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27.05.2022 — Russian President’s New Decree Set Special Procedure for Royalty Payments to Certain Foreign IP Owners

Under the Decree, which is part of Russian counter-sanctions, Russian residents are to pay royalties and other IP-related fees to select foreign IP owners, including under existing license agreements and other contracts, only to specifically designated bank accounts and only in Russian Rubles, regardless of the otherwise applicable contract provisions. These IP owners will need an authorization from the Russian Government in order to access such funds paid to the specifically designated bank accounts. If IP owners do not consent to this payment procedure, the Decree excuses the Russian parties’ failure to provide payment.

The Russian President has issued new Decree No. 322 dated 27 May 2022 (the “Decree”), which applies inter alia to (i) IP owners (including Russian subsidiaries of foreign companies) that are associated with foreign countries that enacted sanctions against Russia, unless such IP owners continue to duly comply with their obligations before Russian parties (item 17(c) of the Decree), (ii) IP owners that publicly supported or called for sanctions against Russia, (iii) IP owners that discontinued, limited or suspended their operations in Russia after 23 February 2022 for non-economic reasons, (iv) IP owners that took public steps to “disparage” the Russian state or the military acting abroad or disseminate “knowingly false information” about the same, and (v) IP owners that disseminated information expressing in an “inappropriate manner” clear “disrespect” to the Russian state and society (the “Covered Parties”).

Per the Decree, Russian persons are to perform their obligations to pay royalties or other IP fees to Covered Parties (unless they fall under an exemption) only in Russian Rubles, regardless of what the license or other agreement provides. In addition, all such payments will have to be made to specifically designated “O-type” bank accounts in an authorized Russian bank (the exact bank is to be determined by the Russian Government via implementing regulations). Covered Parties will have to seek approval of the Russian Government to access funds paid to these accounts. If a Covered Party does not consent to this payment procedure, the Decree excuses the Russian parties’ failure to perform their obligations to such Covered Parties.

It appears that the Decree will likely have the primary practical effect of allowing unauthorized use of IP rights of companies that withdrew from the Russian market in Russia or limited/suspended their activities. Importantly, the Decree expressly extends to IP owners who normally offer their services to the general public – such IP owners, provided that they are considered a Covered Party, will have to publicize the details of their “type O” bank account, failing which their IP rights may be used without providing payment.

A number of industries, such as telecommunications and pharmaceutical manufacturing, are also exempt from the Decree. In addition, the Decree does not apply to payments lower than 100 000 RUB made by private individuals for private consumption.

11.05.2022 — Russian Government Adopted List of Companies Targeted By Russian Counter-Sanctions

In line with recent Presidential Decree No. 252 dated 03 May 2022, which introduced framework regulations on Russian counter-sanctions, the Russian Government adopted a list of specific persons targeted by Russian counter-sanctions (the “Designated Persons”) in Decree No. 851 dated 11 May 2022 (the “Decree”). There are 31 companies in the list of the Designated Persons, which mostly include former foreign subsidiaries of Russia’s Gazprom and companies formerly controlled by Gazprom.  

The list of the Designated Persons includes 31 companies from the USA, Britain, European countries and Singapore. In particular, the Designated Persons include Gazprom Germania GmbH, Gazprom Marketing & Trading Ltd. and other former foreign subsidiaries of Russia’s own Gazprom as well as companies formerly controlled by Gazprom, such as entities within the VEMEX and Wingas/WIEH/WIEE groups. All Designated Persons seem to have been involved with the supply and sale of Russian gas.

According to Decree No. 252, all Russian companies (including Russian branches and subsidiaries of foreign companies), individuals and state authorities may no longer enter into transactions with the Designated Persons, fulfill existing obligations vis-à-vis them, perform financial transactions and export products or raw materials benefitting the Designated Persons. The Decree of the Russian Government established additional criteria for the prohibited transactions with the Designated Persons. In particular, such prohibited transactions include:

  • transactions benefitting the Designated Persons; 
  • transactions aimed at providing access to the Russian ports to ships owned or chartered by the Designated Persons, in their interest or at their instruction; 
  • transactions including payments, securities transactions with the participation of or for the benefit of the Designated Persons.

The Russian Ministry of Finances is entitled to make proposals to the Russian Government on amendments to the list of the Designated Persons and the issuance of temporary licenses (permits) to authorize individual transactions with the Designated Persons as an exception from the sanctions regime.

Although now the list of the Designated Persons seems to focus on the companies formerly associated with Gazprom, this list may be extended further. 

We will keep you informed on the relevant developments in due course.

03.05.2022 — Russian Government to Adopt Counter-Sanctions against Certain Foreign Companies

On 03 May 2022, Russian President signed Decree No. 252 (the “Decree”) introducing framework regulations on new Russian counter-sanctions. The Decree does not provide for a specific list of persons targeted by the counter-sanctions (the “Designated Persons”), which is to be adopted by the Russian Government via implementing regulations by mid-May. The Decree does not purport to target persons other than the Designated Persons. However, the Decree imposes restrictions on dealing with the Designated Persons, which may affect Russian companies and Russian branches and subsidiaries of foreign companies.

As of now, in the absence of implementing regulations, the Decree does not by itself lead to new restrictions. However, once the list of the Designated Persons is released, their legal status in Russia will be roughly similar to the restrictions applicable to persons targeted by EU or US sanctions. In particular, Russian individuals, entities and federal, regional and municipal authorities (the “Russian Persons”) will be subject to the following obligations:

  • not to enter into transactions with the Designated Persons and persons controlled by the Designated Persons; 
  • not to fulfill existing obligations vis-à-vis the Designated Persons even if required by existing contracts; 
  • not to perform financial transactions benefitting the Designated Persons; 
  • not to export products or raw materials produced in Russia for the benefit of the Designated Persons or in favor of third parties on behalf of the Designated Persons. 

Importantly, it appears that Russian branches and subsidiaries of foreign companies will also be treated as the Russian Persons and therefore bound to comply with the Decree when dealing with the Designated Persons. Therefore, after the list of Designated Persons is released, we advise to review existing contracts and dealings and carefully consider further steps via legal advice.

We will keep you informed on the relevant developments in due course.

29.03.2022 — Parallel Import of Certain Goods Became Lawful in Russia

The Russian Government adopted Decree No. 506 (the “Decree”) on 29 March 2022, which allows the import of certain high-demand authentic foreign goods into Russia without the consent of the IP rights holders.

Articles 1359(6) and 1487 of the Russian Civil Code will not apply to such goods. According to these Articles, foreign goods are not considered counterfeit only if they were introduced into the stream of commerce in the Russian Federation by the IP rights holder or with the IP rights holder’s consent (this is known as the national exhaustion regime). Now, for select goods it will be sufficient that the IP rights holder authorized their sale abroad, regardless of whether it has consented to their subsequent importation into Russia (this is known as the international exhaustion regime).

The main aim of the Decree is to ensure the domestic availability of high-demand goods despite the foreign sanctions against Russia. The Russian Ministry of Industry and Trade will approve the special list of such goods on the basis of proposals of the federal agencies.

The Russian Government has also announced that all customs and import сontrol procedures will be carried out as usual in respect of such specifically designated goods. Additionally, according to the official position, such goods will be subject to warranty maintenance.

06.03.2022 — New Requirements for Approval of Certain Transactions with Foreign Parties

Please be informed that on 06 March 2022 the Russian Government has issued Decree No. 295  (the “Decree”) which temporarily requires prior approval of certain transactions of Russian persons and entities, including Russian subsidiaries of foreign companies  (“Russian Parties”), with foreign persons and entities (“Foreign Parties”).

However, contrary to a number of inaccurate media reports, the Decree purportedly extends only to particular types of transactions, which are primarily financial in nature (the “Covered Transactions”), rather than to all transactions with Foreign Parties. The Decree is declared to be aimed at stabilizing the Russian financial system and should therefore not interfere with normal business operations such as the ordinary trade in works, services or goods. We elaborate on the details below.

The Decree draws a distinction between (i) Foreign Parties that are associated with countries that enacted sanctions against Russia such as EU, UK, Canada and the US (the “Covered States”), and (ii) other Foreign Parties:

1.           For Foreign Parties associated with the Covered States (“Parties from Covered States”), prior governmental approval is now required (i) for Russian Parties to extend loans to Parties from Covered States, and (ii) to enter into transactions dealing with title to securities and real estate. Please note that Parties from Covered States are defined broadly and include (i) persons with citizenship of a Covered State, (ii) entities with a place of incorporation, center of business activities or business profits in a Covered State, and (iii) their subsidiaries and controlled persons even if they are not incorporated or domiciled in a Covered State (please note that this may be interpreted to cover Russian entities affiliated with Parties from Covered States).

2.           With regard to other Foreign Parties that are not associated with Covered States, only the following transactions require prior approval of the Russian Government:

  • foreign currency loans (but not loans in Russian Ruble) provided by Russian Parties to such Foreign Parties;
  • transactions dealing with securities or real estate purchased from Parties from Covered States after 22 February 2022.

3.           In addition, all Russian Parties will now need prior governmental approval to transfer foreign currency to their own accounts in foreign banks or other financial institutions, and to use foreign payment processing without opening bank accounts.

The Decree declares its temporary nature and is aimed at stabilizing the Russian financial market in light of sanctions. It therefore does not appear to be aimed at service agreements, works contracts, sales contracts and similar business transactions, unless they also involve one of the Covered Transactions, such as a loan.

However, please note that it is not entirely clear whether the notion of a ‘loan’ would be interpreted narrowly as a financial service or more broadly (which may then include even advance payments pending supply of goods). We expect further clarifications on this matter to follow.

Please also note that as the Decree appears to have been hastily adopted, it may be revised from time to time and/or its interpretation may be evolving. Therefore, we recommend to obtain legal advice with regard to particular decisions to be taken in light of the Decree.

We will be glad to offer our advice on any of the regulatory measures being taken – often on an emergency basis – by the Russian authorities. Particular areas to stay on the alert for include, for example, (i) currency control measures, (ii) import/export regulations, (iii) the legal environment for businesses with foreign involvement.

Should you have any questions, please do not hesitate to contact us.