Compliance Alert

Compliance Alert – Subsidiaries of Foreign companies should be officially licensed trademark users

License Registration with Rospatent and Customs

Many Russian subsidiaries incorrectly believe that it is compliant to use their parent’s Russian trademarks in Russia without a written license. This is quite logical since most managers of foreign subsidiaries would assume that the right to use a trademark is implied in Russia. In fact, from a technical pure compliance standpoint, all users of a Russian trademark in Russia need to have written permission to do so in the form of a non-exclusive or exclusive license. Also, in order to be fully compliant, it is recommended that all trademark licenses be registered with the Russian trademark office – Rospatent. For those companies which are importing goods into Russia, it is also advisable to provide Russian Customs authorities with relevant information relating to the Russian subsidiaries right to use company trademarks in Russia. The Russian Customs authorities have a web site which documents these licenses.

A Question of Compliance

If a user of a trademark is not the owner or a bona fide licensee of a trademark, such non-bona fide users could theoretically be subject to civil lawsuits (see Articles for trademark infringement (1253 and 1515 of the Russian Civil Code), administrative fines (Article 14.10) and even theoretical criminal prosecution (Article 180 of the Criminal Code).

The most likely complainant of such use would logically be the Russian subsidiary or a related company, so the likelihood of any criminal prosecution, administrative fines or lawsuits is practically non-existent. The most likely situation where a trademark license would have to be produced would be at the time of import or tax examination. Trademark license fees may be accounted for when calculating customs duties. Tax office may also decide to assess taxes on deemed income in the amount of imputed trademark license fees if there is no trademark license or, conversely, deny tax deductibility if they decide that an existing license fees are not at arm’s-length.

Examples Where Exclusive Licensees Might Sue for Infringement

It is also worth noting that there are even situations whereby an exclusive distributor which is not related to the trademark owner might be in a position to complain about the use of a subsidiary of a trademark owner. For example, if Taco Bell decided to re-enter the Russian market (they were present in Russia briefly in the 90’s), they would likely do so and grant an exclusive trademark license. If the licensee invested millions of dollars in advertisement and all of a sudden the subsidiary of Taco Bell were to begin to use the trademark and open up restaurants across the street from the licensees restaurants, that would not only be in violation of the exclusive license it would also be unfair to the exclusive licensee/franchisee since the parent would unfairly benefit from the licensees investment in advertisement, potentially cannibalizing their sales. Another scenario could be imagined where an exclusive licensee was required to spent several millions of dollars on advertising as part of the license agreement and then the licensor starts importing in direct competition. Since the licensor might have lowered costs since they could potentially offer the same product at a lower price, they could be seen to unfairly compete against the exclusive licensee and to benefit from the ad spend of such a licensee.