IP Asset Management in Russia12 May 2021
At present, along with the increasing importance of intangible assets in the market-driven economy and with the development of the intellectual property law, the number of protectable and marketable intellectual property subject matters is constantly growing. It is remarkable that persons, in particular, legal entities and individuals, have started to show an increasing interest in the security and protection of the results of intellectual activity and means of individualization when creating, promoting, and selling products or providing services, both in Russia and abroad. At the same time, we see that in some cases intellectual property objects are acquired in the name of one holder and in other cases — in the name of several holders of the relevant rights (rights holders) for quite different purposes, including commercial and non-commercial.
However, in some occasions, it is rather difficult for a single person to manage the exclusive rights to numerous intellectual property subject matters within a single “portfolio” that need to be commercialized professionally and efficiently. The same situation involving the need to manage intangible assets may occur, for example, if the exclusive rights are reserved for several persons (joint rights holders). Even one person does not often know how to properly “monetize” his or her protected inventions or technical solutions that are innovative, industrially applicable, and needed by the public and how adequately protect his or her rights in case of their infringement by third parties. Actually, disposal and protection of the exclusive rights can be quite a sophisticated problem for many holders of intellectual property objects, both economically and legally, since it requires business spirit, managing talent, and established competence.
The legislation in the field of intellectual property, namely Part IV of the Civil Code of the Russian Federation (hereinafter the “Civil Code of Russia”), allows the rights holder to dispose of the exclusive right to the result of intellectual activity or means of individualization, owned by her, in any way or manner not contrary to the law and substance of such exclusive rights (Clause 1 of Article 1233 of the Civil Code of Russia). IP asset management may be one of such unique ways of disposal of the exclusive rights, which is described and discussed in this article.
It is worth reminding that, under Clause 1 of Article 1013 of the Civil Code of Russia, the objects of asset (property) management may be enterprises and other assets, individual items related to real estate, securities, rights certified with uncertificated securities, exclusive rights, and any other property. Therefore, based on the special provisions of the law, namely Clause 1 of Article 1233 of the Civil Code of Russia, and by virtue of the common rule of law, namely Clause 1 of Article 1013 of the Civil Code of Russia, the exclusive rights may be the object of management (See Clause 48 of Resolution of the Plenum of the Supreme Court of Russia No. 10 dated 23 April 2019 On Application of Part Four of the Civil Code of the Russian Federation).
IP Asset Management = Management of Rights on a Collective Basis?
In this context, it should be first noted that the civil legislation distinguishes two types of property (property rights) management: “classic” IP asset management and management of copyrights and related rights on a collective basis. In both cases, the legal basis for the creation of relevant legal relations is usually a corresponding management agreement. At the first blush, these statutory concepts will seem to be similar to each other, but that is not quite the case.
First, the objects of management may be the exclusive rights to quite different intellectual property subject matters, including the objects of patent law and secrets of production (knowhow), copyrighted works and objects of related rights, computer programs and databases, trademarks and service marks. The law contains no restrictions on a subject matter of management. At the same time, management of rights on a collective basis pertains only to the category of copyrights and related rights and may not cover any other intellectual property rights (Articles 1242–1244 of the Civil Code of Russia).
In addition, it is worth noting that a manager (administrator) can only be an individual entrepreneur or a commercial organization (entity), except for a unitary enterprise (Clause 1 of Article 1015 of the Civil Code of Russia). Meanwhile, only non-profit organizations may be granted the power to manage copyrights and related rights on a collective basis (Clause 1 of Article 1242 of the Civil Code of Russia).
Another difference between these statutory concepts is whether the entrusted manager is able to use the intellectual property objects, the exclusive rights to which are transferred for management purposes. So, for example, the organizations engaged in management of rights on a collective basis are not entitled to use the copyrighted- works and objects of related rights, the exclusive rights to which have been transferred to them for management purposes (Clause 4 of Article 1242 of the Civil Code of Russia). By comparison, in “classic” asset management scenario, the administrator may use a result of intellectual activity or a means of individualization herself, unless otherwise is established by the agreement.
As per the legal position of the Supreme Court of the Russian Federation, the manager may, when exercising her right to asset management, exercise the powers of a holder of the exclusive rights within the limits provided for by law and an agreement (Clause 1 of Article 1020 of the Civil Code of Russia) and dispose of the exclusive rights, unless otherwise is provided for by the agreement. However, as opposed to a licence agreement, a result of intellectual activity or a means of individualization may be used only for the benefit of the beneficiary (See Clause 48 of Resolution of the Plenum of the Supreme Court of Russia No. 10 dated 23 April 2019 On Application of Part Four of the Civil Code of the Russian Federation).
Finally, it shall be mentioned that, within the meaning of Clause 2 of Article 1012 of the Civil Code of Russia, the manager may take any legal and factual actions with regard to the property (property right) transferred for management, but all – for the benefit of the beneficiary and in accordance with the management agreement. An agreement may provide for special restrictions on certain actions (rights) of the administrator. By the way, the manager is obliged to make all transactions with the exclusive rights transferred for IP asset management on her own behalf indicating that she acts as such a manager (Clause 3 of Article 1012 of the Civil Code of Russia).
Speaking about management on a collective basis, organizations engaged in management of rights on a collective basis may, in particular, on behalf of the rights holders or on their own behalf, file claims with courts and perform any other legal actions required to protect the rights transferred to them for management on a collective basis (Clause 5 of Article 1242 of the Civil Code of Russia). An accredited organization may file claims with courts on behalf of rights holders as required to protect the rights managed by such organization (Article 1244 of the Civil Code of Russia).
As it can be seen now, when comparing these legal categories, the manager is obliged to act independently (on her own behalf), but for the benefit of the beneficiary (i.e. a grantor or her specified person). At the same time, the manager herself cannot be the beneficiary (Clause 3 of Article 1015 of the Civil Code of Russia). The idea of management of rights on a collective basis is to ensure the collection and allocation of the relevant royalties from third parties and protection (enforcement) copyrights and related (exclusive) rights against third parties, if such disposal (licensing) and protection (enforcement) of exclusive rights is not possible on an individual basis. There is no “beneficiary” concept as such in the model of management of copyrights and related rights on a collective basis.
IP Management Agreement – Essential Terms and Conditions
In accordance with Clause 1 of Article 1012 of the Civil Code of Russia, under an asset management agreement, one party (the grantor) transfers the property to the other party (the manager) for management for a certain period and the other party is obliged to manage this property for the benefit of the grantor or her specified person (the beneficiary). Transfer of the property for management does not entail transfer of the right of property thereto to the manager. Upon termination of the management agreement, the property in management must be transferred to the grantor, unless the agreement provides for otherwise (Clause 3 of Article 1024 of the Civil Code of Russia).
As to intellectual property, IP asset management is an agreement under which the rights holder (the grantor) transfers exclusive rights to another person (the manager) for management for a certain period and the manager is obliged to manage the exclusive rights for the benefit of the grantor or her specified person (the beneficiary). It is important to stress out here that the transfer of the exclusive rights for management purposes does not mean the transfer of the exclusive rights to the manager; the latter may only manage these rights for the benefit of the beneficiary during the period established by the agreement (but not exceeding the period of validity of the legal protection of the intellectual property subject matter) and in accordance with the terms and conditions of the agreement, while performing the agreed legal and factual actions, including when entering into transactions with third parties.
It is remarkable that the exclusive rights may be transferred for management under the agreement both in full and within certain limits. In particular, under such an agreement, the manager may be “entrusted” with the entire “triad of powers” (i.e., a full scope of the exclusive rights transferred), namely, a right to use by any means, a right to dispose of the same by any means, and a right to enforce the exclusive rights through any legal remedies, or it may be limited, for example, to the transfer of a right to dispose of the same by specific means (for example, through licensing) or a right to enforce the exclusive rights through certain legal remedies (for example, through filing civil actions in courts). In any case, the agreement should define the scope of the rights transferred for management along with the liability of the manager, including financial one, for non-fulfilment of her relevant duties.
It is important to emphasize once again that the manager may, when managing the exclusive rights, use and dispose of such rights (Article 1012 of the Civil Code of Russia). However, as opposed to a licence agreement, it may be done only for the benefit of the beneficiary (See Clause 2.2 of the Statement of the Intellectual Property Rights Court (IPRC) following the discussion of court practice issues at the meeting of the Research Advisory Board at the Commercial Court of the Ural Circuit on 23 May 2014 (approved by Resolution of the IPRC Presidium No. SP-21/90 dated 14 November 2014)).
In addition, within the meaning of Clause 1 of Article 1016 of the Civil Code of Russia, the IP asset management agreement must cover the following essential terms and conditions:
- Set of exclusive rights (i.e., a specific list of intellectual property objects referring to, inter alia, the registration numbers of documents certifying the exclusive rights) transferred for management;
- Name of a legal entity or an individual, for the benefit of which the exclusive rights are managed (the grantor or the beneficiary);
- Amount and form of remuneration to the manager if payment of remuneration is provided for by the agreement;
- Term of the agreement.
As it follows from the law, the management agreement should be concluded for a term not exceeding five years. If no notice of termination of the agreement upon its expiration is sent by either party, it should be deemed extended for the same term and on the same terms and conditions as provided for in the agreement (Clause 2 of Article 1016 of the Civil Code of Russia).
In such circumstances, it is necessary to take into account the period of legal protection of an intellectual property subject matter, the rights to which are transferred for management under the agreement. We believe that, by analogy with a licence agreement, in case of termination of the exclusive rights, the management agreement will also terminate.
As per Article 1023 of the Civil Code of Russia, the manager has the right to the remuneration stipulated by the agreement if payment of the same is agreed upon by the parties and such agreement is not remuneration-free. The form of remuneration payment is not established by law; hence, the parties may agree upon various financial conditions, including a lump sum (onetime) payment, periodic payments, certain interest from management, and any other forms. These forms of remuneration may be paid directly by the grantor or compensated by the income received from the IP asset management. It is apparent that such income should be generated by commercializing the relevant intellectual property objects based on licence (sublicence) or any other (commercial) agreements.
In addition to the right to remuneration, the manager may also claim reimbursement of necessary expenses incurred by her during the IP asset management. At the same time, necessary expenses incurred by her, in particular, payment of the official fees for maintenance of patents transferred for management, should be reimbursed by the grantor. By the way, while the manager acquires the right to remuneration if it is expressly provided for in the agreement, the right to reimbursement of relevant expenses does not depend on whether this right is regulated by the agreement or not.
Certainly, the IP asset management agreement shall be made in writing. Non-observance of the form of management agreement entails its invalidity (Clause 3 of Article 1017 of the Civil Code of Russia).
It should also be noted here that no state registration of the IP asset management as a form of disposal of the exclusive rights is provided for by law. At the same time, when managing the exclusive rights with regard to the registered intellectual property (for example, trade marks and service marks), when entering into transactions with third parties with regard to such subject matters, including licence or franchise agreements, the manager is obliged to ensure the state registration of the grant of rights under the relevant agreements and to disclose the management agreement concluded with the grantor (the rights holder) to Rospatent as a confirmation of her status. Otherwise, Rospatent may send a notice (request) or even refuse to perform the state registration of disposal of the exclusive rights, which will result in it being invalid (Clause 6 of Article 1232 of the Civil Code of Russia, Clause 2 of Article 1028 of the Civil Code of Russia).
Enforcement of Exclusive Rights Transferred for Management
As noted above, the contracting parties to the management agreement are the grantor and the manager. In practice, however, the grantor may be both – the rights holder (holder of the intellectual property object) and a holder of the exclusive rights (licensee). The manager may be either an independent professional manager (an individual entrepreneur or a commercial organization) or a sublicensee, as the case may be in practice. The nature of agreement and the management structuring will determine, among other things, the consequences related to the enforcement of the exclusive rights transferred for management.
Clause 2 of Article 1250 of the Civil Code of Russia does not expressly mention the administrator among the persons entitled to protect and enforce the infringed exclusive rights. However, the manager’s right to enforce such rights follows from the right to protection (enforcement) of property belonging to the grantor. Accordingly, if the grantor is the rights holder and the right to use in a certain specific way (or in all possible ways) the result of intellectual activity is transferred for management, the manager may both – exercise the rights transferred to her for management and enforce the same in the same ways as the rights holder may do. If the grantor is a licensee, the manager’s powers will depend on whether the rights of the licensee who has received the same under an exclusive licence agreement or who has received the same under a non-exclusive licence agreement are transferred to the manager for management. At the same time, the grantor, who has transferred the exclusive rights for management, may no longer itself independently use (apply for) the enforcement measures provided for by the Civil Code of Russia (See Clause 49 of Resolution of the Plenum of the Supreme Court of Russia No. 10 dated 23 April 2019 On Application of Part Four of the Civil Code of the Russian Federation).
The IP asset management business model is not much in demand today. However, there are some situations in practice that differ from the management of copyrights and related rights on a collective basis, when this statutory legal tool applies, including when forming relations for the use, disposal, and enforcement of rights to various objects of exclusive rights between joint rights holders and concentrating (accumulating) various objects of exclusive rights in one “pair of hands” who have no special or business skills in their commercialization and enforcement.
It is apparent that as the total number of transactions concluded in the area of intellectual property increases, the share of transactions accounted specifically for IP asset management will grow, establishing a new, positive practice in this particular field. We are certain that in the future this contractual instrument will be used by business more often and in this regard will have a more practical importance for lawyers and IP attorneys.