On May 27, 2022, the Russian President signed the Decree imposing a requirement to make payments under agreements for using exclusive rights in favor of foreign rightholders from non-friendly states, as well as a number of Russian rightholders, including those supporting sanctions, only through a special ruble account opened in an authorized bank.

Foreign and certain Russian rightholders, as well as entities having agreements for using exclusive rights to intellectual property (IP) need to be aware of the provisions of this Decree (see details below) and how to make payments under such agreements through a special procedure.

Let’s have a look at the newly introduced procedure for such payments.

The Decree applies to IP-related agreements providing for remuneration with the following rightholders:

• Foreign entity related to a non-friendly state (except for entities controlled by Russian legal entities or individuals, provided that information on such control is disclosed);
• Entity that publicly supported the implementation of sanctions against the Russian Federation;
• Entity that banned the use of intellectual property or terminated, suspended or substantially restricted their business on the territory of the Russian Federation due to the implementation of sanctions or by other reasons not pertaining to economic expediency;
• Entity that performed public actions aimed at discrediting the Armed Forces of the Russian Federation;
• Entity that disseminated on the Internet information in an indecent form disparaging human dignity and public morals, obvious disrespect for the society and the state.

Therefore, the Decree applies to settlements under an agreement not only with foreign rightholders, but also with Russian ones, if they meet at least one of the above criteria. It should be noted that pursuant to the Decree, debtors must monitor the media for information on whether the rightholder falls into one of the said categories, and if they believe it does, initiate a special payment procedure.

There is NO need to worry about the new payment procedure under IP-related agreements, if:

• The IP-related agreement is necessary for import to the territory of the Russian Federation and/or manufacture on the territory of the Russian Federation of drugs, medical goods, industrial and agricultural products, food products, for rendering communication services and services on the passage of traffic, for creating and using on the territory of the Russian Federation of software for computers, databases, information systems and data processing centers;
• IP is used by an individual being a Russian resident for personal needs (not tied to business activity) and the amount of payment does not exceed RUB 100,000;
• Foreign rightholder related to a non-friendly state nevertheless duly fulfills their obligations under existing agreements.

In all other cases of IP-related agreements with one of the said entities, from now on the remuneration is to be paid in the following manner:

• A debtor must open a special O-type ruble account in an authorized bank (to be determined by the Russian Government) in the name of the rightholder.
• Payments under agreements with the rightholders specified above, as well as payments related to the implementation and protection of intellectual property rights, penalties and other financial sanctions against such rightholders are to be made to the specified account.
• A special O-type account can be opened in the absence of the rightholder. However, open only one such account can be opened, of which other debtors intending to open such an account, must be informed.
• If the bank has reliable contact details of the rightholder, it must notify the rightholder that the account is opened in their name, and thereafter, if requested, the rightholder must inform other debtors of the details of such an account.
• If the righholder must enter into agreements with any applying entity, they are obliged to publish the details of the account opened in their name on their web site.
• The rightholder may give a debtor written consent to make payments to the special account opened, and the debtor is entitled to suspend payment until such consent is received (the payment will not be deemed overdue). Regardless of whether the rightholder has given written consent, the fact that the debtor has made payment to the special account is deemed proper fulfillment of obligations by the debtor.
• If the debtor duly fulfills the requirements of the Decree, it retains the right to use IP on the previously applicable terms and conditions.
• In case of remuneration in a foreign currency, the obligation to pay it will be deemed duly fulfilled if the amount of payment made to the special account in rubles is equivalent to the value of obligations calculated at the exchange rate set as of the date of the relevant payment.

The rightholder and the debtor are entitled to apply to the Government Commission for Supervision over Foreign Investments in the Russian Federation for a permit to transfer monies from the special account to another account of the rightholder. Writing off monies from the special account without such permit is not allowed. At this point, such a procedure raises many concerns. It is unclear how this will work in practice. It seems it will cause a slew of problems.

For now, we recommend the following:

To licensees (and other debtors)

• Check whether you have agreements with rightholders that may fall into one of the broadly defined categories listed above;
• Monitor the media for information on whether the rightholder with whom you have an agreement might fall into one of the said categories;
• Carefully read the provisions of the Decree in order to understand how to fulfill obligations under IP‑related agreements;
• Contact the rightholder in order to discuss the new payment procedure and further actions;
• Initiate opening a special account in a bank (which will be determined a bit later) or get information about an already opened account;
• When the account is opened, request written consent from the rightholder to transfer monies to the specified account;

To rightholders

• Check whether you may fall into one of the said categories of rightholders (note: this does not necessarily mean being a foreign entity);
• Provide the designated bank with contact details in order to be informed of the account being opened in your name;
• Contact licensees in order to discuss the new payment procedure and further actions;
• If you do not yet fall into one of the said categories of rightholders, but there is such a risk, contact licensees in order to discuss necessary actions in the event the media publish information attributing them to one of the categories of rightholders;
• As an alternative: consider options for transferring a part of intangible assets to another Russian legal entity that cannot be attributed to one of the said categories of rightholders.