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An applicable law under a license agreement

Sept. 6, 2017

Foreign license agreements often include a clause on the law that is subject to be applied in case of disputes (an applicable law). Of course, the law of the country-licenser or of any other jurisdiction, where it will be preferable to conduct the proceedings is used to be chosen as an applicable law. The inclusion of the applicable law in the agreement is possible in part, as some norms are governed by the laws of the Russian Federation, and the remaining articles of the agreement are governed by the norms of the legislation of another state. The definition of the law, which is subject to be applied to the civil law relations, is governed in accordance with Article 422 of the Civil Code of the Russian Federation “Agreement and Law.” “The agreement must comply with the rules obligatory for the parties, which have been stipulated by the law and by other legal acts (imperative norms), which are in effect at the date of its conclusion.”

In the event that the foreign persons participate in the civil law relations, their regulation shall be carried out in accordance with the provisions of Section 6 “Private International Law” of the Civil Code of the Russian Federation (hereinafter referred to as the C.C.R.F.). According to Article 1192 of the C.C.R.F., the rules of the above Section shall not affect the applicability of the imperative norms of the legislation of the Russian Federation which, due to the instructive regulation in the imperative norms themselves or due to their special significance, including for providing the rights and the law protected interests of the participants of the civil circulation, govern the relevant relations, irrespective of the law that is subject to be applied (direct application norms). In accordance with Article 1231 of the C.C.R.F., the exclusive rights to the results of intellectual activity and to the means of individualization stipulated by the international treaties of the Russian Federation and the C.C.R.F. are effective on the territory of the Russian Federation.

Recognizing the exclusive right to the result of intellectual activity or to the means of individualization in accordance with the international treaty of the Russian Federation, the content of the law, its effect, restrictions, the procedure for its implementation and protection shall be determined by the C.C.R.F. regardless of the provisions of the legislation of the country of the exclusive right origin, unless otherwise is envisaged by the international treaty or the C.C.R.F. Current international treaties in the sphere of the intellectual property protection, to which Russian has joined, reinforce the principle of governing the issues for the recognition and protection of intellectual property rights in accordance with the norms of the national law of the state, where such protection is sought.

Thus, the provisions of any foreign license agreement in terms of granting a license to the use of the results of the intellectual activity and the means of individualization, which are indicated therein, should be interpreted in accordance with the imperative norms of the Russian law, regardless of the applicable law agreed in such agreement.

In this case, first of all, it is necessary to define clearly the subject of the agreement. Often, such agreements are translated from several languages, as a result, they become very difficult to understand and, as a consequence, the wording vagueness can be an obstacle to the registration. Ideally, the agreement may retain its unusual structure, due to the enforceability of the legislation of another state; however, in order to be able to carry out the registration with Rospatent with a positive result, there should be a more detailed description of the conditions required for the registration.

On the basis of Article 241 of the Arbitration Procedural Code of the Russian Federation, the court decisions of the foreign states made by them on the disputes and other cases arising in the course of carrying out the entrepreneurial and other economic activity (foreign courts), the decisions of arbitration courts and international commercial arbitrations made by them on the territories of the foreign states on the disputes and other cases arising in the course of carrying out the entrepreneurial and other economic activity (the decisions of foreign arbitrations) shall be recognized and enforced in the Russian Federation by arbitration courts, if the recognition and enforcement of such decisions is envisaged by the international treaty of the Russian Federation and the federal law.

Therefore, in the event that the foreign court makes a decision on the above issues of using the software and other intellectual property subject-matters on the territory of Russia with the violation of the norms of the Russian law, the arbitration court must refuse to recognize and enforce such a decision, since the enforcement of the foreign court decision would be contrary to the public policy of the Russian Federation (Paragraph 7 of Part 1 of Article 244 of the C.C.R.F.).

As a result, the choice of an applicable law under a foreign license agreement is not of such fundamental importance, since in the event of a dispute on the use of the software on the territory of the Russian Federation, the latter in any case should be settled taking into account special provisions of the Russian copyright. That means that the Russian party can not be brought to responsibility for the violation of the law, which is not recognized in Russia. Similarly, it is not possible to levy a penalty against the Russian party or to make it pay a compensation for the committed violation in the amount that does not comply with the requirements of the Russian legislation.

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Author of article

Natalya Nazarova

Natalya Nazarova

Agreement’s Lawyer