In December 2010 Russia, Belarus and Kazakhstan signed the Agreement on Unified Principles of Regulation in the Spheres of intellectual property Rights Protection Like 16 other agreements for formation of the Customs Union the Agreement provides for conditions encouraging free movement of goods within the Unified Economic Area. By the time of the Agreement’s entering into force on January 1, 2012 the parties shall have their national legislation brought into compliance with the Agreement.

Article 13 of the Agreement says: “using a trademark in respect of goods legally released into commercial circulation within the territories of the Parties directly by the right holder or by other persons upon its consent does not constitute a violation of the exclusive rights to the trademark”. The Agreement introduces the principle of regional exhaustion of rights under which the first sale of the goods marked with a protected trademark by its owner or with his consent exhausts any rights to the trademark over these given goods not only domestically, but within the whole region, and parallel imports within the region can no longer be opposed based on the rights to trademarks. This principle of exhaustion has already been considerably developed by the European Union the experience of which may be important for the Unified Economic Area.

The main result of establishment of the principle of regional exhaustion of rights to trademarks is that right holders and distributors of goods including a protected trademark will cease the chance to sell their goods in the three states on different terms, in particular, at different costs. After the right holder has consented to introduce its goods into free circulation in Russia or Kazakhstan, such goods will be easily imported in Belarus by any person considering that profit- able, which currently entails finding the import illegal unless it is carried out by the right holder or an authorized importer (Art. 3, 20 of the “Law on Trade Marks and Service Marks”). The notion “consent for release of goods” used in the Article 13 of the Agreement is likely to be understood as related to each individual item of the goods in respect of which exhaustion is pleaded (e.g., this understanding is supported by Belarusian courts (MARTINI case of 2007) and the European Court of Justice (C-173/98, SebagoInc and Ancienne Maison Dubois & fils SA V.G-Unic SA [1999] ECRI-04103).

It is logical that right holders may try to provide distribution, primarily franchise agreements, contracts with nationals of parties to the Agreement with limitations as to the territory of sale of their goods. In many jurisdictions such a method to gain control over sales of goods has been impeded by antitrust regulations. By this moment in Russia (Art. 12 of the Law “On Protection of Competition”) and Kazakhstan (Art. 10 of the Law “On Competition”) franchise agreements have been mostly exempted from the analogous antitrust provision. Since 1988 in the European Union competition law are not applicable to a long list of restrictions of competition, being stipulated in franchise agreements (Commission regulation (EEC) No 4087/88 - Franchise Agreements). However, enforcement of provisions of franchise agreements limiting the territory of sale of goods in Belarus is troublesome as such provisions will be found incompatible with antitrust regulations as soon as the goods are found to have no substitutes within the market of goods (Art. 6 of the Law “On Antitrust Activity and Encouragement of Competition”).

Finally, the current regulation of exhaustion of rights to trademark and parallel import differs between the Parties considerably and in order to duly implement the principle of regional exhaustion of rights to trademarks a long work on unification is needed.

Namely, Belarusian legislation (Articles 3 and 20 of the “Law on Trade Marks and Service Marks”) and judicial practice (e.g., para. 9 of the Resolution of the Plenum of the Supreme Court of the Republic of Belarus No. 9 of September 28, 2005 “On Certain Issues of Application of Laws in the Course of Consideration of Civil Affairs related to Protection of Rights to Trade Marks and Service Marks”, MARTINI case of 2007) take to strict protection of intellectual property rights to trademarks and inadmissibility of any parallel import. Additionally, parallel import is considered by Belarusian laws as an administrative violation since goods imported otherwise than buy authorized importers are deemed to be counterfeited (Art. 8 of the Customs Code of the Republic of Belarus, Art. 29 of the Law “On trademarks and Service Marks”).

Though Russian laws read closely to the Belarusian ones on the principle of national exhaustion of rights to trademarks, its judicial practice tends to be more liberal to parallel import (Kayaba case 2009). Furthermore, under Resolution of the Supreme Arbitration Court of February 3, 2009 No. А40-928/08-145-128 original goods imported by a non-authorized importer are not considered as counterfeit and their import does not constitute an administrative violation.
As to the IP legislation of Kazakhstan, it is unfamiliar with the notion of parallel import. Kazakhstan uses principle of international exhaustion of rights to trademarks and is interested therein. However, in case the principle of international exhaustion in Kazakhstan is preserved, this country will become a real gate for parallel import to the whole Unified Economic Area.

At the same time, the Agreement does not allow the Parties to provide in their domestic laws for international exhaustion of the rights to a trademark. Article 7 (1) of the First Council Directive 89/104/EEC of December 21, 1988 to Approximate the Laws of the Member States Relating to Trade Marks, which reads closely to Article 13 of the Agreement, was interpreted by the European Court of Justice as a ban on “providing for in their domestic law for exhaustion of the rights conferred by a trade mark in respect of products put on the market in non-member countries” (e.g., C-173/98, SebagoInc and Ancienne Maison Dubois & fils SA V.G-Unic SA [1999] ECRI-04103).

It is, therefore, quite clear that in order to benefit from establishment of the principle of regional exhaustion of intellectual property rights a more thorough approach to it legislative regulation is needed.

Dennis Turovets, Managing Partner (Minsk) and Darya Firsava, Associate (Minsk)