Open questions on the implementation of parallel import: the case of the pharmaceutical industry
The issue of whether parallel import may be made legal in Russia has been discussed over the past several years. However, since the beginning of March the mere discussion has transformed into practical effort, i.e. the following regulations were successively adopted: Federal Law No. 46-FZ dated 8 March 2022 (“46-FZ”), the Government’s Resolution No. 506-PP dated 29 March 2022 (“506-PP”) and Order No. 1532 of the Russian Ministry of Industry and Trade dated 19 April 2022 (was registered with the Russian Ministry of Justice on 6 May 2022 and has undergone two iterations since that time, the last of which came into force on 7 August 2022). Please find details in the article of Konstantin Sharlovskiy, Head of the Life Sciences Practice, Pepeliaev Group.
Literally, the regulations cancel with respect to a number of goods a national principle of the exhaustion of exclusive rights to IP items, rather than introduce an international principle. However, the executive authorities are more likely to interpret (and are already interpreting) the provisions from a teleological standpoint, rather than literally, which will allow the listed goods to be imported into and sold in Russia without the rightholder’s permission.
At the end of June a law was adopted whereby using IP with respect to the goods included in the list will not be treated as violation of exclusive rights at all. According to the substance of the provision that has been introduced, any person that uses IP items without the rightholder’s consent is released from liability. In addition, it will not be treated as a violation if original goods are not only imported and sold, but also if goods containing IP are produced, promoted and/or otherwise used without the rightholder’s consent. At present, it is difficult to tell whether the specified provision will be applied literally (i.e. will allow counterfeit goods to be produced and sold) or only in the context of legalization of parallel import (i.e. only in the context of eliminating the liability of importers of original goods).
We propose to put aside the dispute as to the advantages and disadvantages of parallel import and its long-term and mid-term actual effect on the economy and examine in more detail several practical aspects of the functioning of the mechanism for the unauthorised import of original goods to be allowed in Russia.
The criteria and procedure for goods to be included in/excluded from the list
Neither 46-FZ, nor PP-506 establish any criteria that are used in order to form the list of goods that are allowed to be imported without any sanctions from the rightholder. Nevertheless, it is possible to assume that there are criteria that are not formally documented, but are actually being used in the process of implementation of the list.
The main assumed criterion is the deficit (insufficiency) of goods on the Russian market. For example, we do reckon this criterion was used when the products of Miltenyi Biotec under code 3002 12 000 9 of the Commodity Classification for Foreign Trade (Immune Serums and Other Blood Fractions) were included in the last version of the list. The manufacturer officially ceased to supply such products to Russia in March 2022 and the mass media wrote on multiple occasions that no equivalent substitutes were available.
However, with respect to a number of goods (specifically, goods whose production is located in Russia), it is fairly difficult to understand how a deficit of such goods on the market was determined. In this case, it is worth remembering the initiative of the Russian Federal Antimonopoly Service of 2013-2015 to introduce a moratorium on the parallel import of goods whose production was located in Russia. At that time the initiative caused considerable debate in the mass media and was even approved by the Government for consideration; however it was not adopted owing to disagreements of various authorities.
The issue arises: was an analysis conducted of whether there was insufficiency or the relevant threat with respect to all of the groups of goods and brands included in the list? If one was, then how and based on what methodology was such insufficiency determined; in particular, what are the limits of the market/group of goods with respect to which the insufficiency is determined?
Regardless of the fact that the term “insufficiency” has been extensively used by the legislature over the last several months, it lacks a regulatory definition. At the same time, some by-laws describe specific criteria based on which it can be determined whether an insufficiency exists, but such by-laws do not provide for the methodology, establishing only examples of such criteria.
Summing up, it should be acknowledged that even such criterion for a product/brand to be included in/excluded from Minpromtorg’s list as insufficiency or a risk of it cannot be treated as a universal criterion, since a) it is not formalized in the legislation, b) it is not actually applied in all cases, and c) there is no unified methodology for determining and proving that the fact of an insufficiency exists.
Apart from the absence of any regulatory criteria for forming the list, neither does current regulation provide for a procedure for forming the list and, more importantly in practical terms, a procedure for adjusting the list (for specific goods or categories of goods to be included/excluded).
The Russian Ministry of Industry and Trade may exercise delegated powers and amend the list, i.e. allow or prohibit parallel import of individual groups of goods or brands. On the one hand, such decision-making procedure provides maximum flexibility and the possibility for the regulator to swiftly respond to a change in the situation on the market. On the other hand, such approach makes the situation entirely unpredictable both for rightholders and for potential “parallel” importers. If there is no understanding as to how a decision is made, on what factors it depends and for how long it will remain in force, it is impossible to determine whether a business decision is prudent, be it a decision to continue supplies of the product in Russia or to build an alternative supply chain by using an unofficial distributor.
The correlation between industry-specific regulation and parallel import
For a number of industries the practical implementation of the mechanisms of parallel import in their current form is problematic owing to industry-specific regulation that intermediates procedures for importing and selling goods. The above applies, first and foremost, to such industries as pharmaceuticals.
Even if medicines are entered into new versions of the list, the sale in Russia of individual series of such medicines purchased outside Russia and imported without the rightholder’s consent under the conditions of the current industry-specific regulation will be possible only if specific requirements are met, for instance, to ensure the necessary labelling in Russian, etc.
The Russian Government’s Resolution No. 593 allows medicines to be imported in “foreign” packaging until 31 December 2022 without special permissions provided that other limitations are met for the free circulation of foreign medicines after they are imported.
Firstly, the import of such medicines can be carried out only provided that they meet the requirements established when they are registered, except for the requirements for the primary packaging and secondary (consumer) packaging, and provided that the secondary (consumer) packaging of the medicines in circulation has an adhesive label containing information about the medicine in Russian.
Secondly, such medicines can be released into circulation, which includes transportation, sale, transfer, storage, dispensing and retail trade (including remotely), and used only after the opinion of an inter-departmental commission has been obtained. For an opinion to be issued, an application should be filed together with the list of documents as determined in a certificate. According to the documents included in the list (clause 36(d-m) of the Russian Government’s Resolution No. 593 dated 5 April 2022) we can presume that it will be extremely difficult for a person that is not authorised by the manufacturer of the medicine to collect such package.
In other words, if medicines are currently included in the list of the Russian Ministry of Industry and Trade, this fact alone will not make the parallel import of medicines possible in any case.
Summing it up, it should be noted that parallel import in the existing conditions may be considered as a mechanism to provide specific industries with irreplaceable goods which have become
temporarily unavailable owing to sanctions or for any other reasons. At the same time, it is also obvious that the “side effect” of the mechanism being implemented which is intensified by the form of such implementation in Russia (meaning the lack of regulatory criteria for forming and a procedure for adjusting the list of goods, frequent adjustments of the list and the temporary nature if the provisions in general) eliminates the potential benefits from parallel import for at least a number of industries of social significance, such as pharmaceuticals and medtech. Improving the application of the mechanism of parallel import is possible by making the procedure and criteria for forming the list of the Russian Ministry of Industry and Trade more transparent and by harmonising the provisions on parallel import with industry-specific regulation.
The source: AEB. Business Quarterly (Autumn 2022)
Literally, the regulations cancel with respect to a number of goods a national principle of the exhaustion of exclusive rights to IP items, rather than introduce an international principle. However, the executive authorities are more likely to interpret (and are already interpreting) the provisions from a teleological standpoint, rather than literally, which will allow the listed goods to be imported into and sold in Russia without the rightholder’s permission.
At the end of June a law was adopted whereby using IP with respect to the goods included in the list will not be treated as violation of exclusive rights at all. According to the substance of the provision that has been introduced, any person that uses IP items without the rightholder’s consent is released from liability. In addition, it will not be treated as a violation if original goods are not only imported and sold, but also if goods containing IP are produced, promoted and/or otherwise used without the rightholder’s consent. At present, it is difficult to tell whether the specified provision will be applied literally (i.e. will allow counterfeit goods to be produced and sold) or only in the context of legalization of parallel import (i.e. only in the context of eliminating the liability of importers of original goods).
We propose to put aside the dispute as to the advantages and disadvantages of parallel import and its long-term and mid-term actual effect on the economy and examine in more detail several practical aspects of the functioning of the mechanism for the unauthorised import of original goods to be allowed in Russia.
The criteria and procedure for goods to be included in/excluded from the list
Neither 46-FZ, nor PP-506 establish any criteria that are used in order to form the list of goods that are allowed to be imported without any sanctions from the rightholder. Nevertheless, it is possible to assume that there are criteria that are not formally documented, but are actually being used in the process of implementation of the list.
The main assumed criterion is the deficit (insufficiency) of goods on the Russian market. For example, we do reckon this criterion was used when the products of Miltenyi Biotec under code 3002 12 000 9 of the Commodity Classification for Foreign Trade (Immune Serums and Other Blood Fractions) were included in the last version of the list. The manufacturer officially ceased to supply such products to Russia in March 2022 and the mass media wrote on multiple occasions that no equivalent substitutes were available.
However, with respect to a number of goods (specifically, goods whose production is located in Russia), it is fairly difficult to understand how a deficit of such goods on the market was determined. In this case, it is worth remembering the initiative of the Russian Federal Antimonopoly Service of 2013-2015 to introduce a moratorium on the parallel import of goods whose production was located in Russia. At that time the initiative caused considerable debate in the mass media and was even approved by the Government for consideration; however it was not adopted owing to disagreements of various authorities.
The issue arises: was an analysis conducted of whether there was insufficiency or the relevant threat with respect to all of the groups of goods and brands included in the list? If one was, then how and based on what methodology was such insufficiency determined; in particular, what are the limits of the market/group of goods with respect to which the insufficiency is determined?
Regardless of the fact that the term “insufficiency” has been extensively used by the legislature over the last several months, it lacks a regulatory definition. At the same time, some by-laws describe specific criteria based on which it can be determined whether an insufficiency exists, but such by-laws do not provide for the methodology, establishing only examples of such criteria.
Summing up, it should be acknowledged that even such criterion for a product/brand to be included in/excluded from Minpromtorg’s list as insufficiency or a risk of it cannot be treated as a universal criterion, since a) it is not formalized in the legislation, b) it is not actually applied in all cases, and c) there is no unified methodology for determining and proving that the fact of an insufficiency exists.
Apart from the absence of any regulatory criteria for forming the list, neither does current regulation provide for a procedure for forming the list and, more importantly in practical terms, a procedure for adjusting the list (for specific goods or categories of goods to be included/excluded).
The Russian Ministry of Industry and Trade may exercise delegated powers and amend the list, i.e. allow or prohibit parallel import of individual groups of goods or brands. On the one hand, such decision-making procedure provides maximum flexibility and the possibility for the regulator to swiftly respond to a change in the situation on the market. On the other hand, such approach makes the situation entirely unpredictable both for rightholders and for potential “parallel” importers. If there is no understanding as to how a decision is made, on what factors it depends and for how long it will remain in force, it is impossible to determine whether a business decision is prudent, be it a decision to continue supplies of the product in Russia or to build an alternative supply chain by using an unofficial distributor.
The correlation between industry-specific regulation and parallel import
For a number of industries the practical implementation of the mechanisms of parallel import in their current form is problematic owing to industry-specific regulation that intermediates procedures for importing and selling goods. The above applies, first and foremost, to such industries as pharmaceuticals.
Even if medicines are entered into new versions of the list, the sale in Russia of individual series of such medicines purchased outside Russia and imported without the rightholder’s consent under the conditions of the current industry-specific regulation will be possible only if specific requirements are met, for instance, to ensure the necessary labelling in Russian, etc.
The Russian Government’s Resolution No. 593 allows medicines to be imported in “foreign” packaging until 31 December 2022 without special permissions provided that other limitations are met for the free circulation of foreign medicines after they are imported.
Firstly, the import of such medicines can be carried out only provided that they meet the requirements established when they are registered, except for the requirements for the primary packaging and secondary (consumer) packaging, and provided that the secondary (consumer) packaging of the medicines in circulation has an adhesive label containing information about the medicine in Russian.
Secondly, such medicines can be released into circulation, which includes transportation, sale, transfer, storage, dispensing and retail trade (including remotely), and used only after the opinion of an inter-departmental commission has been obtained. For an opinion to be issued, an application should be filed together with the list of documents as determined in a certificate. According to the documents included in the list (clause 36(d-m) of the Russian Government’s Resolution No. 593 dated 5 April 2022) we can presume that it will be extremely difficult for a person that is not authorised by the manufacturer of the medicine to collect such package.
In other words, if medicines are currently included in the list of the Russian Ministry of Industry and Trade, this fact alone will not make the parallel import of medicines possible in any case.
Summing it up, it should be noted that parallel import in the existing conditions may be considered as a mechanism to provide specific industries with irreplaceable goods which have become
temporarily unavailable owing to sanctions or for any other reasons. At the same time, it is also obvious that the “side effect” of the mechanism being implemented which is intensified by the form of such implementation in Russia (meaning the lack of regulatory criteria for forming and a procedure for adjusting the list of goods, frequent adjustments of the list and the temporary nature if the provisions in general) eliminates the potential benefits from parallel import for at least a number of industries of social significance, such as pharmaceuticals and medtech. Improving the application of the mechanism of parallel import is possible by making the procedure and criteria for forming the list of the Russian Ministry of Industry and Trade more transparent and by harmonising the provisions on parallel import with industry-specific regulation.
The source: AEB. Business Quarterly (Autumn 2022)