Russia has yet again responded to the sanctions imposed by passing an unwelcomed decree that would allow theft of patented software, chip designs and other intellectual property piracy from any “unfriendly nations” counter-sanctioned by President Putin.

The implication of this decree is that now Russian businesses can freely copy any and every intellectual property from companies or business entities hailing from the sanctioned list. The present situation is quite unfortunate. However, it also calls for attention to be diverted towards the onset of economic warfare. Intellectual property is a significant aspect of the same. In the present situation, businesses, entities or individuals who would have been considered as infringers can now freely carry on their unfair and damaging practices to gain profit without repercussions of the law.

Russia’s sanctioned list of countries includes Ukraine, United States, Australia, Norway, Canada, Great Switzerland, Britain, Iceland, Monaco, New Zealand, South Korea, Japan and EU member states. It is evident that businesses whose brands are under target and of absolute risk of infringement don’t even have a recourse in law and cannot sought for any kind of compensation upon breach or illegal use of their IP assets.[1]

Patent holders will be bearing the brunt of these sanctions. Russia’s move is a reminder that how intellectual property has become one of the primary targets or a medium for Russia to establish its counter dominance. Patent holders who do businesses in hostile nations or hold their nationality will be thoroughly penalised through this decree. However, this decision was very much accepted since several global businesses walked out Russia when it decided to invade Ukraine.

of the current situation post the Russian decree and the potential impact of the same on right holders, corporates and businesses. It will also comment on the impact of legalisation of intellectual property piracy as initiated by the recent Russian Decree.

The legalisation of Intellectual Property Piracy

It is imperative to note the definition of ‘Piracy’ includes reproducing, copying, stealing, transmitting or selling of the IP assets of an individual without seeking any express consent or written approval of the creator or owner of such IP assets. It also entails that the IP holder’s remuneration would also be harshly impacted. The person holding the IPs won’t be entitled to royalties due to him or her.

One of the other aspects of Intellectual property piracy pertains to buying IP products at a highly discounted prices. Consequently, there would lie little to no costs for illegal reproduction. More specifically, patent holders/inventors will be greatly impacted by this decree.

Supporters of Intellectual Property Piracy and their thoughts

There is a small portion of experts who have analysed tha general impacts of Intellectual Property Piracy in the past and have pointed out certain ‘positive’ consequences of piracy. Supporters have claimed that some IP products can be made inexpensive and more affordable but are priced way too high. Hence, piracy will make such products more accessible to customers.

It has also been pointed out that in the present digital age, expensive IP products cannot possibly be supported as the digital medium enables sharing of certain products for free or at marginal cost to the producers.

Further, as an extension to their above argument, it has been stated that IP holders must try to price their products more reasonably. It is understandable that the supporters of this concept have tried to highlight that IP holders should not resort to predatory pricing. However, it is also quite unsettling that this mere economic reason gains support for the legalisation of IP piracy.

The analogy with China’s IP theft record

China has been known for its IP theft record, which has specifically costed the United States billions of dollars every year.[2] Both the White House and the Democratic leadership have had rare consensus over this issue. The only concern addressed was that China needs to make sweeping changes to their legislations to protect IP assets better. Brand creation is viewed as an art, and IP theft is a grave violation as it undermines the brand created by businesses and individuals.

It shall be noted that China’s Industrial output exceeds that of the US, and it remains the world’s principal IP infringer. Thus, it is no surprise that China has thrived on its IP theft tactics. This country has had a very different strategy to maximise its industrial output. It has proven effective at the cost of various businesses facing IP theft or loss through counterfeiting or breach of trade secrets. China has taken a rather lax yet aggressive strategy to maximise the acquisition of foreign technology, information on the same, and policies that have contributed to greater IP theft.

In 2020, Chinese courts have granted 4 “anti-suit injunctions blocking foreign companies from taking legal action anywhere in the world to protect their trade secrets”. There is no doubt that even the Chinese judiciary has failed to accommodate the economic interest of foreign companies. This was an intentional step taken in order to protect businesses that thrived on infringement of IP owned by businesses held by nationals of other countries. As anticipated, 3 of the rulings favoured telecom giants Huawei Technologies Co., Xiaomi Inc. and BBK Electronics.[3]

China has still tried to make a few changes to their IP protection regime after almost getting sanctioned by the US on three occasions, and on the face of it, they don’t seem to fully support or deny IP theft (considering their economy thrives on the same).

However, Russia’s decree is in a manner that it purposefully wants to recede to IP theft. This is the onset of economic warfare, and Intellectual Property Piracy is just a small aspect of it. In a vengeful attempt to respond to the sanctions Russia is facing, the country imposed the liberally worded decree allowing “piracy”. Russia is headed towards becoming world’s top IP infringer now.

Impending Impact on the Market

Russia has also admitted in that certain trademarks on products will lose its protection. Trademark has been typically viewed as a negative right where its restricts other individuals or companies from using the brand identification of a particular company or individual.

To elaborate this, in other words, it means that Russia can have its own version of McDonald’s. Thus, as a result, businesses will be unwilling to invest in Russia even after the de-escalation of the invasion.

Another major concern is the theft of technological innovation, which, when stolen, can cause real threat to western businesses. Now infringers won’t have to face any kind of condemnation of punishment. Russia plans to utilise legalisation of Intellectual Property Piracy in order to make entertainment, music, and other private works easily available to the public free of cost.

Russia plans to nab a large market share. The supporters of this strategy have gone on to state that Russia did the same in order to appear charitable by distributing movies and music for free.

A trademark application “Uncle Vanya” is set to replace McDonald’s as it’s a pirated version of the brand. Presently, trademark applications have been filed in Russia that bear a striking resemblance to marks belonging to Ikea, Instagram, and Starbucks etc. For example- IDEA furniture factory is actually just a rip-off of Ikea’s brand identification. Similarly, RUSTAGRAM, INSTARUS and STARBUCKS are one of few other applications that facilitates the legalisation of IP theft.

Now coming to wartime patent manipulation, which has had a great historical precedent from time and again, including in World War I, where the U.S. passed the ‘Trading with the Enemy Act and ended up seizing patents and copyrights belonging to enemy states.’ An auction of aspirin patent was granted to be held due to this Act. Russia has brazenly and blatantly copied trademark applications.[4]

Potential Impact on Corporate Research & Development

Some general technical difficulties need to be discussed in the current scenario, along with the potential impact on corporate Research & Development.

The actual economic impact of IP infringement remains immeasurable and vague. In other words, it is extremely difficult to actually measure the consequences or damages created by rampant IP infringement when it gets too far out of control and hence untraceable. Tracking and measuring the extent of Counterfeit goods is extremely difficult because of its illicit nature of piracy and trading in counterfeit goods. Consequently, the ease of using pirated software and the disincentives associated with reporting trade secret theft also remains under scrutiny for forever now.
Victims of trade secret theft are unaware of the extent of infringement they are facing an end up undervaluing the amount of damages they are entitled to. This can lead to a diminished market valuation eventually.
The number of IP litigation cases will go up but to no avail. Businesses will lose sight of their brands as they will experience rampant infringement with no legal consequences or remedies to avail. This will also impact corporate investments on patents or trade secrets. The rights on current innovation and technologies will be affected. The costs of patent litigation specifically have a bearing on the real impact of Russia’s unfair decree legalising Intellectual Property Piracy.
It is possible that IP protection regimes in the particular “unfriendly countries” (according to the decree) will become more aggressive, and the compliances to be observed by corporates investing in R&D and their related IPs will become more specific as to where a product is being launched etc. IP strategies will have to be extremely effective in order to avoid rampant infringement in the open global market.
Technology start-ups backed by big transnational corporates will have to face an increased scrutiny before their software or patents could be launched industrially. Firms operating in the pharmaceutical industry with several drug patents must become very careful with their quality control checks across nations. Drug counterfeiting can have higher implications as to public interest.

Limitations to immediate technology transfer to Russia even after employing IP Piracy decrees

Even after discussing the impending ordeal of IP infringement, there is some good news for IP holders. It is imperative to note that Russia particularly lacks skilled workforce and technological innovators. Hence, it will be difficult for Russia to implement their glorious IP theft strategy effectively right away, buying some time to unassuming IP holders to exit Russia or withdraw their pending applications.

Furthermore, the transition to technological innovation will not be easy for Russia. Thus, Russian businesses still need skilled workforce, and this will turn into a large financial incentive for them to move to Russia to properly utilize their skills and have improved quality of life. Personally, I doubt this perspective as the value of Rouble has fallen to an all-time low. Russia’s isolation and growing lack of skilled producers have led to a stark decrease in technological innovation.[5]

Conclusion: Russia’s intention is abundantly clear when it passed the decree legalising Intellectual Property Piracy. We witness a very similar approach from China in the past, and on an analogy, it can be said that Russia has realised the value of IP theft and how a nation could thrive on stolen technology and counterfeiting goods. This move is a bad step towards sacrificing every remaining ethic and moral concern in the present economic warfare along with the invasion.

Indeed, that Russia’s current limitation will make it difficult to acquire valuable patent knowledge from prior art and implementing it right away. However, something like trademark and copyright will fall prey to this decree. This is also a great opening for discussion that how the current IP regimes will not actually protect trademark, copyrights, patents and other IP assets from infringement if a particular country just decides to comply with global standards of IP protection. Lastly, India has taken a great decision by testing its waters first and taking a neutral stance in the present situation as IP theft, and rampant infringement is not one of the troubles India would like to add to its list. It is clear that billion-dollar economies will face under losses which will be felt in the coming years if not immediately.

References:

[1] https://www.indiatimes.com/technology/news/russia-legalises-piracy-allows-companies-to-steal-patents-from-unfriendly-nations-564212.html

[2] IP Commission Report: the theft of American Intellectual Property and reassessments of the challenge and the US policy, https://www.nbr.org/wp-content/uploads/pdfs/publications/IP_Commission_Report_Update.pdf

[3]https://www.livemint.com/technology/tech-news/china-wields-new-legal-weapon-to-fight-claims-of-intellectual-property-theft-11632659529493.html

[4] https://observer.com/2022/03/putins-war-on-intellectual-property-has-only-just-begun/

[5] https://www.ipwatchdog.com/2022/03/16/russian-businesses-can-now-legally-steal-intellectual-property-unfriendly-countries/id=147528/

Disclaimer: The present article intends to provide general guidance on the subject, and you can also consult us in your specific case.