Russia Introduces Tools for Russian Persons to Continue Use of Foreign IP Rights without Consent from Rightsholder

Under Presidential Decree No. 322, issued May 27, Russian licensees and other recipients of IP rights must now make payments to the following types of rightsholders by depositing the funds into a type “O” bank account opened in a bank determined by the Russian government:

• Any rightsholder with a connection to a country that has implemented sanctions against Russia, including the United States, United Kingdom and European Union. “Connection” is broadly defined and includes citizenship, registration, primary place of business and place of registration.*
• Rightsholders who have made public announcements supporting sanctions.
• Rightsholders who have terminated the use of IP rights for one or more persons in Russia due to sanctions.
• Rightsholders who have terminated, suspended or limited their activities in Russia any time after February 23, 2022.
• Rightsholders who have made comments against Russia or its participation in the war in Ukraine (which is very broadly defined).

* Western and Hostile Licensors that have not publicly made remarks about leaving the Russian market and continue to perform their contracts do not fall under this definition, but it is unknown at this point how to challenge the opening of an “O” account. In addition, these provisions do not apply to imports of food and pharmaceuticals, communications services, databases, software, payments under RUB 100,000 (approx. $1,560), and others.

Any Russian licensee that is aware that the licensor falls within one of the categories above must open an “O” account for the Western and Hostile Licensor and make all payments for IP rights into that account, including any back payments since February 23, 2022. The account will be opened based on information provided by the Russian licensee. This process does not require any involvement by the Western and Hostile Licensor. In addition, the licensee must make the payments in Russian rubles regardless of the currency stipulated in the contract. A Russian licensee is made aware that a licensor falls within one of the categories above if there is information on the internet about the rightsholder’s approach to its business in Russia or if the rightsholder is listed on a yet-to-be-determined Russian government website.

Western and Hostile Licensors may or may not consent to the deposit of the payments to the type “O” account opened for them. If they do not consent, the licensees may refrain from making payments until such consent is received. During this period, they retain the right to use the IP rights. For Western and Hostile Licensors to draw down the funds deposited to the type “O” account, they will need to apply to a Russian government commission first to receive approval.

These measures are in line with the Russian government’s response to Western and other sanctions that we have seen thus far. With this decree, Russia continues to search for ways to stabilize the Russian market and give Russian companies a defense against possible claims in Russian courts and abroad. The measures will also likely create a pool of funds from which Russian companies may enforce Russian judgments against foreign companies.

The decree raises a number of issues for Western companies working in or exiting Russia, including:

• Application of US, UK and EU sanctions if the licensee is a sanctioned person and if the bank(s) authorized by the Russian government to open “O” accounts is/are sanctioned;
• The procedure to receive funds from “O” accounts and how to deal with intermingled funds;
• The impact on subsidiaries in Russia who now may need to pay to an “O” account instead of making payments directly to its parent company; and
• How to defend against claims for future IP rights not yet provided to but demanded by Russian licensees.

Companies with IP rights in Russia can contact a legal advisor to discuss the potential impact of claims in litigation or arbitration outside of Russia and the potential for claims against them in Russia.

Our attorneys and consultants are available to assist in addressing questions regarding the impact of the information provided above. Our Ukraine crisis team, which includes attorneys qualified under Russian law, is well positioned to assist companies, banks and investors coping with the prospect of reformulating their legal and business strategies in response to the conflict in Ukraine.