On June 26, 2023, the EU Council adopted the 11th package of economic and individual restrictive measures to strengthen the existing sanctions and prevent their circumvention.

Restrictive measures earlier applied to objects of intellectual property (hereinafter “IP”) owned by certain individuals and organizations (see our review from last year), but now these measures directly affect IP associated with certain goods and technologies, regardless of who their rightholder is and in which state the rights to intellectual property are used.

Below, please find our review of the main changes related to regulation of intellectual property introduced by the 11th package of EU sanctions, as well as our analysis of clarifications of the European Commission on intellectual property issues which could be of use for your business.

1. Main CHANGES in sanctions regulations

The 11th package of sanctions amended Council Regulation (EU) No.833/2014 dated July 31, 2014 (the “Regulation”), which previously imposed restrictive measures associated with different sectors of the economy.

In particular, the new package of sanctions establishes a direct ban on transfer (by any means) of any rights to IP or know-how that are related to goods and technologies limited for import into Russia to any Russian individuals or companies. The ban also extends to the transfer of rights even to such companies and individuals that are not directly associated with Russia, but manufacture goods for their further use in Russia.

The above restrictive measures apply to IP and know-how related to goods and technologies that are[1]:

1. dual-purpose;
2. contributing to the development of Russia’s defense and security sector;
3. related to luxury goods;
4. related to firearms, their parts and essential components and ammunition;
5. intended for oil and gas extraction;
6. suitable for use in oil refining and natural gas liquefaction;
7. suitable for use in the aviation or space industry, as well as aviation fuels and fuel additives;
8. related to maritime navigation;
9. capable of being used to strengthen Russia’s industrial potential.

The 11th package of sanctions introduces significant changes as regards luxury goods. Taking into account that earlier it was expressly prohibited only to import certain luxury goods into Russia, now it is also prohibited to provide any assistance in manufacturing such goods (including granting the right to use IP and know-how).

Given that the Regulation lists a wide range of products which, according to the EU representatives, are considered luxury goods (e.g. refrigerators or printers costing over EUR 750, items of clothing costing over EUR 300 or cars costing over EUR 50,000), this means that, for example, a European company granting the right to use its trademark for purpose of importing luxury goods into Russia will very likely be treated as violating the requirements of the Regulation.

Thus, we believe that the introduction of the 11th package of EU sanctions has further complicated the opportunities for cooperation with European companies, as well as any activity of European business in Russia in general.

2. Clarifications of THE European Commission

With the exception of the new regulation on luxury goods, new changes in the 11th EU sanctions package only clarified existing restrictions and created obstacles to circumvention.

In particular, this is evidenced by the answers to frequently asked questions on intellectual property published on the web site of the European Commission prior to the adoption of the 11th package of EU sanctions, which in essence are as follows:

• The current restrictions prohibit any IP-related transactions (e.g. royalty payments, entering into license agreements, registration of trademarks, etc.) for individuals and companies (regardless of their place of registration) if a stake of over 50% in them is controlled by the Russian Central Bank, the Russian Federation or government agencies, or if they are expressly specified in the Regulation;
• Restrictions apply to all IP, even if it is not registered in the EU; i.e. it is licensing as such that is prohibited;
• Liability for violation of restrictive measures is imposed on the IP owner who can be released from liability if the they prove that they were unaware and had no reasonable grounds to suspect that their actions would violate the restrictive measures;
• Rightsholders must ensure that users of their IP comply with the restrictive measures by establishing special guarantees in agreements or conducting tighter due diligence of their contracting party, as well as checking exactly how their IP is used.

Given the above, we believe European companies that continue to do business in Russia should revise their existing license agreements, as well as more carefully treat issues related to granting the right to use their IP under new agreements.

This review has been prepared by Victor Kaluzhski, lawyer of the Intellectual Property practice at Capital Legal Services.