While multi-national sanctions recently imposed on Russia were intended to punish Russia for its aggression in Ukraine, the effects of the sanctions have led to a need for tough decisions for U.S. entities with patent interests in Russia.  The prohibitions on financial exchanges with certain Russian banks will essentially prevent any payment of fees to Rospatent (the Russian patent office), and although a general license from the Department of the Treasury provides a short window for winding down certain administrative transactions, U.S. entities engaged in patent transactions with Rospatent only have a short time to make decisions about current and future patent activities in Russia.

Prohibited Activities

On February 28, 2022, the Department of the Treasury initiated prohibitions related to transactions involving certain financial institutions in Russia, including the Central Bank of the Russian Federation.¹ The directive specifically prohibits a United States person (unless otherwise excepted or licensed) from engaging in any transaction involving the listed financial institutions, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.  Under the directive, the prohibitions are specifically worded to include: (1) any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions of the directive; and (2) any conspiracy formed to violate any of the prohibitions of the directive.

Notably, the prohibited activities do not expressly prevent any transactions of a U.S. person with Rospatent.  And although the United States Patent and Trademark Office (USPTO) has cut off direct engagement with Rospatent for carrying out activities such as use of the Global Patent Prosecution Highway (GPPH) program², Rospatent is not currently a sanctioned entity under the directive.  This, however, is essentially a distinction without a difference.  Moreover, since the USPTO (and also the European Patent Office) has already cut ties with Rospatent, there still remains the possibility that Rospatent itself will be added to the sanctions at a future date and thus completely eliminate any pursuits by U.S. persons with Rospatent.

The current sanctions directly affect entities seeking patent protection in Russia since payments of required fees related to patent applications and granted patents in Russia are processed through the Central Bank of the Russian Federation.  This includes a number of financial transactions, such as payment of government filings fees for directly filing a patent application in Russia or filing a national phase of an international PCT application in Russia, as well as incidental fees incurred during prosecution of pending Russian patent applications and payment of yearly maintenance fees for issued Russian patents.  This would also include payment of yearly maintenance fees for patents obtained through the Eurasian Patent Organization (EAPO) and maintained in Russia since such fees paid to the EAPO must be forwarded to Rospatent.  Because of the intertwining of Rospatent with the Central Bank of the Russian Federation, any fees paid to Rospatent must be considered equivalent to making a transaction through said bank.

Patent prosecution in Rospatent requires engagement with a Russian patent practitioner.  While U.S. entities pursuing patent interests in Russia are unlikely to directly engage Rospatent and pay fees that are ultimately processed through the prohibited bank, it is clear from the directive that strategies, such as routing payments through countries that are neutral in relation to sanctions, are prohibited.  As noted above, the directive prohibits any transaction that actually “evades or avoids” the other prohibitions of the directive, as wells as any transaction that “has the purpose of evading or avoiding” the other prohibitions.  This language appears to have the potential to ensnare purposeful non-adherence as well as actions that unwittingly end in non-adherence (e.g., forgetting to discontinue an automated payment of a patent maintenance fee to Rospatent).

Deadline for Administrative Transactions

U.S. entities still have time to complete administrative transactions with Rospatent despite the February implementation of the directive.  On March 2, 2022, the Department of the Treasury issued a general license authorizing certain transactions that are otherwise prohibited by the directive.³  The license authorizes U.S. persons to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations or certifications to the extent such transactions are prohibited under the directive, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation.  For at least U.S. entities whose day-to-day operations include securing and maintaining intellectual property, including in Russia, this license provides a window to complete activities and avoid violation of the directive.  Currently, the transaction window provided under the license runs through 12:01 a.m. eastern daylight time on June 24, 2022.

Forming a Russian Patent Strategy

The incursion of Russia into Ukraine has been underway for shortly more than one month, but there is no way to know when hostilities may cease.  Moreover, even when peace is achieved, it is impossible to know how long the current sanctions against Russia may continue.  Those familiar with patent law know that the business of obtaining patents is a deadline-driven venture, and uncertainty of time quickly breaks apart the paradigm.  A “wait and see” approach thus has the potential to result in a loss of patent rights as well as possible liability for knowingly or unknowingly engaging in activities that are prohibited under the directive.  Anyone engaged in patent activities in Russia thus would be advised to undertake a portfolio review and utilize the time remaining under the General License to form a plan that ensures compliance with the current sanctions.  This can include at least the following items.

Anyone engaged in patent activities in Russia thus would be advised to undertake a portfolio review and utilize the time remaining under the General License to form a plan that ensures compliance with the current sanctions.

• Proceeding with Grant of Presently Allowed Applications – For Applicants that have received a Notice of Allowance with a due date after expiration of the General License, one may consider early payment of the fees.  This should only be done, however, to the extent that it is possible to confirm that payment will be processed through Rospatent and the Central Bank of the Russian Federation prior to the expiration of the General License on June 24, 2022.
• Annuities on Granted Patents – Any patent annuity paid to Rospatent after the General License expires should be assumed to be in violation of the current sanctions.  Patent holders that engage a patent annuity service should contact their provider to confirm that they have a plan in place for compliance with the sanctions.  Some annuity services have, in fact, already announced that they will no longer make payments to the Rospatent until further notice.  Presumably, for Russian patents with annuities due in 2022, early payment could be made in the hope that normalcy will ensure prior to the deadline in 2023, but such action should only be taken to the extent one can ensure that payment is processed through Rospatent and the Central Bank of the Russian Federation before the deadline.  Even then, it may be advisable to consider whether “early” payment of patent annuities would be considered to be “ordinarily incident” to day-to-day operations of a person’s patent pursuits.  In the alternative, a patent owner should confirm that any Russian patents are under a “do not pay” order with their annuity provider to avoid an unintentional, automated payment in violation of the sanctions.
• Filing a Direct or National Phase Patent Application – If a new patent application in Russia is planned, or if the deadline for national phase entry of a PCT application is approaching, one may consider early filing prior to the expiration of the General License.  This could be done in the hope that a deadline for payment of future fees to Rospatent do not arise before the time that sanctions are lifted.  This is seen to be a risky proposition since it is unknown how quickly Rospatent processes paid fees through the Central Bank of the Russian Federation, and it is likewise unknown to what extent a fee paid to Rospatent before expiration of the General License but only processed through the Central Bank of the Russian Federation after expiration would be viewed as being in violation of the sanctions.  Moreover, if Rospatent itself is later added to the sanctions, any early filings would be at significant risk for abandonment due to an inability to continue transactions with Rospatent.
• Filing Through EAPO as an Alternative to Russia – Russia is one of several countries where patent protection can be secured based on a granted patent from the EAPO.  As of this writing, the banks utilized for processing financial transactions for the EAPO (AO UniCredit Bank and AO Raiffeisenbank) are not included in the U.S. sanctions.  As such, direct filing or national stage entry with the EAPO can provide an alternate pathway for patent protection in Russia.  The cessation of interaction between the USPTO and the EAPO would not have a bearing on this option, but care would need to be taken to ensure that all documents otherwise transferrable directly between the offices are handled by other routes.  Once a patent is granted by the EAPO and Russia is elected as a country for maintenance of the patent, annuities paid to the EAPO are forwarded to Rospatent.  As such, this alternative pathway is only effective for patents where annuities in Russia would not become due until after lifting of sanctions.  As the average length of time for completion of patent prosecution with the EAPO is generally two or more years, one would hope that the current situation in Russia would be resolved within that timeframe.  Again, however, uncertainty remains.
• Using Russia as an International Search Authority – Rospatent is one of the limited number of patent offices available for use as the ISA in a PCT application, and Rospatent may be preferred because of the relatively low cost relative to other ISA options.  Search fees paid to the World Intellectual Proper Organization (WIPO) are forwarded to Rospatent when chosen as the ISA, and it is not possible to ensure that such fees paid to WIPO will be forwarded to Rospatent, and then to the Central Bank of the Russian Federation before the expiration of the General License deadline.  As such, it is recommended to not use Rospatent as the ISA in any PCT application from now until sanctions are lifted.
• Enforcement of Granted Russian Patents – A comprehensive patent strategy in Russia must now also consider the relative value of any Russian patents in light of the recent decree on patent enforceability in Russia.⁴   Therein, any holder of a Russian Patent from a so-called “unfriendly” foreign state is required to give a mandatory license with no compensation to anyone in Russia wishing to exercise the right of use without consent of the patent owner.  As with the entire situation, uncertainty reigns with this decree, and it is impossible to know when (if ever) rights of Russian patent holders from “unfriendly” states will be returned.  Accordingly, a Russian patent strategy must consider not only options for proceeding in the near term to secure rights to the extent possible but must also consider the reality that any “rights” that are secured with a Russian patent are of no effect and will be for the foreseeable future.

Next Steps

For anyone with significant patent interests in Russia, time is of the essence for cementing a strategy for moving forward.  For some, the most expeditious approach could be to simply close your file on any Russian patents and patent applications.  If such approach is taken, careful attention must be made, as noted above, to ensure that any possibility of a fee being paid to Rospatent after June 24, 2022, is eliminated.  For others, investments in Russia may not allow for a complete abandonment of possible future patent enforcement rights in Russia.  If actions as noted above are taken to “batten down the hatches” of the Russian patent portfolio prior to the deadline in order to weather this storm, timing is again crucial in order to avoid unintentional engagement in sanctioned activities.  Also, moving to patent filings through the EAPO as a starting point for Russia can be an effective workaround so long as Russian sanctions get lifted before any patent annuities through an EAPO patent would become due in Russia.  Finally, in forming a strategy, one also must consider that even before its recent decree on patent enforceability, Russia was already one of nine countries on the United States Trade Representative (USTR) “Special 301 Report”  of trading partners presenting the most significant concerns regarding insufficient IP protection or enforcement or actions that otherwise limited market access for persons relying on intellectual property protection.

¹  Directive 4 Under Executive Order 14024, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation,” February 28, 2022, Office of Foreign Assets Control, Department of the Treasury.  See, https://home.treasury.gov/system/files/126/eo14024_directive_4_02282022….
²  USPTO Statement on Engagement with Russia, the Eurasian Patent Organization, and Belarus, March 22, 2022.  See, https://www.uspto.gov/about-us/news-updates/uspto-statement-engagement-r….
³  General License No. 13, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 Under Executive Order 14024, Office of Foreign Assets Control, Department of the Treasury, March 2, 2022.  See, https://home.treasury.gov/system/files/126/russia_gl13.pdf. 
⁴  Decree of the Government of the Russian Federation of 06.03.2022 No. 299 “On Amendments to Clause 2 of the Methodology for Determining the Amount of Compensation Paid to a Patent Owner When Deciding to Use an Invention, Utility Model or Industrial Design without His Consent, and the Procedure for its Payment.” See, http://publication.pravo.gov.ru/Document/View/0001202203070005?index=0&r…

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In my last post on the district court’s ruling in Gilead v. Merck, I implied that Gilead had convinced the Judge that Merck had employed inequitable conduct (“IC”) in conducting its negotiations with Pharmasset, the company Gilead later purchased to obtain the rights to the HCV drug, sofosuvir or Solvaldi®. However, I was reading and writing at an usually high speed and missed the fact that the judge’s finding was based on the pre-IC, unclean hands defense.

I skipped over the section on Therasense, a 2011 Fed. Cir. decision that redefined the IC doctrine, and missed the Judge’s comments distinguishing the two doctrines. In both opinions, it was noted that the unclean hands defense originated with three early S. Ct. decisions in which the “guilty parties” employed egregious misconduct to obtain their patents. The remedy in each case was to bar the wrongdoers ability to sue for infringement of the patents.

Gilead probably chose this defense because the IC doctrine has been applied in modern decisions to render patents or entire patent families unenforceable for failure of the patentee to submit relevant prior art to the PTO during prosecution. There is a specific intent requirement and a “hard but for” materiality requirement for unsubmitted art that is difficult for defendants to plead and to meet. Here is the district court’s analysis of the doctrines:

“Therasense addressed the separate defense of IC — a defense that Gilead does not assert in this case — but the Fed. Cir.’s discussions of the differences between IC and unclean hands confirmed that unclean hands remains a viable defense to patent infringement. [649 F.3d at 1285-89]. As the Fed. Cir. explained, the doctrine of IC grew from the older doctrine of unclean hands. Id. at 1287. Whereas unclean hands can involve improper conduct before either the Patent Office or the courts, IC relates solely to conduct before the Patent Office. Id. Additionally, where unclean hands can involve improper conduct before either the Patent Office or the courts, IC relates solely to conduct before the Patent Office.”

Well, not exactly. Therasense does not have a lot to say about the unclean hands doctrine, since the facts in Therasense involved a failure to disclose documentary evidence to the Patent Office, but it is clear that the Fed. Cir. did not intend to supplant the unclean hands defense promulgated by the S. Ct. to punish egregious misconduct. In fact, the Fed. Cir. added egregious misconduct to the current IC doctrine, to cover fact situations not involving withholding prior art. How this version of egregious conduct varies from the older unclean hands doctrine is not clear.

The district court judge seems to have erred when she wrote that IC is applicable only to patent prosecution. As set forth in Therasense:

“As the IC doctrine evolved from these unclean hands cases, it came to embrace a broader scope of misconduct, including not only egregious affirmative acts of misconduct intended to deceive both the PTO and the courts but also the mere nondisclosure of information to the PTO. IC also diverged from the doctrine of unclean hands by adopting a different and more potent remedy – unenforceability of the entire patent rather than mere dismissal of the instant suit.”[emphasis added]

As the dissenters wrote in Therasense: “[N]othing in this opinion rejects the application of the doctrine of IC (or “unclean hands”) as applied to other forms of misconduct, in litigation or otherwise.”[emphasis added]

So while Gilead’s “unclean hands” arguments prevailed, it appears that Gilead could have pled either doctrine and prevailed, especially since the Court found a specific intent to deceive.  It is my guess that since the Gilead decision did not involve the PTO, Gilead chose to go with unclean hands, but this decision may foreshadow a revival of this defense, particularly when most of the wrong-doing involves the litigation work and not the prosecution. Stay tuned.

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