Common Misconceptions on Contracting with Developers in Russia and Tips for Contract Review and Negotiation

Morgan Lewis - Tech & Sourcing
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Morgan Lewis - Tech & Sourcing

There are often misconceptions in connection with negotiating intellectual property (IP) development agreements with developers located in Russia. This post details five common misconceptions and provides tips for complying with applicable laws in connection with such agreements.

MISCONCEPTION #1: Personal data of Russian citizens must be always stored in Russia and cannot be transferred.

FALSE

Personal data of Russian citizens must initially be collected in local databases, but then can be copied to any other database. Such copying would be considered a “cross-border transfer,” but cross-border transfers of data, including transfers to both foreign entities and databases, are allowed under Russian law.

Tip: Cross-border transfers are subject to compliance with the requirements of the Russian Personal Data Law, which include, among other requirements, (1) legal ground for transfer (an individual’s consent or other) and (2) data transfer agreements or data processing agreements, even in intra-group transfers.

MISCONCEPTION #2: Any contract with Russian developers must be governed by Russian law.

FALSE

If the transaction includes a so-called “foreign element” (e.g., a foreign entity, a piece of foreign IP embedded in the software), then the agreement may be governed by foreign law at the parties’ discretion. English or US law, with customary protections and liability provisions, is often used for complex technology development projects with Russian developers.

Tip: You will still need to comply with mandatory Russian law requirements applicable to the agreements that are governed by foreign law.

Tip: Prepare agreements in a bilingual (English-Russian) format.

MISCONCEPTION #3: Russian developers cannot assign IP rights, and such rights vest with the developers forever.

PARTIALLY TRUE

The Russian Civil Code does not allow the assignment of moral rights, and any waiver of moral rights is unenforceable. However, other IP rights—and most importantly, proprietary (exclusive) rights—are fully assignable.

Tip: An agreement with a Russian developer may allow the assignee to use the created IP without mentioning the developer’s (author’s) name.

Tip: Always review the underlying employment agreements to confirm the Russian equivalent of the “work for hire” concept is included.

MISCONCEPTION #4: Development of any technology in Russia requires obtaining an encryption license from the Federal Security Service.

PARTIALLY TRUE

Certain activities require a state license (e.g., development and manufacture of software that has embedded encryption). However, if the technology will use a third-party encryption tool or a third-party encrypted communication channel, a state license is not required.

Tip: Export control restrictions apply to the transfer of certain types of technologies. Such restrictions include the requirement to obtain a qualification certificate from the Federal Service for Technical and Export Control (FSTEK).

MISCONCEPTION #5: Russia, Belarus, and Ukraine have the same laws.

FALSE

Though their treatment of IP rights and technology may be similar in certain instances, Russia, Belarus, and Ukraine are different jurisdictions and have laws and regulations that differ significantly.

Tip: Always consider engagement of local counsel to advise on relevant local laws and regulations.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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