Russia’s devastating invasion of Ukraine in February 2022 created international backlash in the form of sanctions and economic penalties. After the Russian invasion, the United States prohibited transactions involving the Central Bank of the Russian Federation. Other countries enacted similar sanctions.
The reaction in the business community was equally swift. Faced with difficulty in doing business in Russia – both from the US government and from the response by the Russian Federation, which included compulsory licenses of certain IP – many US companies stopped doing business there.
Many of these businesses formed vital infrastructure. For example, within days, major credit card and payment companies announced that they would no longer do business in Russia. (However, in the case of Russia, credit card payments would not have helped because they would have been processed via the Russian Central Bank.)
IP practitioners do not view themselves as typically in the crosshairs of political and national security issues. But the situation with Russia offers many lessons learned from the perspective of how to prepare for any future sanctions or political pressure, and what to do if such actions are taken.
Because sanctions come with criminal and civil penalties, IP practitioners should take them seriously. (For example, under the International Emergency Economic Powers Act (IEEPA), a “person who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids or abets in the commission of, an unlawful act ... shall, upon conviction, be fined not more than $1,000,000, or if a natural person, may be imprisoned for not more than 20 years, or both.” IEEPA, § 1705 (c).)
1. Know in which jurisdictions you have IP assets.
The countries in which you operate will help narrow your focus regarding your risk. Do you have any IP assets in countries in which the US government has a contentious political relationship? This could be more than just the list of embargoed or debarred countries, or those on the list of Countries of Particular Concern. Do a comprehensive IP audit, including a patent and trademark docket search, as well as listing unregistered IP in use. Additionally, keep the audit report up to date.
In the identified countries, how does your foreign IP counsel make payments for filing and maintenance fees and to which entities? While the initial US sanctions on Russia did not prohibit US entities from filing any Russian patent applications with the Russian patent office (Rospatent) − and Rospatent itself was not a sanctioned entity − the sanctions did effectively temporarily remove a way for US businesses to pay Rospatent, because Rospatent accepts payments via the Central Bank of the Russian Federation, which is a sanctioned entity.
The US subsequently issued General License No. 31. This License sets out exceptions to allow transactions with Rospatent in connection with patent, trademark, copyright, and other forms of intellectual property in the Russian Federation. Notably, General License 31 allowed payments to the Russian Central Bank in connection with activity at Rospat.
Even though the US has issued exceptions for transactions in connection with IP, some companies have taken their own stance on the invasion that may make payments difficult. For example, many credit card companies withdrew from Russia within days of the invasion.
Therefore, where possible, build redundancies in payment methods. Determine alternative payment methods in jurisdictions in which you have IP assets before needing them. Consider researching or seeking sanctions compliance counsel ahead of time.
2. Know in which countries you have research and development efforts.
Where are your research and development personnel, such as engineers and potential inventors? The location of your research and development operations may implicate your IP, so it is important to keep track of where development occurs and the citizenship of those doing the development.
If an invention has been made but a patent application has not been filed, doing so may be necessary to protect IP rights and may require a foreign filing license from the local country before seeking patent protection in the US. Where sanctions allow, request foreign filing licenses as early as possible in case of disruptions.
3. Keep abreast of the political climate in the countries in which you operate.
Having identified the countries in which you have IP assets or R&D operations, identify whether any of these countries are at risk for sanctions due to political disputes. While some foreshadowing existed in the case of Russia, sanctions nonetheless came quickly.
The US government can move fairly quickly with sanctions, as they can be imposed via executive order under the International Emergency Economic Powers Act (IEEPA).
Additionally, in the case of Russia, the US government had already declared a national emergency in response to previous Russian activity, fulfilling a necessary first step in establishing sanctions. (Under the IEEPA, the National Security Council identifies an “unusual and extraordinary threat.” Then, the President declares a national emergency and various executive agencies develop specific sanctions. Finally, the President issues Executive Order(s) implementing the sanctions.)
Therefore, consider a news-monitoring service to keep track of the political situations in countries in which you operate. Staying up to date on political situations may prevent an organization from being blind-sided by sanctions. It may allow time to formulate plans in preparation of sanctions. Local counsel or a firm that has a local presence may be able to assist.
4. Be proactive with paying fees.
Being proactive with fees is always good practice in IP prosecution. Being proactive in paying outstanding fees and providing directions to foreign counsel in countries at risk is especially important where sanctions may be a reality. Don’t wait until the last minute to pay fees in at-risk countries.
For example, the International Emergency Economic Powers Act (IEEPA) allows the US government to enact additional sanctions quickly. For a few days between the US issuing Directive 4, and General License 13, US practitioners were effectively prevented from paying various fees to Rospatent.
For practitioners and companies that waited to pay fees, these few days may have been the difference between a timely payment or unintentional abandonment. Avoid unintentional abandonment of IP assets by staying ahead of payment deadlines.
5. When sanctions hit, don’t immediately pull back. Instead, wait for the sanctions to normalize.
When sanctions hit, do not panic, but pause sanctioned activity immediately. Do not make any payments or take any new actions that would violate the relevant sanctions order. In some cases, governments initially enact sanctions that are broader and stronger than necessary.
For instance, in the case of the Russian invasion, the initial sanctions from the government were strong and possibly implicated IP due to the restriction on payments (Directive 4). But the Office of Foreign Assets Control (OFAC) corrected course a few days later, issuing General License No. 13, which identified IP as an exception to Directive 4, scheduling it to sunset on June 24, 2022.
OFAC has since effectively extended General License No. 13 twice by issuing General License No. 13A and 13B. In the case of the General License No. 13 exceptions to Directive 4, waiting a week before “panicking” would have saved you a lot of unnecessary stress.
That said, there is no guarantee in any circumstance that the US government will soften sanctions any time soon, especially if situations escalate. While OFAC was quick in the case of the Russian invasion of Ukraine to correct restrictions on payments related to IP, the US government took 34 years to soften sanctions on Cuba to provide an exception for transactions related to obtaining and maintaining IP in Cuba. While current sanctions may restrict business in Cuba, many US companies still maintain trademarks in Cuba in the prospect of improved relations. This is despite these companies having not sold products in Cuba for roughly 60 years.
To the extent permissible and consistent with your company’s goals, proceed with maintaining IP assets as if the disruption is temporary, but evaluate whether IP assets are worth maintaining if the disruption is prolonged. Unless your company intends to cease business permanently in a sanctioned country, one should still consider maintaining IP assets in sanctioned countries, if possible.
Consider the remaining term of your IP assets as well. Patents generally have a 20-year term, however trademarks can, with renewals, last much longer. Depending on the remaining term of your IP assets, it may make sense to maintain protection for some IP assets and to let others expire. These decisions should be made as soon as practicable in case stricter sanctions are issued, but should not be rushed. Sanctions counsel can be helpful with issues of interpretation.
6. Stay up to date with the sanctions.
Sanctions on Russia will continue to evolve as the conflict continues. To ensure compliance with sanctions, keep track of the applicability of sanctions on the various entities and individuals with which you transact. OFAC maintains a list of individuals and entities barred under US sanctions from receiving payments.
Reference this list before sending payments to foreign entities and individuals. Stay up to date on expiration dates of exceptions to sanctions as well. There is no guarantee that exceptions will extend beyond their expiration date.
Authors: Stephen Dew and Matthew Shults, Kilpatrick Townsend LLP
