Legal Implications of Intra-Group Software Use

Igor Motsnyi
Head of Group, Trademark Attorney / Intellectual Property
Goltsblat BLP

Computer software is indispensable to the successful day-to-day operation of any business nowadays. Very often, large multinational companies acquire computer software for use by all companies within the same group. In these cases the software is normally licensed to one of the companies within the group. That company then provides the software to all other companies of the same group in various countries including Russia. This article analyzes legal implications of intra-group software use when the user of the software is a Russian company.

The software provider may provide not only computer software, but also software-related services to the other companies (i.e. technical support and maintenance) within the same group. Both the software and services may be provided free of charge, or the company provider may charge for the provision of the software and related services.

In the majority of cases there are no agreements between the companies within the same group for the use of computer software. However, the absence of these agreements creates a number of legal and tax risks for the software users in Russia.

Under Part IV of the Civil Code of Russia, computer software is protected as literary work under the copyright regime. Therefore, any use of computer software should be in line with the provisions of copyright legislation. The general principle of copyright law is that any use of the work is allowed upon obtaining permission of the copyright owner unless otherwise is expressly provided by law.

It is important to note that Russian law does not have any exceptions for intra-group software use. If software is licensed to one company it means that only that company has the right to use the software under the terms and conditions of the license agreement. The mere fact that both companies are within the same group, does not automatically give the second company the right to use the software.

Even if the right owner does not object to such use, it is necessary to keep in mind that in Russia a criminal case for breach of copyright can be initiated without a complaint from the copyright owner.

If the software provider is going to charge the Russian company for the use of software and receipt of software-related services, there has to be some documents proving the use of software and receipt of services. Otherwise, the Russian company will not be able to economically justify its expenses.

The right to use any copyrighted work, including computer software, may be granted on the basis of a license/sublicense agreement. Sublicense is only possible if expressly permitted by the licensor. Such permission may be provided either in a license agreement or in a separate document.

Therefore, in a case of intra-group software use, a Russian company should enter into a sublicense agreement for the use of computer software with the software provider, even though both companies are within the same group. The scope of the software sublicense cannot exceed the scope of license.

While the sublicense agreement can be governed by foreign law, it is necessary to ensure that it complies with the mandatory rules of Russian law, and it is strongly recommended to include material terms of software sublicense agreements under Russian law.

However, before doing that, it is necessary to check the scope of the license granted to the company by the software provider and whether the latter has the right to sublicense such software.

If the software provider performs software-related services, it is important to keep in mind that the granting of a software license/sublicense and provision of software-related services (i.e. technical support) have different tax implications in Russia. Payments for a software license/sublicense are exempt from Russian VAT, whereas payment for services is subject to VAT.

To avoid any problems with the tax authorities, it is advisable to clearly separate, in the agreement, the payment for the software sublicense and the payment for technical support and other related services. As an alternative, it may be recommended to make two separate agreements: a software sublicense agreement and a provision of services agreement.

It is important to clearly understand that the use of computer software as well as the provision of software-related services should be properly documented to avoid future troubles.

Responsible managers of Russian companies that are part of a large multinational group should closely monitor any intra-group software use and understand all legal implications of this situation as well as the potential risks.