Russia is using patent and trademark courts to fight back against a coordinated effort by Western governments and companies to cripple the country’s economy.
The U.S. and its allies have avoided confronting Russia militarily, relying on economic pressure to bring an end to the country’s invasion of Ukraine.
This strategy is taking a toll on the Russian economy: Interest rates in the country have doubled, the stock market has closed and the ruble is trading at its lowest level ever.
Analysts at the consultancy Oxford Economics said that Russia’s GDP could shrink as much as 6% in a “plausible downside scenario” due to pressure on the country’s financial markets.
Western countries and companies have also vowed not to purchase any Russian oil exports, punching another major hole in the country’s economy.
While the strategy has been effective for now, the risk of an economic war for the West is blowback. Companies have spent the past three decades integrating themselves into post-Soviet-era Russia’s economy. That integration will have real-world costs as Russia fights back.
Russia Playing Hardball With Western Companies
Russian prosecutors have begun issuing warnings to Western companies in Russia, threatening to arrest corporate leaders in the country who criticize the government.
The prosecutors also are threatening to seize the assets of companies that withdraw from the country, the Wall Street Journal reported.
McDonald’s (MCD) – Get McDonald’s Corporation Report, Coca-Cola (KO) – Get Coca-Cola Company Report, Procter & Gamble (PG) – Get Procter & Gamble Company Report, International Business Machines (IBM) – Get International Business Machines Corporation Report and KFC owner Yum Brands (YUM) – Get Yum! Brands, Inc. Report have received a combination of calls, letters and visits from government officials who are threatening to sue and seize assets including trademarks.
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Last week, the Russian Ministry of Economic Development said it had discussed the temporary removal of restrictions on the use of intellectual property. That would enable franchisees in the country to operate their restaurants without the blessing of parent companies like McDonald’s and Starbucks.
“This will smooth out the impact on the market of breaks in supply chains, as well as the shortage of goods and services that arose due to new sanctions by Western countries,” the Ministry of Economic Development said.
Russian President Vladimir Putin last week also expressed support for a law to nationalize assets of foreign companies that have cut ties with the country.
At least one of the targeted companies has limited communications between its Russian business and the rest of the company as a defensive measure, the Journal reported.
Which Companies Have Left?
At home, calls or companies to stop doing business have reached fever pitch.
The first batch of corporations willing to institute their own sanctions, leaving Russian citizens without their services, was large.
Microsoft (MSFT) – Get Microsoft Corporation Report and Apple (AAPL) – Get Apple Inc. Report were two of the first to halt all product sales in Russia. Apple also limited Apple Pay and other services in the country starting March 1.
Visa (V) – Get Visa Inc. Class A Report and Mastercard (MA) – Get Mastercard Incorporated Class A Report blocked their services to Russian banks.
On March 1, the investment management firm BlackRock (BLK) – Get BlackRock, Inc. Report halted the creation of new shares of its iShares MSCI Russia ETF.
McDonald’s, Yum and Starbucks (SBUX) – Get Starbucks Corporation Report were just a few of the high-profile companies to continue doing business in Russia after the first wave of exiting companies emerged. All three have now joined the exit amid rising pressure at home. But Russia isn’t taking these defections laying down.
The fallout from this move by Russia could be felt for decades as companies may reconsider doing business in the country even after its war over Ukraine ends.
