Decree of the President of the Russian Federation dated 20.05.2024 No. 430 ” On the Temporary Procedure for Acquiring Exclusive Rights of Certain Right holders and Delivering on Monetary Obligations towards Certain Foreign Creditors and their Controlled Persons” (“Decree No. 430”) introduces a permit procedure for residents to acquire exclusive rights to the results of intellectual activity and means of individualization from non-resident right holders from unfriendly countries.
Now such transactions can only be made with the permission of the Government Commission for Control over the Implementation of Foreign Investments in the Russian Federation (the Commission), and it is necessary to open a special account of type “O” in the name of the seller, to which payment for such transactions is transferred.
The seller can apply to the Commission with a request to issue permission to transfer money from a special account of type “O” to its regular bank accounts. Until the Commission issues such a permit, it is not possible to manage funds in the type “O” account.
Decree No. 430 has retroactive effect, i.e. it applies to those monetary obligations that existed on the date of its adoption, but have not yet been fulfilled.
The provisions of Decree No. 430 do not apply to transactions the amount of which does not exceed 15 million rubles, as well as to the acquisition of exclusive rights to works of literature, art and science, as well as to the results of performing activities, phonograms, etc.
It is assumed that the main objects to which Decree No. 430 will be applied will be trademarks, production secrets, objects of patent rights, selection achievements – that is, the most common objects of exclusive rights
Some background
The use of a special account type “O” was introduced back in 2022 by the adoption of the Decree of the President of the Russian Federation dated 27 May 2022 No. 322 (“Decree No. 322”), which established that payments to right holders from unfriendly countries related to the USING of intellectual property can only be made to a ruble account of type “O” opened in the name of the Seller in an authorized Russian bank.
Thus, Decree No. 322 applies to payments related to the use of intellectual property (mainly under license agreements), and what concerns the sale of such objects, there were no legislative restrictions previously established, such transactions could be carried out in the usual manner.
The new Decree No. 430 extends strict regulation to transactions related to the acquisition of exclusive rights to the results of intellectual activity from unfriendly right holders, and payments for them.
The Significance of Decree No. 430
In addition to preserving money in the budget and complicating the withdrawal of funds from Russia when selling exclusive rights to the results of intellectual activity to Russian companies, Decree No. 430 is intended to strengthen control and restrictions on freedom of transactions for the acquisition of rights to IP objects by the authorities.
Practice
Strengthening control over the transfer of rights to intellectual property objects is associated with recent high-profile lawsuits related to intellectual property objects, in the center of which was LLC Brewing Company “Baltika”.
Case 1.
Carlsberg’s unilateral refusal of licensing agreements.
In March 2022, Carlsberg decided to leave Russia, and in June 2023, it signed an agreement to sell its Russian business – LLC Brewing Company “Baltika”. However, in July 2023, a decree was signed on the transfer of Baltika to temporary state management, following which Carlsberg announced a unilateral refusal of the license agreement regarding the Carlsberg and Grimbergen brands
In October 2023, LLC Brewing Company “Baltika” filed a lawsuit against Carlsberg Breweries A/S for interim measures regarding the group’s brands, which claim was satisfied on 19 October 2023, by the Arbitration Court of St. Petersburg and the Leningrad Region, as a result of which the Danish company Carlsberg was legally prohibited from depriving the Russian manufacturer of the rights to global brands (Case No. A56-99747/2023).
Case 2
Dispute concerning the Baltika trade brands.
In November 2023, former Baltika President Denis Sherstennikov and its Vice President Anton Rogachevsky were accused of fraud and protecting the interests of the “unfriendly” owner of the Carlsberg Group and attempting to transfer to him the rights to the original brands of the Russian company (Baltika). On 19 July 2023, without the participation of its President Taimuraz Bolloev (who was appointed to this position two days before), on behalf of Carlsberg, they signed agreements on the transfer of rights to the Baltika trademark (which is considered the most valuable asset in the group’s portfolio) to companies affiliated with the Danish holding (Vista BY Co LLC, Carlsberg Kazakhstan LLP, Carlsberg Azerbaijan LLC, etc.), as a result of which Carlsberg structures received for 20 years (with the possibility of automatic renewal for the same period) the rights to the Baltika trademarks in the territory of eight post-Soviet countries and Mongolia.
On 22.01.2024, the Arbitration Court of St. Petersburg and the Leningrad Region satisfied the claim of Baltika Breweries against Carlsberg’s structure – Karlsberg Kazakhstan Limited Liability Partnership (Karlsberg Kazakhstan LLP) to invalidate the transaction to transfer an exclusive license to intellectual property related to Baltika products and brand. /Case A56-100391/2023/.
When the court’s decision comes into legal force, the agreement should cease to be valid, including abroad, but in practice, the decision of the Russian court is not binding in other countries, so the execution of this decision is questionable.
In any case, the adoption of Decree No. 430 is intended to generally strengthen control over transactions with IP objects involving unfriendly countries, with the intention of preventing violations of the legal rights of Russian copyright holders and licensees.
The Rambler media portal /https://finance.rambler.ru/business/51921422-tovarnye-znaki-vnesut-v-osobyy-poryadok-sdelok-s-inostrannymi-aktivami/ cites the opinion of experts that it will now be more difficult for foreign companies to leave the market – they will have to sell rights to intellectual property at a price that is advantageous for a Russian entity, and the number of transactions for the transfer of rights will decrease – the Commission will only approve transactions that are advantageous to Russia.
The effectiveness of Decree No. 430 will be shown by practice, which has not yet been formed, but it is already worth considering the provisions of this Decree when planning and structuring any transactions for the alienation of IP, in which parties from “unfriendly” states participate.