Managing IP Assets in Today’s Regulated Global Environment
Confronting Sanctions and Brand Restrictions
When sanctions and brand restrictions are involved, IP asset management becomes an even bigger challenge, as Ralph Cunningham discovers.
Protecting and managing intellectual property (IP) assets requires vigilance, determination, and skill. Prosecution, monetization, licensing, and all of the other things a brand professional has to consider are tricky enough when considering financial, economic, and infrastructural factors, such as energy prices, supply chains, inflation, and exchange rates.
But the job gets more complex when different countries and organizations introduce sanctions and other brand restrictions to induce a change of behavior. These can often, whether explicitly or not, limit the value of IP assets.
A recent example of sanctions regimes came in February 2022 as an attempt to punish Russia for its invasion of Ukraine. Almost immediately, several governments and international organizations expanded their pre-existing sanctions against Russian individuals and businesses. Russia then retaliated with their own measures.
Once in place, sanctions tend to expand rather than diminish with time. An episode of INTA’s Brand & New podcast in September 2022 reported that, since the invasion eight months before, the European Union had adopted seven different sanctions packages against Russia; the UK had amended its sanctions packages 13 times, and the US had introduced a number of executive orders, imposing sanctions and designating persons.
“[I]n adopting sanctions, western jurisdictions always try to strike a balance of doing surgical harm … to sanctions targets … while trying to minimize the harm to companies and persons in their own jurisdictions.”
- Ethan Heinz | Dentons (Czech Republic)
A Well-Used Tool
Countries and organizations, including the European Union, the United States, and the United Nations (UN) have used well-developed sanctions programs over many years to compel different countries, entities, and individuals to comply with national or international rules. For example, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) currently administers and enforces 38 economic sanctions programs on behalf of the United States, primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The EU operates more than 30 similar arrangements, a mix of its own and those transposed into EU law from the UN, whose sanctions programs range from comprehensive economic and trade sanctions to more targeted measures, such as arms embargoes, travel bans, and financial or commodity restrictions. Domestic legislation inspired by international sanctions can also prohibit certain actions by nationals of that country. Panama is a good example of how this situation can take effect. “As a neutral country, the Republic of Panama can do business with any legal and natural persons of any country, including China, Cuba, Iran, or Russia, with whom Panama reinstated diplomatic and commercial relations in 2017,” says Mariela de la Guardia, Partner, Icaza, González-Ruiz & Alemán (Panama). “Panama is highly regulated with respect to due diligence and compliance matters. Some commercial sectors, including the legal services sector, are obliged to comply with the laws and the Financial Action Task Force (FATF) guidelines. IP matters are not included.” “If a natural or juridical person is included in a sanction list from Russia, Ukraine, the United Nations, United Kingdom, OFAC, or other lists, legal service providers cannot incorporate the company and are restrained from providing legal services in Panama and hence the company cannot do business in Panama. Compliance obligations provided by our laws requires the legal services provider and regulated sectors to report the company or beneficial owner with the Financial Analysis Unit.”
The Impact on Brands
Sanctions are not the only tool a government or organization can use to effect change. In recent years, brand restrictions—legislation and regulations to restrict brand use and reduces the use of trademarks on packaging or even bans their use altogether—have become common. This includes plain packaging, highly standardized packaging, bans on the use of brands and branding elements, and health warnings (e.g., mandated size and content of messaging). It is a controversial topic that can generate strong differences of opinion on the part of regulators and rights holders. It is also a policy priority issue for INTA, which formed a dedicated Brand Restrictions Committee in 2020. Following the passage of Australia’s Tobacco Plain Packaging Act 2001, several countries have implemented similar restrictions on tobacco products and more governments around the world are considering such proposals. Other products are also being affected, including alcohol, infant formula, medical devices, pharmaceutical drugs, and sugary drinks, for example. An April 2021 letter from INTA inviting the Organization for Economic Cooperation and Development (OECD) to participate in a meeting with its Brand Restrictions Committee emphasizes the scope of the issue and impact on brand owners:
Brand restrictions entail regulatory burdens on the use of legitimately granted trademark rights in order to achieve purported public health or other policy goals. Although evidence suggests brand restrictions do not work, countries continue to implement these policies without proper review or understanding of the negative and unintended effects, including the violation of local and international law, destruction of economic value of trademarks, consumer confusion, increasing consumer fraud and counterfeits, barriers to market access, interference with fair competition and the creation of adverse impacts on innovation and entrepreneurship.
“[P]olicymakers often view brand restrictions as an easy win, compared to alternative means for addressing such issues. It is therefore difficult to challenge on a legislative level.”
- David Kappos
Cravath, Swaine & Moore LLP (USA)
Striking a Balance
“[I]n adopting sanctions, western jurisdictions always try to strike a balance of doing surgical harm … to sanctions targets … while trying to minimize the harm to companies and persons in their own jurisdictions. It’s a difficult balance to strike,” said Ethan Heinz, Counsel at Dentons (Czech Republic), on the above-mentioned episode of Brand & New.
On the other hand, though brand restrictions arise from well-founded concerns, governments are overlooking trademark rights as well as the national laws and international treaties containing clear provisions against imposing restrictions on trademarks.
Legislators involved in this balancing act may not prioritize IP rights when putting these regulations in place. They want to see their targets change their behavior or, in the case of sanctions, desist from a range of harmful or deadly practices, without giving much thought to issues such as trademark squatting or counterfeiting. However, depending on the nature of sanctions and other regulations designed to inhibit commerce, IP rights holders may often encounter a host of problems associated with managing their rights as they strive to comply with new IP-affected regimes.
Even if sanctions do not refer to IP explicitly, the impact can be felt in other ways. For example, under U.S. rules, being termed a Specially Designated National means, according to OFAC, that “their assets are blocked and U.S. persons are generally prohibited from dealing with them.” This includes IP rights.
In an example of more explicit IP sanctions, the U.S. has enacted the Protecting American Intellectual Property Act of 2022, which imposes sanctions on certain foreign individuals and entities involved in the theft of trade secrets belonging to a U.S. individual or entity. Under the UK’s Russia (Sanctions) (EU Exit) Regulations 2019, a person is not allowed to supply, deliver, or make luxury goods available to people in Russia.
Underscoring the need for policymakers to take IP into consideration and attempt to strike a balance between their intended goals with brand owners’ rights, an INTA Board Resolution in 2019 resolved:
[T]hat any measure, or measures imposed by a government restricting the means or manner in which a brand symbol can be used or displayed on a product or in association with services … should prima facie not be valid unless the relevant governmental authority can establish that each such measure: A. is based upon a compelling public interest that outweighs the brand owner’s property right and economic investment in the brand symbol and the benefits to the public associated with exercise of that right … and B. is both (1) proportional to the alleged harm which exploitation of the owner’s intangible personal private property right is alleged to cause, and (2) on a balance of probabilities and based on compelling and credible quantifiable evidence, no more restrictive on economic value and use of the brand symbol than is necessary for the relevant governmental authority to achieve its legitimate public health or safety objectives.
“Restrictions on brands arise from a desire to address genuine health and social problems. In addition, policymakers often view brand restrictions as an easy win, compared to alternative means for addressing such issues. It is therefore difficult to challenge on a legislative level,” said David Kappos, Partner, Cravath, Swaine & Moore LLP (USA). “They are also being imposed without marketplace impact assessments or evidence to reasonably demonstrate that the intended results can be achieved.” “Restricting the use of brands without proper evidence is not an effective means to achieve such aims,” added Mr. Kappos.
“Both Mexico and Chile are the countries in Latin America with the most trademark restrictions.”
- Maricruz Villanea | Ideas IP (Costa Rica)
Brand Attitudes
The Association’s Brand Restrictions Study: A View from Gen Zers and Millennials, which was published in 2021, canvassed the views of millennial and Gen Z consumers between 18 and 39 years of age in 10 markets: Brazil, Chile, Colombia, India, Mexico, Singapore, South Africa, South Korea, Thailand, and the United Kingdom. These jurisdictions were selected for the research because of their level of economic development and the potential or presence of brand restrictions legislation, and also for their breadth, allowing for a global perspective. INTA commissioned this global study to show how the world’s largest generations view brand restrictions legislation and regulations and how their purchasing behavior could be affected by these limitations or bans on packaging design elements. Among the major findings, the study illustrates that brand restrictions may not have the long-term intended public policy outcome of changing consumer behavior. Supporting this finding, only one in three survey respondents said such measures would help them make healthier choices for themselves and their families. Notably, awareness of brand restrictions terms is fairly high among the survey respondents. However, they often misjudge the reasons behind brand restrictions—close to half think that plain packaging is being introduced by brands to save costs. A key finding from the study is that brands are more trusted than governments. Seven in 10 survey respondents trust brands globally, compared to four in 10 who trust governments. Noting that “civil liberties are at stake,” the Gen Zers and millennials surveyed would prefer to make their own decisions and healthy choices, based on learnings from education campaigns and more nutritional information on packaging. Six in 10 say “people should be taught how to make healthier choices rather than have the right to choose taken away from them.” And they would like government to keep them informed of any considerations to implement brand restrictions and be prepared to reverse them if found ineffective.
Brand Restrictions in Latin America
Brand restrictions are proving particularly prevalent in Latin America, mostly with regard to packaging on food aimed at children, such as breakfast cereal. “Both Mexico and Chile are the countries in Latin America with the most trademark restrictions,” says Maricruz Villanea, Managing Partner and Founder, Ideas IP (Costa Rica), a member of INTA’s Brand Restrictions Committee. “Most products, whether for fat, sugar, or sodium, have to use nutrition labels on their packaging. With respect to cereals, most of them have fallen into the category of sugary products, which is why the use of cartoons has been banned. This regulation has already been in place since 2012 in Chile, followed by updates in 2015 and 2021. They have not been proven to have reduced the consumption of cereals, since it is not the children who make the decision about the cereal, but the parents,” explained Ms. Villanea. A ban on cartoon mascots on cereal packaging took effect in Mexico in 2021. These measures have been implemented in phases. The second phase will come into force on October 1, 2023, and the third on October 1, 2025, each one stricter than the previous one about nutritional content. “Different appeals have been filed against these measures,” says Ms. Villanea. “Many companies have their trademarks protected with cartoons such as Tony the Tiger, Melvin the Elephant, Capitan Crunch, Quicky, and Lucky,” says Ms. Villanea. “In Mexico, the use of trademarks is mandatory, so companies are wondering what will happen to their trademarks if they are not allowed to use them.” Managing IP rights is a complex task that requires diligence and resolution. Add sanctions and brand restrictions to the workload and the challenge becomes even more considerable. In an era of political tension in many different corners of the world and with brand restrictions legislation continuing to grow in popularity, these added complexities are not going away anytime soon.
Learn More
How multinational corporations with business in jurisdictions subject to sanctions deal with the associated IP issues will be the focus of the Business Track panel session, Managing IP Assets in Today’s Regulated Global Environment (Wednesday May 17, 3:15 pm–3:45 pm) with moderator Mr. Kappos; Serena Lim, Soft IP & Litigation Counsel, Ant Group (Hong Kong SAR, China); and Eleanor Merrett, Partner, CMS (United Kingdom). This session will address critical aspects of the increasingly complex regulatory land mines that doing business in or with some areas of the world have become over the last couple of years from the perspective of groups with a global footprint. The panel of experts and seasoned practitioners will cover the most material recent sanction lists, decisions, and regulations that brands must comply with at all stages of IP assets management, from registration to use and distribution and up to enforcement, with a particular emphasis on the Russian and Chinese markets.
