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.