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Recent Developments in Software Regulation in Russia

Recent Developments in Software Regulation in Russia

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During the past several months, one of the most debated and discussed issues in the Russian IT legal community has been last year’s declaration of “import substitution” – the requirement that software included in the Register of Russian Software be used in all state or municipal procurement procedures – by the Russian Government.

Although the first software was only introduced into the Register of Russian Software in February 2016,  it has already grown to 980 programs. Software listed in the register is recognized as originating in Russia. 

Inclusion in the Register of Russian Software primarily qualifies the software for participation in state or municipal procurement procedures, since foreign software may not be purchased by Russian state/municipal authorities. There are only a few exceptions from this general prohibition:

  • If there is no software of the appropriate class that is to be procured by the state/municipal authorities in the Register of Russian Software.
  • If there is software of the appropriate class in the Register of Russian Software, but this software does not meet the functional, technical, and (or) operational characteristics set forward by the customer.
  • If the exclusive right to the software to be purchased belongs to a Russian legal entity, and the information on this software and (or) on the procurement thereof constitutes a state secret. 

The principal criteria for software to be included in the Register are:

  • The worldwide exclusive rights to the software throughout the entire effective term of the exclusive rights shall belong to: (i) a commercial entity controlled by Russian citizen(s) (through owning more than 50% of its shares); or (ii) a Russian citizen (a so-called “Russian Vendor”);
  • The software has been lawfully released into circulation in Russia;
  • The total amount of royalty and similar payments under agreements concerning the software payable to a foreign entity or entities controlled by a foreign entity shall be less than 30% of the Russian Vendor’s total proceeds from the sale of the software for a given year; and
  • Information on the software does not constitute a state secret, nor does the software contain such information; software containing data-protection functionality has the appropriate certificate of conformance, and the copyright owner has a valid license to engage in such activity.

In connection with the import substitution, many foreign companies are now becoming more and more interested in localizing their software for the purposes of having it included in the register. In this regard it is important to note that such localization may be reached, for example, through modification of the software by Russian partners of foreign vendors. 

In this context, modification means reworking the software source code, but not changing the software settings or anything similar. A modification of the software leads to creation of a new product on the basis of the existing one and according to Russian law the author of the new, modified software has rights to it. 

Russian law is silent on what scope of modification is enough for the new software to be created, and the definition of “modification” is rather broad and uncertain, but there is a general approach in law and court practice that can be helpful. In particular, any modification (even a minor one) may bring forth a new product if this modification adds an element of novelty to the software. In other words, any level of reworking might be sufficient if this reworking is creative (i.e. not performed automatically) and introduces new and original features to the original software. Nevertheless, the question of what “novelty” is, as applied to software, is a technical one, and it must be considered on a case-by-case basis depending on the technical features of each particular software product.

In any case, Russian law does not treat adaptation changes–meaning any changes made exclusively with the aim of allowing the software to function on a user’s IT infrastructure–as a modification. 

Thus, new challenges of import substitution call for new creative and legally valid approaches from foreign companies and, in this sense, provide additional work for Russian IT lawyers. 

By Victor Naumov, Managing Partner, and Aygul Zhumanova, Associate, Dentons, St. Petersburg

This Article was originally published in Issue 3.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.