President Decree #322 “On temporary process of monetary obligation performance between right holders”
A President Decree was signed which orders local licensees to pay remuneration to right holders in Russian rubles.
This includes:
- Right holders who reside from “unfriendly” countries (those imposing sanctions on Russia) or whose primary place of business is located in such countries (including countries which support sanctions against Russia);
- Right holders who publicly supported political or economic sanctions against Russia, Russian citizens or entities;
- Right holders who restricted access to their content, or product distribution, or services after February 23, 2022 in Russia;
- Right holders who publicly discredited actions of Russian army outside Russia
- Right holders who disseminated obscene, humiliating, insulting information, hate speech towards Russia, its laws (Constitution in particular) and government authorities.
Licensees should open a special bank account where royalties and any other remuneration stipulated under license agreements should be transferred in rubles.
The Decree excludes:
- Remuneration payments which do not exceed 100 000 RUB (or equivocal sum in currency paid by individuals – residents for private non-commercial use);
- IP objects necessary to produce or import the medical treatment, industrial or agricultural products, or telecom services (including Internet), software or databases, data processing centers and information systems.
Please note that following:
- Any type of IP works is covered by this Decree, including copyright, trademark, and patents.
- The Decree is a temporary measure; however, we are not aware about the precise term.
- The Decree covers all right holders regardless of their place of residence (national right holders including potentially).
- Not only royalties but any other type of remuneration (e.g. fines for the breach of contract) stipulated under the agreement shall be transferred via the special bank account.
- Paragraph 4 of the Decree points to license agreement, sublicenses, collective management societies agreement, franchising agreements, the list is non-exhaustive).
- Special bank account is a binding obligatory rule, no alternatives provided under the law.
- Debtor (licensee) shall open a special bank account (even without right holder’s representative present).
- The debtor should transfer funds to the special bank account if he is aware about Paragraph 1 from public sources such as government websites and mass media. Moreover, such circumstances can be described anywhere and in any way, (even mentioned abruptly).
- Banks will be appointed shortly (in 10 days).
- Funds can be discharged from the account only upon applying to government committee for foreign investment control.
- At the moment the liability for disobedience has not been stipulated under the Decree.
- The Central Bank is authorized to provide clarifications about the bank account opening process and its maintenance (including money withdrawal).
- Within 10 days another government authority should be appointed to provide more clarifications.
Several ambiguities:
- Formally, the Decree applies to right holders which are defined as original authors (creators) under Article 1229 of the Russian Civil Code. This means that if publishers, distributers and record labels exploit the content catalogue under a license agreement, they may not fall under the scope of the decree (however, this question depends on further interpretation of the term “right holder”).
- Claim rights can be transferred as part of an assignment (cession) to a party that does not fall under the decree in case the risk of opening this account is high.
- Sublicense rights to a third party.
- Communicate and reorganize the process of royalty collection with licensees to avoid opening the bank account.
Further you can find answers for the most common questions as to Decree #322.
Is it correct that the presidential decree would supercede any contractual provisions related to royalty payments (e.g., if a Russian licensee of a relevant IP owner had agreed to make payments in another currency (US Dollar / British Pounds / Euros)), those provisions would be disregarded, and the licensee would be required to make the relevant payments into a separate account in Rubles instead?
Answer: Yes, according to the text of this decree, such provisions will be disregarded. This means that the Decree supersedes any contractual remuneration provision in currencies other than RUB, even if such provision is explicitly mandatory.
However, as of now it is unclear if any liability for payments in other currencies occurs. Specific details about how this special bank account will be regulated should be introduced soon.
Please note that some local banks have recently denied licensees to transfer due royalty payments to right holders based on new rules, but it may be because banks want to be on the safe and avoid responsibility for determining due obligation performance under license agreements.
Can you provide some insight as to the government's reasoning behind the decree (assuming it's tied to sanctions/restrictions on international banking / providing for some currency stability, but just wanted to confirm that that's the case)?
Answer: Genuinely, the true reason for introducing this decree is unknown. It is highly possible that the decree was lobbied by a very private group of licensees exploiting foreign IP rights which are under sanctions (including secondary sanctions).
Another assumption of some of business stakeholders is that the new regulation aims at securing local licensees from payment breaches or failures in the event of international banking restrictions.
In addition, the text of the decree also suggests that it is a temporary measure.
Will (and how would) the licensors / IP owners ultimately be able to access the funds deposited in the special accounts?
Answer: Yes, they will. A step-by-step process is yet to be determined by the Government of Russian Federation and the Ministry of Economic Development. According to the decree, to access funds the right holder or its representative can submit an application to the Government Commission of the Foreign Investment Control to obtain permission to transfer funds to his own bank account (including one opened with a bank located outside Russia). However, the final decision of the Commission may entail specific conditions for such transfer, if necessary.
Is there a formal list of international companies / IP owners who would be subjected to this process (the language in the decree appears very broad)?
Answer: At the moment no detailed and specific list of right holders subject to this decree has been adopted so far. Indeed, the interpretation is quite broad and any right holder can qualify.
It is important to note that the list is exhaustive, and there are certain exceptions provided as well. For instance, right holders – residents of “unfriendly” states, who have not suspended contracts in Russia and continue to comply with their contractual obligations are not obliged to receive remuneration via special bank account. Excluded from the process are contracts which do not exceed 100 000 RUB (i.e. 1500 USD), payments for private non-commercial use) as well as IP objects necessary to produce or import the medical treatments, industrial or agricultural products, telecom services, software and databases, data processing centers and information systems.
