Idea!When most executives consider conducting knowledge-based business in Russia, the protection of intellectual property (IP) rights usually top their list of concerns. IP ownership, infringement issues, and piracy are of vital concern and must be scrupulously and judiciously addressed to avoid expensive and potentially damaging consequences.

One method of dealing with these issues in Russia has been to try and avoid them altogether by opening captive R&D centers so as to protect proprietary processes and other legally enforceable IP.

Speaking of his company’s policy regarding IP protection, Igor Kaloshin, SSG Operations Director with Intel Russia said, “The protection of business information is a key factor [in our decision to set up an R&D center]. Intellectual property and core expertise are the two key milestones. Work that isn’t at the core of a project is possible to outsource. But if it is a compiler or architecture optimization, they aren’t normally outsourced for the simple reason of IP protection and because of the fact that all those things are core competencies for the company.” Grigoriy Labzovsky, Director of Oracle’s St. Petersburg Development Center, added, “Company policy is not to reveal its IP (intellectual property) to anyone, so the source code is top secret.”

While R&D structures may provide some measure of security by limiting the number of people with access to proprietary information, it is, in many cases, not significantly more secure than complete outsourcing. After all, employees do leave positions and take the knowledge of potential security measures or vulnerabilities with them to any new posting and the legality of employee confidentiality agreements are not generally recognized in Russia. Thus the expenses involved in setting up an R&D center should be considered carefully if the main reason for this approach is to safeguard IP as there may be better, more cost effective legal deterrents available, e.g. NDAs, confidentiality agreements, the threat of lawsuits, etc.

Anecdotal evidence suggests that most IP theft is done by insiders rather than outside contractors or outsourcers. The Carnegie Mellon Software Engineering Institute states that, “Our database reveals that many insiders who stole confidential or sensitive (unclassified) information exfiltrated data from their organization using email. Most of these insiders stole the information within 30 days of their departure date from the organization.”

Outsourcing service providers, for example, depend on long-term contracts and repeat business for their livelihood. It is therefore in their interest to follow best practices in all areas of the business including IP laws. Russia has a vested interest in becoming a respected global service provider and this desire to grow their business is perhaps the most important deterrent to IP malfeasance. Where copyright law can often be arbitrarily or confusingly applied, a businesses’ self-interest will always provide a more secure way of protecting IP than government legislation ever could.

“The IP of customers who use Russian outsourcing providers is safe—I do not know any major reported IP violation issues for Russian providers”, said Vyacheslav Vanyulin, CEO of Auriga. “We have worked with several large companies, like IBM, who are very concerned with IP protection, and we have not had any issues related to bad IP protection in Russia.”

Russia is also a signatory to major international IP harmonization conventions such as the WIPO treaties, which include Universal Copyright Convention, the Berne and Paris Conventions, and the Patent Cooperation Treaty. Russian law also provides express statutory protection for patents, copyright, and trademarks.

It is worth noting that Russia is one of the few countries whose legislation on intellectual property is reduced to a single code, which is not the case for most other countries. In Russia, all of the basic legislation governing IP protection is codified in the fourth part of the country’s Civil Code, which came into effective on Jan. 1 2008.

The codification of legislation in the field of intellectual property is a very important step towards improving the rule of law in this area. Adoption of Part Four of the Civil Code is largely consistent with objectives to achieve compliance with international law and is more in harmony with European standards in this area than previous versions of the Code.

According to the Code, in cases involving the infringement of the exclusive rights to a product, the rights holder has the power to demand payment of compensation up to five million rubles.

The country’s Code of Administrative Offenses also includes liability for breach of copyright and its related rights and patents, and the illegal use of trademarks. But in such cases the maximum fine is limited to the more modest figure of 40,000 rubles.

As a result, in addition to choosing a partner carefully based on the past experience of peers, foreign IP owners should plan to rely instead on thorough, carefully negotiated contracts and through the registration of patents, utility models, and trademarks.

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