Haymarket Square) sells quasi-brand items like Calven Klein shirts, Christian Diar ties, Donna Kaban NY dresses, and Lei Jeans in row after row after row of overflowing, privately run stalls. If the quality is dubious compared to the original, the design is often good enough to fool the non-attentive observer for a few minutes, or at least until the second or third round of vodka is drunk (after which, who cares).

Then there is the music scene, where only one or two reputable stores (such as M Video) offer anything resembling factory-produced and certified compact discs. They usually cost twice as much as pirated versions, and even if the quality isn’t quite so good, most Russians make the trade-off willingly. The losses to western copyright owners measure in the billions of dollars annually, and since Russia imports most of its counterfeits from China, it’s no wonder that the Federal Customs Service subjects Chinese imports to a 70% full inspection regime (i.e., seven out of ten shipping containers are inspected physically).

Lately the Russian government appears to be paying more attention to the problem of counterfeits – although it should be noted, that on this point, the official opinion diverges sharply from the opinion of the average Russian consumer, who earns around $1000 per month and looks on the knock-offs as a necessary evil. As the Russian saying goes, isskustvo trebyet zhertv, art demands sacrifices, and few nationalities more willingly sacrifice for fashion than Russians do. In any case, the Russian government clearly wants to fall into line with the world’s main trading nations in terms of respecting intellectual, trade and copyrights.

One of the main directives for handling counterfeits can be found on the Russian Federal Customs Service’s website under the “For Business” category. Entitled “The Regulation on protection of intellectual property rights by customs authorities” the directive sets down in 74 laborious statutes of stultifying bureaucratese just exactly how the FCS must handle violations of intellectual property rights on Russia’s borders.

The Regulation boils down to a few key points; the FCS can stop goods from entering Russia upon petition of the trademark holder; the procedures to stop the import of counterfeit goods are elaborate, involving a substantial body of proof; the FCS registers trademarks, copyrights and intellectual property into a centralized Registry only upon submission of a very specific information; and the FCS has broad authority to interpret the Regulation and enforce it.

The final point is the most important one for importers to Russia. The Regulation does not specify that the cargo may only be held upon appeal from the copyright or trademark holder, or by the owner of the intellectual property. Instead, it puts the decision into the hands of the customs post supervisor (head). He may delay (suspend) the import for 10 days, during which time the importer may appeal the suspension. The importer further may ask for a single 10-day suspension. The decision to release the cargo ultimately rests, again, with the customs post supervisor.

The system could not be better designed for abuse. First, when cargo is arrested, Russian Customs regulations permit the arrest of the ‘means of transportation’ along with the cargo. To look at this as a practical matter, assume that your cargo is detained at the Torfyanovka customs post on the Russian-Finnish border. The FCS officer who just arrested your cargo essentially just told you that you will pay at least 10 days’ for holding a truck, with driver, chassis and container, at the border – an expense that can easily be $1000 per day, or a minimum of $10,000. Whereas the ‘unofficial tax’ for ‘expedited service’ at Torfyanovka is $2000. Do the math and ask yourself which option you would choose. Add in the pressure coming from your buyers, who are waiting for their cargo to get to market; and the fact that your truck may be carrying dairy products or some other cargo with a short expiration date, and it’s not hard to understand why most importers are not going to make any trouble, or fuss and fight.

The Regulation stipulates that goods arrested under suspicion of counterfeit remain under control of the FCS until the cargo is either released into free circulation, destroyed, renounced in favor of the state, transferred to state ownership, or exported out of Russia. I know from personal experience that getting cargo destroyed requires an amazing amount of time and energy, including getting a court resolution. The entire process can take up to two years. Most importers won’t bother with renouncing their ownership rights, since this is also a very bureaucratic process, and prefer just to walk away. This leaves the final option as the most viable – allowing Customs to take ownership of the cargo, and sell it through the Russian Federation State Property Committee.

Which leads us back to an earlier blog, Administrative Arrest – Russian Customs Scam? Does it seem like the FCS will arrest counterfeit goods at the Russian border to protect trademark and copyrights – or will dishonest officers use the Regulation as an excuse to line their own pockets?

http://www.customs.ru/en/fbusiness/ENGCustomsrelatedissues/?id695=2959&i695=1