SOFTWARE DEVELOPMENT IN RUSSIA: KEY LEGAL ISSUES

Transcription

1 SOFTWARE DEVELOPMENT IN RUSSIA: KEY LEGAL ISSUES presenters Brian Zimbler Anastasia Dergacheva May 31, Morgan, Lewis & Bockius LLP

2 Summary Commercial Background Employment Law Intellectual Property Regulatory Issues Concluding Comments 2

3 SECTION 1 COMMERCIAL BACKGROUND

4 Commercial Background Russian R&D and outsourcing companies are included in top global rankings Total Russian IT spending: estimated US$26B for 2016 Domestic software market: estimated US$3B, with 75% imports Growing trend for local procurement due to sanctions, FX rate Russian software exports: estimated over US$7B 120,000 Russia software developers Key locations Moscow, St. Petersburg, Novosibirsk, Nizhny Novgorod, Kazan, etc. 4

5 SECTION 2 EMPLOYMENT LAW ISSUES

6 Employees vs. Independent Contractors: general Key distinction between employees and independent contractors: civil law versus labor law Russian employment laws are very employee-oriented Rules for independent contractors are more flexible, but not always available for long-term relationships Different treatment of IP rights in the work product Compensation issues 6

7 Employees vs. Independent Contractors: IP rights Generally, employers own IP rights to work product created during course of employment Employee right to reclaim the IP if not used within 3 years (Article 1295 of the Russian Civil Code) Customers own IP rights in the commissioned works (roughly equivalent to work for hire ) Independent contractors own the IP created by their efforts in the course of the works (but not specifically commissioned by the customer), unless agreed otherwise 7

8 Key Employment Issues for Software Programmers Term of Employment: Indefinite or Fixed-Term (only for certain circumstances) Fixed-Term available for concrete assignments requiring a set period of time Indefinite Employees: after a Trial Period (up to 3 months), termination only possible based on certain legal grounds Mandatory vacation, sick days, other benefits Health and safety rules 8

9 Key Issues for Independent Contractors Risk of claims from the contractors for alleged employment - No bright line tests to distinguish from employees - Generally, should not work full-time in fixed place of business Moonlighting issues when contractors have other IP-related employment or clients Substantial paperwork in case of monthly payments 9

10 Employees vs. Independent Contractors: Tax Treatment Employees: payroll tax up to 34% for medical, social security, pension payments (employer is responsible) personal income tax 13% (employer is responsible for withholding) Independent Contractors: payroll tax, personal income tax OR possible registration as independent entrepreneur: lower payroll taxes, choice of 13% tax on net income, or simplified tax of 6% on gross income or 15% on net income individual responsible for payroll taxes and personal income tax 10

11 SECTION 3 INTELLECTUAL PROPERTY

12 Legal Framework Russia belongs to the major international IP treaties: - Berne Convention, WIPO Copyright Treaty - Patent Treaties, Paris Convention, etc. - Singapore Trademark Treaty, Madrid Protocol Russia joined World Trade Organization (WTO) in 2012; numerous measures enacted in compliance with Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Increasing focus on IP protection for international companies 12

13 IP Rights in Software Russian law protects intellectual property and programmer work product; copyright law in Part IV of Civil Code Separate regimes for copyrights, patents, and commercial secrets (trade secrets) Optional registration of software and databases with Rospatent (Article 1262 of Civil Code); creates presumption of ownership; but requires subsequent licenses to be registered 13

14 IP Disputes in Russia Dispute resolution procedures for IP protection: - New Intellectual Property Court (only certain types of disputes) - Russian Commercial Courts - Rospatent Chamber for IP Disputes Key elements of Russian court proceedings: - Relatively quick; 2-3 months for first round - Civil law system - Formalistic approach to evidence 14

15 Ownership of Programmer Work Product Automatic for - employees acting within scope of employment - independent contractors commissioned to create the work product Requires separate assignment for: - employees acting outside of the scope of employment - independent contractors where the work product is a by-product Careful documentation of job descriptions, specific assignments and resulting work product is strongly recommended 15

16 Compensation for creation and assignment of IP Important to establish compensation allocated to IP work product For employees, regulated by the employment contract and/or additional compensation agreement May be a portion of salary or separate bonus/other benefits For independent contractors, determined by contract Unclear area in Russian law; but risks may arise if this issue is ignored 16

17 Software Created By Third Party: general License or assignment from Russian R&D Company or individual programmers Due diligence recommended (chain of title, potential claims of third parties) Compliance issues: onshore payment Currency issues: FX rates, transaction passport 17

18 Software Created By Third Party: contracts License under Russian law : - is valid for 5 years and covers all of Russian territory unless otherwise specified in contract (Article 1235 of the Civil Code) IP rights assignment under Russian law: - must be for consideration stated in the contract (Article 1235 of the Civil Code), same applies to exclusive worldwide perpetual license between for-profit entities 18

19 Software Created By Third Party: tax Currently certain software licenses and transfers are exempt from 18% VAT: - Article 149 (2) (26) of the Tax Code; - Letter no /44 issued by Ministry of Finance on April 1, 2008 A draft law (adopted in first hearing) proposes to revoke the exemption In return, the draft law would also exempt certain exports of IT services from VAT, and provide a new super-deduction for certain IT-related costs incurred in Russia. 19

20 SECTION 4 REGULATORY ISSUES

21 Regulatory Issues - Documentation Written agreements Bilingual documents: recommended but not required Choice of Russian or foreign law: foreign law, generally, not available for contracts between Russian entities Choice of dispute resolution: international arbitration is a frequent choice 21

22 Structuring R&D Team in Russia Branch versus subsidiary, license or other contracts with foreign affiliates Tax treatment of local presence: 20% corporate tax, 18% VAT (where applicable) Simplified Tax System (STS): exemption from profits tax, VAT and certain other tax and accounting requirements for certain small companies (Chapter 26.2 of the Tax Code) 22

23 Encryption Licensing Product licensing: required for import: Simplified import procedure available for some products Transfer of products to Russia via the Internet? R&D, sales and maintenance activities involving strong encryption : License to development software involving strong encryption License to maintain my own equipment? License to provide services using equipment with strong encryption? Licenses issued by Federal Security Service 23

24 Trade Sanctions US, EU and other countries adopted trade sanctions and visa bans in response to Ukraine and Crimea crisis US and EU persons must comply To date, limited number of individuals and companies in Russia are sanctioned ( SDN blacklist) Companies owned or controlled by listed persons are also covered; so due diligence required U.S. Government blocks licenses for certain exports to Russia (e.g. technology) Russian restrictions on procurement of foreign software 24

25 Takeaways 25

26 Our Team Anastasia Dergacheva Associate Moscow tel Anastasia Dergacheva advises on a wide range of intellectual property (IP), corporate, regulatory and commercial matters. She works with international and Russian clients who are involved in industrial manufacturing, software and technology development, and media and entertainment. She advises on trademark, copyright and related IP licensing transactions and disputes in a wide variety of sectors, including software and hardware, industrial manufacturing, and entertainment. 26

27 Our Team Brian Zimbler Partner Moscow London tel Brian Zimbler advises on cross-border investment and financial matters, including substantial involvement in the technology, manufacturing, retail, media and entertainment sectors. He has more than 25 years of experience with Russia, Kazakhstan, and other countries of the former Soviet Union, and has advised on some of the largest transactions in the region during this time. Mr. Zimbler has advised international technology companies on establishing and operating R&D teams in Russia; multinational manufacturers on acquiring and licensing Russian technology and IP rights; international companies on franchising, distribution and retail networks in Russia; and both international and Russian clients on IP infringement, anti-piracy measures, and disputes over IP rights and technology. 27

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