F I N A L R E P O R T
O N
R E C O M M E N D A T I O N S
F O R
A M E N D M E N T S O F
R U S S I A N
L A W S R E G U L A T I N G
A N D
U. S.
I N N O V A T I O N
PREPARED FOR
THE INNOVATION WORKING GROUP (THE “IWG”) OF
THE RUSSIA-US BILATERAL PRESIDENTIAL COMMISSION (THE “BPC”)
US CO-CHAIR OF THE IWG: ROBERT HORMATS, US UNDER SECRETARY OF STATE
RF CO-CHAIR OF THE IWG: VLADISLAV SURKOV, RF DEPUTY PRIME MINISTER
US CO-COORDINATOR: LORRAINE HARITON, US DEPARTMENT OF STATE
RF CO-COORDINATOR: OLEG FOMICHEV, RF MINISTRY OF ECONOMIC DEVELOPMENT
PREPARED BY
THE LEGAL FRAMEWORKS SUBGROUP OF THE BPC INNOVATION WORKING GROUP
US CO-CHAIR: JAMES T. HITCH, VICE CHAIR, ABA SIL RELC; BAKER & McKENZIE (RETIRED)
RF CO-CHAIR: IGOR DROZDOV, SENIOR VICE PRESIDENT, THE SKOLKOVO FOUNDATION
THROUGH THE PARTICIPATION OF RUSSIAN AND US LAWYERS, RECRUITED AND ORGANIZED BY THE
AMERICAN BAR ASSOCIATION (“ABA”) SECTION OF INTERNATIONAL LAW (“SIL”) RUSSIA EURASIA LAW
COMMITTEE (“RELC”), THE ABA-RULE OF LAW INITIATIVE (“ABA-ROLI”), AND THE AMERICAN CHAMBER
OF COMMERCE IN RUSSIA (“AMCHAM”)
APRIL 24, 2013
INTRODUCTION
This Report has been prepared on the basis of research conducted during the past eight months by
Russian and US lawyers on Russian and United States laws regulating “innovation”, with the goal of
attempting to find ways to eliminate, or at least to mitigate, legislative obstacles to, and to provide
legislative support and stimulus for, innovation. “Innovation” is defined to mean creative work
conducted by individual entrepreneurs, universities, research institutions, and small and medium-sized
enterprises in the areas of research and development, high tech industries, and creative work generally.
Innovation is regulated, not only in the Russian Federation and the United States of America, but
worldwide, by laws in a number of substantive legal areas, and it generally finds its legal expression and
existence in the form of “intellectual property rights.” In this Report, an effort has been made to
compare current existing Russian and US legislation related to Innovation and to recommend
amendments of existing legislation, as well as the adoption of new laws, in order to improve the legal
conditions for conducting Innovation-related activities in both the Russian Federation and the United
States of America.
This Report provides a description of several issues, which have been found by Russian and US lawyers
and businessmen to be obstacles in their respective countries’ legislation to conducting mutually
satisfactory business activities in the Innovation area. These issues, identified by the American Chamber
of Commerce in Moscow in a Survey of its Members in March, 2012, involve a number of different
substantive areas of law, including intellectual property rights (“IPRs”), taxation, and special laws
enacted to specially regulate certain activities involved in research and development (“R&D”) and
creative work conducted by universities, entrepreneurs, and non-governmental organizations. Under
each issue, this Report provides (a) the “Background” of the particular problem involved in the issue; (b)
the “Russian Law” relevant to the issue; (c) the “US Law” relevant to the issue; and a description of the
“Recommended Amendments” to (d) “Russian Law” and/or (e) “US Law”.
The Recommendations contained in this Report provide for the amendments of those Russian and US
laws, which the authors of this Report consider to be in the best interests of promoting Innovation in
both the Russian Federation and the United States of America. The Recommendations have been
proposed in good faith with the hope that legal experts in the Innovation area, gathered together at
Seminars in each country’s Capital, will consider the Recommendations and comment on whether they
will in fact be beneficial for innovation – or not, and how the Recommendations may be revised in order
to achieve that goal. Ultimately, the Co-Chairs and the Co-Coordinators of the BPC Innovation Working
Group will have the opportunity to review and make their own assessments of the Recommendations
and to propose, to the appropriate law-making bodies of their respective countries, the adoption of
those Recommendations regarding the relevant Russian and/or US Laws, which are found to achieve the
goal of promoting Innovation. It is hoped that some or all of the Recommendations contained in this
Report may someday be enacted into official legislation intended to regulate Innovation in a positive
and beneficial way.
2
T A B L E
O F
C O N T E N T S
Issue I
Licensing of Patent Applications
p. 4
Issue II
Modification of Authors and Right Holders
p. 6
Issue III
Provisional Patent Applications
p. 9
Issue IV
Minimum Stake in Innovation Cycle for Universities
p. 11
Issue IV.A
Special Russian R&D Laws Nos. 217-FZ and 273–FZ
p. 12
Issue IV.B
US Law Requiring “Substantial” Manufacture of a Patented Invention in the USA p. 14
Issue V
Commercialization of Scientific Products
p. 15
Issue VI
Joint Ownership of IP Rights
p. 17
Issue VII
Efficient and Effective Clinical Research Trials
p. 20
Issue VII.A
Implementing Mandatory GMP Guidelines in the Russian Federation
p. 22
Issue VII.B
Implementing US FDA Clinical Investigator Training Courses in the US
p. 22
Issue VII.C
Developing Investigators’ Standardized e-CRFs (Electronic Case Review Forms)
p. 23
Issue VII.D
Eliminating Required US FDA Statement of Investigator Form 1572
p. 23
Issue VII.E
Eliminating Lengthy US FDA Approval of IND Trials’ Formulation/Development
p. 24
Issue VII.F
Implementing US FDA Guidelines for the Industry Use of a Centralized IRB
p. 24
Issue VIII
Expansion of the Jurisdiction of the RF Intellectual Property Court
p. 25
Issue IX
Creation of an International Scientific and Technology Council
p. 25
Issue X
Allowance of Tax Credit or Deduction for Research and Development Expenses p. 28
Issue XI
Special Considerations for Accounting of Research and Development Expenses p. 36
Issue XII
Lower Social Insurance Contributions for Organizations Conducting IT Activities p. 38
Issue XIII
Special Tax Base Calculation by Organizations Conducting IT Activities
p. 41
CONTRIBUTORS
p. 43
AUTHORS
p. 44
3
RECOMMENDATIONS
I.
a.
Licensing of Patent Applications
Background
In order to allow owners of patents and patent applications to effectively commercialize their
IP, it should be possible to license to third parties not only patent rights but also rights to IP
covered by pending patent applications.
b.
Russian Law
Articles 1235 and 1367 of the Russian Civil Code permit license agreements to cover registered
patent rights, but not IP covered by pending patent applications.
c.
US Law
In contrast, in the US, IP licensing agreements may cover both registered patent rights, pending
and provisional patent applications.
d.
Recommended Amendments to Russian Law
We recommend amending Articles 1235 and 1367 of the Russian Civil Code to allow license
agreements to be concluded with respect to registered patents as well as IP rights not yet
submitted for patent registration or covered by pending patent applications.
English Text
Русский текст
Article 1235. License Contract
Статья 1235. Лицензионный договор
1. Under a license contract, one party, the
holder of an exclusive right to a result of
intellectual activity including the result which
can be created or registered in the future or
to means of individualization (the licensor),
shall grant or shall undertake the commitment
to grant to the other party (the licensee) the
right to use such result or such means within
the limits provided for by the contract.
1. По лицензионному договору одна
сторона - обладатель исключительного
права на результат интеллектуальной
деятельности, в том числе тот, который
будет создан или зарегистрирован в
будущем,
или
на
средство
индивидуализации
(лицензиар),
предоставляет или обязуется предоставить
другой
стороне
(лицензиату)
право
использования такого результата или такого
средства в предусмотренных договором
пределах.
6. In case of conclusion of the license 6. В случае заключения лицензионного
4
(sublicense) contract with regard to specific
results of intellectual activity which can be
created or registered in the future, the
parties thereto may agree that the amount of
licensee’s fee or the order of its calculation
will be determined after creation of those
results of intellectual activity.
(сублицензионного) договора в отношении
определенных
результатов
интеллектуальной деятельности, которые
могут быть созданы или зарегистрированы
в
будущем,
стороны
вправе
предусмотреть,
что
размер
вознаграждения лицензиара или порядок
его определения будет устанавливаться
после
создания
таких
результатов
интеллектуальной деятельности.
6. 7. The license contract shall provide for:
1) the subject of the contract by indicating the
result of intellectual activity (including the
one which will be created or registered in the
future, with an indication, in appropriate
cases, of the reference number and date of
the filing of application for registration of the
result of intellectual activity) or means of
individualization, the right of the use of which
to be granted under the contract, with an
indication, in appropriate cases, of the
reference number and date of the granting a
document confirming the exclusive right to
such result or to such means (patent,
certificate);
2) ways of use of the result of intellectual
activity or means of individualization.
6. 7. Лицензионный договор должен
предусматривать:
1) предмет договора путем указания на
результат интеллектуальной деятельности
(в том числе тот, который будет создан или
зарегистрирован в будущем, с указанием в
соответствующих случаях номера и даты
подачи заявки на регистрацию результата
интеллектуальной деятельности) или на
средство
индивидуализации,
право
использования которых предоставляется по
договору, с указанием в соответствующих
случаях номера и даты выдачи документа,
удостоверяющего исключительное право на
такой результат или на такое средство
(патент, свидетельство);
2) способы использования результата
интеллектуальной
деятельности
или
7. 8. The transfer of the exclusive right to a средства индивидуализации.
result of intellectual activity or to means of
individualization to a new rightholder shall not
be the ground for change or dissolution of a 7. 8. Переход исключительного права на
license contract concluded by the previous результат интеллектуальной деятельности
rightholder.
или на средство индивидуализации к
новому правообладателю не является
основанием
для
изменения
или
9. If results of intellectual activity which can расторжения лицензионного договора,
be created or registered in the future are not заключенного
предшествующим
created or registered within the time periods правообладателем.
specified by the contract, the licensee bears
the risk of inability to achieve the results
unless the covenant between the parties of 9. Если результаты интеллектуальной
the license (sublicense) contract provides деятельности,
которые
могут
быть
5
otherwise.
созданы
или
зарегистрированы
в
будущем, не будут созданы или
зарегистрированы
в
сроки,
предусмотренные
договором,
риск
невозможности достижения результатов
несет лицензиат, если соглашением сторон
лицензионного
(сублицензионного)
договора не предусмотрено иное.
Article 1367. License Contract on Granting the Статья 1367. Лицензионный договор о
Right to Use an Invention, Utility Model, or предоставлении
права
использования
Industrial Design
изобретения, полезной модели или
промышленного образца
Under a license agreement one party, which is
a patent holder or a person who filed a По лицензионному договору одна сторона –
patent application (licensor) shall grant or патентообладатель или лицо, подавшее
заявку на выдачу патента, (лицензиар)
undertake to grant to the other party
предоставляет или обязуется предоставить
(licensee) the right certified by a patent to use другой
стороне
(лицензиату)
an invention, utility model or industrial design удостоверенное
патентом
право
within the limits established by the использования изобретения, полезной
модели или промышленного образца в
agreement.
установленных договором пределах.
II.
a.
Modification of Authors and Rights Holders
Background
Where a patent has been registered with a list of authors and holders of relevant rights, and
some, but not all, of such information is incorrect, it should be possible to obtain a court ruling
to register the relevant corrections with Rospatent, rather than invalidating the entire patent.
b.
Russian Law
Article 1398 of the Russian Civil Code does not permit the relevant courts to modify the list of
authors and rights holders in patent documentation, but rather provides only for the
invalidation of a patent in the case of any inaccuracies in such lists.
c.
US Law
Errors in named inventors should be corrected promptly under Section 256 of Title 35 of the US
Code, subject to the Director’s discretion to issue a certificate correcting the error.
6
d.
Recommended Amendments to Russian Law
We propose amending section 1398 of the Russian Civil Code to allow Rospatent, under a court
judgment, to revise the list of authors and rights holders in the relevant patent documentation,
in order to correct and eliminate any errors in such documentation, upon proof of evidence
submitted to the relevant court, rather than invalidating the entire patent.
English Wording
Русский текст
Article 1347. Author of Invention,
Статья 1347. Автор изобретения,
Utility Model or Industrial Design
полезной модели или промышленного
образца
1. An author of an invention, utility model
or industrial design shall be the citizen by
whose creative labor the relevant result of
intellectual activity has been created. Unless
otherwise established, the person indicated as
an author in a patent application shall be
deemed the author of the invention, utility
model or industrial design.
1. Автором изобретения, полезной модели
или промышленного образца признается
гражданин, творческим трудом которого
создан
соответствующий
результат
интеллектуальной деятельности. Лицо,
указанное в качестве автора в заявке на
выдачу патента на изобретение, полезную
модель или промышленный образец,
считается автором изобретения, полезной
модели или промышленного образца, если
не доказано иное.
3. Based on the court decision
establishing the author of the invention,
utility model or industrial design, the federal
intellectual
property
authority
shall
introduce changes into the relevant
invention, utility model or industrial design
patent, as well as into the relevant state
register.
3. На основании судебного решения,
устанавливающего автора изобретения,
полезной модели или промышленного
образца,
федеральный
орган
исполнительной
власти
по
интеллектуальной собственности вносит
изменения в соответствующий патент на
изобретение, полезную модель или
промышленный
образец
и
соответствующий государственный реестр.
Article 1357. Right to Obtain Patent for Статья 1357. Право на получение патента на
Invention, Utility Model or Industrial Design
изобретение, полезную модель или
промышленный образец
6. На основании судебного решения,
6. Based on the court decision устанавливающего
правообладателя
establishing the right holder of the invention,
7
utility model or industrial design, the federal
intellectual
property
authority
shall
introduce changes into the relevant
invention, utility model or industrial design
patent, as well as into the relevant state
register.
изобретения,
полезной
модели
ли
промышленного образца, федеральный
орган
исполнительной
власти
по
интеллектуальной собственности вносит
изменения в соответствующий патент на
изобретение, полезную модель или
промышленный
образец
и
соответствующий государственный реестр.
Article 1398. Invalidation of Patent
Статья 1398. Признание недействительным
патента на изобретение, полезную модель
1. A patent for invention, utility model or или промышленный образец
industrial design may be recognized invalid in
full or in part within the effective term
1. Патент на изобретение, полезную
thereof:
4) should the patent be issued with модель или промышленный образец может
indication as an author or a patent holder of a быть в течение срока его действия признан
person which is not an author or a patent недействительным полностью или частично
holder in accordance with this Code, or
в случаях:
without indication of the person who is an
author or a patent holder in accordance with
4) выдачи патента с указанием в нем в
this present Code, provided that it is not
качестве автора или патентообладателя
possible to establish the person who is the
лица, не являющегося таковым в
author or the patent holder in accordance
соответствии с настоящим Кодексом, или
with this Code.
без указания в патенте в качестве автора
или патентообладателя лица, являющегося
таковым в соответствии с настоящим
Кодексом,
в
случае
отсутствия
возможности
установления
лица,
являющегося
автором
или
патентообладателем в соответствии с
настоящим Кодексом.
8
III.
a.
Provisional Patent Applications
Background
To assist owners of IP in registering patents, it is helpful when relevant legislation allows for
registration of a “provisional patent application” pursuant to which an inventor of IP may file a
provisional patent application for registration which matures into an issued patent only if the
applicant files a final application within a certain period. A provisional application allows the
inventor to establish an early effective filing date if such inventor is able to submit the final
application within the stated period, providing such inventor with a priority over possible
competitors filing at a later date and with a possibility to continue further research, including
public disclosure of the patented solution without a risk for the patent novelty.
b.
Russian Law
Article 1374 of the Russian Civil Code (Patent Law) contains no terms allowing for registration of
a provisional patent application.
c.
US Law
In contrast, provisional patents applications are unique to the US. Pursuant to US federal and
state law, inventors may make provisional patent applications, provided that the final
application is made within one year following the date of the provisional application.
d.
Recommended Amendments to Russian Law
We recommend amending Article 1374 of the Civil Code to permit a “provisional patent
application” similar to the provisions contained in US federal law.
English Text
Русский текст
Article 1374’ Filing of Preliminary Application Статья 1374’. Подача предварительной
for the Grant of a Patent for an Invention
заявки на выдачу патента на изобретение
1.
A preliminary application for the
grant of a patent for an invention
(preliminary application for an invention)
shall be filed at the applicant’s discretion
with the federal executive authority for
intellectual property by a person entitled to
obtain a patent under the present Code (the
applicant). It is subject to requirements of
sections 2-5 of the Article 1374, Article 1384
1.
Предварительная заявка на выдачу
патента на изобретение (предварительная
заявка на изобретение) подается по
усмотрению заявителя в федеральный
орган
исполнительной
власти
по
интеллектуальной собственности лицом,
обладающим правом на получение
патента в соответствии с настоящим
Кодексом
(заявителем).
К
ней
9
of the present Code.
применяются требования п.п. 2-5 ст. 1374,
ст. 1384 настоящего Кодекса.
2.
Предварительная
заявка
на
изобретение не подлежит экспертизе по
существу
и
не
публикуется,
за
исключением
публикации
при
последующей подаче заявки на выдачу
патента на изобретение. Она может быть
использована для установления даты
приоритета изобретения в течение 12
месяцев с даты подачи предварительной
заявки на изобретение.
2.
Preliminary application for an
invention is not subject to substantive
examination and shall not be published
unless it is published in the course of
subsequent filing of application for the grant
of a patent for an invention. It can be used
for establishment of the priority of invention
within 12 months from the date of filing of
preliminary application for an invention.
Article 1375’. Preliminary Application for the Статья 1375’. Предварительная заявка на
Grant of a Patent for an Invention.
выдачу патента на изобретение
1.
Preliminary application for an
invention shall relate to one invention or to a
group of inventions so linked as to form a
single inventive concept (requirement of
unity of the invention).
2.
Preliminary application for an
invention shall contain:
1) the request for the grant of a patent,
stating the name of the author of the
invention and of the person in whose name
the patent is sought and also of the legal or
actual residence of each of them;
2) the description of the invention, disclosing
it in sufficient details for it to be carried out;
3) the drawings and other materials, if they
are necessary for understanding the essence
of the invention;
4) the abstract.
3. The filing date of preliminary application
for an invention shall be the date of receipt
by the federal executive authority for
intellectual property of an application
containing a request for the patent grant, a
description of the invention, and drawings if
there is a reference to them in the
description, and if the all the said documents
were not presented at the same time, the
1.
Предварительная
заявка
на
изобретение должна относиться к одному
изобретению или к группе изобретений,
связанных между собой настолько, что
они образуют единый изобретательский
замысел
(требование
единства
изобретения).
2.
Предварительная
заявка
на
изобретение должна содержать:
1) заявление о выдаче патента с указанием
автора изобретения и лица, на имя
которого испрашивается патент, а также
места жительства или места нахождения
каждого из них;
2) описание изобретения, раскрывающее
его с полнотой, достаточной для
осуществления;
3) чертежи и иные материалы, если они
необходимы для понимания сущности
изобретения;
4) реферат.
3.
Датой подачи предварительной
заявки на изобретение считается дата
поступления в федеральный орган
исполнительной
власти
по
интеллектуальной собственности заявки,
содержащей заявление о выдаче патента,
10
date of receipt of the final document.
описание изобретения и чертежи, если в
описании на них имеется ссылка, а если
указанные документы представлены не
одновременно, - дата поступления
последнего из документов.
Article 1381. Establishment of the Priority of Статья 1381. Установление приоритета
an Invention, Utility Model or Industrial изобретения, полезной модели или
Design
промышленного образца
1. The priority of an invention, utility model,
or industrial design shall be established as per
the date of filing with the federal executive
authority for intellectual property of an
application to an invention, utility model, or
industrial design. The priority of an invention
can also be established as per the date of
filing with the federal executive authority for
intellectual
property
of
preliminary
application for an invention.
IV.
1. Приоритет изобретения, полезной
модели или промышленного образца
устанавливается по дате подачи в
федеральный орган исполнительной власти
по интеллектуальной собственности заявки
на изобретение, полезную модель или
промышленный
образец.
Приоритет
изобретения также может быть установлен
по дате подачи в федеральный орган
исполнительной
власти
по
интеллектуальной
собственности
предварительной заявки на изобретение.
Minimum Stake in Innovation Cycle for Universities
The innovation cycle involves several stages, from conception and market considerations to the
business incubation stage, where a university or research center must determine whether to
launch a business, terminate a project and/or spin off technologies to third parties. Rigid
structures imposed at the business incubation stage may hamper options to spin-off
technologies and/or to attract industry investors. For example, when a research-based
business is launched, if legislation requires a university to take a fixed minimum stake in any
subsidiary (or start-up), this can seriously hamper the university’s ability to negotiate with
outside investors.
The difficulty in obtaining investment capital for R&D projects remains a significant barrier to
innovation, and Russian and US legislation should focus on lowering barriers for investment and
participation in R&D projects to the maximum extent possible.
Another important factor involves the mechanics of computing minimum equity requirements,
since they may raise difficult and complex issues associated with valuations of technology. For
11
example, if a university is valuing the technology, which it is contributing to a subsidiary, with
reference to the cost actually incurred in developing the identified technology to date, it may
compute a high cost, not commensurate with the valuation given by the partners in the new
subsidiary. In such cases, the partners would be expected to contribute monies well in excess
of their own monetary evaluation of the underlying technology, undermining the prospects for
a successful conclusion of the negotiations.
Indeed, the U.S. experience indicates that accurate or even “reasonable” valuations of
“university stage” inventions may frequently be impossible, and they are best left to
negotiations by the partners, unfettered by any artificial legislative “minimum” constraints.
Since innovation projects are frequently accompanied by “funding rounds” (that is, the parties
contemplate additional rounds of monetary funding if certain milestones are met), the parties
should have maximum freedom on an on-going basis. For example, a minimum stake of even
only a 25 per cent can operate as a real barrier, if the outside parties wish to increase their
investments, and corresponding shares, if certain milestones are met, diluting the university’s
initial share of the venture. Such dilution will ultimately redound to the benefit of the
university, because the venture is more likely to succeed.
IV.A
a.
Special Russian R&D Laws Nos. 217-FZ and 273-FZ
Background
Both the Russian Federation and the USA have enacted special laws to regulate innovation
conducted by universities, particularly with regard to a university’s need to obtain funds from
outside investors, and what rights universities have with regard to their own intellectual
property rights to their own inventions and creations and to their doing business with those
rights with third parties, especially investors.
b.
Russian Law
Russian Law No. 217 permits universities to create technology spin offs, provided that the
university retains more than a 25% interest in a newly created stock corporation, or a 33,3%
interest in a limited liability corporation. Unfortunately, this same minimum interest must
continue even when additional rounds of financing are provided. Greater flexibility would
improve the possibilities for all forms of innovation oriented subsidiaries.
Russian Law No. 217 represents a definite advance with respect to promoting innovation, since
it does not constrain the type of intellectual property rights to be transferred, and it permits a
university to negotiate exclusivity, royalty payments, progress payments, etc. with considerable
12
flexibility. More recently, Federal Law No. 273 "On Education in the Russian Federation",
adopted on December 29, 2012, has provided for additional flexibility in the structure of
university ownership through the creation of "economic partnerships". See FZ-273, Art. 103
(eff. September 1, 2013).
c.
U.S. Law
The Bayh-Dole Act, enacted on December 12, 1980 (P.L. 96-517, Patent and Trademark Act
Amendments of 1980), created a uniform policy among the many federal agencies that fund
research, enabling small businesses and non-profit organizations, including universities, to
retain title to inventions made under federally-funded research programs. It was especially
instrumental in encouraging universities to participate in technology transfer activities. See,
e.g., 35 U.S.C. §§ 200-12. Neither the Bayh-Dole Act, nor any other legislation requires a
minimum stake or equity ownership in a subsidiary or start-up. Instead, as embodied in sample
agreements used by many universities and entities in Silicon Valley, Kendall Square, and other
centers of U.S. technology, agreements with start-ups range from nonexclusive licensing
arrangements (with royalty payments typically attaching) to exclusive, equity-based ownership
agreements (and various other arrangements.1
University subsidiaries or start-ups that receive federal funding are, nevertheless, subject to
Bayh-Dole provisions, which, among other things:


d.
provide the United States Government with nonexclusive rights in any licensed product
or patent, and
impose an obligation that any licensed product sold or produced in the United States
must be "manufactured substantially in the United States.”
Recommended Amendments to Russian Law
Looking forward, Russian legislation should encourage the active growth of university-affiliated
venture funds and research parks, as well as the alignment of research programs with market
trends.2
1
Samples of various agreements relevant to technology transfer, including: material transfer
agreements, exclusive and nonexclusive licensing agreements, option agreements, software licensing
agreements
and
non-disclosure
agreements,
can
be
accessed
at:
http://otl.stanford.edu/indU.S.try/resources/indU.S.try_res.html (Stanford University's Office of
Technology Licensing).
2
An excellent overview of the need for developing a "market pull" approach to innovation in Russia (as
opposed to the "technology push" approach) can be found in: Innovating for Profit in Russia, G. E.
Schweitzer and R.S. Guenther (National Research Council 2006 ed.).
13
More specifically, the mandatory 25% and 33.3% ownership stake in start-ups or subsidiaries
should be eliminated, as reflected in FZ-217. Those figures are substantially higher than the
stakes, which universities typically secure in start-ups in the United States, which are frequently
in the range of 5 to 15% of equity. Having a minimum figure for a university stake may
unnecessarily constrain a new company, especially if additional funding rounds are
contemplated.
In addition, “valuations” of technology, especially for university-based technology, present
special problems, since they may be far from the actual value of commercial realization.
Unknowns, such as the probability of the technology being successfully developed, the
potential uses of the technology, and the size of the as-yet-unknown market, make valuation
especially speculative. For that reason, royalty (and/or equity) agreements, which make the
ultimate value proportional to success, are usually more appropriate than a single purchase
price for a patent. Superimposing a minimum equity requirement at the inception of a venture
may ties the hands of the potentially interested venture capitalists, and may lead to barriers to
innovation.
The recent Federal Law No. 273-FZ of December 29, 2012, and Article 103 thereof in particular,
which addresses university start-ups, is designed to foster greater entrepreneurship in
university settings. It also appears to grant the founders more flexibility in the valuation
process. The provision, which requires an “independent appraisal” in the event that the value
of IP rights being contributed exceeds five hundred thousand rubles, should be monitored to
ensure that this requirement does not dissuade private funding. The founders’ own assessment
should be accorded presumptive validity, given the difficulty of objectively measuring the value
of technology, which may be several years from commercial application.
IV.B.
a.
US Law Requiring “Substantial” Manufacture of a Patented Invention in the USA
Background
US law currently requires that an exclusive licensee must agree to manufacture a patented
invention “substantially” in the United States, if it is to be used or sold in the US, as follows:
“Preference for United States Industry
Notwithstanding any other provision of this clause, the contractor agrees that neither it
nor any assignee will grant to any person the exclusive right to use or sell any subject
inventions in the United States unless such person agrees that any products embodying
the subject invention or produced through the use of the subject invention will be
14
manufacturing substantially in the United States. However, in individual cases, the
requirement for such an agreement may be waived by the Federal agency upon a
showing by the contractor or its assignee that reasonable but unsuccessful efforts have
been made to grant licenses on similar terms to potential licensees that would be likely
to manufacture substantially in the United States or that under the circumstances
domestic manufacture is not commercially feasible.”
d.
Recommended Amendments to US Law
To encourage international outreach and inter-institutional programs, the US should eliminate
the requirement that products must be "substantially" manufactured in the US. See, e.g., 37
CFR § 401.14(i). In the alternative, the US could require that licensees must manufacture
products according to international Good Manufacturing Practice (GMP) guidelines (for medical
products), such as those defined in the International Conference on Harmonization (ICH) Q7A,
and/or according to international quality standards, such as ISO 9000.
V.
a.
Commercialization of Scientific Products
Background
To promote economic growth and diversification of the Russian economy, one of the priorities
of Russian legislation should be to allow for the effective commercialization of scientific and
technical research products financed by state funded institutions.
b.
Russian Law
Federal Law No. 127-FZ “On science and state scientific and technical policy” and Federal Law
No. 125-FZ “On high and post graduate professional education”, both as amended by Federal
Law No. 217-FZ, permit higher education institutions and state scientific organizations to
license their IP only to subsidiary companies, providing such companies (in form of charter
capital contributions) with limited non-exclusive rights to use such IP, e.g. sublicensing or
assignment of rights to use IP by subsidiary companies to third parties is prohibited.
The above laws also require higher education institutions and state scientific organizations to
own in their subsidiary companies: (1) no less than 33.3% for limited liability companies and (2)
no less than 25% in joint stock companies.
Russian law also requires all income received by such institutions and organizations from their
subsidiary companies, e.g. dividends, sale of shares, or royalties generated by licenses, to be
deposited to treasury accounts of such institutions and organizations and further requires such
15
institutions and organizations to obtain consent from Russian state authorities with respect to
the use of any such income.
c.
US Law
Under US law, as a general matter, state-owned universities and government-funded
institutions may provide exclusive or non-exclusive IP licenses to third parties upon commercial
conditions agreed between the relevant parties, including the right to sublicense.
Patentable inventions developed at such institutions by employees are ordinarily “owned” by
the institution pursuant to contracts of employment, contracts with the US government and
other types of private contractual agreements.
Technology licenses are subject to nondisclosure agreements (NDAs) and other restrictions on
proprietary transfers.
Royalties and other licensing revenues, which may include various forms of remuneration,
including stock ownership, are contractually agreed between the relevant parties, deposited to
the accounts of the relevant institutions and may be used by such institutions in their
discretion.
Depending upon the research and field, and the type of technology inventions from research
and development (R&D) innovated at state-owned universities and government funded
institutions, laboratories and others may be directed by sector-specific regulations and internal
policies, or regulated by laws outside of IP depending on the specific situation, e.g., controlled
substances, toxins, biohazardous materials, weaponry, security, and the like.
d.
Recommended Amendments to Russian Law
We recommend amending the above-described Russian laws to permit higher education
institutions and state scientific organizations in Russia (subject to sector-specific regulations) to:
(i)
allow such institutions and organizations to provide IP licenses to their subsidiaries not
only in form of charter capital contributions but also through royalty based license agreements,
in each case on an exclusive or non-exclusive basis and including a right to sub-license to third
parties;
(ii)
allow such exclusive or non-exclusive licenses (including sub licensing rights) to be
granted not only to legal entities wholly or partially owned by such institutions and
organizations, but also to independent investment vehicles established by third party investors,
who can then raise further capital to develop and commercialize such technology, with royalties
16
on all relevant income of such investment vehicles then payable to the relevant institutions and
organizations;
(iii)
permit all royalties and other income paid by third parties to subsidiaries or other
investment vehicles (whether or not wholly or partially owned by such institutions or
organizations) for sublicensing of IP rights owned by such institutions or organizations to be
paid directly to and for the commercial benefit of the relevant subsidiaries or investment
vehicles;
(iv)
permit state owned institutions and organizations to use revenues generated by the
business of subsidiaries or other investment vehicles for the purposes prescribed by the
constitutional documents of such institutions and organizations, without obtaining prior
consent from Russian state authorities.
Amendments may be adopted to the newly-enacted Federal Law “On Education in the Russian
Federation” No. 273-FZ, dated 29 December 2012 (in particular, Article 103), as well as Federal
Law “On Science and State Technical and Science Policy” No. 127-FZ, dated 23 August 1996. The
Budget Code of the Russian Federation and other administrative legislation should also be
considered.
VI.
a.
Joint Ownership of IP Rights
Background
In order to allow IP rights to be efficiently commercialized, applicable law should contain clear
provisions regarding joint ownership of such rights and independent rights of joint owners to
agree on their respective shares, license and assign their IP rights to third parties.
b.
Russian Law
Article 1229 of the Russian Civil Code does not allow joint owners of IP rights to agree on the
percentage amounts of their shares, or to assign their respective shares in such IP rights to third
parties without the consent of the co-owner.
c.
US Law
By the federal patent statute, Title 35 Section 116(a) of the US Code, “when an invention is
made by two or more persons jointly, they shall apply for a patent jointly, and each shall make
the required oath, except as otherwise provided…. Inventors may apply for a patent jointly
even though (1) they did not physically work together or at the same time, (2) each did not
make the same type or amount of contribution, or (3) each did not make a contribution to the
17
subject matter of every claim of the patent.” In other words, any co-inventor of any one aspect
of a patent claim is an equal co-owner of the entire patent.
A patent has the attributes of personal property under Title 35 Section 261 of the US Code, and,
under the US state laws, a patent applicant, patentee, or his assignees or representatives may
grant and convey exclusive rights in a patent on a contractual basis. Therefore, in the absence
of an agreement, “each of the joint owners of a patent may make, use, offer to sell, or sell the
patented invention … without the consent of and without any accounting to the other owners.”
Title 35, Section 262 of the US Code.
In comparison with the patent law, the joint ownership of copyrightable software, for example,
is covered by the US copyright law, Title 17 of the US Code. Under Title 17, Section 101, a “joint
work” is “a work prepared by two or more authors with the intention that their contributions
be merged into inseparable or interdependent parts of a unitary whole.” The term “joint
authorship” is often used to describe a “joint work.” Any individual author of a joint work may
enter into a non-exclusive license for a joint work without the authorization of the other
authors, but, unlike the patent law, he must account to the other authors and distribute the
revenue proceeds from the license. An author to a joint work may not assign or transfer the
copyright in a joint work or enter into an exclusive license without the authorization of the
other authors.
d.
Recommended Amendments to Russian Law
We recommend amending Article 1229 of the Russian Civil Code to:
(i)
permit joint owners of IP rights to agree on the percentage amounts of their shares,
(ii)
confirm that such joint ownership rights include IP results created by employees
employed by more than one employer, in which case such rights should be jointly owned by the
relevant employers; and
(iii)
permit such rights to be independently licensed and assigned in respective shares by
their respective joint owners (with the preemptive rights of co-owners, and tag-along and dragalong rights), unless such joint owners agree otherwise.
English Wording
Article 1229. Exclusive Right
Русский текст
Статья 1229. Исключительное право
3. Where the exclusive right in a result of an
3. В случае, когда исключительное
intellectual
activity
or
means
of право на результат интеллектуальной
individualization is jointly held by several
деятельности
или
на
средство
persons each of the right holders may use the
18
result or means at his own discretion, unless
otherwise envisaged by this Code or
agreement between the right holders.
Relationships between the persons jointly
holding the exclusive right shall be defined by
an agreement between them.
индивидуализации
принадлежит
нескольким лицам совместно, каждый из
правообладателей может использовать
такой результат или такое средство по
своему усмотрению, если настоящим
Кодексом
или
соглашением
между
правообладателями не предусмотрено
иное. Взаимоотношения лиц, которым
исключительное
право
принадлежит
совместно, определяются соглашением
Income from the joint use of the result of между ними.
intellectual
activity
or
means
of
individualization shall be distributed among all Доходы от совместного использования
the right holders in equal parts, except as результата интеллектуальной деятельности
otherwise envisaged by agreement between или
средства
индивидуализации
them.
распределяются
между
всеми
правообладателями в равных долях, если
соглашением
между
ними
не
предусмотрено иное.
Right holders shall jointly dispose of the
exclusive right to the result of intellectual
activity or means of individualization, unless
otherwise envisaged by this Code or the
agreement between the right holders.
Распоряжение исключительным правом на
результат интеллектуальной деятельности
или на средство индивидуализации
осуществляется
правообладателями
coвместно, если настоящим Кодексом или
соглашением между правообладателями
не предусмотрено иное
Each of the right holders shall have the
right to transfer his/her share in the exclusive
right, for compensation or free of charge, to
all the persons with whom he or she owns
the right, share and share alike.
Каждый из правообладателей вправе
передать (возмездно или безвозмездно)
свою долю в исключительном праве всем
лицам, совместно с которыми он обладате
этим правом, в равных долях.
Disposal of the share of an author, who
is also a right holder, to third parties shall not
be allowed unless otherwise provided for by
this Section. The share in the exclusive right
which does not belong to the author may be
Отчуждение автором-правообладателем
своей доли в исключительном праве
третьим лицам не допускается, если иное
не предусмотрено настоящим разделом.
Доля
в
исключительном
праве,
принадлежащая не самому автору, может
19
disposed of to the third party with the быть отчуждена третьему лицу с согласия
consent of all other right holder.
всех остальных правообладателей.
The right holder shall have the right to Правообладатель вправе завещать свою
bequeath his or her share in the exclusive долю в исключительном праве.
right.
5. The exclusive right in one and the
same result of intellectual activity, which is
recognized as made for hire under this Code,
and which was created within the
employment with two or more employers,
shall be jointly owned by the relevant
employers.
VII.
a.
5. Исключительное право на один и
тот же результат интеллектуальной
деятельности, являющийся служебным в
соответствии с настоящим Кодексом, в
том, случае если такой результат
интеллектуальной
деятельности
был
создан в рамках трудоустройства по
совместительству у двух и более
работодателей,
принадлежит
соответствующим
работодателям
совместно.
Efficient and Effective Clinical Research Trials
Background
To promote the efficient and safe development of new drugs and medicines -- not only to
benefit the Russian people, but also for global export, one of the priorities of Russian legislation
should be to ease the import of clinical trial supplies, and the open exchange of global clinical
trial data, through an integrated technology portal. In turn, US laws can be adapted to
encourage more rapid, cost-effective clinical trial approval and completion, leading to more
time-sensitive integration of innovative and beneficial medicines into the domestic and global
markets.
b.
Russian Law
Federal Law No. 86-FZ "On Drugs/Medicines", effective June 22, 1988, regulates the approval
and conduct of clinical trials in the Russian Federation. Among other things, it defines the
authority of the Russian Federal Drug Agency, introduces notions of ethics, describes the
conditions for manufacturing, labeling, and regulation of medicinal products, and regulates the
import and export of drugs (including clinical supplies). In general, this law provides that a
clinical study proposal must be submitted to the Russian Federal Drug Agency, after which it
20
must be approved by both the Russian State Pharmacological Committee and the Russian
National Ethics Committee -- a process that generally takes two to three months.
Other laws and regulations that govern clinical trials include: Federal Law No. 61-FZ "On the
Circulation of Medicines", effective March 24, 2010, (requiring companies, which want to
market drugs in Russia, to conduct at least some phase of clinical trials in Russia); Russian
Ministry of Health Order No 103 "On the procedure for conducting clinical medical research",
issued March 24, 2000; Russian Ministry of Health Order No. 16 "On the composition of the
committee on licensing", issued January 24, 2000; and Regulations of the National Ethics
Committee, Letter of Russian Federal Drug Agency No. 291-22/91, issued July 26, 2006
(concerning adverse drug reaction notifications). In addition, while Russia is not a member of
the International Conference on Harmonization, its National Regulation OCT 42-511-99
(adopted in 1998) is a carbon copy of the ICH/GCP guidelines set forth in E6 (effective 1996).
c.
US Law
US laws, including 21 CFR §§ 50, 54, 56 and 812, as well as the requirements of the US Federal
Food, Drug and Cosmetics Act, govern the protocols for clinical trials. Major aspects of this Act
include:





Protocols for Good Clinical Practices
Protections for human subjects (including informed consent)
New drug and investigational new drug applications
Clinical phase reporting requirements and protocols
Ethical considerations (including financial disclosures and conflicts of interest)
On September 27, 2007, the President of the United States signed the US Food and Drug
Administration Amendments Act (US Public Law 110-85). Among other things, this Act includes
a section on clinical trial databases (Title VIII), which expands the types of clinical trials that
must be registered in ClinicalTrials.gov, increases the number of data elements that must be
submitted, and also requires submission of certain results data. Applicable clinical trials
generally include:

Trials of drugs and biologics: controlled, clinical investigations, other than Phase 1
investigations, of a product subject to US FDA regulation; and

Trials of devices: controlled trials with health outcomes, other than small feasibility
studies, and pediatric post-market surveillance.
Any study, which receives federal funding from the US National Institutes of Health, must
comply with the reporting requirements and other protocols set forth under the US FDAAA. In
21
addition, standards for biotechnical trials involving human embryonic stem cells (hESCs) are
governed by the US National Institutes of Health's "Guidelines for Stem Cell Research", issued
on July 7, 2009 (in accordance with Executive Order 13505, issued on March 9, 2009). These
guidelines regulate the availability of funding and hESC strains for Use in clinical trials, generally
allowing for funding only for research done using excess IVF embryos created with reproductive
intent and barring funding for research done on cells from embryos created for research effect.3
Most universities have in place general agreements that govern industry sponsored clinical
trials, the transfer of tangible materials for Use in clinical research trials, and agreements with
third party contract research organizations (CROs). Examples of clinical trial agreements
(including material transfer agreements, clinical trial protocol agreements, and various licensing
or funding agreements) can be found at: http://ora.stanford.edu/clinical_trials/indU.S.try.html.
d.
Recommended Amendments to Russian Law
VII.A
Implementing Mandatory GMP Guidelines in the Russian Federation
In 2003, Russia adopted GMP guidelines consistent with those used in the European Union. See,
e.g., Gosudarstvennye Standarty State Standard (GOST) R 52249 "Good Manufacturing
Practices for Medicinal Products" (effective March 10, 2004, № 160). Currently, Russia's GMP
standards are not mandatory, but are merely recommended. GOST R 52249 should become a
mandatory technical regulation, as part of Federal Statute B "Technical Regulation on Safety of
Medical Products" (effective September 9, 2009). Adoption of, and compliance with,
mandatory international GMP standards will encourage international acceptance of Russianmanufactured pharmaceuticals and will promote innovative development and implementation
of clinical trials.
e.
Recommended Amendments to US Law
VII.B
Implementing US FDA Clinical Investigator Training Courses in the USA
The process of developing and implementing clinical trials in the United States is expensive and
lengthy, includes a number of regulatory hurdles, and is based on a limited, fragmented
infrastructure. Numerous obstacles exist to producing innovative clinical research, including the
length of time and high financial cost involved in conducting clinical trials, delays associated
with navigating the many regulatory and ethical requirements of studies involving human
3
The Russian Federation has a more permissive approach to embryonic stem cell research -- there
are no specific laws banning or regulating the research. Reproductive cloning is, however, prohibited.
22
subjects (e.g., Institutional Review Board (IRB) approval), and difficulties in recruiting and
retaining the appropriate patient population.
To eliminate or lower these barriers, the following amendments to US laws and regulations
should be enacted:
Current US regulations require the participation of clinical investigators in all US FDA-approved
trials, and the recruitment and retention of experienced, qualified investigators will help to
make clinical trials and research more effective and efficient.
Within the past few years, in conjunction with the Office of Critical Path Programs and the
Clinical Trials Transformation Initiative (CTTI), the US FDA has begun offering an annual, 3-day
training course for clinical investigators. See, e.g., Fed. Reg., Vol. 76, No. 146 (July 29, 2011
overview, agenda and 2011 course materials). This course offers a blueprint for the
development of standardized online or onsite training and certification programs for clinical
investigators. Along the lines of core competency training and CME requirements currently in
place for other types of healthcare providers, this type of central training program will avoid
redundancy and inconsistent results due to fragmented training. It will also allow for tailored
training for foreign clinical investigators (such as, through the offer of translated materials).
VII.C
Developing Investigators’ Standardized e-CRFs (Electronic Case Review Forms)
US FDA regulations require that clinical investigators must complete CRFs for any and all clinical
trials, and these vary widely from trial to trial, and by research group or investigator. See, e.g.,
21 CFR § 312.62 (mandating the preparation and maintenance of trial records). CRFs typically
address administrative issues, medical visits, medical history, adverse effects, and study results,
and they exist in both legacy (paper) format and electronic formats. Consistent with GCP
guidelines, new standardized e-CRFs could be developed and accessed via the US FDA and/or
CDER websites. e-CRFs will help to reduce errors, can be easily linked to other study forms for
comparison and analysis, and can reduce the need for repetitive data entry (that can simply be
copied from one study CRF to another). The US National Cancer Institute has developed
standardized e-CRF forms and modules currently, which could be applicable to all clinical trials.
See also US FDA's Guidance for Industry: Computerized Systems Used in Clinical Trials (May
2007).
VII.D Eliminating Required US FDA Statement of Investigator Form 1572
In addition to fragmented, inconsistent investigator training, US FDA regulations require
investigators to use redundant, confusing documentation in connection with clinical trials,
including the submission (and amendment) of the Statement of Investigator Form 1572 for new
drug applications or a change in labeling. Form 1572 is currently required for certain, but not
23
all, new drug clinical trials; it is not required in other countries; and the triggers for updating or
amending this form are confusing. Even if the IND regulatory framework is not entirely
eliminated or streamlined to comply with international GCP guidelines, Form 1572 should no
longer be required. Elimination of Form 1572 would not compromise the quality of clinical
trials (which would still comply with GCP protocols), and it would facilitate the recruitment and
retention of investigators.
VII.E
Eliminating Lengthy US FDA Approval of IND Trials’ Formulation/Development
Currently, the US FDA must separately approve the development and formulation of IND
(investigational new drug) clinical trials. In particular, an IND application must comply with a
very complicated, extensive regulatory process, and, once it is completed, a mandatory 30-day
waiting period goes into effect for additional US FDA/CDER (Center for Drug Evaluation and
Research) review. See, e.g., 21 CFR §§ 50, 54, 56, 58, 201, 312, 314, 316; US FDA Manual of
Polices and Procedures (MaPPs) §§ 4200.1, 5210.5, and 6030.1-6030.8; see also US FDA Forms
1571, 1572, 3454, 3455, 3500, 3500A, 3674. The costs and delays involved with this unique IND
clinical approval poses a high barrier to development of some of the most innovative and lifesaving medications and biotechnologies. In addition, the US FDA pre-approval consultation
process and extensive regulatory requirements make it more difficult for non-U.S. based
researchers to propose or conduct IND clinical trials.
The US should eliminate this lengthy and confusing approval process in favor of ensuring that
all clinical trials (including IND trials) must comply with international GCP and GMP guidelines.
It should be noted that US FDA has already amended its regulations concerning foreign clinical
trials, eliminating the requirement that they must comply with the Declaration of Helsinki
issued by the World Medical Association in 1989, in favor of a declaration that the foreign trial
must comply with GCP standards adopted in the International Conference on Harmonization,
Good Clinical Practice Guidelines, E6 (Finalized Guidelines May 1996). 21 CFR §312.120(a)(1)
(effective October 27, 2008). Movement towards compliance with this uniform, international
GCP standard for all clinical trials will encourage more efficient trial approvals, will encourage
U.S. participation in global trials, and will provide an incentive for global researchers to work in
and with the U.S.
VII.F
Implementing US FDA Guidelines for the Industry Use of a Centralized IRB
Delays associated with navigating the many regulatory and ethical requirements of studies
involving human subjects (e.g., Institutional Review Board (IRB) approval) present a major
barrier to efficient, innovative clinical research in the USA. See, e.g., 21 CFR § 56. US FDA
regulations currently allow for, but do not require, the use of a centralized IRB process.
24
In complying with these regulations, institutions involved in multi-institutional studies may use
joint review, reliance upon the review of another qualified IRB, or a similar arrangement aimed
at the avoidance of duplication of effort. See, e.g., 21 CFR § 56.114; see also FDA's Guidance for
Industry Using a Centralized IRB Review Process in Multicenter Clinical Trials (March 2006).
For multi-site and global trials, the US should revise its regulations to require a central IRB
approval process, and should expand the use of a centralized IRB review as optional for any
single-site studies as well. Consistent with the central IRB's currently in use (such as the
National Cancer Institute's CIRB project), initial review by a central IRB is circulated to local
institutions or IRBs participating in the trial, with a short commentary period (2 to 3 weeks).
This centralized process allows for the exceptional modification of the consent or protocol to
adjust to local context, but will avoid the delays and inconsistent protocols that arise from
multiple IRB reviews.4
VIII.
Expansion of the Jurisdiction of the RF Intellectual Property Court
In order to make the resolution of IP disputes in Russia more efficient, we recommend
amending the Russian regulations with respect to the recently created Russian Intellectual
Property Court, in order to cover not only patent disputes, as is currently the case, but also all
other IP disputes, including copyright cases. Amendments to be made to Article 26.1 of Federal
Constitutional Law No. 1-FKZ, dated 31 December 1996, “On the Judicial System of the Russian
Federation”, and Article 43.4 of Federal Constitutional Law No. 1-FKZ. dated 28 April 1995, “On
the Arbitration Courts in the Russian Federation”.
IX.
a.
Creation of an International Scientific and Technology Council
Background
The scope and nature of R&D projects vary greatly from country to country and industry to
industry, based on market needs and opportunities, specialized training and university
personnel, and unique national resources and interests. Nonetheless, certain core policies
should be common to any innovative, efficient project, such as:

encouraging free and open exchanges of ideas and knowledge;
4
P. Eisenberg (Amgen, Inc.), P. Kaufmann (National Institute of Neurological Disorders and Stroke), E.
Sigal (Friends of Cancer Research), and J. Woodcock (U.S. Food and Drug Administration), Developing a
Clinical Trials Infrastructure in the United States (April 13, 2012).
25





encouraging technology development and use;
encouraging broad access to research tools;
minimizing restrictions on imports and exports of technologies - both the
materials used in the projects, and the inventions or products derived from
them;
minimizing restrictions on licensing and/or ownership structures, in order to
encourage investment and participation in projects; and
in view of unmet global needs, such as those of neglected patient populations or
geographic areas, giving particular attention to improved therapeutics,
diagnostics, and agricultural technologies for the developing world.5
With these principles in mind, and in accordance with the Yaroslavl Roadmap6, an International
Science and Technology Council should be established to include Russian, US, and other
international scientists, academics, business leaders, investors, and politicians. Such a Council
could help advance the priority research areas of each country. As reflected in the Yaroslavl
Roadmap, the Russian government has identified "grand challenges" to include biotech and life
sciences; Cleantech (new energy sources); IT and supercomputing; space and
telecommunications; and nuclear technologies. (See generally Yaroslavl Roadmap, pp. 103-06).
As reflected in The Better World Project, sponsored by the Association of University Technology
Managers ("AUTM"), the US has identified critical global research & development projects as
being those in the areas of technologies which: (1) restore the earth, (2) enhance food sources,
(3) further the green movement, (4) improve health, and (5) replenish water supplies. The
Council should be mindful of the broader social impact of innovation, in addition to the
commercial and financial aspects of these priorities.
d.
Recommended Amendments to Russian Law and US Law
In general, legislation in both Russia and the USA should focus on creating an International
Technology and Science Council that will:

establish international scientific laboratories and integrated science and education
centers around the word;
5
See In the Public Interest: Nine Points to Consider in Licensing University Technology (March 2007)
available at: http://www.autm.net/source/NinePoints/ninepoints_endorsement.cfm (reflecting core
principles to which numerous. organizations and universities, including Stanford University, Harvard
University and the Massachusetts Institute of Technology, have agreed to pursue when engaging in R&D
projects and technology transfers).
6
The New York Academy of Science's Yaroslavl Roadmap International Experience and the Path
Forward for Russian Innovation Policy (October 2010) is available in English at:
http://www.Russiainnovation.com/wp-content/uploads/Yaroslavl-Roadmap_English-1.pdf.
26




prioritize major innovation programs of national (or global) importance;
improve import and export laws governing the transfer of technological materials and
results;
develop a global technology transfer e-portal; and
encourage the international training of technology transfer experts, as well as science
specialists.
An International Technology and Science Council could specifically assist in educating about
what scientists in other countries know concerning specific technologies, and defining the
level of ordinary skill in the art -- both essential factors in assessing patentability. Helping
the scientific community to centralize the process of research and development prevents
costly development of technologies that are not new. Scientists in the USA, Russia, and
elsewhere frequently work on what they believe to be new technology, only to find that
others have previously invented or patented the technology. A priority objective of the
Council should be to improve the international accessibility of technology through
conferences, information interchanges, and more timely access, and avoid duplication of
underlying research.
It should be noted that in connection with startup companies generally, many scientists and
researchers lack knowledge about issues critical to successful funding of new technologies,
such as freedom to operate and prior art. Investors focus heavily on these issues, and
typically will not fund a project until these questions are answered. A Council such as the
one proposed above can contribute to the dispersion of knowledge of newly developed
technology, which is essential for private funding.
In this regard, it should be noted that there are approximately 25,000 active patent
attorneys in the USA, while there are less than 2,000 in Russia. A larger pool of legally
trained experts would serve to enhance the foundation for developing, financing, and
protecting technological innovations.
Legislation should be considered in both Russia and the United States to lay the basis for the
creation of the recommended International Scientific and Technology Council to reflect the
reality that innovation no longer has geographic boundaries.
27
X.
Allowance of Tax Credit or Deduction for Research and Development Expenses
a. Background
The tax treatment of R&D expenses is an important factor in boosting innovation in most
countries. According to international accounting standards, R&D expenses are normally
capitalized, i.e., accumulated and treated as the costs of acquiring the resulting assets, rather
than being deducted for tax purposes from income as expenses in the year in which they are
incurred. Those capitalized costs are then deducted as amortization expenses over the
estimated useful lives of the resulting assets; or, if the R&D expenses do not produce anything
of value, they are written off and deducted in the year in which the project is abandoned.
Tax incentives, which enable taxpayers to deduct their R&D expenses sooner, reduce the
overall economic costs of R&D efforts. There are several types of tax incentives (listed below),
which could be used in any combination to better promote innovation.
i. Expensing vs. Capitalizing of R&D Costs. Allowing a taxpayer to deduct R&D expenses – in
whole or in part – in the year, in which they are incurred, is probably the most valuable benefit
for a large company, which carries out significant research and development. For established
companies with taxable income from existing products, this option allows them to recoup their
R&D costs immediately by reducing their current-year tax bill. However, most start-up
companies, which generally are not yet profitable, would prefer to capitalize, rather than
expense, their R&D costs, since additional tax deductions in the current year would not provide
them with any tax advantage. By capitalizing those expenses when incurred, a start-up
company would later have corresponding amortization deductions to offset its income when it
(hopefully) later becomes profitable. Accordingly, if expensing R&D expenses is going to be
allowed, it should be at the option of the taxpayer, i.e., to choose expensing vs. capitalizing.
Article 262 of the Tax Code of the Russian Federation (as revised by Federal Law No. 132-FZ,
dated June 7, 2011) (“the Tax Code”) already currently allows companies the option of deducting
up to 75% of their current year R&D costs, rather than capitalizing them, at least under certain
circumstances.
ii. Shortened Amortization Period. Another tax incentive is to shorten the recoupment period
for R&D expenses by shortening the allowable amortization periods for those expenses, which
have been capitalized. Arguably, taxpayers should be allowed to decide the lengths of the
amortization periods for themselves. There should be certain minimum amortization periods,
and the lengths of those periods should differ for different types of technology (e.g., the IP for
medical equipment should have a longer valuable life than the IP for video games.). In any
case, the taxpayer should be allowed to choose an amortization period longer than the
statutory minimum.
28
iii. Enhanced Tax Expense Deduction. Article 262 of the Tax Code currently allows corporations
to deduct 150% of their normally allowable R&D expenses, but only if the taxpayer has gone
through a cumbersome pre-approval process, which few if any taxpayers have done in practice.
This provision is relatively new, which, at least, partially explains its lack of wider use. This
incentive appears to be more valuable to taxpayers, than the options of allowing R&D costs to
be expensed (rather than capitalized) or shortening the lengths of the amortization periods,
because it actually reduces the amount of profits tax paid, rather than just delaying the time
when the tax is actually paid. If this option merely accelerates the timing of the deductions,
then it has the same effect as shortening the amortization period. This incentive is, and will
remain, controversial, unless and until all of the criteria for such an incentive that requires
advance approval will be clearly set forth in the law.
iv. Tax Credit. Providing tax credits for a portion of R&D expenses are believed to be more
common than tax enhancements in the international tax practice. A tax credit is more valuable
than an tax expense deduction, because a credit provides a ruble-for-ruble reduction in the
taxpayer’s liability to pay profit taxes, whereas an expense deduction has a value equal only to
the amount of the expense deduction times the applicable tax rate. Best practice suggests that
an R&D tax credit should be limited in amount to somewhere in the range of 5 to 25%, and it
should be targeted at particular types of R&D, which the government has a particular interest in
promoting. Moreover, a general R&D tax credit would be too costly (in terms of budget
revenues) and it would be too open to abuse. Like the enhanced tax expense deduction, a tax
credit actually reduces the taxpayer’s tax liability, while also accelerating the savings.
b. Russian Law
Article 262 of the Tax Code of the Russian Federation deals with R&D expenses and their
treatment for tax purposes. Changes in Article 262, such as those discussed in the various
options set forth above, would obviously also entail changes in, or the abandonment of, certain
other Russian legislative acts (e.g., various Regulations of the Russian Federation Government)
and other relevant provisions of the Russian Tax Code.
c. US Law
The US R&D tax credit was introduced in 1981, and was renewed multiple times through
December 31, 2011. On January 2, 2013, President Obama signed the American Tax Relief Act
of 2012 averting the “fiscal cliff” of tax increases and spending cuts. The Act reinstated the
research and development (R&D) credit retroactively from January 1, 2012, through December
31, 2013. This provision allows certain kinds of R&D spending, exceeding some base amount, to
qualify for partial reimbursement against taxes owed (i.e., a dollar-for-dollar reduction of the
income tax liability, which can be claimed in addition to the tax deduction for R&D expenses).
29
The basic formula for the R&D tax credit calculation is the following: Tax credit = 20% x
(qualifying research expenses - base amount of R&D spending).
In order for an activity to qualify for the R&D tax credit, a taxpayer must show that it meets all
of the requirements described in Internal Revenue Code (“IRC”) Section 41(d). Under
Section 41(d), the term "qualifying research" means research:
(a) with respect to which expenditures may be treated as expenses under Section 174;
(b) which is undertaken for the purpose of discovering information, which is technological
in nature;
(c) the application of which is intended to be useful in the development of a new or
improved business component of the taxpayer; and
(d) substantially all of the activities of which constitute elements of a process of
experimentation for a qualifying purpose.
The burden of proof is on a taxpayer to establish that all of the section 41(d)(1) requirements
have been met.
There are certain research activities, which are specifically excluded under section 41(d)(4):
research after the start of commercial production, adaptation, duplication, surveys, studies,
research relating to management functions, internal-use software, foreign research, research in
the social sciences, and funded research.
All R&D expenses are classified as (1) in-house research expenses, or (2) contract research
expenses.
In-house research expenses include:
(a) any wages paid to an employee for qualifying services performed by such employee,
(b) any amount paid for supplies used in the conduct of qualifying research, and
(c) under regulations prescribed by the Secretary, any amount paid to another person for
the right to use computers in the conduct of qualifying research.
Contract research expenses could be 65 percent of any amount paid by the taxpayer to any
person (other than an employee of the taxpayer) for qualifying research.
The base amount of R&D spending is equal to the average of the gross receipts for the four
preceding tax years multiplied by the taxpayer's fixed base percentage. The fixed base
percentage is the ratio of (i) those of its total qualifying research expenses for 1984 through
1988 to (ii) its total gross receipts for that period (the fixed base percentage is capped at 16 %).
30
For start-up companies, there is a fixed base percentage of 3% for the first five years.
6th year - qualifying research expenses / average gross receipts x 1/6
7th year - qualifying research expenses / average gross receipts x 1/3
8th year - qualifying research expenses / average gross receipts x 1/2
9th year - qualifying research expenses / average gross receipts x 2/3
10th year - qualifying research expenses / average gross receipts x 5/6
after 10 years – the actual percentage of qualifying research expenses / average gross receipts
d. Recommended Amendments to Russian Law
We recommend amending Article 262 of the Russian Tax Code to allow a taxpayer incurring
research and/or development (“R&D”) expenses to elect to reduce the total tax amount, which
is calculated under Article 286 or Article 249 of the Tax Code, in one of the ways set forth
below:
1. A taxpayer should be granted [the right to reduce the total profit tax amount by the
amount of the actual R&D costs (tax credit)], [preferential treatment for the deduction
of R&D expenses by applying a factor of 5] in the event that [the level of the R&D costs
is in excess of the base level established by the Russian Federation Government], [there
is an improvement in the growth of the R&D expenses being observed (by 20 percent
relative to the average value of the R&D expenses over the previous three tax periods],
or [the level of the R&D costs is in excess of 5 percent of the gross proceeds (sales
proceeds) indicator]. At the same time, the list of R&D activities, established by
Regulation of the Russian Federation Government No. 988, dated December 24, 2008,
should be abandoned.
2. The requirement to submit a report concerning completed research and development
(“R&D”), for which expenses are recognized under preferential treatment, should be
canceled. In this regard, for the purposes of applying the tax benefit under
consideration, an additional tax control mechanism should be established, namely the
requirement of the state accreditation of those organizations incurring R&D expenses
(similar to the state accreditation of organizations carrying out activities pertaining to
information technologies (IT), as per clause 6 of Article 259 of the Russian Tax Code).
3. The tax authorities should retain the right to obtain appropriate information
(documents) on demand, in order to confirm that the R&D work has been performed, as
well as the possibility of conducting an expert examination of the information provided
by the taxpayer under Article 95 of the Tax Code. In this regard, such an expert
31
examination should be carried out exclusively by the specialized institutions referred to
in paragraph 5, clause 8 of Article 262 of the Tax Code.
4. A taxpayer should have the right to record a loss from the sale of an intangible asset,
resulting from incurred R&D expenses, without any restrictions.
CURRENT VERSION OF RUSSIAN ARTICLE 262
PROPOSED VERSION OF RUSSIAN ARTICLE 262
1. For the purposes of this Chapter, research
and/or development expenses shall be deemed to
be expenses related to the development of new
products (goods, work, services) or to the
improvement of those being manufactured or to
the development of new technologies and
industrial
engineering
and
management
techniques or to the improvement of those being
applied.
1. For the purposes of this Chapter, research
and/or development expenses shall be deemed to
be expenses related to the development of new
products (goods, work, services) or to the
improvement of those being manufactured or to
the development of new technologies and
industrial
engineering
and
management
techniques or to the improvement of those being
applied.
2. Research and/or development expenses shall 2. Research and/or development expenses shall
include:
include:
1) Depreciation and amortization amounts for
fixed assets and intangible assets (other than
buildings and structures) used for research and/or
development charged as per this Chapter for a
period defined as the quantity of full calendar
months during which the said fixed assets and
intangible assets were used solely for research
and/or development;
1) Depreciation and amortization amounts for
fixed assets and intangible assets (other than
buildings and structures) used for research and/or
development charged as per this Chapter for a
period defined as the quantity of full calendar
months during which the said fixed assets and
intangible assets were used solely for research
and/or development;
2) Amounts of payroll expenses for employees
involved in research and/or development which
are envisaged by clauses 1, 3, 16, and 21 of Part
Two of Article 255 of this Code for the period
when those employees conducted research and/or
development;
2) Amounts of payroll expenses for employees
involved in research and/or development which
are envisaged by clauses 1, 3, 16, and 21 of Part
Two of Article 255 of this Code for the period
when those employees conducted research and/or
development;
3) Material expenses which are envisaged by
subsections 1 to 3 and 5 of clause 1 of Article 254
of this Code and which are directly related to the
performance of research and/or development;
3) Material expenses which are envisaged by
subsections 1 to 3 and 5 of clause 1 of Article 254
of this Code and which are directly related to the
performance of research and/or development;
4) Any other expenses which are directly related to
the performance of research and/or development
in an amount of no more than 75 percent of the
amount of payroll expenses referred to in
subsection 2 of this clause;
4) Any other expenses which are directly related to
the performance of research and/or development
in an amount of no more than 75 percent of the
amount of payroll expenses referred to in
subsection 2 of this clause;
5) Cost of work under research agreements and 5) Cost of work under research agreements and
under development and process engineering under development and process engineering
agreements for a taxpayer acting as a customer for agreements for a taxpayer acting as a customer for
32
research and development work; and
research and development work; and
6) Allocations to the generation of support funds
for scientific, technological, and innovative
activities established in accordance with the
Federal Law "On Science and State Scientific and
Technological Policy" in an amount not to exceed
1.5 percent of sales proceeds determined pursuant
to Article 249 of this Code.
6) Allocations to the generation of support funds
for scientific, technological, and innovative
activities established in accordance with the
Federal Law "On Science and State Scientific and
Technological Policy" in an amount not to exceed
1.5 percent of sales proceeds determined pursuant
to Article 249 of this Code.
3. If any employees referred to in subsection 2 of
clause 2 of this Article were involved, during the
performance period of research and/or
development, in any other operations of a
taxpayer unrelated to the performance of research
and/or
development,
research
and/or
development expenses shall be deemed to be the
respective amounts of payroll expenses for the
said employees in proportion to the time during
which those employees were involved in the
performance of research and/or development.
3. If any employees referred to in subsection 2 of
clause 2 of this Article were involved, during the
performance period of research and/or
development, in any other operations of a
taxpayer unrelated to the performance of research
and/or
development,
research
and/or
development expenses shall be deemed to be the
respective amounts of payroll expenses for the
said employees in proportion to the time during
which those employees were involved in the
performance of research and/or development.
4. The research and/or development expenses of a
taxpayer which are envisaged by subsections 1 to
5 of clause 2 of this Article shall be recognized for
taxation purposes irrespective of the outcome of
the relevant research and/or development in
accordance with the procedure contemplated in
this Article following the completion of such
research or development (individual work stages)
and/or the signature by the parties of a takingover certificate.
4. The research and/or development expenses of a
taxpayer which are envisaged by subsections 1 to
5 of clause 2 of this Article shall be recognized for
taxation purposes irrespective of the outcome of
the relevant research and/or development in
accordance with the procedure contemplated in
this Article following the completion of such
research or development (individual work stages)
and/or the signature by the parties of a takingover certificate.
A taxpayer may include research and/or
development expenses as part of other expenses
in the reporting (tax) period in which such
research or development activities (individual
work stages) were completed unless otherwise
stipulated in this Article.
A taxpayer may include research and/or
development expenses as part of other expenses
in the reporting (tax) period in which such
research or development activities (individual
work stages) were completed unless otherwise
stipulated in this Article.
5. A taxpayer may include any expenses directly
related to the performance of research and/or
development work (other than the expenses
envisaged by subsections 1 to 3, 5, and 6 of clause
2 of this Article) to the extent in excess of 75
percent of the amount of payroll expenses
referred to in subsection 2 of clause 2 of this
Article as part of other expenses in the reporting
(tax) period in which such research or
development activities (individual work stages)
5. A taxpayer may include any expenses directly
related to the performance of research and/or
development work (other than the expenses
envisaged by subsections 1 to 3, 5, and 6 of clause
2 of this Article) to the extent in excess of 75
percent of the amount of payroll expenses
referred to in subsection 2 of clause 2 of this
Article as part of other expenses in the reporting
(tax) period in which such research or
development activities (individual work stages)
33
were completed.
were completed.
6. A taxpayer's research and/or development
expenses which are envisaged by subsection 6 of
clause 2 of this Article shall be recognized for
taxation purposes in the reporting (tax) period in
which the respective expenses were incurred.
6. A taxpayer's research and/or development
expenses which are envisaged by subsection 6 of
clause 2 of this Article shall be recognized for
taxation purposes in the reporting (tax) period in
which the respective expenses were incurred.
7. A taxpayer incurring research and/or
development expenses on the basis of the list of
research
and/or
development
activities
established by the Government of the Russian
Federation may include the said expenses as part
of other expenses for the reporting (tax) period in
which such research or development activities
(individual work stages) were completed in the
amount of actual costs incurred by applying a
factor of 1.5.
7. A taxpayer incurring research and/or
development expenses in an amount in excess of
the base value established by the Government of
the Russian Federation may reduce the total tax
amount calculated as per Article 286 of this Code
by the entire amount of actual costs incurred in
the reporting (tax) period in which the same were
incurred.
OR:
7. A taxpayer incurring research and/or
For the purposes of this clause, a taxpayer's actual
development expenses may reduce the total tax
research and/or development costs shall be
amount calculated as per Article 286 of this Code
deemed to be the costs envisaged by subsections 1
by the entire amount of actual costs in the
to 5 of clause 2 of this Article.
reporting (tax) period in which the same were
8. A taxpayer exercising the right contemplated in incurred if the said costs exceed the average
clause 7 of this Article shall submit to the tax amount of research and/or development
authority for the locality of the organization a expenses for three previous tax periods by 20
report concerning any research and/or percent.
development work (individual work stages)
OR:
completed for which expenses shall be recognized
in the amount of actual costs incurred by applying 7. A taxpayer incurring research and/or
development expenses in an amount in excess of
a factor of 1.5.
5 percent of the amount of sales proceeds
The said report shall be submitted to a tax
calculated as per Article 249 of this Code may
authority simultaneously with a tax declaration
include the said expenses as part of other
based on the results of the tax period in which
expenses for the reporting (tax) period in which
research and/or development activities (individual
the same were incurred in the amount of actual
work stages) were completed.
costs incurred by applying a factor of 1.5.
The report concerning research and/or
For the purposes of this clause, a taxpayer's actual
development activities (individual work stages)
research and/or development costs shall be
completed shall be submitted by a taxpayer in
deemed to be the costs envisaged by subsections 1
respect of each and every research study and each
to 5 of clause 2 of this Article.
and every development effort (individual work
stage) and shall meet the general requirements 8. As requested by a tax authority, a taxpayer
established by a national standard for the drawing- shall provide information concerning any
research and/or development work (individual
up structure of scientific and technical reports.
As per Article 83 of this Code, a taxpayer classified work stages) completed.
as a major taxpayer shall submit the report A tax authority may, in accordance with the
envisaged by this clause to a tax authority for the procedure established by Article 95 of this Code,
locality where such major taxpayer is registered.
schedule an expert examination of the
34
A tax authority may schedule an expert
examination of the report referred to in this clause
to verify compliance of the research and/or
development work completed with the list
established by the Government of the Russian
Federation in accordance with the procedure
prescribed by Article 95 of this Code. Such expert
examination may be carried out by state
academies of sciences, federal and national
research universities, state scientific centers,
national research centers, or federal science and
high-technology centers.
In case of failure to submit the report concerning
research and/or development work (individual
work stages) completed contemplated in this
clause, the amounts of expenses for the
performance of that research and/or development
work (individual work stages) shall be recorded as
part of other expenses in the amount of actual
costs incurred.
9. If, as a result of any research and/or
development expenses incurred, a taxpayer
obtains exclusive rights to any results of
intellectual activities referred to in clause 3 of
Article 257 of this Code, those rights shall be
recognized as being intangible assets which are
subject to amortization subject to the procedure
established by this Chapter or, at the election of a
taxpayer, the said expenses shall be recorded as
part of other expenses related to production and
sales for two years. The accounting procedure
selected by a taxpayer for the said expenses shall
be reflected in the accounting policy for taxation
purposes. In this respect, any amounts of research
and/or development expenses previously included
as part of other expenses in accordance with this
Chapter are not subject to restoration and
inclusion in the original cost of an intangible asset.
If a taxpayer sells at a loss any intangible asset
resulting from any research and/or development
expenses incurred as referred to in clause 7 of this
Article, that loss shall not be recorded for taxation
purposes.
information provided by a taxpayer to verify
compliance of the research and/or development
work completed with the criteria referred to in
clause 1 of this Article. Such expert examination
shall be carried out by state academies of
sciences, federal and national research
universities, state scientific centers, national
research centers, or federal science and hightechnology centers.
9. If, as a result of any research and/or
development expenses incurred, a taxpayer
obtains exclusive rights to any results of
intellectual activities referred to in clause 3 of
Article 257 of this Code, those rights shall be
recognized as being intangible assets which are
subject to amortization subject to the procedure
established by this Chapter or, at the election of a
taxpayer, the said expenses shall be recorded as
part of other expenses related to production and
sales for two years. The accounting procedure
selected by a taxpayer for the said expenses shall
be reflected in the accounting policy for taxation
purposes. In this respect, any amounts of research
and/or development expenses previously included
as part of other expenses in accordance with this
Chapter are not subject to restoration and
inclusion in the original cost of an intangible asset.
If a taxpayer sells at a loss any intangible asset
resulting from any research and/or development
expenses incurred as referred to in clause 7 of
this Article, that loss shall not be recorded for
taxation purposes.
10. No provisions of this Article shall apply to
recognition for taxation purposes of the expenses
of any taxpayers carrying out any research and/or
development activities under a contract as a
responsible party (contractor or subcontractor).
11. (Deleted )
10. No provisions of this Article shall apply to
recognition for taxation purposes of the expenses
of any taxpayers carrying out any research and/or
35
development activities under a contract as a
responsible party (contractor or subcontractor).
11. The amounts of any research and/or
development expenses, including those failing to
yield a positive result, according to the list
envisaged by clause 7 of this Article commenced
prior to January 1, 2012, shall be included by a
taxpayer as part of other expenses in the reporting
(tax) period in which such expenses were incurred,
in the amount of actual costs incurred by applying
a factor of 1.5, in accordance with the procedure
effective in 2011. In this respect, the report
concerning such research and/or development
work (individual work stages) envisaged by clause
8 of this Article shall not be submitted by a
taxpayer.
XI.
Special Considerations for Accounting of Research and Development Expenses
d. Recommended Amendments to Russian Law
We propose the amendment of Article 332.1 of the Russian Tax Code to provide for special
considerations relating to the accounting of research and/or development expenses
(introduced by Federal Law 132-FZ, dated June 7, 2011).
Current Version of Article 332. 1
Proposed Version of Article 332.1
1. For analytical accounting, a taxpayer shall form
an expense amount for research and/or
development activities subject to grouping by
types of work (contracts) for all expenses incurred,
including the cost of expendable materials and
energy, depreciation of items of fixed assets and
amortization of intangible assets used for research
and/or development, payroll expenses for workers
performing research and/or development work, or
any other expenses directly related to the
performance of research and/or development
work by using one's own efforts and with an
allowance for costs associated with payment for
work under research work agreements or
development
and
process
engineering
agreements.
1. For analytical accounting, a taxpayer shall form
an expense amount for research and/or
development activities subject to grouping by
types of work (contracts) for all expenses incurred,
including the cost of expendable materials and
energy, depreciation of items of fixed assets and
amortization of intangible assets used for research
and/or development, payroll expenses for workers
performing research and/or development work, or
any other expenses directly related to the
performance of research and/or development
work by using one's own efforts and with an
allowance for costs associated with payment for
work under research work agreements or
development
and
process
engineering
agreements.
2. Tax ledgers shall contain the following data:
2. Tax ledgers shall contain the following data:
1) Amounts of research and/or development 1) Amounts of research and/or development
36
expenses subject to grouping by types of work expenses subject to grouping by types of work
(contracts);
(contracts);
2) Expense
amounts
by
expense
items
(depreciation of items of fixed assets, amortization
of items of intangible assets, payroll payments,
material expenses, other expenses directly related
to the performance of research and/or
development work) for each type of research
and/or development activities carried out by using
one's own efforts;
2) Expense
amounts
by
expense
items
(depreciation of items of fixed assets, amortization
of items of intangible assets, payroll payments,
material expenses, other expenses directly related
to the performance of research and/or
development work) for each type of research
and/or development activities carried out by using
one's own efforts;
3) Amounts of research and/or development
expenses incurred in the reporting (tax) period in
the form of allocations to generation of support
funds for scientific, technological, and innovative
activities created in accordance with the Federal
Law "On Science and State Scientific and
Technological Policy";
3) Amounts of research and/or development
expenses incurred in the reporting (tax) period in
the form of allocations to generation of support
funds for scientific, technological, and innovative
activities created in accordance with the Federal
Law "On Science and State Scientific and
Technological Policy";
4) Amounts of research and/or development
expenses incurred in the reporting (tax) period by
using the reserve for research and/or
development expenses to be incurred – for a
taxpayer forming the said reserve;
4) Amounts of research and/or development
expenses incurred in the reporting (tax) period by
using the reserve for research and/or
development expenses to be incurred – for a
taxpayer forming the said reserve;
5) Amounts of research and/or development
expenses yielding a positive result and failing to
yield a positive result included as part of other
expenses for the reporting (tax) period; and
5) Amounts of research and/or development
expenses yielding a positive result and failing to
yield a positive result included as part of other
expenses for the reporting (tax) period; and
6) Amounts of research and/or development
expenses yielding a positive result and failing to
yield a positive result included as part of other
expenses for the reporting (tax) period by applying
a factor of 1.5.
6) Amounts of research and/or development
expenses yielding a positive result and failing to
yield a positive result which reduce the total tax
amount calculated as per Article 286 of this Code
in accordance with the procedure contemplated
in clause 7 of Article 262 of this Code.
3. If a taxpayer created a reserve for research
and/or development expenses to be incurred as
per Article 267.2 of this Code, any expenses
incurred to implement any research and/or
development programs which reduce the amount
of the said reserve shall be reflected in the tax
ledgers in accordance with the procedure
established by this Article.
OR:
6) Amounts of research and/or development
expenses, including also those yielding a positive
result included as part of other expenses for the
reporting (tax) period in accordance with the
procedure contemplated in clause 7 of Article 262
of this Code.
AND/OR:
7) Amounts of research and/or development
expenses for the previous three tax periods and
the average value of the same.
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3. If a taxpayer created a reserve for research
and/or development expenses to be incurred as
per Article 267.2 of this Code, any expenses
incurred to implement any research and/or
development programs which reduce the amount
of the said reserve shall be reflected in the tax
ledgers in accordance with the procedure
established by this Article.
XII.
Lower Social Insurance Contributions for Organizations Conducting IT Activities
a. Background
Since 2011, when the rates for social insurance contributions were significantly increased in Russia,
there has been a recorded trend, by which Russian businesses have begun migrating to countries with
lower tax burdens. A new aspect of this trend has been particularly the migration of businesses to
Kazakhstan, which can be explained in part by the comparatively developed labor market, the absence
of language and customs barriers for Russian businesses, and certainly by the lower level of the tax
burden in Kazakhstan. Taking into account that the largest part of the expenditures of Information
Technology (“IT”) companies is allocated to payroll and, consequently, to the related social insurance
contributions, and the fact that IT companies are more flexible when it comes to their migration, as
compared with companies in other industries, it appears essential that a favorable tax environment
within Russia should be created for IT companies.
b. Russian Law
Federal Law No. FZ-212, dated July 24, 2009, "On Insurance Contributions to the Pension Fund of the
Russian Federation, the Social Insurance Fund of the Russian Federation, and the Federal Compulsory
Medical Insurance Fund" (“Law FZ-212”) provides an incentive tax rate of 14% in respect of the social
insurance contributions until the year 2017. In order to be allowed to utilize this incentive, an IT
company must qualify with the following three criteria:
1. It must be accredited by the state;
2. Its proceeds from the sale of software or software development services must be at
least 90 % of its total income; and
3. Its minimum average headcount must be equal to 30 employees.
c. US Law
The US Domestic Production Activities Deduction, i.e., Section 199 of the Internal Revenue Code, was
signed into law on October 22, 2004, as part of the American Jobs Creation Act of 2004. The general idea
of the introduction of this new deduction into the US Internal Revenue Code was to help offset the
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earlier repeal of a tax break for U.S. exporters (in response to a WTO ruling, which declared that the
"extraterritorial income exclusion" violated international trade law), in order to stimulate domestic
production and to create jobs in the United States.
The US Domestic Production Activities Deduction amounts to 9% of the lesser of (1) the net income
derived from qualifying production activities, or (2) the taxpayer’s total taxable income (an individual
taxpayer’s adjusted gross income).
The deduction cannot exceed 50% of the W-2 wages of an individual taxpayer for the taxable year (W-2
wages are as defined in Code Section 6051(a) (3) and (8) – they include most common wages and certain
types of deferred compensation).
The net income derived from qualifying production activities equals the excess of the taxpayer’s
domestic production gross receipts for the taxable year over (i) the cost of goods sold that are allocable
to such receipts and (ii) other expenses, losses, or deductions (other than the deduction allowed under
Section 199), which are properly allocable to such receipts.
Domestic production gross receipts are generally the gross receipts of a taxpayer that are derived from:

any lease, rental, license, sale, exchange, or other disposition of
i) qualifying products which were manufactured, produced, grown, or extracted by the
taxpayer in whole or in significant part within the United States7;
ii)
any qualifying film produced by the taxpayer;
iii) electricity, natural gas, or potable water produced by the taxpayer in the United States;
 in the case of a taxpayer actively engaged in a construction trade or business, construction of
real property performed in the United States by the taxpayer in the ordinary course of such
trade or business, or;
 in the case of a taxpayer actively engaged in an engineering or architectural services trade or
business, engineering or architectural services performed in the United States by the taxpayer in
the ordinary course of such trade or business with respect to the construction of real property in
the United States.
Qualifying production property includes:



any tangible personal property;
computer software;
sound recordings.
7
Under Notice 2005-14§ 4.04(5)(b) the requirement that property is manufactured, produced, grown, or extracted
“in significant part” in the United States is met if the taxpayer’s manufacturing activity is “substantial in nature,”
taking into account all of the facts and circumstances, including the relative value added by the taxpayer’s activity,
the relative cost of the activity, and the nature of the activity (the “facts-and-circumstances test”);
39
Tangible personal property
Tangible personal property includes any tangible property other than land, buildings (including
structural components), computer software, sound recordings, qualifying films, electricity, natural gas,
or potable water. Tangible personal property also includes any gas (other than natural gas), chemical,
and similar property, such as steam, oxygen, hydrogen, or nitrogen.
Computer software
Computer software includes the following:




Any program, routine, or sequence of machine-readable code, which is designed to cause a
computer to perform a desired function or set of functions, and the documentation required to
describe or maintain that program or routine. An electronic book online or for download does
not constitute computer software;
Machine-readable code for (a) video games or similar programs, (b) equipment that is an
integral part of other property, and (c) typewriters, calculators, adding and accounting
machines, copiers, duplicating equipment, and similar equipment, even if the program is not
designed to operate on a computer as defined in Section 168(i)(2)(B);
Computer programs, including, but not limited to, operating systems, executive systems,
monitors, compilers and translators, assembly routines, utility programs, and application
programs.
Any incidental and ancillary rights, which are necessary for the acquisition of the title to, the
ownership of, or the right to use computer software, and which are used only in connection
with that specific software. These incidental and ancillary rights are not included in the
definition of a trademark or trade name under US Treasury Regulations Section 1.1972(b)(10)(i).
Sound recordings
Sound recordings include any works, which result from the fixation of a series of musical, spoken, or
other sounds. The definition of sound recordings is limited to the master copy of the recordings (or
some other copy, from which the holder is licensed to make and produce copies), and if the medium
(such as compact discs, tapes, or other phono-recordings) in which the sounds may be embodied, is
tangible, then the medium is considered to be tangible personal property.
d. Recommended Amendments to Russian Law
We propose the amendment of Law FZ-212 to do the following:
1. To extend the application period for the incentive rate of 14% in respect of social insurance
contributions until the year 2027.
2. To expand the list of the types of activities, to which the lower rate of insurance contributions
can be applied, by including in the list certain other types of IT activities, provided that the larger portion
of the prime cost of those activities is accounted for by the payroll expenses relating to the personnel
involved in software development.
40
3. Concurrently with the expanding of the list of the types of IT activities falling within the
incentive, to revise the criteria dealing with the share of the proceeds from activities related to the sale
of software or software development services (paragraph 2, parts 2.1 and 2.2, of Article 57 of Law FZ212). We recommend that the application of the benefit should be linked to the share of the payroll
expenses relating to the IT specialists involved in the production of goods, work, or services, or to the
size of the IT assets involved in income-yielding activities.
4. To examine in detail whether it is possible to further soften the criterion of the minimum
average headcount, e.g., to amend (paragraph 3, parts 2.1 and 2.2, of Article 57 of Law FZ-212) by
reducing the average headcount threshold to X persons.
XIII.
Special Tax Base Calculation by Organizations Conducting IT Activities
d. Recommended Amendments to Russian Law
We propose the amendment of Article 275.2 of the Tax Code, on "Special Considerations Relating to the
Tax Base Calculation by Organizations Conducting Activities Pertaining to Information Technology on the
Territory of the Russian Federation", to permit the following:
1. Organizations conducting activities pertaining to information technology on the territory of
the Russian Federation should be permitted to record expenses incurred as part of their activities
pertaining to information technology by applying a factor of 1.5.
2. A number of criteria are required, and compliance with those criteria by IT organizations
would constitute grounds for granting preferential treatment; for example: maintaining separate
accounting, the existence of state accreditation, the share of the proceeds from activities pertaining to
information technologies totaling at least 90% of the total proceeds, and the average headcount of at
least 30 persons in the reporting (tax) period. Moreover, the key criterion for IT organizations to keep
expenditure records by applying a higher factor should be the fact that at least 70 percent of the
average headcount over the reporting (tax) period must stay on the territory of the Russian Federation
for at least 183 calendar days for 12 consecutive months.
3. Preferential treatment for keeping expenditure records should be granted both to Russian
and foreign organizations carrying out activities pertaining to information technology on the territory of
the Russian Federation. This would preclude possible discrimination on the grounds of the place of the
origin of the capital.
4. A list of the types of activities pertaining to information technologies for the purposes of the
state accreditation of organizations, i.e., for the adoption of state support measures, must be drawn up,
and the Regulations for the State Accreditation of Organizations Carrying Out Activities Pertaining to
Information Technology (approved by Regulation of the Russian Federation Government No. 758,
dated November 6, 2007) must be appropriately amended.
41
The definition of “Information Technology” (as approved by Regulation of the Russian Federation
Government No. 758, dated November 6, 2007) must be appropriately amended.
PROPOSED VERSION OF ARTICLE 275.2
1. IT organizations operating in the Russian Federation shall determine the tax base for IT activities
separately from the tax base for other activities.
2. For the purposes of this chapter, IT organizations operating in the Russian Federation could be
Russian or foreign organizations carrying out certain types of activities set forth by the Government.
3. Organizations referred to in paragraph 2 of this Article shall meet the following conditions:
organizations shall receive a document on the state accreditation as IT organizations, in accordance with
the rules provided by the Government of the Russian Federation.
organizations shall make separate accounting records of income (expenses) received (incurred) from IT
activities, and income (expenses), received (incurred) from other economic activities.
income from IT activities shall be at least 90 percent of the full amount of income of an organization for
a specified period.
average number of employees during the reporting (tax) period shall be at least 30 people.
at least 70 percent of the average number of employees during the reporting (tax) period shall actually
reside in the Russian Federation for at least 183 days within 12 consecutive months.
4. If all conditions specified in paragraph 3 of this Article are met, IT organizations have a right to deduct
its expenses related to IT activities by applying a factor of 1.5.
5. If an organization referred to in paragraph 2 of this Article, incurred a loss from its IT activities, such a
loss is treated under Article 283 of this Code.
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CONTRIBUTORS
Innovation Working Group, Legal Frameworks SubGroup
RF Co-Chair:
Igor Drozdov, Senior Vice President, The Skolkovo Foundation, Moscow
US Co-Chair:
James T. Hitch, Vice Chair of the ABA Section of International Law Russia Eurasia Law
Committee; Retired Partner, Baker & McKenzie International (Miami)
ABA Section of International Law Russia Eurasia Law Committee
Gene Burd, Co-Chair, ABA SIL RELC; Partner, Arnall Golden Gregory LLP, Washington, DC
James T. Hitch, Vice Chair, ABA SIL RELC; Retired Partner, Baker & McKenzie International (Miami)
David Fishman, Member, ABA SIL RELC; Consultant, Washington, DC
Jeff Burt, Member & Former Co-Chair, ABA SIL RELC; Retired Partner, Arnold & Partner, Washington, DC
Bruce Bean, Member & Former Co-Chair, ABA SIL RELC; Professor of Law, Michigan State University
School of Law, East Lansing, Michigan
ABA Rule of Law Initiative
Corinne Smith, Director of Europe & Eurasia, ABA Rule of Law Initiative, Washington, DC
Hana Hausnerova, Program Manager, ABA Rule of Law Initiative, Washington, DC
Melissa Hooper, Country Director – Russia, ABA Rule of Law Initiative, Moscow
Ekaterina Smolyannikova, Directing Attorney, ABA Rule of Law Initiative, Moscow
American Chamber of Commerce in Russia
Andrew Somers, President, American Chamber of Commerce in Russia, Moscow
Tatiana Raguzina, Executive Vice President, American Chamber of Commerce in Russia, Moscow
Igor Pozhitkov, Senior Director of Government Relations, American Chamber of Commerce in Russia,
Moscow
Editors of the Various Versions of the Report
Melissa Hooper, Country Director – Russia, ABA Rule of Law Initiative, Moscow
James T. Hitch, Vice Chair, ABA SIL RELC; Retired Partner, Baker & McKenzie International (Miami)
Anton Pushkov, Head of Legal, Intellectual Property Center, The Skolkovo Foundation, Moscow
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AUTHORS
Intellectual Property Law Working Group Co-Chairs
Philipp Windemuth, Partner, Orrick, Moscow
Anton Pushkov, Head of Legal, Intellectual Property Center, The Skolkovo Foundation, Moscow
Alexandra Darraby, Principal, The Art Law Firm. Los Angeles
Research and Development Laws Working Group Co-Chairs
Anne Wright Fiero, The Fiero Group, Lexington, Illinois
Jeffrey Burt, Retired Partner, Arnold & Porter LLP, Washington, DC
Andrey Kolesnikov, Director of Analytical Consulting Centre at the Innovation Economy Department,
Economics Faculty of Moscow State University, Moscow
Tax Law Working Group Co-Chairs
Arseny Seidov, Member, AmCham Tax Committee; Partner, Baker & McKenzie - CIS, Moscow
Vladimir Abramov, Co-Chair, AmCham Tax Committee; Partner, Ernst & Young (CIS) BV, Moscow
Maxim Chaplygin, Co-Chair, AmCham Tax Committee; Partner, Deloitte, Moscow
Additional Contributors
J. Christian Moore, Attorney, Moscow
Valentina Orlova, Pepelayev Group, Moscow
Andrey Tereschenko, Pepelayev Group, Moscow
JoAnna Esty, Managing Partner, Majesty Law Group PLC, Baltimore
Lita L. Nelson, Director, Technology Licensing Office, Massachusetts Institute of Technology, Cambridge,
Massachusetts
Pamela Egan, Pachulski Stang Ziehl & Jones LLP, San Francisco
Elena Beier, Partner, Beier & Partners, Philadelphia
44