INTELLECT-S Busts Parallel Imports
INTELLECT-S successfully prosecutes Huntleigh Technology’s claims against the infringement of its trademark SONICAID™ by parallel importers
In May 2013, INTELLECT-S successfully completed a five year long marathon twin-action prosecution of claims against parallel importers' infringement on the IP rights of a British manufacturer of equipment for perinatal centers, Huntleigh Technology Limited.
The actions sought to cease and desist the violation of the Huntleigh's rights to its trademark Sonicaid™ in Russia; stop the grey parallel imports of Huntleigh's products to Russia circumventing its official dealer; and bring to responsibility the whole chain of grey Sonicaid™ equipment importers, from foreign suppliers to local distributors.
Huntleigh Technology, Ltd manufactures and distributes worldwide sophisticated obstetrical equipment, specifically Sonicaid™ electronic fetal monitors (EFMs), or cardiotocographs, used to monitor and record the fetal heartbeat and the uterine contractions during pregnancy, typically in the third trimester. Their high diagnostic precision enables obstetricians to determine the right course of prenatal care and reduce perinatal health risks and fetal deaths. The purchases of EFMs by Russian perinatal centers are budgeted under the national Zdorovye (Health) program.
Huntleigh's worst obstacle as plaintiff was adverse Russian case law. Several months before, the Russian Customs lost a high-profile administrative case (Porsche) on appeal in the Higher Arbitrazh Court which ruled that unauthorized importers were free to import independently genuine trademarked products, and found no infringement by this parallel import on the trademark owners' or their official licensed Russian distributors' rights. Grey importers took this as the green light in civil proceedings too, and were right: odd as it is, a parallel importer won the landmark civil case, Kayaba, in the Moscow City Arbitrazh Court.
INTELLECT-S attorneys devised a package of ingenious moves to protect the client's legitimate interests.
The Sonicaid case helped create an opinion in favor of banning parallel imports in Russia. The evils of parallel imports circumventing manufacturers' licensed dealers had not been obvious before: after all, the manufacturer sold its products elsewhere for its full value. Competition between official local distributors and parallel importers should be good for consumer choice and prices.
The Sonicaid case has radically changed this benign complacency. Medical equipment concerns life and health. This was enough for the court to see public interest and join the Ministry of Health and Social Development as a third party to the case.
Huntleigh's counsel (INTELLECT-S) demonstrated in minute detail the intricate scheme used by the Russian grey dealer to circumvent the legislative restrictions on parallel imports and the manufacturer's distribution policies.
The chain included several vehicle entities in two jurisdictions. First, the grey dealer's German-based affiliate lawfully purchased Sonicaid™ EFMs in the EC market from a licensed local dealer (who would never sell directly to Russia), and resold it to the Russian importer, still in Germany, as lawfully, and immediately disappeared. The buyer imported the products to Russia, cleared them with the customs, stating the customs value ten times below the price to save on the duties. It also made all filings and obtained all official authorizations and health safety certificates necessary to legally sell medical equipment in Russia — all on the basis of faked manufacturer permits and powers of attorney. Then the importer sold the EFMs to the arranger of the scheme and dissolved without leaving an address. The end buyer tendered the grey products to perinatal centers under the priority national Zdorovye (Health) program or supplied it to similar full-time tender winners across Russia.
The Sonicaid twin case in Nizhy Novgorod and Yekaterinburg reversed the adverse case law on parallel imports in trademark owners' favor. Moreover, the counsel for the plaintiff brought to civil liability all the members in the chain that imported the products in violation of the trademark owner's rights, including the foreign entity that never had any business in Russia.
More importantly, the courts held in the Sonicaid cases that:
- marketing a trademarked product in Russia otherwise than with the trademark owner's consent trespassed on the latter's rights in and to the trademark;
- non-resident aiders and abettors were as liable as resident importing trademark trespassers in Russia; and
- liability for import trademark trespass was joint and several.
INTELLECT-S counsel for Huntleigh Technology, Ltd:
- Evgeny Shestakov, INTELLECT-S Managing Partner and leader of the team;
- Andrei Tronin, Practice Head, analyst of public procurement;
- Vitaly Krets, Partner, and
- Sergei Lukyanov, Partner.
2009 – 2013
- November 30, 2009: Huntleigh, represented by INTELLECT-S, files suit in Sverdlovsk Regional Arbitrazh Court;
- February 5, 2010: Huntleigh, represented by INTELLECT-S, files suit in Nizhny Novgorod Regional Arbitrazh Court;
- March 16, 2011 and October 6, 2011: both cases decided in favor of Huntleigh, represented by INTELLECT-S.
As counsel for the plaintiff, the INTELLECT-S successfully helped its client to stop the grey imports of Sonicaid™ EFMs to Russia and raise its official sales so that Huntleigh's official Russian dealer became its world's best distributor of Sonicaid™ products in 2010/11.
The wide media coverage of this landmark twin case and its discussion at YurClub triggered a series of high-profile trademark cases, such as Evian and Krusovice, tried and won by their counsel Vladimir Dmitriev who followed the path blazed by INTELLECT-S.
This U-turn in case law prompted the Federal Antimonopoly Service of Russia to initiate a move from national exhaustion of trademark rights to international in order to protect parallel importers. The initiative is written into the Draft Strategy for the Development of Antimonopoly Regulation in the Russian Federation. Russia's top antimonopoly regulator Igor Artemyev has spoken on several occasions on behalf of his Service in defense of parallel importers whose business was banned, including through INTELLECT-S counsel's efforts.
No change of principles underlying the regulation of parallel imports in the future can therefore be ruled out.