New rules for the fulfilment of obligations to certain rights owners

On 27 May 2022, Edict No. 322 of the President of the Russian Federation ("the Edict") introduced a special temporary procedure for the fulfilment by the Russian Federation, constituent entities of the Russian Federation, municipalities and residents ("debtors") of monetary obligations associated with the use of results of intellectual activity and means of individualisation ("IP assets") belonging to certain rights owners.

Categories of rights owners affected by the Edict

1. Foreign rights owners connected with unfriendly states, including persons who are citizens of those states or are registered, principally do business or principally derive business profits in those states, and persons controlled by those foreign rights owners, including where they are registered or primarily do business in the Russian Federation.

This category does not include foreign persons and persons controlled by them who simultaneously meet the following criteria:

• Their ultimate beneficiaries are the Russian Federation or Russian legal entities or individuals;
• information about control over them has been disclosed by Russian legal entities or individuals to the tax authorities of the Russian Federation.
• It is important to note that the Edict does not apply to rights owners in this category if they duly fulfil their obligations under agreements concluded with debtors.

2. Rights owners that have publicly supported the imposition or extension of political and economic restrictive measures in relation to the Russian Federation, Russian citizens and Russian legal entities or have publicly called for such measures to be taken.

3. Rights owners that prohibited the use of IP assets in the territory of the Russian Federation after 23 February 2022 or imposed a prohibition on such use for one or more legal entities or individuals owing to the implementation of restrictive measures or for other reasons not based on economic considerations.

4. Rights owners that terminated, suspended or substantially restricted the manufacture (supply) of goods, the provision of services and (or) the performance of work in the territory of the Russian Federation after 23 February 2022 owing to the implementation of restrictive measures or for other reasons not based on economic considerations.

5. Rights owners that have engaged in public actions aimed at discrediting the use of the Armed Forces of the Russian Federation and (or) the exercise by state authorities of the Russian Federation of their powers outside the territory of the Russian Federation for the purposes of protecting the interests of the Russian Federation and its citizens and maintaining international peace and security, or have publicly disseminated deliberately false information about the above under the guise of reliable reports.

6. Rights owners that have disseminated through information and telecommunications networks, including the Internet, information that expresses in an indecent form, insulting to human dignity and public morals, a clear disrespect for the society, state and official state symbols of the Russian Federation, the Constitution of the Russian Federation or bodies that exercise state power in the Russian Federation.

Restrictions imposed

In accordance with the Edict, a debtor is required to open a special type "O" account with an authorised bank in the name of a rights owner if it is informed or becomes aware of circumstances by reason of which the rights owner falls within the scope of the Edict.

The debtor must deposit the following payments in that account:

1. Payments under licence agreements, sublicence agreements, agreements on the transfer of rights management powers and other agreements providing for the payment of remuneration in connection with the use of IP assets.

2. Payments associated with the exercise and protection of exclusive rights belonging to the rights owner and the improper fulfilment of obligations, including penalties (fines, penalty interest).

3. Payments which, in violation of the time limit for the fulfilment of an obligation, have not been transferred by the debtor to the rights owner as at 27 May 2022.

It must be noted that the Edict does not apply to:

1. Agreements under which a foreign rights owner or a person controlled by it grants the right to use IP assets that are necessary for:

• The importation or manufacture in the territory of the Russian Federation of medicines, medical devices, industrial and agricultural machinery, and food products;
• The provision of communications services (including data transfer and Internet access services) and traffic transmission services;
• The creation or use in the territory of the Russian Federation of computer programmes, databases, information systems and data processing centres.

2. Payments not exceeding 100,000 roubles or the equivalent in foreign currency which are made by a resident individual in connection with the use of IP assets for personal, family, domestic or other non-business needs if that use is not aimed at deriving profit or income.

Features of special type "O" accounts

Only one special type "O" account may be opened for a specific rights owner, to which payments from all debtors must be made. The account is opened on the basis of an application submitted by a debtor to an authorised bank and may be opened without the physical attendance of the rights owner or its representative. If the authorised bank has reliable information about the postal address, email address or contact telephone number of the rights owner or its representative, it will notify them of the opening of the special type "O" account and send the account details.

The rights owner is obliged to give the account details to a debtor if requested to do so. It is also obliged to publish details of the special account on its website and to make it technically possible for payments to be made to the account if its activities involve concluding agreements with any requesting party or the making of payments by any person who uses an IP asset belonging to the rights owner.

The rights owner may give a debtor written consent for a payment to be made to the special account either in relation to an individual payment or in relation to all payments made by the debtor. If that consent is not given, the debtor may refrain from making a payment until consent is received, and this cannot be considered as a violation of its obligations, including with respect to the payment of penalties (fines, penalty interest). The rights owner will be deemed to have given its consent by placing details of the account on its website.

It is important to note that, irrespective of whether the rights owner’s consent has been given, the transfer of a payment to a special account by a debtor is deemed to constitute due fulfilment of obligations. It is not permitted for obligations to be fulfilled without using a special account. Obligations denominated in foreign currency must be fulfilled in roubles based on the official exchange rate set by the Central Bank of the Russian Federation on the day on which the relevant payment was made.

The withdrawal of funds from a special account in favour of the rights owner may take place only after receiving permission from the Government Commission for the Monitoring of Foreign Investments in the Russian Federation. In this case, funds may be transferred to a bank or other account of the rights owner, including an account held with a bank outside the Russian Federation.

If the requirements of the Edict are duly fulfilled, the debtor will retain the right to use IP assets under the terms previously applied.

Penalties for non-compliance with the Edict

The Edict bans the fulfilment of obligations without the use of a special account but does not prescribe penalties for violating that ban.

Russian legislation does not currently lay down specific penalties for failure to comply with requirements of edicts of President of the Russian Federation associated with the application of special economic measures in connection with unfriendly actions of foreign states. Nor are such penalties prescribed for individuals and legal entities in Federal Law No. 281-FZ of 30 December 2006 "On Special Economic Measures and Enforcement Measures". However, there have been reports in the media that further acts establishing penalties for non-compliance with restrictive measures are in the process of being drafted.

At the same time, we believe that, in certain circumstances, there may be a risk of administrative penalties being imposed on the basis of Article 15.25(1) of the Administrative Offences Code for the performance of illegal currency operations, including operations that contravene Russian currency law.

B1 professionals have extensive expertise in the field of intellectual property. Thanks to many years of experience in providing services and advice on a whole range of issues in this area, our team is able to assist in analysing each individual situation for the potential applicability of restrictive measures relating to the fulfilment of obligations and the existence of related risks and implications for contractual relationships, as well as navigating all aspects of the new regulations and advising on issues that arise.