How Russian Lawyers Are Rebranding Western-Exited Consumer Products In Russia

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With the advent of the Ukraine conflict and the mass withdrawal of foreign brands from Russia, deals are being done across the country to buy out foreign assets of well-known consumer brands and relaunch them under new badges. Companies like Coca-Cola and McDonalds have exited Russia and no longer allow their products and brands to be sold there, however the supply chains, manufacturing and point of sale infrastructure all remains in place. This has given rise to a massive increase in rebranding and IP work for Russian lawyers, often working hand-in-hand with the original US and European owners to ensure both parties reach mutually satisfactory conclusions.

Russia’s Ochakovo is a well known local brand in its own right, producing domestic Russian drinks, and had held the bottling rights for Coca-Cola, Fanta and Sprite, both manufacturing, distributing and selling them on a national basis as recently as March. What were American brands have now been slightly modified and are now being churned out, while retaining the original taste and colour, as CoolCola, Fancy, and Street, with new designer labels.

McDonald’s will also soon be renamed, having left the Russian market and selling the entire business to Russian businessmen, one of whom has bought up several of the regional franchises and is presumably looking to acquire the entire block of Russia’s 850 outlets. The new Russian Holding Company is PBO Systems, however the rebranding is still underway. Apparently two Latin letters will be used as a sign Ms, while M may remain branded. McDonalds holding company in the US took part in the development of the project. The restaurant menus will not change conceptually, while the names of the dishes are expected to remain close to the classic McDonald’s menu.

We discuss how the new Russian brands should differ from the original names, and issues over intrusive IP imitation.

How are Western Brands in Russia Defined?

Product branding in IP has not only to submit logos, but also descriptions of the product as part of the trademark design process. Russia is a member of the ‘Madrid Protocol’ as part of the World Intellectual Property Organisation which determines global IP standards and usage.

In the case of the new CoolCola, Fancy and Street drinks in Russia, the descriptions are short but to the point: for example, CoolCola is “an expressive and refreshing drink with the iconic cola taste”, and Fancy is “a refreshing highly carbonated drink with natural orange juice and a recognizable taste.” However, despite the name changes, the colors of the drinks and size of the labels has remained close to the original.

Coca-Cola previously produced all three originals, Coca-Cola, Fanta and Sprite, while the replacements of these were proposed by Ochakovo as the franchisee. In fact, what is taking place is not technically a rebranding, it is the sale of assets and work under a new, different brand, as Coca-Cola retain the rights to use the original names. It’s just that they have chosen not to do so in Russia.

McDonald’s has also agreed to transfer its business in Russia to one of its Russian partners. This new company will resume operations under a new brand, which will save jobs for 62,000 employees and the company’s assets. In fact, recruitment notices have already appeared in Moscow looking to additional staff to work in whatever the new outlets will be called, with recruitment vacancy notices appearing on the currently shuttered McDonalds outlets.

Russia’s Ministry of Industry and Trade has also stated that negotiations were taking place with McDonalds head office, who have agreed to provide the Russian management of the company, which remains in place, “all the necessary support in resuming work and debugging business processes.” All existing outlets will reopen, but not as McDonalds and not with the logo – a statement by McDonalds CEO Chris Kempchinski said that “McDonald’s restaurants in Russia “will no longer bear this name, they will not have our menu. Golden arches will no longer shine in Russia.”

Following this, there has been much discussion about what to call the new brand. The President of the Russian Federation of Restaurateurs and Hoteliers, Igor Bukharov, has suggested that the name would be as close as possible to the name of the American chain – for example, “DakMak”. This is a familiar type of brand in Russia and many Russians will remember the “DonMak” fast food outlets in Donetsk, as well as the proposal to create the “Uncle Vanya” network in Russia.

The head of Russia’s Trademark and Patent Agency, Rospatent, Yuri Zubov, has said that the office constantly receives applications in which brands appear that are similar to Western ones “to the point of confusion.” He explained that once submitted, such applications are often withdrawn after Rospatent raises conflict objections.

The registration of brands in Russia must go through two stages of examination, which checks the appeal for compliance with the requirements of the Civil Code.

How Western Brands Can Continue To Protect Their IP In Russia

Usually, when selling a business, there is almost always a transition period during which the buyer can use the old brand, however with powerful brands such as McDonalds and Coca-Cola this may not be feasible. An example is Finland’s Neste gas station network in Russia, which no longer belongs to Neste, however the new Russian owners Tatneft temporarily retained the right to the Neste brand to allow time to rebadge without having to close important service stations.

It is hard to say how McDonald’s will behave, but the assumption here is that the McDonalds brand will not be transferred for temporary use, since this corporation must report to its US HQ about its complete withdrawal from Russia. How will this be resolved? This will likely depend on the provisions of the sale agreement, where the issue of tolerances in the development of a new name will be settled. The Russian owner of the former McDonald’s is already working with consultants to create and launch a new brand in conjunction with McDonalds to ensure as smooth an acquisition as possible but without breaching the McDonalds IP.

In fact, most restaurant chains such as McDonalds are selling the catering business, including lease or ownership rights to real estate, contracts with suppliers and logistics operations. The exclusive rights to trademarks, trade names will not be transferred under these transactions, and the issue of further use of the brand should be settled in the sale agreement.

Some foreign companies may, to some extent, choose to remain beneficiaries of the new Russian legal entities. To preserve associations with parent companies, the use of consonant or associative names may be considered. This may allow some market continuity should a later return to Russia be undertaken.

The terms of use can also differ, from a complete ban on the use of even similar designations to the assignment of rights to a brand in Russia. The copyright holder in the contract can prohibit the use of colour schemes, slogans, fonts, and menu item names in the copyrighted style.

Some McDonald’s menu items are already trademarked, such as “McFlurry” and “McNuggets”. McDonald’s may enter into so-called license agreements, which may prohibit the use of names that are confusingly similar to commercial designations or trademarks of McDonald’s.

Companies can also legally protect a culinary recipe, mainly via confidentiality or know-how agreements, and McDonalds has almost certainly done this. This is exactly how Coca-Cola has been keeping its secret for decades. The creator of the recipe has the right to classify information about the product, and in the case of illegal disclosure and use of information, recover damages caused from any violation. However, these agreements can also be transferred.

We will have to wait for the new branded McDonalds to open to see how close to the original products and tastes McDonalds US has permitted its Russian buyers to maintain aspects of ‘McDonaldsness’

Protecting Western brands

As a general rule, other companies, in principle, cannot use similar colours, fonts, or even menu items, as this may be a violation of trademark rights or a violation of antitrust laws. Therefore, even if the agreement does not prohibit imitating brand elements of a foreign company, this prohibition can follow from law and trademark rights. Everything else depends on the degree of similarity.

For example, the word “IDEA” is not confusingly similar to the brand “IKEA” while in Russia, the word “Pavlik” is not similar to the brand “Paulig.” But if you write these words in the same font and colour as the original brand, then there will be a similarity, and this can be challenged.

This degree of similarity is checked by Rospatent trademark lawyers. Even when leaving the Russian market, the Foreign owner can retain its trademarks in Russia. Rospatent does not allow the registration of confusingly similar designations, unless the owner of the earlier mark has given consent to this.

Names should not be such that the average buyer can confuse products with too similar designations or think that they are made by the same manufacturer. During registration and during the main examination, Rospatent will check, among other things, the pronunciation of the name and its meaning, the characteristics of the market for goods or services, the popularity of similar trademarks and their right holders, and so on. That could lead to some interesting linguistic debates between Russian words, meanings, spellings, and pronunciations as compared to European versions. The words Tsar and Czar mean exactly the same thing for example.

International IP Protection

According to the Madrid system, if an application is filed with Rospatent, then the mark receives international legal protection and claims can be filed even if the protection is not registered in Russia. However, Vladimir Kuznetsov, chairman of the All-Russian Trade Union of Mediators, notes that Western companies, taking away the rights to brand names, but retaining production and technical processes, may not be too critical of the names of Russian buyers of their business.

“It is more about identity than similarity – probably, Western corporations have reached agreements on retaining part of the rights for Russian partners when withdrawing company names, that is, there is still a violation of exclusive rights, but they will not present the corresponding requirements of the company to their Russian buyers. We can assume that Russian business buyers will be able to use almost any name up to the likes of McFlurry.”

The protection of Western brands in Russia is real, although according to the law, the application for the “IDEA” brand, which will also produce household goods, like IKEA, was rejected by Rospatent.

However, there is a caveat. Given recent developments, including geopolitical ones, Russian court decisions often contain wording about “unfriendly countries” for which claims are now being rejected.

However, it also helps Western companies trying to hold onto their IP that in a case of a double-edged sword, that names close to departed Western brands are now inappropriate for use in Russia anyway due to a high proportion of Russian’s now negative attitude towards foreign brands.

Russian models have for example been cutting up their Chanel purchases after the company barred Russians abroad from purchasing them if the product was to be used in Russia. It created a furious backlash. These are more likely to be replaced with Russian names with a patriotic touch and allow access to new brands coming in from countries in Central Asia, India, and China.

Making Claims Against Russian Infringements

If foreign copyright holders consider that new brands violate their exclusive rights, they can file lawsuits against Russian companies. A civil claim in this situation may contain a requirement to stop the violation, withdraw from circulation and destroy at the expense of the violator counterfeit goods, labels, packaging, as well as indemnification or compensation.

Compensation can be calculated in one of the following ways: either in the amount of 10 thousand to 5 million rubles, determined at the discretion of the court based on the nature of the violation, or in the double amount of the cost of goods on which the trademark is illegally placed, or the cost of the right to use the trademark sign.

The inadmissibility of registering identical and confusingly similar trademarks is enshrined in Art. 1483 of the Civil Code of the Russian Federation. There is also the concept of “abuse of the right”, enshrined in Art. 1512 of the Civil Code of the Russian Federation.

Claims will be satisfied only if the court recognizes the trademarks as similar. In this sense, the Fancy and CoolCola brands appear little threatened, and anyway are likely to have been agreed with Coca-Cola for use in any event.

Interestingly, in January 2022, a similar case was considered on the application of The Coca-Cola Company about the similarity of the designations Fantola and Fanta. Rospatent however sided with Fantola that their name and design were sufficiently different, and their legal protection of the Fantola trademark was upheld.

Concerning this, it is highly likely that Ochakovo, before creating new brands, carried out a large-scale assessment of all existing risks, and that the likelihood of claims in this situation is negligible.

Do New Russian Brands Need To Mimic The West?

It seems apparent that a historic opportunity has opened up for Russian manufacturers to create brands that will work for over the longer timescale, and it is perhaps time for Russian brands to emerge with their own unique values ​​and character, style, philosophy, with their target audience and development strategy. Manufacturers should use this opportunity and turn to experts, such as professional branding agencies for this.

Creating imitator brands is really an attempt to capitalize on other players who leave the market, and as we have seen in countries such as China in the past, this is a short-term and insincere approach for serious companies. The so-called “Me Too” brands are easier to make, but for serious companies that expect to gain a long-term foothold in the Russian market, such a strategy will not work. “Buy me because I look like a famous brand” is a bad message that can only work in the short term. In the long term, consumers will switch to other, quality brands that translate their own philosophy, rather than copying others.

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