Foreign software leaves the Russian market. What are the legal consequences of a unilateral "breakdown" of relations?

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According to the current Russian legislation, the software can be legally used only with the consent of the copyright holder, for example, on the basis of a license agreement. At the same time, the main difference between the license is that it does not entail the transfer of the exclusive right to the licensee, but only gives the latter the right to use the result of intellectual activity in the ways provided for by the contract.

Usually, the software is provided to the licensee either by downloading to the device and installing the distribution kit, or in the format of remote access without downloading to the device, for example, according to the Software-as-a-service (SaaS) model. In addition, the chains of granting rights to the licensee may also differ: directly from the copyright holder (licensor) or through sublicenses.

Depending on the format of granting the license, the legal consequences of a unilateral "break" of relations with licensees will also differ.

It is worth making a reservation that loud statements about the suspension of its activities on the Russian market do not always mean the refusal of foreign suppliers of IT products to fulfill their obligations under already concluded contracts. Thus, the company SAP announced that provide technical support under existing contracts it would not conclude new contracts with Russian users, but would continue, as far as sanctions export control restrictions allow (if the licensee is not among the companies included in the sanctions lists state and the supplier's limit for the supply of new services and products to the territory is not exceeded). Russia

Adobe also announced that it would allow the renewal of existing licenses with current licensees, but suspended the ability for new users to buy its products.

In addition, some copyright holders, such as SAP, have registered relations with licensees in Russia through their Russian legal entities (SAP CIS LLC) and thus actually continue to operate in Russia, in particular, are conducting lawsuits to recover debts for services provided and technical solutions from users from Russia.

Applicable Law in Contractual Relations of the Parties

Classic licenses for the use of software, for the most part, are accession agreements, that is, the agreement is concluded only by accepting all its conditions as a whole by the licensee, without any exemptions. Therefore, the licensee rarely manages to agree on granting him other conditions than standard ones, including the applicable law and the competent authority for resolving disputes.

SaaS contracts can be formulated either as a contract for the provision of services for providing remote access to functionality, or as a mixed service contract and a license contract. Therefore, for SaaS contracts, rules other than the rules for terminating the classic license may apply, in connection with which some reservations will be made. When an agreement is concluded with a foreign company, it is necessary, first of all, to determine which country's right will apply to the contractual relations of the parties, as well as the court of which country will resolve disputes. This is important in order to understand what norms of the law will regulate the relations of the parties, including upon termination of the contract, and which court will apply these norms.

Basically, foreign IT companies adhere to the approach of establishing the applicable law of the country of their registration, for example, the United States (or a specific US state), less often - EU countries:

• Cisco: Applicable Law - Regulatory Law of the State of California (United States of America) (Clause 12.9)^[1]
• IBM: Applicable Law in International Terms: Austria (Clause 6)^[2]
• Oracle: Applicable Law - Republic of Ireland Law (Clause O)^[3]
• Adobe: Applicable Law - "If you reside outside North America, you have a relationship with Adobe Systems Software Ireland Limited and the Terms and Conditions are governed by Irish Law" (clause 1.1)^[4]
• Imperva: Applicable Law - United States, California (Clause 13 (c))^[5]
• Fortinet: Applicable Law - State of California (Clause 8)^[6]

If the contract is governed by a foreign law, then the legality of its termination by the licensor must be checked in accordance with the norms of the relevant law.

At the same time, large IT companies do not always use the applicable law of a foreign country in their licensing contracts, in some cases the agreement provides for the application of the law of the country in which the technical solution is used to the relations of the parties:

• SAP: Applicable law - in accordance with the law and legislation of the Russian Federation, excluding international conflict of laws and the UN Convention on Contracts for the International Sale of Goods (clause 12.6)^[7]
• Microsoft: Applicable Law - "All Claims and Disputes under this Agreement... are governed by the laws of the state or country of your residence (or the country that is your primary business location) regardless of conflict of laws principles "(Clause 11)^[8]
• Norton: "When we drafted the LSA, we were guided by the laws of the country in which you live, so you can file legal disputes with the courts of that country" (Clause 7)^[9]
• Avast: hybrid regulation
  • The Solution and Documentation are the intellectual property of the Supplier and are protected by applicable copyright, international treaty provisions and other applicable laws of the country in which the Solution is used. (item 4)
  • You agree to comply with all applicable U.S. and international laws governing the export and re-export of the Solutions, including the U.S. Export Control Act, as well as restrictions imposed on end users, end use, and destination by the United States government and other governments. (item 10)
  • The Agreement may not limit your rights guaranteed by existing consumer laws or other applicable regulations in your jurisdiction that cannot be cancelled by the Agreement. (item 12.4).^[10]

Grounds for termination of the contract in accordance with Russian law

Due to the fact that Russian law applies to a number of licensing agreements concluded with foreign copyright holders, then we will talk about the termination of the agreement under Russian law.

In accordance with the current Russian legislation, several grounds for termination of the contract can be distinguished:

• Termination of the contract by agreement of the parties (clause 1 of article 450 of the Civil Code of the Russian Federation);
• Termination of the contract by court order;
• Unilateral out-of-court rejection of the contract by one of the parties (Clause 3 of Article 450, Clause 4 of Article 1237 of the Civil Code of the Russian Federation).

It is also worth noting that certain or all obligations under the contract can be terminated on other grounds, for example, after the expiration of the license (clause 3, article 425, clause 2 of article 1237 of the Civil Code of the Russian Federation), in connection with the provision of a monetary amount - compensation (article 409 of the Civil Code of the Russian Federation), impossibility of execution (article 416 of the Civil Code of the Russian Federation).

In addition, if one of the parties to the contract is an individual who has entered into an agreement for the provision of software or services for the use of software for personal purposes not related to the implementation of entrepreneurial activities (consumer), then the relations arising from this agreement are subject to the imperative provisions of the Law of the Russian Federation of February 7, 1992 No. 2300-I "On the Protection of Consumer Rights," which provides for additional protection of the consumer as a weaker party.

Licensor-Initiated Termination Scenarios

Below are the most current scenarios for termination of the license agreement at the initiative of the licensor.

Out-of-court withdrawal from the treaty unilaterally

As a general rule, the early withdrawal of a party from the contract is a violation, since the obligations assumed under the contract must be properly fulfilled by the parties.

However, in entrepreneurial activity, the party to the contract has the right to legally unilaterally refuse the contract out of court either if there is direct permission for such an action in the applicable law, or if there is a special condition included by the parties themselves in the contract. That is, if the contract does not directly provide for the rights to unilateral refusal or the situation does not fall under the case described in the law, it is impossible to unilaterally withdraw from the contract, this will be considered a violation, and the contract itself will continue to operate.

As for the classic licenses for the provision of software (downloading software for a device), the law provides for a special opportunity for unilateral extrajudicial refusal of the contract by the licensor (clause 4 of article 1237 of the Civil Code of the Russian Federation): if the licensee significantly violates its obligations to pay the copyright holder (licensor) a fee within the period established by the license agreement, the licensor may send a notice of unilateral refusal of the agreement, as well as claim losses caused by such termination. At the same time, the contract is terminated after a thirty-day period from the moment the licensee receives a notice of refusal of the contract, if during this period the licensee has not fulfilled the obligation to pay the remuneration. At the same time, it is important to understand that the termination of the license agreement entails the automatic termination of all sublicense agreements concluded further along the chain. In this case, it is important that the licensee still has an objective opportunity to carry out the proper execution, but he does not make the payment.

In this regard, a good question arises, but what if the failure to fulfill the monetary obligation arose for a reason for which the licensee is not responsible? For example, the licensee, due to imposed sanctions restrictions unfriendly countries, according to calculations cards Visa or, Mastercard PayPal cannot make monthly payments for a license out of, is Russia the licensor entitled on this basis to abandon the current contract with reference to this basis?

It seems that in this case it is necessary to understand what will be considered proper performance under the contract. If, at the conclusion of the contract, the licensee from the terms of the transaction saw that the licensor accepts payments exclusively through Visa or Mastercard payment systems, Paypal, then, obviously, the execution by money transfer or using the MIR payment system cannot be considered as proper without the consent of the licensor. In this case, the licensor has the right to refer to the interlinear execution by the debtor.

But if the licensor simply began to refer to the fact that, for political reasons, he stops accepting payments from Russian persons (unilateral refusal to accept execution), then in this case the inability of the licensee to fulfill his monetary obligation cannot be considered a significant violation of the contract and should not give the licensor the right to refuse the contract on this basis.

For such cases of unfair behavior of the licensor (creditor) in Russian law, there is a mechanism for fulfilling the obligation by the debtor, by making a monetary debt in a notary deposit, in case the creditor evades the adoption of monetary execution, and the debtor does not want to be considered a violator of the contract. Nothing prevents the application of this mechanism to preserve the proper fulfillment of its obligation.

In addition, on May 27, 2022, Decree of the President of the Russian Federation No. 322 "On the temporary procedure for fulfilling obligations to some copyright holders" was signed, which ordered debtors to make payments for some copyright holders to a special ruble account opened with Russian banks. The decree applies, among other things, to foreign copyright holders (as well as persons controlled by them), one way or another connected with a foreign state committing unfriendly actions against the Russian Federation.

When the right to refuse is in the contract

If the concluded contract provides for the right of the party to unilaterally abandon the contract, the party wishing to terminate the contract within the period established in the contract sends a notice of unilateral refusal to the other party and the contract is considered terminated from the moment the other party receives this notice (unless otherwise provided by the contract).

Example: the license agreement may provide that either party has the right to unilaterally refuse to execute the license agreement in case of certain political/military conflicts between countries whose residents are parties to the agreement. In this case, the licensor will be entitled, having notified the licensee in advance within the period established in the contract, to abandon the contract. In this case, after refusal of the contract, the licensee is no longer entitled to use the provided software .

SaaS contracts

Since SaaS Contracts are often executed according to the service contract model, the grounds for refusal of such a contract are regulated by special provisions of Article 782 of the Civil Code of the Russian Federation and provide for the possibility of the contractor (copyright holder) to refuse the contract, subject to full compensation to the customer (user) for losses. Other additional grounds for unilateral refusal of a party to the SaaS contract from its performance may be provided for in the contract.

For example, Dropbox may terminate the agreement and revoke the client's access to services, if necessary by law or due to a gross violation by the client of the acceptable use policy.

Thus, the licensor must have grounds for extrajudicial unilateral rejection of the license agreement: either such a right must obviously follow from the license agreement, or from the law. Without such grounds, the Licensee has every right to disagree with the Licensor and continue to use the provided Software, while fulfilling the agreement on its part.

Problems will arise only with the SaaS model, since without the will of the licensor, the licensee will not be able to access the software.

One should distinguish between a unilateral refusal of the contract by the copyright holder and the expiration of the license agreement, which in practice may not always be obvious.

For example, the user uses a Solution SaaS with a monthly subscription. During the paid term of the subscription, the user has access and the ability to use the functionality of the program. If the subscription cannot be renewed, then access to the program is terminated. Due to the disconnection of the ability to renew existing subscriptions to programs to owners of Russian bank cards, the user lost access to such programs and the ability to renew the subscription too. In this case, from the point of view of legal qualifications, it is most likely that if the subscription is renewed for a certain period, a new contract is concluded each time or the previous contract is extended, which was concluded for a certain period (for example, 1 month). Thus, the termination of access to the program associated with the inability to renew the subscription is nothing more than an inability to conclude an agreement for a new term, and not a unilateral refusal of the copyright holder. For example, Google's solution (Google Disk, Google Photo, Gmail) provides for reducing the volume of cloud storage to the volume provided for free if the subscription is not renewed.

Termination of the contract in court

The general rule of contract law states that the contract can be terminated either by agreement of the parties or through the courts (except in the situations described above). In this case, if the consent of one of the parties is not obtained, then without a court decision that has entered into legal force, the agreement will continue to operate, and, therefore, in relation to our topic, the licensee has the right to continue to use the Software.

Termination due to breach of party's obligations

In the context of statements made by the copyright holders of IT products, the most likely scenario is when the copyright holder limited access to the program or stopped making updates during the period of the license agreement, as a result of which the user actually lost the ability to use it (applies to both software installed on user devices and Solutions SaaS).

When such behavior of the copyright holder is not connected with the violation by the user of the terms of use of the program, then we can talk about the violation by the copyright holder of the terms of the license agreement, which gives the licensee the right to ask the court either to demand the enforcement of the agreement by the licensor (which seems unpromising in relation to foreign copyright holders), or to terminate the agreement in court and claim damages. The latter option, of course, does not allow the licensee to continue using the software, but at least allows you to receive a monetary refund for the inconvenience caused.

At the same time, if the license fee was paid for the entire period of use of the program, then from the moment of termination of the contract, the user has the right to demand a refund of the fee for the unused period of use of the program as unjust enrichment.

Example: the company-rightholder announced the complete termination of technical support for programs installed by Russian users on their devices. If the technical support of the software was provided under the terms of the license agreement as the obligation of the copyright holder, and in the absence of such support the user is deprived of what he was entitled to count on when concluding the contract, then such suspension can be considered a significant violation of the contract, and the user has the right to demand termination of the contract in court and compensation for losses.

Nevertheless, if the copyright holder stopped providing technical support, and did not refuse the contract itself, then the user still has the opportunity to legally use the program installed on the device and independently adapt it to the requirements of his device. According to experts, in this case, the use of the program is considered legal, since the license agreement is considered valid.

Termination of the contract due to a significant change in circumstances

In relation to the emerging situation related to the mutual imposition of sanctions and restrictions affecting, in particular, the ability of foreign copyright holders to receive cash receipts from Russia and for the provision of services to Russian users, it is assumed that contracts can be terminated by a court decision with reference to a significant change in circumstances (Article 451 of the Civil Code of the Russian Federation).

Changes in circumstances are recognized as material when they have changed so much that, if the parties could reasonably foresee this, the contract would not have been concluded by them at all or concluded on significantly different terms. But in any case, to terminate the contract with reference to this circumstance, you need to go to court.

Force majeure (force majeure)

Force majeure (force majeure) is 1) extraordinary and 2) circumstances that are not reversible under these conditions. That is, this is always an exceptional circumstance, the onset of which is not ordinary in specific conditions and already goes beyond the framework of entrepreneurial risk (natural disasters, fire, mass diseases (epidemics), strikes, hostilities, terrorist attacks, sabotage).

In the event that a circumstance has occurred that is suitable for the criteria of force majeure, the parties are exempted from liability (loss, penalty) for failure to fulfill or improper fulfillment of the obligation. It is important that the onset of force majeure does not entail the automatic termination of the contract and does not release the person who has not fulfilled the obligation for this reason from fulfillment after this circumstance has disappeared.

The contract may provide for special rules on termination of obligations in the event of force majeure, for example, on termination of the contract in the presence of these circumstances or on its termination after a certain period from the moment of occurrence of these circumstances (Article 421 of the Civil Code of the Russian Federation).

With regard to force majeure, which may affect the fulfillment of obligations in the field of IT, it can be assumed that such circumstances may be, for example, the publication of an act of the state body on the restriction of transactions with foreign counterparties or the technical inability to transfer the license fee due to sanctions imposed against the payer bank and its disconnection from SWIFT. Thus, upon the occurrence of such circumstances, the user can be exempted from paying a penalty (other sanctions under the contract) for the delay in transferring the license fee.

Consequences of contract termination

Upon termination of the license agreement, the licensee shall terminate any use of the program, including its processing, modification and adaptation, and shall remove it from its device (if it has a digital copy of the program at its disposal) and may not use a cloud solution (SaaS).

The following are the most anticipated issues that Russian software users may have in connection with the departure of foreign IT suppliers from the Russian market:

1) The user company paid for the full term of the license for 1 year, and the supplier of a foreign software company sent a notice of unilateral refusal of the contract with reference to such a right in the contract 10 days before the proposed termination of the contract. What can we expect and is it possible to continue using the program during the paid period?

In the event of a refusal of a foreign software supplier from a license agreement unilaterally, when a version of the program (digital copy) has already been installed on the equipment of a Russian user on the basis of a legally acquired license, the user does not have the right to use the program after the copyright holder refuses the contract, that is, such use is already considered illegal. However, technically, the copyright holder practically does not have the opportunity to remotely remove the software belonging to it from the user's equipment, so the program may not automatically stop working due to the copyright holder's refusal from the contract, but only cease to be updated and will not have technical support from the developer. However, non-contractual continuation of the use of the program will be illegal and the user can be held liable for violation of the rights of the copyright holder at the place of the offense, that is, in Russia. In particular, monetary compensation in the double amount of the cost of the license for the period of illegal use can be collected from the user.

If the user does not agree with the unilateral refusal of the contract, then he can go to court and ask to declare such a unilateral refusal illegal. At the same time, the law applicable to the contractual relationship and the competent court will be determined in accordance with the terms of the concluded contract.

For example, in this way used , the company JSCO RUSSIAN RAILWAYS Siemens to LLC "Mobility GMBH," LLC "Siemens Mobility" in the case of A56-45455/2022 (consideration as of June 5, 2022 is not yet completed), but this dispute does not concern the use of software, but is nevertheless of interest, since it can be used for other contracts, in particular, licensing and contracts for the provision of SaaS services.

According to the SaaS Solutions SaaS model, the software is located on the "cloud" infrastructure of the owner-supplier, and the user receives only permission to access them in order to use the software functionality without the ability to download or copy the software.

Solution SaaS involve providing the user with access to the IT service for a paid period, after the expiration of the paid period or upon unilateral refusal of the contract by the SaaS Solution SaaS provider and in the absence of the opportunity to extend the "subscription," access to cloud software will be disabled, and it will be impossible to force a foreign copyright holder to open access to a user from Russia, subject to payment for a subscription.

2) The user company has a license agreement with the software supplier, the payment period for the license fee is approaching, but the supplier has officially announced the termination of technical support for Russian users and software updates. In such conditions, the user company does not need software, can it not pay the next payment for the license?

Under the license agreement, the licensor has an obligation not to obstruct the licensee in using the software during the term of the license (which follows from paragraph 2 of article 1237 of the Civil Code of the Russian Federation), and the licensee has a corresponding obligation to pay the license fee in accordance with the schedule established in the agreement. If the licensor does not fulfill its obligation and does not allow to use the program as intended, then by virtue of Clause 2 of Art. 328 of the Civil Code of the Russian Federation, the licensee may suspend his obligation to pay for the license fee until the opportunity to use the program resumes.

In addition, the termination of technical support for the Software may be a violation of the terms of the license agreement by the licensor, which gives the licensee the opportunity to demand termination of the contract in court due to a gross violation by the party of the terms of the contract and claim damages that the licensee suffered in connection with such violation (loss of profit from production shutdown due to inoperative software, payment of losses to counterparties for violation of the delivery period due to inoperative software, etc.). However, in this case, the licensee will have to resort to the judicial procedure for terminating the contract.

3) If the software provider refused to provide technical support for the software, but the user can carry it out on his own (adapt or modify the program), can the user continue using the program in its modified or adapted form?

It is important to distinguish between program modification and adaptation. Processing (modification) of a program for COMPUTER or databases means any changes thereof, including the translation of such a program or such base data from one language into another language, with the exception of adaptation, that is, the introduction of changes made solely for the purpose of functioning of a program for computers or a database on specific technical means of the user or under the control of specific user programs (Clauses 9, Clause 2 of Article 1270 of the Civil Code of the Russian Federation).

Adaptation of the program (a copy of which is rightfully owned by the user, that is, originally purchased under a license) does not require the consent of the copyright holder and the payment of additional remuneration for such use by virtue of the law (Article 1280 of the Civil Code of the Russian Federation), and the right to modify should be allowed by the terms of the license agreement, since it is a separate method of use.

At the same time, it is important to note that when ownership of the program ceases to be legitimate, that is, in the event of termination of the contract, the user is obliged to stop using the program and delete a digital copy of the program from his devices, including the adapted version.

Thus, if the software provider suspends the software maintenance, if the license continues to operate, then the adapted version of the program can be used during the validity of the license agreement, provided that the contract is not terminated for other reasons.

4) What to do when the Russian company is an official dealer of foreign equipment, which the Russian company is obliged to serve for its end users, and the foreign company-rightholder has abandoned the existing contracts granting the rights to use the equipment and software. How can a Russian company not violate contracts with end users, where it has provided for the company's obligation to maintain equipment, and not be held liable for illegal use of foreign software?

Of important importance are the terms of the contract with the software owner-supplier. If the contract allows the copyright holder to refuse the contract or to fulfill a separate obligation, then the possible losses associated with the violation of the contract with the client will be the dealer's entrepreneurial risk, and without evidence that the supplier acted unlawfully, the dealer will not be able to recover losses from him (expenses that he reimbursed the client as losses and (or) compensation).

At the same time, the dealer can avoid liability to his customers if the situation that has arisen falls under the criteria of force majeure, which is the basis for exemption from liability for violation of the obligation, but does not relieve from the fulfillment of obligations under the contract when such circumstances disappear.

Conclusion

The Russian authorities are considering various options for maintaining the possibility of using foreign software in Russia, in particular, it was proposed by the Ministry of Industry and Trade to consider the abolition of responsibility for the use of unlicensed software. Also recently, the Association of Internet Trade Companies (AKIT) sent a letter to the Ministry of Digital Industry with a proposal to temporarily or indefinitely abolish criminal and administrative liability for illegal use of foreign software. However, these initiatives have not yet received further development.

Perhaps Russian legislation will undergo some changes regarding the procedure for terminating contracts in connection with the sanctions of foreign states against the Russian Federation.

Such changes provide, in the context of unfriendly actions of foreign states, restrictions on unilateral termination or modification of the treaty under which the right to use intellectual property is granted, even if the law or the treaty itself provides for such an opportunity. An exception to this rule may be a case where the user significantly violates his obligations. According to experts, the purpose of the proposed innovation is to protect the interests of Russian entrepreneurs from the unilateral termination of contracts by foreign companies, including in the IT sector.

In addition, the bill proposes to provide for a forced extension of the validity of license agreements for the period of unfriendly actions by foreign states. This provision will not apply if the Russian user notifies the copyright holder of a unilateral refusal to extend the obligation. The idea of ​ ​ extending the provisions of the law on compulsory licenses for foreign software is also being actively discussed. In accordance with the current legislation (Article 1362 of the Civil Code of the Russian Federation), they do not apply to copyright objects.

Authors:

• Smirnova Ekaterina Aleksandrovna, partner, head of the St. Petersburg office of the law firm Semenov & Pevzner.
• Matveeva Victoria Sergeevna, lawyer

Notes