WAR ON PIRACY: After languishing in the backwaters of public policy priorities for years, the protection of intellectual property rights moves to center stage

September-October 2000
Cover Story

Sales in pirated music represent more than $300 million in losses to the recording industry. Almost 90 percent of all software in Russia is illegal, with annual losses of over $250 million. An estimated 180 million pirated videocassettes are sold in Russia annually with a sales value of $900 million (figures for 1997).

Past attempts by the Russian government to address copyright piracy, trademark, patent, and Internet domain name infringements have deeply frustrated intellectual property rights owners, the U.S. government, the European Union (EU) and the World Trade Organization (WTO). The decision by the United States Trade Representative in May to place Russia on its "Special 301 Priority Watch List," a first step in the process leading to retaliatory trade sanctions by the U.S., is but one indication of the international community's growing impatience with Russia's poor record of protecting and enforcing intellectual property rights (IPR).

Multi-million dollar losses for international companies in Russia from counterfeiters, trademark pirates and patent infringers have galvanized western governments, business organizations and trade associations into action. The American Chamber of Commerce in Russia (AmCham) made IPR protection its number one public policy issue for 2000. Private companies are organizing their own coalitions. The Coalition for Intellectual Property Rights (CIPR) and the Brand Protection Group (BPG) were both founded within the last year to lobby the Russian government. In the end, only a real shift in the attitude of the Russian government about IPR protection will ensure judicial and legal reforms, as well as better deterrence mechanisms and law enforcement. In other words: political will.

Encouraging signs

Signs of change emerged late last year. In October, then Prime Minister Vladimir Putin announced to members of the Foreign Investors Advisory Council that IPR reform should be a top priority for Russia in its attempts to attract foreign investment and fully integrate into the global economy.

Early this year, Acting President Putin issued a decree to reinstate Rospatent, the Russian government's principal regulator of patents and trademarks, as an independent government body. The agency had spent several months in political limbo following a presidential decree in 1999 to abolish unnecessary governmental bodies.

In May, the Russian government approved Rospatent's "Rules for the Recognition of Trademarks as Well-Known in the Russian Federation." The rules move Russia closer to international protection standards for well-known trademarks owned by Russian and international companies and in compliance with Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement), a prerequisite for Russia's WTO accession.

An announcement in July that Rospatent's responsibilities would be expanded to include copyrights and neighboring rights further cemented Rospatent's influence on the government's IPR policies.

The most convincing sign of the government's intentions came from Deputy Prime Minister Ilya Klebanov, who announced plans to reform Russia's IPR regime during a speech in June at an international CIPR conference in Moscow. Over the next 10 years, the government's goals are to reduce counterfeits, contraband and infringement of trademarks, patents and copyrights, said Klebanov. A package of IPR legislation and amendments, and proposals for stronger criminal penalties for counterfeiters and other IPR violators would be submitted to the State Duma in October. Accession to the WTO and establishing a normal business climate based on the rule of law were priorities for his government, he said.

Dr. Alexander Korchagin, Rospatent's general director, provided highlights of the proposed laws and amendments at a seminar in July in Washington, D.C.:

* A proposed provision to enhance protection of well-known trademarks. This is a central point in the TRIPS Agreement and of major significance to trademark owners, such as United Distillers & Vintners (Smirnoff vodka) and Kodak, which are currently petitioning the Russian courts for trademark protection.

* Proposed amendments to improve the trademark registration process. These would take into consideration an applicant's commercial use of a trademark. These amendments would make it difficult to register trademarks when an applicant will obviously not use the trademark or when registration is clearly for the purpose of selling the trademark.

* A proposal to cancel more than 200 Soviet-era brands, such as Stolichnaya vodka and Prima cigarettes, which are currently in use by more than one company and the source of numerous disputes between Russian companies. These brands would become "compliance marks" and the property of the government, who would sell the rights to use the brands and regulate product quality under the brand names.

* A new patent examination process that begins as soon as an application is submitted to Rospatent. Currently, the Patent Law needs to be amended to comply with the International Convention for the Protection of New Varieties of Plants, a critical international treaty. Other significant issues are data exclusivity for process and product patents, particularly for pharmaceutical drugs; clearer criteria for compulsory licenses, a critical issue for the U.S. government; and supplementary patent certificates, a priority issue for the EU. The proposal will include the possibility for protection of computer databases and microcircuits under the Patent Law.

* Copyrights and neighboring rights. Under the TRIPS Agreement, Russia is required to provide retroactive protection for pre-1973 foreign works and pre-1995 sound recordings. To regulate payments to authors and copyright owners more effectively, the Russian government will centralize control of copyright and neighboring rights regulation under Rospatent. In addition, the government proposes to put the agency in charge of all licenses and exclude all non-governmental organizations from having access to licenses. Rospatent would develop a database of authors.

* Greater enforcement. The greatest challenge facing the Russian government is the lack of a coordinated approach to enforcing anti-counterfeiting laws, piracy of copyright materials, trademarks and patents. According to Dr. Korchagin, the government proposes to create IPR enforcement offices in each of the seven super regions under Putin's new administrative plan. The involvement of key enforcement agencies such as the Ministry of Interior, Tax Police, State Customs Committee, Anti-Monopoly Committee is critical and needs to be defined.

* Domain name protection. As noted, Rospatent has proposed draft rules to the Russian government to establish new trademark registration procedures that place emphasis on commercial utilization of brands and trademarks. The new rules would help combat trademark piracy and give intellectual property owners more legal ground to challenge "cyber squatters" who register Internet domain names using their trademark name.

* Legislation to clarify the use of geographic names as brands for alcohol beverages in Russia. The EU raised the issue to protect against the misleading use of trademarks and brands with international reputations directly connected with a geographic region such as "merlot," and "chardonnay."

* Revisions to Part Three of the Civil Code and stronger criminal penalties for intellectual property violations. In July, Vladimir Reznik, deputy chairman of the Duma Committee on Budget and Taxes said revisions to Part Three of the Civil Code and provisions to increase criminal penalties for IPR violations will be considered by the State Duma in 2000-2001. Concerns have repeatedly been raised by IPR experts about proposals to revise Part Three of the Civil Code that would weaken what is considered a solid base of IPR protection.

Counterfeit goods include food, alcohol and clothing products, as well as electronic equipment, the majority of which do not meet Russian safety and quality standards.

Partnerships essential

The Russian government is taking a bold step towards advancing IPR reform. Clearly, the Russian government recognizes the importance of strong IPR protection to economic development, attracting foreign investment and recouping lost budget revenues due to counterfeiting and other IPR violations.

To support and augment these steps, a public-private partnership dedicated to advancing IPR protection, enforcement and reform in Russia is paramount. Proactive support from the private sector to assist the Russian government in passing IPR legislation this year is in everyone's best interest. CIPR and AmCham, along with other stakeholders in intellectual property protection and enforcement, are providing input to Rospatent on the package of legislative proposals and amendments for submission to the government later this year.

The challenges facing the Russian government are formidable. Passing legislation to finalize the process of harmonization of laws with TRIPS will be difficult. Enacting improved enforcement policies and practices will be even harder. Nevertheless, the outlook in Russia for meaningful reform of IPR legislation and enforcement has never been better.