International Technology Transfer in Russia: IP Protection & Legal Guide

 

June 19, 2024

BRACE Law Firm ©

 

The economic development of any state depends on many factors that affect not only the increase in real production volumes but also overall economic growth and its quality. As economies develop, the list of these factors undergoes adjustment, and their importance is continuously reassessed.

For most of the world's leading countries, the priority has shifted toward developing the innovation sector, the knowledge economy, and technology transfer. The process of transferring knowledge and technologies, as well as the production and transfer of high-tech products, now occupy key positions in industrialized nations. In the context of modern global economic transformations, the level of development of a national innovation system creates a country's global economic superiority.

From 2010 to 2021, the volume of global high-tech exports grew 1.5 times, reaching $4.9 trillion. Among developing countries, China, Malaysia, India, Thailand, Indonesia, Vietnam, and the Philippines lead the global market. The share of other developing countries remains insignificant. High-tech exports from developing countries are growing twice as fast as corresponding exports from developed countries. As a result, the share of developing countries in the global high-tech market increased from 29% to 39% between 2010 and 2021. Notably, China’s share in the export of semiconductor products and telecommunications equipment grew significantly, from 6% to 18%.

Among developed economies, the United States and EU countries are the largest exporters of high technology. They are followed by Japan, South Korea, and Taiwan, each accounting for 5–8% of the world market. While the US share of the global technology market is declining, its exports are growing faster than the average for developed countries. This growth is primarily driven by increased volumes in the pharmaceutical and aerospace industries. The share of EU countries in global high-tech exports decreased from 19% to 16.5%.[1]

As for Asian countries — Japan, South Korea, and Taiwan — they have shown divergent trends. Japan's share in the global export of knowledge-intensive products is declining. The gross volume of its high-tech supplies in 2021 amounted to $218 billion. Due to financial difficulties, many Japanese companies moved their production to Taiwan, China, and other Asian countries to reduce costs. Export growth in Japan is observed only in information and communication technologies. Over ten years, Taiwan doubled its high-tech exports to $232 billion, surpassing Japan and becoming the leader among developed Asian countries in high-tech exports.[2]

What Is Technology Transfer?

Professional literature and scientific periodicals sometimes use the terms "transfer" and "transfert" (transfert) interchangeably without highlighting significant substantive differences. Both terms are borrowed and essentially mean the same thing in translation:

• "Transfer" is derived from the English "to transfer" meaning to carry or move.
• "Transfert" is derived from the French "transfert" or Latin "transfero" also meaning to carry or move.

However, in established practice, the term "transfert" is more applicable to the movement of gold, financial resources, and securities, and is treated as an economic term. Conversely, "transfer" more often implies the transportation of people (tourists) or the movement of technologies, and is treated as a term in tourism and the innovation (knowledge-intensive) economy, respectively.[3]

Current Russian legislation does not contain a definition for "transfer", although the term is actively used in policy documents of the Government of the Russian Federation. [4] In a general sense, the term "technology transfer" denotes the process of successfully applying or adapting technologies, acquiring unique knowledge, and obtaining original results in any sphere of human activity, supplemented by their further material (or other) embodiment and commercialization in other industries.

Article 769 of the Civil Code of the Russian Federation (the "Civil Code") mentions "new technology" that may be developed under a contract for the performance of Research and Development and Experimental Design Work. Furthermore, there previously existed the concept of a "unified technology," defined as an objectively expressed result of scientific and technical activity that includes a combination of inventions, utility models, industrial designs, computer programs, or other results of intellectual activity subject to legal protection, which can serve as the technological basis for specific practical activities in the civil or military sphere (Clause 1, Article 1542 of the Civil Code). In practice, the legislative institute of unified technology did not become widespread, and Chapter 77 of the Civil Code lost its force as of January 1, 2022.

"Technologies" should be understood as a wide range of results of scientific and technical activity, represented by such objects of intellectual progress as inventions, software products, industrial designs, information models, etc. The effective functioning of technology transfer as a system for transferring scientific and technical results in an objective form is a fundamental criterion for the development of a country's innovative potential.

In the 21st century, the development of a regional economy is largely determined by the efficiency of technology transfer within specific states and the region's overall participation in international technology transfer.

The implementation of technology transfer involves six specific stages:

• Identification of priority directions for a new product;
• Market evaluation of priority areas for potential implementation;
• Calculation of the economic efficiency of implementation;
• Study of possible negative consequences from the commercialization of the innovation;
• Documentation of transfer transactions;
• Authorial supervision.

Economic entities striving for scientific and technical excellence are encouraged to implement and industrially master the results of Research and Development (R&D) within the shortest possible timeframes. The more intensively innovative technologies are mastered, the faster the processes of creating high-tech products are activated, thereby increasing the competitiveness of organizations in the global market for knowledge-intensive developments.

During technology transfer, the transferred object acquires the properties of a product that will meet market requirements and satisfy consumer demands.

It follows that the technology transfer process reduces transaction costs and allows for the creation of added value. Technology transfer implies the transfer of an innovative development from one subject to another using various communication channels, participation in the transit of an innovative resource, and the linking of innovation activity stages.

Given the relevance of digital transformation, this process can be not only linear—moving from science to industry — but also multidimensional, where the product is a joint development. In this case, industry supplements science with market-driven tasks, while the scientific side enhances market proposals with capabilities to strengthen those proposals.

The main driver of technology transfer in market conditions is the demand for innovation: counterparties identify tasks that require innovative technological solutions, and technology transfer satisfies technological and investment demand through the market mechanism and corresponding infrastructure.

Each subject participating in technology transfer influences the intensity of the transfer and the guarantee of bringing the development to the stage of industrial development, contributing economic resources and services to the evolutionary development of the technology.

Technology transfer can be either a one-time process of transferring technology through a specific communication channel or a multi-stage process depending on the specification, purpose, technical readiness stages, and contract terms.

Technology transfer is a multifactorial and complex economic process requiring an integrated approach to identify promising methods for searching, transferring, implementing, and industrially mastering R&D results necessary for the production of competitive products. The key performance indicator of technology transfer is the transfer and mastery of the most suitable technology for organizing production activities. Technology transfer serves as a fundamental form of moving scientific and technical information of applied significance, as well as practical experience in effectively organizing high-tech production.

The technology transfer process involves both direct and indirect forms of transferring R&D results. Direct or active technology transfer is associated with specific technologies or ideas and is carried out through joint research projects or partnership agreements.

Indirect or passive technology transfer involves the exchange of information through events such as informal meetings, publications in scientific journals, scientific-practical conferences, and thematic seminars. In the initial stages of a technology's life cycle, indirect information transfer predominates, making it difficult to determine the origin of specific types of technologies or ideas.

The process of transferring R&D results is carried out with the active participation of various innovation entities, whose main role is to add value to the process and support the core mechanisms of the functional system. Given the variety of innovation system forms, the combined efforts of technology transfer participants may vary in different combinations depending on the organizational mechanisms of interaction, the specifics of cooperation processes, the degree of autonomy, and so on. This means that all subjects involved in the technology transfer process depend on the environment in which they operate, while simultaneously contributing to its evolutionary stability and progressive development.[5]

Protecting the Technology Right Holder’s Rights in the Partner Country

The protection of intellectual activity results during technology transfer can be carried out through patent protection or protection as a trade secret.

Organizations acting as transferring and receiving parties should choose the form of legal protection based on the following factors:

• The object of intellectual property and its patentability criteria;
• The desired term of legal protection;
• The degree of protection provided by patents versus trade secret status.

The desired term of legal protection is calculated based on the expected period of use of the intellectual activity results.

When assessing the degree of protection, it is necessary to consider the features and conditions of using the scientific and technical result, the enterprise's financial capabilities and technical policy, the market situation for similar products, and the intended methods of using the intellectual activity results (for internal or commercial purposes).

The choice between patent protection and trade secret status can only be made if the intellectual activity results qualify as objects of patent law. If they do not, legal protection is carried out through trade secret status.

When deciding between patent protection and trade secret status, parties should consider that:

• Patent protection provides title documents but requires disclosing the patented solution to an unlimited number of people;
• Trade secret protection (know-how) requires the right holder to personally ensure the confidentiality of technical information. If confidentiality is breached, the rights to the trade secrets (know-how) are terminated.

The patenting process includes the following stages:

• Drafting a patent application.
• Filing the patent application. If the application is filed under the Patent Cooperation Treaty (the "PCT"), the first response from the patent office with international search results should be received within nine months of filing. This report contains an analysis of the invention's patentability. Upon receiving this response, the right holder works, if necessary, to amend the invention's description and claims to meet patentability criteria. If the application is filed according to a national procedure, patent examination may take years before the patent office decides to grant the patent.
• Granting the patent. After successfully passing the examination, the national patent office grants the patent.
• Maintenance: A patent requires the right holder to perform certain actions, including paying maintenance fees to keep exclusive rights in force, and sometimes providing legal defense in case of infringement or attempts to invalidate the patent.
• Expiration: In most countries, a patent is valid for 20 years from the filing date, unless it is invalidated earlier or the owner stops paying maintenance fees.

These stages are similar across various countries where a right holder intends to obtain patents.

It should be noted that there is no such thing as an "international patent." Any existing patent is national, meaning its effect is limited to the territory of the state whose national patent office granted it.

Nevertheless, there is a concept of an "International Patent Application" under the PCT. Since a single protection document does not exist in the PCT due to differences in national laws, the entire procedure is divided into two phases: international and national. In the international phase, an international patent search and publication are mandatory, and an international preliminary examination may be conducted at the applicant's request. In the national phase, each state where the applicant seeks protection decides whether the invention meets patentability criteria and, if so, grants a protection document. Therefore, when filing an international application, one must consider that PCT regulations govern the international phase, while national patent laws govern the national phase.

The PCT allows for obtaining patent protection outside a single state in a convenient, cost-effective, and efficient way. An applicant only needs to file one "international" application in one receiving office in one language to seek protection in all PCT member states. This application has the force of a properly filed national application in each designated state. Without this, the applicant would have to file as many national applications as there are states of interest.

When filing under the PCT, the applicant has a time margin before entering the national phase, as the maximum period for entry is 30 months from the priority date.

The PCT procedure mandates an international search for every international application and allows for an optional international preliminary examination. This enables the applicant to evaluate the feasibility of further patenting based on the search report and examination findings before paying significant national fees.[6]

Establishing a trade secret regime for information regarding intellectual activity results (know-how) allows the receiving party to secure rights (possession, use, and disposal) to the transferring party's documentation containing this information. To ensure legal protection, the holder must establish a trade secret regime for the information constituting the essence of the know-how.

Technology Transfer in Russia

The technology transfer system in Russia currently exhibits characteristics typical of a transition period. An effectively developing economy is usually characterized by a prevalence of new knowledge-intensive technologies in its import structure and the sale of mature technologies in its export structure. [7]

In 2021, 6,783 export agreements worth $40,848.7 million were concluded in the technology trade sector, including:

• Patents for inventions: 5 worth $2.3 million;
• Patents for selection achievements: 6 worth $6.3 million;
• Patent licenses for inventions: 327 worth $76.3 million;
• Utility models: 3 worth $0.4 million;
• Know-how: 93 worth $466.2 million;
• Trademarks: 173 worth $169.4 million;
• Industrial designs: 4 worth $0.1 million;
• Engineering services: 2,022 worth $34,433.05 million;
• Scientific research: 1,687 worth $1,945.0 million;
• Other: 2,463 worth $3,749.4 million.[8]

In the import sector, 6,701 agreements worth $19,846.2 million were concluded, including:

• Patents for inventions: 21 worth $202.8 million;
• Patents for selection achievements: 91 worth $5.5 million;
• Patent licenses for inventions: 329 worth $1,863.1 million;
• Utility models: 19 worth $4.3 million;
• Know-how: 274 worth $1,333.0 million;
• Trademarks: 623 worth $3,538.1 million;
• Industrial designs: 16 worth $3.2 million;
• Engineering services: 2,494 worth $9,224.6 million;
• Scientific research: 641 worth $339.5 million;
• Other: 2,193 worth $3,332.1 million.[9]

Thus, analysis of Russia's technology export and import dynamics shows that imports exceed exports. This indicates the non-competitiveness of domestic technologies in global markets and suggests that Russia has been forced to purchase foreign developments rather than using its own.[10] This circumstance places Russia in a position of dependence on technologically advanced countries. As a "catching-up" country, Russia lags in high technology. This is partly because developing internal technologies is often less profitable than importing them, despite the domestic economy possessing all necessary resources (human, financial, etc.) and a significant raw material base for modernization. However, potential alone is not a sufficient advantage for prioritizing technology transfer in state innovation policy. [11] Since 2022, when unfriendly countries began imposing sanctions on Russia, including technology transfer bans, Russia has been forced to develop its own technologies or find other import channels.

It is worth noting the insignificant volume of Russia's export and import of non-embodied technologies like patents, licenses, and know-how. Currently, Russian manufacturers prefer to purchase technology in embodied form, such as machinery and equipment. Meanwhile, global experience shows that importing licenses and know-how is often much more profitable. Licensing agreements, besides saving foreign currency, usually allow the purchaser to receive know-how and assistance in improving the licensed product. Furthermore, such agreements can serve as a base for new domestic developments. [12]

One of the primary tasks for economic growth in Russia is ensuring the development of domestic high-tech production, globally competitive goods, and their promotion in the global innovation market.

State policy plays a major role in strengthening Russia's position in the international technology market. Currently, Russia lacks a comprehensive vision of the innovation process, leading to "gaps" in the legal regulation of transferring Russian technologies abroad. Even with state innovation support programs, the legislation lacks federal-level regulations that establish core principles for transfer exchanges and regulate the process while accounting for all its features.

One of the most important conditions for an innovation breakthrough in the Russian economy must be comprehensive transfer legislation. Laws already address securing rights to scientific and technical results, but legislation still does not cover all accompanying aspects of transfer, including infrastructure.

Due to the country's vast territory, there is a lack of proper infrastructural mobility, which complicates the direct transfer of technologies (e.g., technology carriers or equipment requiring installation). Improving the legislative issue of infrastructural accessibility for research sites and technology exchange centers (e.g., creating scientific exchange centers where scientists can reside via state grants or subsidies) is essential.[13]

We note real steps taken toward resolving this problem. For example, important aspects of transfer legislation included the adoption of Federal Law No. 284-FZ dated December 25, 2008, On the Transfer of Rights to Unified Technologies, and Decree of the Government of Russia No. 880 dated October 31, 2009. However, these documents lost force on January 1, 2022, as the law's provisions were included in Part 4 of the Civil Code.

Technology Transfer Transactions

Technology transfer is carried out by ensuring legal protection of intellectual property and then licensing it to companies — both "startups" and industry leaders.

During technology transfer involving the transfer of scientific, technical, and design documentation, technological data, and/or industrial equipment, the transferring party transfers the exclusive right or the right of use to its intellectual activity results via an assignment agreement, a license agreement, or another contract containing elements of these.

The following intellectual property objects can be transferred independently or as part of a complex object/unified technology:

• Inventions;
• Utility models;
• Industrial designs;
• Trade secrets (know-how);
• Topologies of integrated circuits;
• Computer software;

The following transactions may be concluded during technology transfer:

• R&D Contract: Concluded if a potential "buyer" sets a task for which no current solution exists;
• Exclusive Right Assignment Agreement: The right holder transfers exclusive rights to a new owner and loses them;
• License Agreement: The right holder allows another person or organization (the licensee) to use the IP for a fee within specific territorial and time limits;
• Non-Disclosure Agreement: Allows parties to exchange confidential information at any stage;
• Material/Sample Transfer Agreement: Allows parties to exchange physical research results, such as samples for analysis and testing;
• Joint Invention Agreement: Concluded when employees of two or more organizations co-author an intellectual activity result. It usually specifies the lead party, cost distribution for legal protection, and income distribution.

Technology transfer may involve establishing joint ownership of intellectual activity results. For example, when some participants provide intellectual contributions and others provide financing. Compared to licensing, this prevents an unequal position where a licensee depends on the licensor's actions (e.g., if the licensor abandons the right or ceases operations). Joint ownership is possible for patents and sometimes copyrights, but not for trademarks (except collective trademarks).

Information on transferred intellectual property objects should include:

• The type of object;
• Its name;
• The type and details of the protection document (patent for inventions/utility models/industrial designs, or a certificate for software/databases/topologies) or the registration application;
• The value of the intellectual property object.

Transactions concluded within technology transfer should include provisions on:

• Pre-trial dispute resolution procedures and implementation mechanisms;
• Restrictions: territorial limits and prohibited actions under the contract;
• Future activity or production restrictions;
• Marketing use restrictions;
• Obligations not to register "competing" intellectual activity results;
• Liability for infringing the rights of the other party or third parties;
• Limitation of liability;
• Rights protection coordination mechanisms;
• Substantive law (if parties are residents of different states).

Technology Transfer in Russia Under Sanctions

Western countries, particularly the United States, have imposed unprecedented sanctions on Russia, including in science and technology. These sanctions have affected major tech companies. For instance, Apple stopped product sales in Russia and restricted Apple Pay. Due to US chip export bans, Intel and AMD offices outside the US notified partners that supplying processors to Russian entities on export control lists is prohibited. Since major IT companies like Google, Intel, Apple, and Facebook left Russia, the brain drain of highly qualified IT personnel has become more noticeable. Additionally, Oracle suspended all operations in Russia. [14]

The Russian technology industry faces a severe challenge. Economic entities are in new conditions that sharply restrict technology transfer possibilities. In 2022 and early 2023, state funding for innovation programs was reduced, and the venture financing market was reshaped as many headline funds and companies left Russia. The US government also announced potential "secondary sanctions" to punish third-party companies exporting high-tech products to Russia.

An integral part of technological progress is equipping laboratories with modern equipment. Since the sanctions, purchasing modern equipment and advanced software has become much more difficult. The ban on importing foreign technologies is one of the most painful sanctions, as the Russian economy is heavily dependent on them. Rapid technology obsolescence increases the risk of process disruptions and production safety issues, particularly in the oil, gas, and energy sectors, which could lead to large-scale disasters with unpredictable environmental consequences.

Based on a July 2022 study by the Higher School of Economics, many companies faced restrictions or significant price increases for imported equipment, components, software, and services. Likely negative consequences include reduced demand, production cuts, and the need for technological re-equipping. Innovation development based on the previous model of technology imports has been blocked.[15]

The growth of the "pirate" high-tech market, especially software, is dangerous due to the lack of functional guarantees and timely updates, which can lead to increased defects and unexpected failures. Furthermore, the inability to update software components reduces their resilience against cyber threats. Given the rise in hacking, domestic industries could become targets for mass cyberattacks.[16]

Continual sanction pressure aims to weaken strategically important sectors of the Russian economy. Blocking access to advanced technologies has weakened the effectiveness of domestic import substitution policies.

In the short term, the impact of sanctions on Russian science and technology is reflected in the suspension of international cooperation projects, the cessation of foreign funding for research, and the halt of scientific personnel exchanges. In the long term, sanctions will affect fundamental research and innovation development, potentially leading to a drain of young researchers and high-demand personnel.[17]

To protect technological sovereignty, Russian state bodies have taken the following measures during the sanctions period:

• Active work by the Ministry of Industry and Trade of Russia and state development institutes (Rostec, VEB.RF, JSC SME Corporation, JSC RVC) to intensify cooperation between large businesses and innovative SMEs. Since 2021, 29 national innovation development institutes have been formed.
• Centralization of innovation funding in accredited state structures, such as the Fund for the Promotion of Small Scientific and Technical Enterprises and the Industry Development Fund. This has strengthened control over the targeted use of funds.[18] Under sanctions, innovation funding in Russia grew from 523 billion rubles to 955.8 billion rubles in 2022. Financing available to SMEs increased from 37.1 billion to 88.3 billion rubles, and the volume of innovative products grew from 2.3 billion to 4.3 billion rubles.
• Utilizing existing state platforms (Smart Utilities, Digital Urban Environment, Health) to form a favorable environment for generating innovations and exchanging practices, including through SME crowdsourcing and state orders.
• The Ministry of Industry and Trade and the Government permitted "parallel import" for specific goods necessary for the national economy. In 2023, Chinese exports to Russia reached a record $111 billion, up 47% from the previous year.
• Deepening scientific and technical cooperation with China. China has helped reduce high-tech shortages in energy, oil and gas, and ICT by providing substitute goods. Examples of cooperation programs include Phystech.Start China, TealDANCE business accelerator, and the Silk Road Innovation Park.[19]

If technology transfer between Russia and China remains high, significant scientific achievements can be expected in several areas:

• Energy: Enhanced cooperation in nuclear energy and joint research into renewable sources like solar and wind power.
• Industry and Manufacturing: Potential for joint research in mechanical engineering, aircraft design, and complex mechanisms.
• Medicine: Cooperation in disease research and drug development, accelerating the production and testing of new medicines. Additionally, cooperation in the petrochemical complex can focus on production, supply, and reducing harmful emissions.

Currently, international technology transfer is a key factor in technological progress and national competitiveness. Although Russia has a strong research base, the dissemination of knowledge through technology transfer is not yet intensive enough.

Under sanction pressure, Russia's technology transfer sector has faced challenges like investment shortages and brain drain. In response, the state took prompt measures to support innovation, including increased investment and parallel import. However, technology transfer development has slowed, and solving this problem in the short term remains a difficult task.

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References

[1] Prokofiev V. A. Modern Trends in Technology Transfer Development. Asia-Pacific Region: Economics, Politics, Law Journal, 2023, Vol. 25, No. 4.

[2] Ibid.

[3] Rybkina E.A., Khayrullin R.N. Technology Transfer in Russia and Abroad. "Innovations" Journal, 2018, No. 9.

[4] Latyntsev A. V. Proposals for Defining the Term "Technology Transfer." "Journal of Russian Law," 2017, No. 4.

[5] Kleshcheva E.A., Agalakova A.V. The Role of Technology Transfer in the Modern Economy. Actual Problems of Aviation and Cosmonautics Journal, 2022, Vol. 2.

[6] General Information About the PCT. Rospatent Website. November 29, 2017.

[7] Solovyeva Yu.V. Technology Transfer of EAEU Member States: Regional Features. Azimuth of Scientific Research: Economics and Management Journal, 2016, No. 2 (15).

[8] Russian Statistical Yearbook. 2023.

[9] Ibid.

[10] Alekseeva E.V., Zavyalov D.S. The Place of the Russian Federation in International Technology Trade. "Bulletin of the Academy of Knowledge" Journal, 2021, No. 43(2).

[11] Solovyeva Yu.N. Technology Transfer in Russia: Current State and Development Prospects. "Innovations" Journal, 2019, No. 5.

[12] Prokofiev V. A. Modern Trends in Technology Transfer Development. "Asia-Pacific Region: Economics, Politics, Law" Journal, 2023, Vol. 25, No. 4.

[13] Abramtseva A.N., Antipov A.A., Radik V.Ya. Main Trends and Prospects for Russian Technologies: A Statistical Study. "Economics. Law. Innovations" Journal, 2023, No. 1.

[14] Kostin K.B., Shimko P.D., Sun Qi. International Technology Transfer in the Russian Federation and Its Prospects Under Current Sanctions Restrictions. "Issues of Innovation Economics" Journal, 2022, Vol. 12, No. 4.

[15] What Prevents Russian Business from Developing Innovations? Institute for Statistical Studies and Economics of Knowledge Website, July 28, 2022.

[16] Gudkova O.E. The Impact of International Technological Sanctions on the Innovative Development of Russia's National Economy. "Economics, Entrepreneurship, and Law" Journal, 2024, Vol. 14, No. 5.

[17] Kostin K.B., Shimko P.D., Sun Qi. International Technology Transfer in the Russian Federation and Its Prospects Under Current Sanctions Restrictions. "Issues of Innovation Economics" Journal, 2022, Vol. 12, No. 4.

[18] Support Program for Projects Producing High-Tech Civil and/or Dual-Use Products by Defense Industry Enterprises "Konversiya" (Conversion).

[19] Gudkova O.E. The Impact of International Technological Sanctions on the Innovative Development of Russia's National Economy. Economics, Entrepreneurship, and Law Journal, 2024, Vol. 14, No. 5.