Legal Aspects Of Development Of Software In Russia, Export
BEITEN BURKHARDT
Legal aspects of development of software are connected with certain rules established by Russian Federation legislation, international treaties and agreements. Such rules create the basis for establishment and regulation of relations among developers, customers, users of software and other parties performing their activities in this sphere and also determine the rights and obligations thereof in their relations with the state tax and customs authorities, export control authorities and foreign currency control agents.
I. Software: Main Features
Relations in the sphere of development and use of software are regulated by basic principles associated with specific qualities of software as an object, with which the parties' interests are connected. These principles are reflected in any relations associated with software as well as in taxation and export and import operations.
Software (computer programs) is an intellectual property object. Relations in connection with creation and use of software are regulated by copyright. Consequently:
the rights to software arise by virtue of its creation; no registration or fulfillment of any other formalities is required for commencement and exercise of the rights to software;
the copyright to software is not connected with the ownership right to the material carrier; transfer of the rights to the material carrier does not entail transfer of the rights to software;
the author of software is an individual, as a result of whose creative activities the software was created (legal entities are recognized as the authors in some exceptional cases);
the rights to software are divided into inalienable ones, which, as a rule, cannot be transferred to third parties (personal non-property rights) and alienable ones, which can be freely transferred to third parties (exclusive (property) rights).
It is necessary to take the above principles into consideration when executing any agreements with respect to software. Distribution of the rights between the parties and the possibility of further protection of these rights are regulated by certain conditions set forth in such agreements. For example, acquisition of compact disks containing software does not give any rights to produce and sell copies thereof; the author's personal rights (the right of authorship, the right of name, the right of disclosure, etc.) cannot be transferred, whether on a remuneration basis or not; the scope of rights to software held by a company may vary subject to contents of the agreements between the employees who created the software and the company.
II. Distribution of Rights to Software between the Employee and the Employer
The exclusive right to software created by an employee (author) in the course of employment or under the employer's assignment shall be vested in the employer unless provided otherwise in the agreement between the employer and the employee (author). The employee (author) shall always be entitled to remuneration. The amount of and the procedure for payment of remuneration to the employee (author) shall be determined on the basis of the agreement between the employer and the employee (author).
In the above case, the exclusive right acquired by the company developing software shall include the right to perform or allow performing of the following actions:
- reproduction of the computer program in any form and by any means: production in any material form, transfer to the computer memory;
- distribution: granting access to the computer program through network or otherwise as well as by selling, leasing, etc.
- modification: making any modifications;
- other use: actions related to introduction of the computer program for business use.
The employee (author) shall retain the following personal non-property rights:
- the right of authorship: the right to be recognized as the author of the computer program;
- the right of name: the right to determine the form of the author's name to be indicated in the program (under the author's true name, assumed name or anonymously),
- the right to disclose or permit the disclosure of the program by releasing (making copies of the program available to the public);
- the right of inviolability (integrity): the right to protect the program / its title from any distortion or other infringement prejudicial to the author's honor and dignity.
It should be noted that the exercise by the employee (author) of the author's rights may have a significant impact on the effective exercise by the company of the exclusive rights held thereby. For example, the company shall indicate the author's name in the form as determined by the author and receive the latter's consent to the disclosure of the program. In this regard it is important to have a document determining the procedure for the exercise by the employee (author) of the author's rights.
With regard for the conditions established by legislation for commencement of the employer's rights to software, the employer should pay special attention to execution in writing of the documents determining the employee's employment (official) duties or the employer's assignments related to creation of certain software. Conclusion between the employer and the employee of an agreement setting forth the conditions with respect to creation and use of software or use of software only is recommended due to the following reasons, in particular: (1) as an evidence of appurtenance of the exclusive rights; (2) for the purpose of confirmation of the employee's (author's) will with respect to the exercise of the author's rights thereby; (3) for determination of the amount of and the procedure for payment of remuneration to the employee; (4) if it is necessary to determine the conditions of further modification; (5) for the purpose of fixing confidentiality undertakings, etc.
III. Agreements on Transfer of Rights to Software
As it was mentioned above, one of the main characteristics of software is that its transfer to a third party is made by transfer of the exclusive (property) rights to use such software on the basis of a respective agreement.
The transfer of the rights to use software should be differentiated from the transfer of the ownership right to the material carrier (e.g. a compact disk) containing a copy of the computer program. The differentiation of the transfer of the ownership right to material carriers and the transfer of the exclusive rights to software is of unconditional practical significance both for the purpose of fixing the rights to a certain object to the required extent and for taxation and accounting purposes.
The scope of transferred / acquired rights to software is directly dependant on the manner of use, territory, period and other conditions of use of software determined in the respective agreement. The rights to use software not transferred under an agreement directly shall be deemed not transferred. The main conditions of an agreement on transfer of the exclusive rights to software are as follows: (1) the manner of use (particular rights transferred under the agreement); (2) the period for which the rights are transferred; (3) the territory with respect to which the rights are transferred; (4) the amount or the procedure for determination of the amount of remuneration for each manner of use (in the form of royalties with respect to each manner of use, in the form of a lump sum or any other form); (5) the deadline for payment of remuneration; (6) the conditions of transfer of the rights to third parties; (7) governing law (for agreements with foreign individuals and legal entities), etc.
It should be taken into consideration that the imperative rules of legislation of the country where the purchaser of software is domiciled can also affect the contents of the transaction, regardless of the governing law selected by the parties.
The rights transferred under the said agreements can be transferred to third parties (in full or in part) only if it is directly provided for by the agreement.
Agreements on full or partial transfer of the exclusive rights (as well as computer programs themselves) can be registered upon agreement of the parties. State registration of the said agreements is performed by the Federal Service for Intellectual Property, Patents and Trade Marks (Rospatent), Moscow. Official state registrations of computer programs (consideration of applications, making entries in the register, issuance of certificates) as well as agreements on full or partial transfer of the exclusive (property) rights are subject to the state duty. The state duty is payable by the applicant in person (payment of the state duty by a representative is not permitted).
IV. Specific Features of Software Export
Development of software in Russia with its further export gives rise to additional issues related to certain specific rules established by foreign economic, tax, customs legislation as well as legislation on foreign currency regulation and control. These issues, in particular, are as follows: (1) restrictions on software export; (2) the procedure for calculation and payment of VAT; (3) payment of customs duties, the procedure for calculation thereof; (4) the procedure for payments in foreign currency.
Some provisions of current Russian legislation affecting interests of the parties to software export transactions are reviewed below.
Export control
Software is subject to export control if it belongs to the category of goods and technologies that can be used for military purposes. Responsibility for identification of software as an object of export control is borne by participants of foreign economic activities who can engage a special organization licensed by the Government of the Russian Federation to establish whether particular products are subject to export control.
The main means of export control is licensing. The state authority responsible for coordination of issuance of export licenses for foreign economic transactions with goods or technologies subject to export control is the Ministry of Economic Development and Commerce of the Russian Federation. However, other state authorities may be engaged in the licensing process depending on the software type (specialization).
The exercise of export control is ensured by respective measures of criminal and administrative liability.
Taxation
For the purposes of taxation with value added tax (VAT) the existing court practice considers export of software, including software on material carriers, as the transfer of the rights. According to Decree of the Supreme Arbitration Court No. 2617/05 dated August 2, 2005 the regime of taxation of services is applicable to the transfer of copyright and other analogous rights. Consequently, software export is not subject to VAT in the Russian Federation, and the rules for reimbursement of this tax are not applicable thereto.
Customs payments
Software export accompanied by export of material carriers containing copies of the computer program shall be subject to customs charges and duties. In this case customs charges (for customs clearance from 500 up to 100 thousand rubles) and customs duties (from 15%) shall be computed on the basis of the customs value of the goods to be exported. The customs value shall be determined on the basis of the price of the agreement on the sale and purchase of the program on material carriers as well as of the price specified in the agreements granting the purchaser the right to use the software.
In case of electronic transfer of software products over the customs border of the Russian Federation there shall be no customs clearance or customs payments.
Payments in foreign currency
Legislation on foreign currency regulation and control does not contain any rules concerning administrative procedure for effecting payments in foreign currency in relation to software export. However, it establishes certain requirements for documents. The rules for registration of transactions by the foreign currency control authority require to issue passports of transactions and to use transit foreign currency accounts for crediting foreign currency.
Legislation provides for the possibility of establishment by the Russian Federation of requirements for reservation of monetary funds in case of granting a foreign party a delay of payment.
Current legislation provides for abolition of the rules for mandatory sale of a portion of hard currency proceeds in the future. The regulatory act of the Central Bank of the Russian Federation establishing a zero rate of hard currency proceeds subject to mandatory sale has been issued by the date of preparation of this article, but has not come into force yet.
Resolution of issues arising in the course of development of and transfer of the rights to software depend to a great extent on the legal status of the parties to transactions. To explore legal consequences it is necessary to take into consideration whether the parties to transactions are Russian citizens and legal entities, foreign citizens and legal entities, branches and representative offices of foreign and Russian legal entities.
The availability, form and contents of the documents validating transactions as well as of the documents confirming due execution of transactions is of significance for protection of the rights related to development of and transfer of the rights to software.
