. Last Updated: 07/27/2016

Intellectual Property: Protecting Your Rights

Increasingly, foreign companies are entering into license agreements with Russian companies to provide the latter with rights to use different forms of intellectual property, including patents, inventions, trademarks, trade names and copyrights. Often the Russian companies are subsidiaries of foreign parents who are licensed to distribute the parent's products or pay royalties to use the trademark on domestic production.

The intent of such agreements is to reimburse the foreign owner of the intellectual property, as well as to protect against its illegal use. Two issues arise in this regard: the ability to defend the object of the intellectual property; and the legal enforceability of the license agreement.

To defend one's rights, the intellectual property must be registered by the owner with the Russian Patent Agency, Rospatent -- a procedure often overlooked or ignored. One exception involves trademarks and inventions that are well known worldwide. Thus, while Schweppes tonic would not likely require licensing, the name and smiley face of that renowned Moscow institution, Jack's Sandwiches, would.

A license agreement under which the rights to use a form of intellectual property are transferred to a Russian company is also required to be registered with Rospatent, in this case by the licensee. The procedure is prescribed in the appropriate legislation on each form of intellectual property (Patent Law, Trade Marks and Trade Names Law, Regulations on Inventions, Copyright Law, etc.). Usually a license agreement may not be registered with Rospatent if the owner of the intellectual property did not first register the object itself.

In a situation where the license agreement has not been registered as required in the legislation, the agreement could be deemed invalid. From a tax point of view, if royalty payments are made by a Russian user under an unregistered license agreement, the tax authorities could disallow related profits tax deductions. With regard to currency control, any payments made outside Russia in hard currency by the Russian licensee in connection with an unregistered license agreement could be viewed as unauthorized outbound currency transactions.

These issues have not yet received much attention from foreign and Russian parties to licensing agreements, nor by the Russian authorities. However, recently we have seen several instances in which tax authorities challenged the validity of deductions for profits tax purposes for unregistered license agreements.

Given these potential risks, it is worth registering objects of intellectual property and the related license agreements.

Scott Antel and Mikhail Bortnyaev are with the taxation and legal department of Arthur Andersen in Moscow.