OVERVIEW: In the year since the fall of Communism, Russia has revised its patent, trademark and computer software law to meet generally-accepted international standards. Copyright and trade secret legislation still falls short of international standards, but should be revised by 1994. Companies selling or developing technology in Russia need to comply with the registration formalities of Russian legislation or risk losing their parent and trademark rights. Furthermore, they must ensure that all their Russian employees sign written contracts assigning intellectual property rights and agreeing to respect trade secrets. With its great natural resources, wealth of scientific talent, and improving legislation, Russia is promising, both as a market for and a source of new technology.
No country has the combination of large numbers of brilliant scientists and low salaries that Russia has today. This combination makes attractive the idea of investing in high-technology projects in Russia, where a large research team and its laboratory can be hired for the price of a single researcher in the United States, Germany or Japan. Although coordination of efforts at a distance is a problem, most Russian scientists know English and have access to quick and reliable electronic mail communication.
Russia also can be a major market for advanced technology. Despite current economic difficulties, it remains one of the world's largest producers of industrial goods. Companies developing new technologies must take steps now to protect that technology under Russian intellectual property law or risk losing the Russian market to competitors.
Companies considering starting advanced technology projects in Russia, or marketing their technology there, are probably aware that Soviet law, as it existed in the late 1980s, did not provide adequate protection for intellectual property. Some types of intellectual property were not protected at all (e.g., computer programs, trade secrets), or were protected at too low a level to provide necessary incentives (inventions, copyrightable works). Major improvements were made in Soviet intellectual property law in 1991, but the law still fell short of world standards.
When Russia attained full sovereignty with the dissolution of the Soviet Union, intellectual property protection unexpectedly achieved high priority among law-making activities. Intellectual property legislation was a key element of plans for transition to a market economy. Furthermore, by moving to world standards of intellectual property protection, Russia could show its good faith to prospective international trading partners.
Legislation recently adopted by Russia's Parliament will, on paper at least, bring Russia up fully to international standards of protection of patents, computer software, computer chip designs, and trademarks. However, to take full advantage of this legislation, foreign business partners will need to comply with the formalities of Russian law and to negotiate appropriate contracts with their Russian partners.
The following discussion considers six areas of intellectual property law: Patent law; protection of integrated circuit designs; protection of computer programs and databases; trademark law; copyright law; trade secret law. Legislation to modernize the first four of these areas was passed in the spring of 1992, but was vetoed by President Yeltsin on the basis of technical objections. (The laws failed to take into account the rights of the constituent units within the Russian Federation.) Parliament amended the legislation to meet President Yeltsin's objections and passed it again in September 1992. Modernization of copyright and trade secret law is on the legislative agenda, but will probably not occur until sometime in 1993 or 1994.
CHANGES IN PATENT LAW
The new patent legislation introduces two important changes in patent law. First, it expands the coverage of patent law to cover such important areas as pharmaceuticals and products of genetic engineering. Second, it allows employers and employees to contract freely as to ownership of inventions made in the course of employment.
As readers are probably aware, a patent provides protection only in the country where it is issued. Thus, a U.S. company wishing to have its inventions protected in Russia as well as the U.S. will need to apply for a Russian patent as well as for a U.S. patent. Previously all foreign patent applicants in Russia had to hire a single monopolistic organization to represent them. New regulations allow private patent agents to practice in Russia; some of the most experienced Russian patent experts have now set up offices in Moscow and are competing to offer their services to foreign clients.
Companies sponsoring research projects in Russia will also have to develop contractual arrangements to protect their patent rights. Russian law, like U.S. law, gives most invention rights to the actual inventor, not the employer, in the case of inventions made in the course of employment. In Russia, as in the U.S., it therefore is important to have a written contract governing patent rights signed by every employee engaged in research. Luckily, the new Russian legislation validates such contracts, in contrast to previous legislation that restricted assignment of patent rights by employees.
In addition, if research is done in partnership with a Russian company, there should be a written contract governing how rights to inventions will be shared by the Russian and foreign partners. Foreign companies may wish to include clauses in the contracts providing for arbitration of disputes in some respected international arbitration tribunal, so as to avoid the uncertainties of the infant Russian system of commercial courts.
ICs, COMPUTERS AND SOFTWARE
Another new law protects integrated circuit designs. Like the similar U.S. law, it prohibits outright photoreproduction, but allows reverse engineering. As with patent law, foreign companies will need to comply with registration formalities and to be sure that employee-employer relations are covered by appropriate contracts.
The new law on protection of computer programs and data bases provides strong, copyright-like protection in an area where previously there had been no protection at all. Nearly every personal computer in Russia is supplied with a liberal assortment of unauthorized copies of the best American software. The new law makes all this software illegal except that it provides a grace period until January 1, 1994 for scientific and educational users.
The big problem is going to be enforcement. The new law will probably stop open advertising and retail store sale of pirated software, but enforcement against users of the existing software will be difficult or impossible. Some software companies plan to allow users of unauthorized copies to "legalize" their situation for a nominal sum. The software companies will thus get address lists of prospective customers for software updates.
As is the case in the U.S., owners of rights in software have the option of registering their software and can thereby obtain additional rights. As with patents, it is important for software developers to obtain contractual arrangements with employed software writers. Unlike the U.S., where the employer owns the copyright in software produced as a "work for hire," such ownership is not automatic under Russian law.
Trademark law is an important protection for advanced technology. The trademark of a company with a record for scientific breakthroughs becomes a major asset. The public will buy new products from this company that they would never dream of buying from an unknown company. Unlike other branches of intellectual property law, trademark protection was adequate even during the Soviet period. The new trademark law fully complies with international practice. Trademark protection, as almost everywhere in the world except the U.S., is based on registration. Foreign companies should therefore register their trademarks if they ever plan to do business in Russia.
COPYRIGHT AND TRADE SECRET LAW
Copyright law reform lags in Russia. Temporarily, Russia is using new Soviet copyright provisions enacted in 1991. These provisions reflect their pre-market origins in serious restrictions on freedom of contract between authors and publishers. Legislation may set minimum compensation and maximum terms of author-publisher contracts. Employed authors of "works for hire" get full rights to exploit the copyright independently (even in competition with their employers!) three years after the creation of a work. Contracts waiving or reducing these rights are void.
Sometime in 1993 or 1994, the Russian Parliament is expected to pass new copyright legislation eliminating these anachronisms. Meanwhile, technology developers can at least be happy that these unfortunate rules do not apply to computer software or data bases, which are protected by 1992 legislation that overrides the copyright law provisions.
Trade secret law reform also lags. Russian law makes a few general mentions of protection of trade secrets, but has no detailed provisions for trade secret protection. Until such provisions are developed--probably by sometime in 1994, it will be important to implement physical security measures, to obtain trade secret protection pledges in contracts with individual employees, and to provide information on a "need to know" basis.
AN EFFORT TO MODERNIZE
In summary, Russia is making a real effort to modernize its intellectual property law. The general acceptance of the principle of intellectual property protection is a sign of good faith that should encourage foreign investors and business partners. Companies investing or marketing in Russia should seek good legal advice on the rapidly changing legal situation. They should be sure to attend to registration formalities and take care to conclude contracts with every Russian employee engaged in research and development work.
Leonid Malkov is deputy general director of Paragraph International, a leading software development firm in Moscow. He was a member of the working group that drafted the text of the law on computer program and database protection recently passed by the Russian Parliament.
Peter Maggs is Corman Professor of Law at the University of Illinois at Urbana-Champaign, where he teaches both intellectual property law and Russian law. He consults on international trade matters for both United States and Russian companies.…