Technology Commercialization: Russian Challenges, American Lessons (1998)

Vladimir Meshcheryakov

Russian Agency for Patents and Trademarks

Legal regulation of technology commercialization was relatively simple in the former USSR. Economic relations in that period were based on state property and highly centralized production planning. The results of technology workers' intellectual activity were legally protected through certificates of authorship for a given invention, and the certificates gave the state exclusive right to the results.

With the transition to new forms of property in the 1990s, Russian legislation has shifted to the use of patents to protect inventions and other types of industrial property. Under the new system, exclusive rights to the results of intellectual activity are granted to specific individuals or legal entities. The right to obtain a patent on an invention created by a researcher outside the course of his or her employment duties belongs to the inventor or his or her heir. The right to obtain a patent on an invention made in the course of employment belongs to the employer.

All of the special laws on intellectual property in Russia were adopted in 1992 and 1993. These laws include the Patent Law of the Russian Federation, the Law of the Russian Federation "On Trademarks, Service Marks, and Names of Places of Origin of Goods," the Law of the Russian Federation "On Achievements in Breeding and Selection," the Law of the Russian Federation "On Legal Protection for Computer Software and Data Bases," the Law of the Russian Federation "On Legal Protection for Topologies of Integrated Microsystems,'' and the Law of the Russian Federation "On Rights of Authorship and Associated Rights." The Civil Code of the Russian Federation, which subsequently was adopted, contains general provisions pertaining to intellectual property.

These laws are in accordance with the legislation of highly developed countries in the area of intellectual property. As Russia takes the necessary actions to join the World Trade Organization, it has become clear that no fundamental changes in Russian legislation, especially in the area of industrial

property, are required to bring it into compliance with the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Such compliance is one of the prerequisites for joining the World Trade Organization.

The reliability of the present Russian patent system, and consequently its attractiveness to domestic and foreign investors in the Russian economy, can be evaluated on the basis of two factors: the reliability of the protective documents issued by the patent agency (such as patents on inventions, useful models, industrial samples, and certificates of trademark) and the reliability of the judicial system for stopping violations of exclusive rights in reviewing rights infringement disputes.

The reliability of protective documents, particularly patents on inventions, was rather high in the former USSR and remains so in Russia today because patent legislation and related administrative directives in the former USSR and now in Russia stipulate very detailed methodological approaches in evaluating the patentability of an invention. Experts from the USSR and Russian patent agency traditionally have performed thorough scientific-technical and methodological analyses of proposed inventions during the course of their patent examinations. This tradition characterized the professional "school" of the Russian patent review process. As a result of changes in patent legislation (for example, the removal of the requirement that a proposed invention have a "positive effect" and the significant expansion of procedural-legal provisions), the experts now devote less time to analyzing the scientific-technical aspects of the inventions. They now focus more attention on analyzing methodological and procedural-legal questions in conducting patent examinations.

In 1996, the Russian Patent Agency (the Chamber of Appeals of the Russian Agency for Patents and Trademarks) reviewed objections to the issuance of 25 patents on various inventions. Of these disputed patents, only three were annulled as mistakenly issued. In 1997 after reviewing objections to 27 patents, again only three were annulled. These decisions on the part of the patent agency were not further challenged in the courts.

The reliability of trademark certificates is another matter. In 1996 after review of objections to 68 trademark registrations, 11 registrations were annulled. In 1997 the complaints against 78 trademark registrations resulted in the annulment of 33 registrations. Only one of all of these decisions on the part of the patent agency was overturned by the courts.

Clearly, the reliability of the judicial system in stopping violations of exclusive rights cannot be deemed as great as the reliability of the patents issued. In the former USSR, the courts almost never reviewed cases involving

violations of exclusive rights to inventions or other types of industrial property because exclusive rights to nearly all inventions created by Soviet inventors belonged to the state. Following the passage of the Patent Law of the Russian Federation, which stipulates that exclusive rights to inventions are vested in specific individuals and legal entities, disputes over violations of exclusive rights began to appear. But in connection with the crisis situation in the economy and the low level of production, disputes concerning the violation of exclusive rights to inventions rarely occur. At the present time, judges are only now acquiring the necessary experience to review disputes on violations of exclusive rights, cases which often require specialized scientific-technical and legal expertise. The disputes that currently arise mainly involve violations of exclusive rights to trademarks and especially copyrights (as with works of science, literature, and art). The special arbitration courts that have been created in Russia are a significant help in providing professional, high-level review of court cases involving violation of exclusive rights. In contrast to general jurisdictional courts, these courts only review disputes of an economic nature, including disputes concerning violations of exclusive rights.

The Russian patent system provides rather firm guarantees of observance of the rights of investors to intellectual property they use, particularly in the case of inventions, as long as the investors themselves make professionally competent efforts to obtain legal protection for this intellectual property in Russia. Specifically, they must ensure that applications for patents on inventions are prepared in a professionally competent manner in accordance with Russian patent legislation.

Russia, like many countries, has problems with the violation of exclusive rights to objects under copyright and associated rights, including works of science. Copyrights are appropriate in cases in which a work does not require a patent or other expert examination or state registration. In contrast with inventions, these works are more difficult to identify; therefore, violations of exclusive rights to them are more difficult to stop. For example, the so-called "audio and video piracy" problem exists throughout the world. Pirated audio or video cassettes are rather easy to produce and distribute, and their noticeably lower cost compared to licensed audio and video products is very attractive to people whose are not well-off financially.

Russia currently is making legislative changes to curb copyright violations. Judicial legislation must stipulate accelerated procedures for court review of lawsuits concerning violations of exclusive copyright and associated rights. Customs legislation must set forth the right of customs agencies to seize counterfeit products passing through customs borders when they receive a complaint from the copyright holder, as stipulated by the provisions of TRIPS.

Despite the merits of Russian intellectual property legislation, special Russian laws in this area, particularly the area of inventions, have failed to address the rights of the state to the results of intellectual activities performed with state funding. In particular, the Patent Law does not provide for the possibility of granting the state or its representative a patent for an invention created using funds from the federal budget. Moreover, this law does not stipulate any rights to such inventions on the part of the state. Any commercialization of technologies on behalf of the state or its interests is complicated when these technologies are based on inventions created using federal budget funds because the patents for the inventions are issued to specific individuals or legal entities.

In Russia highly science-intensive technologies are created with federal budget funds under state programs and on the basis of state contracts. The contracts are for scientific research, experimental design, engineering work, and the provision of goods to meet federal government needs. Government customers in these contracts—federal executive agencies, federal fiscal enterprises, and state institutions—are representatives of the state itself. Problems concerning the state's rights to the results of intellectual activity conducted during work on state contracts can be resolved by including in the contracts the appropriate provisions granting to the state in the form of its representatives the necessary authority to commercialize any technologies developed. However, effective resolution of these problems on the basis of state contracts is hindered by insufficient legal expertise and experience in concluding such contracts.

The aforementioned condition of the legislative base has led to the spontaneous redistribution of rights to the results of state-funded intellectual activity even in the Soviet period. In the process, controversial and undefined legal relations have arisen in connection with the failure in many cases to observe procedures for formalizing rights to such results. All of this hinders the normal process of commercializing these results.

To further stimulate investment in the Russian economy and promote the growth of industrial output, measures to resolve the aforementioned problems in the area of technology commercialization are planned. The Ministry of Science and Technology of the Russian Federation and the Russian Agency on Patents and Trademarks, in cooperation with other federal executive agencies, have prepared drafts of normative legal acts calling for the establishment of state policies to develop the intellectual property market and bring the results of scientific-technical activity to bear in the national economy. These documents set forth the main points of the policy, which would include provisions for:

• a balance of legal interests among subjects of legal relations, including the state, in the creation, legal protection, and use of objects of intellectual property and other results of scientific-technical activity;
• state support of processes involving the creation, legal protection, and use of the results of scientific-technical activity and an increase in the competitiveness of products made by domestic manufacturers; and
• material support for the authors of domestic scientific and technical innovations that adequately reflects their contribution to the socioeconomic development of Russia.

Under this policy, the procedures for using the results of scientific-technical activity obtained during fulfillment of state contracts would stipulate the distribution of rights to these results to state customers as representatives of the state and to the contract performers (product developers and manufacturers). Because the issue of acquiring exclusive rights to an invention arises during the performance of scientific research and experimental design work, the terms of a state contract must include provisions outlining the right of the developer to obtain a patent on inventions that he or she creates while working on the contract.

The contract terms must also include limitations on the rights of the patent holder to ensure that the exercise of these rights is coordinated with the actions of the state customer. For instance, if the state places an order for the manufacture of products involving the use of an invention to which the contractor holds a patent, the contractor must at the request of the state customer grant the manufacturer of the products a nonexclusive royalty-free license. This precludes the possibility that the state would pay first for the development of a scientific-technical product and then for the right to use the results in the interest of the state.

The state also must have the right to consider the interests of the state and society when commercializable technology has been developed within the framework of a state contract. For example, if necessary, a product produced under a state contract might first be sold on the domestic market to meet the needs of the state and society and then be sold abroad. Furthermore, the income received as a result of the sale of the products must be fairly divided between the creator of the scientific-technical results, the manufacturer of the product using these results, and the state. Finally, state contracts must spell out budget expenditures for the patenting of inventions in Russia and in foreign countries where there are markets for products based on these inventions.

In addition to measures connected with state contracting procedures, efforts are under way to amend the Patent Law and other special laws providing legislative protection of the rights of the state to the scientific-technical results of federally funded work. The Russian Agency for Patents and Trademarks already has prepared a draft law on changes and additions to the Patent Law. The draft law has been submitted to the government for subsequent coordination with interested federal executive agencies and review by the State Duma.

A number of financial issues also must be addressed. For example, appropriate changes in the tax law also must made to reduce the tax burden on enterprises that manufacture products using patented inventions and other types of intellectual property. Also needed are better rules for cost valuation of intellectual property. This valuation is necessary for the accounting of an enterprise's non-material assets. The value of intellectual property is particularly important in the privatization of enterprises, as well as in the handling of court cases involving the violation of exclusive rights of a patent or copyright holder. Development of procedures for cost valuations of intellectual property, a process for training and licensing individuals to make such valuations, and a system for including intellectual property as part of enterprises' non-material assets is planned.

Recently increased attention has been paid to the regulation of the rights of each party to scientific-technical results from projects involving foreign partners. The Government of the Russian Federation has concluded a fairly large number of agreements with the governments of other countries regarding scientific and economic cooperation. Requisite conditions of these agreements are provisions regulating the rights of parties to the scientific-technical results of collaborations. These provisions reflect consideration of mutual interests and the national legislation of the parties, including international treaties the parties have signed.

The provisions may include recommendations to specific organizations participating in joint enterprises (henceforth to be called "Participants"). Participants in agreements on joint work define all intellectual property for which the creation, use, and transfer is reasonably foreseen during execution of the agreements. Such intellectual property is categorized either as previously existing or as newly created. Agreements should indicate that previously existing intellectual property may be used only after actions are taken to ensure the necessary legal safeguards.

In the section of agreements dealing with the distribution of rights to jointly created intellectual property, the participants must take into account various factors, including the contribution of each participant to the work performed (such as previously existing intellectual property, intentions, commitments, and capability to provide the necessary legal protection for jointly created intellectual property) and the proposed participation of each participant in commercial use of jointly created intellectual property. Moreover, if necessary agreements should indicate the expected recipients of such property, the types and extent of use of the property in the territory of each party and in other countries, the extent of use of previously existing intellectual property, the rights of the participants to act on confidential information and their responsibilities to

protect it, and the rights of each participant in the event that the other participant does not meet its obligations to ensure protection for the intellectual property. Agreements also should include provisions and procedures for payment of compensation to inventors and authors of other types of intellectual property.

Agreements should cover procedures for submission of patent applications to the national patent agencies of each party involved. Patent applications concerning inventions created on the territory of a given party should first be submitted to the patent agency of that party's country.

Agreements also should address that the transfer of assets involving elements of intellectual property from one party's country to another party's country for the purpose of joint activities under the contract. Furthermore, agreements should specify that this transfer must not violate the legal rights of any third parties in the country from which the transfer is made. They also should specify that any complaints lodged by third parties regarding the transfers will be the responsibility of the participant which made the transfer.

The U.S. technology commercialization experience with which the Russian delegation familiarized itself appears in many respects to be applicable to Russia. For instance, as a result of the Bayh-Dole Act, U.S. patent legislation allows the rights to inventions created by national laboratories and universities to be acquired not only by the U.S. government, national laboratories, and universities, but also by nongovernmental investors who have provided funds for the creation and commercialization of technologies. As noted above, the Patent Law of the Russian Federation, which stipulates that rights to inventions created using federal budget funds be assigned to any individuals invested in the creation and commercialization of the technology, does not include the possibility of assigning rights to these inventions to the state. For this reason, the Patent Law of the Russian Federation is not as universal as the patent legislation of the United States.

The United States has experience in creating the necessary conditions for financing the entire process of producing and utilizing technologies, including conducting basic research and experimental design work, preparing test models (prototypes), launching mass production, and selling the products. Unfortunately, application of this experience to Russia largely is hindered by the economic crisis, which has resulted in limited willingness to use new technologies, and by the insufficiency of state financing.