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Cross-border Licensing of Complex Software Imported into Russia

Legal framework for the protection of software delivery of complex software into Russia.

Apr 02, 2004

Legal Framework for the Protection of Software

The IP rights of a foreign proprietor of licensed software imported into Russia are protected both by international conventions and by national legislation.

Russia is a signatory of two international copyright conventions: the 1886 Berne Convention for the Protection of Literary and Artistic Works, and the 1952 Geneva Convention on Universal Copyright. According to these conventions, the copyright of foreign nationals is protected on a par with that of Russian nationals, without any additional formalities.

Copyright protection issues are further regulated by two key Russian laws: the Law on the Legal Protection of Computer Programs and Databases (3523-I, September 23 1992), and the Law on Copyright and Neighbouring Rights (5351-I, July 9 1993, as amended).

The Copyright Law sets out the main protection principles applicable to software. As software copyright arises through the creation of the work, no registration or other formalities are required in order to have copyright acknowledged and implemented. Copyright arises when software is created and lasts for the author's lifetime, plus 50 years thereafter.

In case of a conflict between an international convention signed and ratified by Russia and any rule established by Russian law, the relevant provisions of the international convention will prevail.

The Law on Computer Programs and Databases provides for the voluntary state registration of software with the Russian Agency for Patents and Trademarks (ROSPATENT). Although the law does not require registration of software rights, this is recommended in order to enhance the protection of such rights.

In order to register copyright in software, the author must submit an application to ROSPATENT. Foreign applicants must act through a patent attorney admitted to practice in Russia.

Within two months of receiving the application, ROSPATENT will check the documentation to ensure its compliance with Russian legislation. If the application is in order, ROSPATENT will:
  • enter the computer program or database in the Register of Computer Programs or the Register of Databases, as appropriate;
  • issue an official registration certificate to the applicant;
  • publish the particulars of the registered software in its Official Bulletin.
The following fees are charged for the state registration of software:
  • approximately $8 to $36 for submitting an application;
  • approximately $7 to $14 for entering software in the register;
  • approximately $4 to $7 for issuing a registration certificate; and
  • approximately $7 to $14 for publishing information on the registered software.

Delivery of Complex Software into Russia

A transfer of user rights to software may involve the delivery of media containing the software. In such cases various Russian customs and tax law provisions must be observed.

Customs clearance

According to the applicable Russian customs regulations, software is subject to customs duties and processing fees, amounting to 15% and 0.15%, respectively, of the customs value of the media delivered.

Customs valuation

Article 18 of the Law on Customs Tariffs (5003-I, May 21 1993) provides six methods for determining the customs value of imported goods, the most important of which are as follows:
  • Method 1 - based on the value of the transaction (value of the contract);
  • Method 2 - based on the value of transactions with identical goods; and
  • Method 3 - based on the value of transactions with similar goods.
Under the most common method, the customs value of the imported goods is calculated on the basis of the value of the underlying import contract. Pursuant to Article 18 of the Customs Tariff Law, other methods described in the law may be applied only if this key method is not applicable. Under this method, any royalties or similar types of payments are included in the customs value of the product.

The Customs Tariff Law specifies a number of cases in which the most common method may not be applied. These include situations where both parties to the transaction are controlled by a third party or jointly control a third party, or where one party controls the other.

Where it is clear from the import contract that future payments will take place, but the amount of these payments will not be known until a future point in time, the Russian importer may run into problems, insofar as the Russian customs authorities will not know which customs value to accept in the import documents in order to determine the applicable customs payments.

Royalty payments under a software licence agreement Russian customs control applies to imports into Russia of tangible items only. At the same time, licence fees and other types of income obtained in connection with the import contract and attributable to the foreign supplier must be included in the declared customs value of the imported goods. Therefore, the customs value of the media delivered in a cross-border licensing agreement includes all royalties and other IP-related payments made by the licensee.

Taxation

Under the Russian Tax Code, a Russian corporate customer (licensee) must withhold profits tax, at the rate of 20%, on any payments made to a foreign vendor (licensor) under an IP licence, unless otherwise provided by an applicable international double taxation treaty.

The value added tax (VAT) applies to a foreign company's sales operations in Russia, in particular to the transfer of copyright and similar rights to a Russian corporate customer (licensee). A Russian corporate customer (licensee) must withhold VAT at a rate of 15.25% on any payments made to a foreign vendor (licensor) under a licensing agreement.

Documents substantiating the transfer

In order to be able to implement and/or explore its IP rights in Russia, the licensor should establish a procedure for the formal confirmation of the transfer of rights to use the software.

The following documents can be considered as evidencing the transfer:
  • a transfer act;
  • an invoice/pro-forma invoice; or
  • a customs freight declaration, if performance of the contract involves the shipment of goods.

Encryption

If software licensed to a Russian licensor and imported into Russia contains any encryption tools, as defined in the relevant Russian legislation, an import approval must be obtained and a number of licensing and certification requirements complied with.

As a rule, the import of encryption software is subject to import licensing by the Ministry of Economic Development and Trade, which is granted only with the prior approval of the Federal Security Service.

In addition to the encryption licensing provisions, Russian law requires that certain encryption items undergo a technical certification process. The certification process confirms that a given product complies with applicable Russian technical standards. Certification is only mandatory for certain encryption products, such as those:
  • which are used to protect Russian state secrets;
  • using algorithms established as a state standard;
  • for systems used for electronic document exchange with the Russian Central Bank;
  • for systems used by state-run enterprises or enterprises active in state procurement orders; and
  • otherwise required to be certified under specific Russian laws.
For further information on this topic please contact Christian von Wistinghausen or Florian Schneider at Beiten Burkhardt by telephone (+7 503 232 9635) or by fax (+7 503 232 9633) or by email (CWistinghausen@bblaw.de or FSchneider@bblaw.de).