Russia to seize IP and assets of companies leaving the country

The Russian government has drafted a bill that would allow it to seize intellectual property and other assets of some foreign companies that have decided to leave or scale down operations in the country.

The bill has yet to be tabled before Russia’s parliament the State Duma, a local practitioner confirmed to Managing IP today, March 16.

It could apply to foreign companies with more than 100 employees or a valuation of 1 billion rubles ($9.1 million) in which individuals from “unfriendly countries” own at least a 25% stake.

An English translation of the draft bill, seen by Managing IP, stipulates that the seized assets would go to an “external administration”, either the Russian state development corporation VEB.RF or the State Corporation Deposit Insurance Agency.

It comes after numerous major brands, including Mercedes-Benz, Volkswagen, Adidas, Disney, H&M, McDonald’s, Coca-Cola, Pepsi, and Starbucks, announced that they were suspending, shutting, or scaling down their operations in Russia.

Several law firms, including those with strong IP practices such as Allen & Overy, Gowling WLG and Latham & Watkins, followed suit.

The proposed legislation would allow the external administration to take control of and use IP belonging to the foreign company, as well as IP licensed to it.

This could effectively include IP licensed to a Russian subsidiary by a foreign parent company or any unrelated company that merely licensed its rights in Russia.

On top of that, the government could also reinstate any IP licences that were revoked or cancelled on or after February 24 – when Russia began its Ukraine invasion.

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The heads of potentially affected companies must have “avoided exercising their powers”, left Russia, or caused unjustified termination of the organisation’s activity, liquidation, or bankruptcy after February 24 without any obvious economic reason.

Russia previously approved a list of 24 foreign states and territories that have committed unfriendly acts, including Australia, EU member states, Japan, Singapore, Ukraine, the UK, and the US.

The proposed law is one of the several legislative steps that the government has taken to push back against Western sanctions and businesses that have decided to shut their operations in Russia.

For instance, the government announced on March 7 that rights owners from sanctioning territories would not be entitled to any compensation for the unauthorised use of their IP, and passed a law just two days later that allowed it to exclude specific goods from IP protection.

The newly proposed law stipulates that the external administration would take over a company for up to three months, during which the oversight body would control all the assets and liabilities of the company.

Thereafter it would transfer all assets of the foreign company including IP to a newly created business.

The shares in this new company would be sold via an auction to ensure the continued operation of the shut-down business.

It potentially means that a third party that won such an auction would be able to acquire rights in and use a company’s IP assets legally in Russia, while the original IP owners could potentially perpetually lose their rights in the territory.

To avoid a takeover, a company may apply to a court before the external administration’s appointment, indicating its intent to resume or continue its operations in Russia.

President Vladimir Putin, in a conference with members of his government, said last week that the Kremlin could find legally viable ways to seize international businesses.

He added that the government would “introduce external management and then transfer these enterprises to those who actually want to work”. The new bill seems to have been framed to carry out this objective.