The conflict in Ukraine, and the new brands it has created

The conflict in Ukraine has given rise to some interesting scenarios for those operating in the field of brand management. One of these relates to the brands employed by new operators that have appeared to fill the gaps in the Russian consumer market caused by the departure of foreign brands. Often, these brands have been developed to call to mind the existing imagery of the exiting operators. These new brands therefore present some interesting questions for those dealing with brand rights, both on a short term and long term basis, particularly in the field of international expansion.

Could the new operators acquire foreign trade mark rights?

This depends. In the first place would foreign authorities, foreign trade mark agents, and such like, be able to deal with the client? Legally, this depends on the sanctions regimes in force in the territories in question. In essence, in the UK the current sanctions regime applicable to Russia prevents people from dealing with economic resources of, or for the benefit of, sanctioned persons or entities. Whether dealing with the business is possible will therefore entail an examination of its directors, owners, funders, and those in a de facto position of management or control.

Sanctions change with time, and one would need to retain visibility on both the changes in the applicable regime, but also changes in the persons involved with the business.

With sanctions, there are also commercial considerations. Would people supporting the business attract attention from those generally opposed to supporting Russian entities? Being a target of protest can affect wider business relationships, and one may consider that such negative attention is not worth the trouble.

Sanctions compliance is not the only element that is relevant in a proper compliance programme. For example, the UK has in place complex rules that relate to the prevention of the enabling of tax evasion and abusive tax avoidance. Any UK based provider to the business would need to be comfortable that their assistance did not constitute an enabling offence in this respect.

The UK and the EU also have in force various rules providing for mandatory notification to tax authorities of certain transactions, for example where there is involvement of a deliberate opacity in the matter.

The practicalities of expansion

Provided obligations could be met in this respect, one moves onto the practical aspects.

The first of these relates to getting paid. If comfort can be found as regards sanctions rules, and as regards other compliance obligations, one has from one’s own business perspective to be able to ensure they get paid. This leads the business into further sanctions territory, as many operators in the Russian banking sector are also subject to controls.

The marks themselves

Once compliance requirements are satisfied, one moves onto the nature of the marks.

As those experienced with international trade mark matters know, we have essentially two main approaches as regards registry examination.

On the one hand, as in the UK and EU, provided a mark satisfies the essential requirements of a trade mark (primarily, that it is capable of distinguishing the goods and services of on undertaking from another), then the registry will allow the application to proceed to advertisement. Third party prior rights are a matter for the third party to deal with, and not the registry. It is up to third parties to object to applications they consider concern marks which impinge upon their rights. This is why clients often implement, in respect of the UK and the EU, bespoke monitoring services, to ensure that they don’t miss opportunities to oppose applications of concern.

On the other hand is the approach applies in countries such as the US and Australia. In those territories, the registry itself will oppose an application on the basis that they view it as the same as or confusingly similar to a prior right on the register. Whilst of course this does not negate the need for rights holders to monitor (the registry can always be wrong, and not pick up on a relevant prior right), it does provide some assistance to interested third parties, in retaining their exclusivity in registration.

One of the peculiarities with this new set of Russian entities, is the fact that their marks call to mind existing trade marks of existing foreign operators who have now exited the Russian market.

A cause for confusion?

So, can the registration of these new brands be prevented by the foreign operators on the basis of their existing trade mark rights? Essentially, this comes down to the impression of the marks on the average consumer, and/or whether the proposed mark is taking unfair advantage of or causing detriment to the distinctive character of the prior mark without due cause. In addressing the effect, relevant courts and tribunals will look at all relevant circumstances.

Whether there is a likelihood of confusion between the marks will be important. As the CJEU said in Sabel v Puma, a likelihood of confusion depends on numerous elements and, in particular, on the recognition of the trade mark on the market, of the association which can be made with the used or registered sign, of the degree of similarity between the trade mark and the sign and between the goods or services identified. It also said that the more distinctive the earlier mark, the greater will be the likelihood of confusion.

As the Court of Justice said in Canon, it’s about whether there is a risk that the public might believe that the goods or services in question come from the same undertaking or, as the case may be, from economically-linked undertakings.

Take for example the “STARS” and “STARBUCKS” marks (the marks can be seen here: https://medium.com/@antonkrutikov/starbucks-is-leaving-russia-and-reopening-in-moscow-under-a-new-brand-f26ec689a188).

There is a certain similarity, in font, the use of a roundel, and the use of the head design. Coffee is the relevant product. The question is, will the average consumer be confused between the marks ?

In Specsavers v Asda, the court said that the average consumer is deemed to be reasonably well informed and reasonably circumspect and observant, but is also one who rarely has the chance to make direct comparisons between marks and must instead rely upon the imperfect picture of them he has kept in his mind, and whose attention varies according to the category of goods or services in question.

One can see potential arguments both for and against a finding of confusion.

Advantage and detriment

Perhaps a stronger ground for complaint lies in whether the later mark is taking unfair advantage or causing detriment to the earlier mark. Simply being reminded of a similar trade mark with a reputation for dissimilar goods does not amount to taking unfair advantage of the repute of the mark, nor is there unfair advantage where members of the public are unlikely to believe there is any economic connection between the suppliers. As the court said in Whirlpool, mere advantage may not enough, and other factors may need to be present to render advantage unfair.

However, where there is clear exploitation and free-riding on the coat tails of a famous mark or an attempt to trade upon its reputation, the position may be different. In Interflora, the court said that where, by reason of a transfer of the image of the mark or of the characteristics which it projects to the goods identified, there is clear exploitation on the coat-tails of the mark with a reputation.

It should be noted that  the court in Interflora did qualify this by saying where the alleged infringement did not dilute or tarnish the mark and did not otherwise affect the functions of the earlier mark, its use would not be without due cause. Also, in Argos v Argos Systems the court said that mere economic advantage and no more is not sufficient to establish unfair advantage.

Again, one can see arguments on both sides here.

A further complicating factor

A further complicating factor may lie in reports that the new operators in some instances may have in fact bought the assets of the prior right holders, in relation to Russia. For example, it has been reported that in relation to Starbucks, the owners of Stars, rapper Timati and restaurateur Anton Pinsky, purchased all of Starbucks’ assets in Russia from Starbucks.

This may have impact upon any challenges that could be brought against the new operators, in that there could be an argument that their operation is legitimate, having its basis in the goodwill acquired from the prior right holder itself.

The position back in Russia

One should also look at the Russian position – what does this mean for entities that may have exited Russia, but may want to return in the future ? One can only say that in this respect the future is uncertain.

Political considerations and the reliability of the courts system aside, when they return to the market will have a significant impact on whether they will be able to rely upon their registered rights.

Whilst registered rights generally last for a period of 10 years, and can be renewed indefinitely, generally they become capable of attack after 5 years non-use. In Russia, provisions exist that provide that a registered mark cannot be relied upon if not used for a defined period. Therefore, foreign brands that have exited the Russian market may find that their registered rights are unreliable when they return. That may lead to the peculiar situation where the use by the new Russian entities of these similar marks cannot be restrained, and indeed, if these entities have themselves sought to register their marks in that territory, then they can prevent the return of the foreign entities under those brands.

Trade with Russia has rebounded in many countries. Whilst accurate trade data isn’t available to the extent available previously, in May the New York Times reported shat shipping traffic was remaining strong (see https://www.nytimes.com/2022/05/13/business/economy/russia-shipping-sanctions.html). Chinese exports into Russia are reportedly close to pre-war levels (see

https://www.business-standard.com/article/international/china-exports-to-russia-boom-in-return-to-near-pre-war-highs-report-122080801465_1.html), and the FT has reported Turkish imports and exports are surging (see https://www.ft.com/content/caee1ae3-41c5-4c85-8d66-a8d3eea3112d).

It goes without saying, therefore, that a failure by existing rights holders to manage Russian exposure may present longer term issues from operators in other countries.

Conclusions

Overall, one can only conclude that these new brands present some interesting questions. One may also note that brand owners’ priorities will have been affected by the Russia / Ukraine war, and that strategies should be adapted to account for this.