Transportation and Logistics, Optics, Intellectual Property Rights
The new set of challenges has arisen after the imposition of new sanctions, export controls, and other USG restrictions affecting trade with Russia.
Exporters should be aware that transportation and logistics has become far more complex in the aftermath of Russia’s invasion of Ukraine. Many maritime carriers, such as Maersk, Hapag-Lloyd, and MSC Mediterranean Shipping, have suspended operations in Russia due to operational and safety concerns, and the White House announced a ban on Russian-flagged, owned, or operated vessels entering U.S. ports on April 21, 2022. Passenger and cargo air transportation has been banned by both U.S. and Russian governments. While it is possible to move cargo to/from Russia, it is reasonable to factor in the likelihood of increased transit time and expense due to these regulatory obstacles.
Optics have become a consideration for U.S. companies that are making difficult choices about whether to maintain a physical presence or continue doing business in Russia. There are a number of public lists of international companies that have maintained business operations in Russia, and companies with operations throughout Eurasia might wish to consider the overall regional geopolitical environment as part of their decision to engage or not engage the Russian market.
New actions by the Russian government in response to Western sanctions and other measures have worsened the intellectual property environment in Russia. Of particular note, Russian Prime Minister Mishustin signed a March 6 decree (resolution No. 299) stating that foreign patent holders associated with unfriendly foreign states who commit unfriendly actions against Russian legal entities and individuals would be entitled to no compensation of the actual revenue of the person who has exercised the right to use an invention, utility model, or industrial design without the consent of the patent holder. A March 8 law (“On Introduction of Amendments to Various Laws,” No. 46-FZ) allowed the Russian Government to designate goods or groups of goods for which IP rights are exempted. The law applies to all IP, including trademarks, and runs through 2022.
Russia’s Federal Anti-Monopoly Service (FAS) also prepared regulations on parallel imports, announced by the Russian government on March 30, and followed by an Order from the Russian Ministry of Industry and Trade on May 6 identifying the foreign goods subject to parallel importation. (Order No. 68421) Among the order’s industry targets are the automotive, IT, and clothing/apparel sectors.
Political figures, including some in the Russian State Duma (legislature), in response to what it sees as actions taken by “unfriendly” nations (including the United States) such as sanctions and export controls, have proposed certain pieces of legislation that U.S. companies should be aware of when considering the Russian market. The bills, if passed, present substantial risks for current and prospective business. Some of these proposed actions include/have included:
- Legislation aiming to punish entities in Russia that comply with international sanctions with a prison term of up to 10 years, forced labor of up to five years, or a fine of up to RUB 1 million (approximately $12,945). The bill, which would amend Russia’s criminal code, does not specify whether the new rules would only apply to Russian companies or target any entity doing business inside the country.
- Another bill would give the Moscow Arbitration Court authority to appoint receivers to take control of companies that are at least 25 percent owned by persons from “unfriendly countries” who perform functions considered essential for maintaining the economic and social security of the country and its citizens. Some of the criteria include the provision of socially significant goods or services that cannot be replaced by domestic production (for example food, medicines), dominant position in a market, being a major employer or supply-chain participant, etc.
- A bill providing for suspension and termination of contracts due to Western sanctions, granting Russian businesses and individuals with (1) permanent relief from contractual obligations if their fulfillment is “absolutely impossible” due to Western sanctions; and (2) temporary relief from contractual obligations (and any associated penalties) if their fulfillment is temporarily impossible due to Western sanctions.
- Providing regional governments with authority to nationalize assets of foreign companies from “unfriendly countries” located on their territories without any compensation and according to nationalization procedures developed by regional governments.
As of early summer 2022, the pieces of legislation furthest along in the legislative process and closer to receiving final State Duma consideration were the bills permitting external administration, and allowing suspension and/or termination of contracts due to Western sanctions. Regardless of the legislative status, the Russian government has a record of exerting politically motivated pressure and coercion against businesses.
The Russian government has also taken numerous steps via governmental decrees or orders to respond to sanctions and export controls. The government has taken a host of domestic economic measures that have included export restrictions and bans (fertilizers, pharmaceuticals, agricultural and food products, certain commodities), capital controls (foreign exchange bans and limitations), and reducing regulatory burdens on businesses (postponing labeling requirements, simplifying import and customs procedures, reducing or canceling taxes and fees).
The government has drawn up a list of 49 “unfriendly countries” that includes the United States. Some Russian laws and governmental decrees apply specifically to these “unfriendly countries,” a list that also includes U.S. allies like Canada, Australia, Japan, and the European Union.
The Russian response to Western sanctions and export controls remains fluid. Companies may wish to consider a more in-depth consultation with qualified counsel on the legal landscape for Western companies working in Russia.