FIGHTING SOFTWAREAND IP PIRACY INRUSSIA: UPDATE

© 2015 Morgan, Lewis & Bockius LLP

RUSSIA: UPDATEBrian Zimbler, Ksenia Andreeva and Anastasia Dergacheva

May 26, 2015

Summary

Section 1: Russian Intellectual Property Protection – Brief Review

Section 2: Russian Internet – The Key Battleground

Section 3: Claims against Online Infringers – Action Plan

Section 4: Recent Case Studies

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RUSSIAN INTELLECTUALPROPERTY PROTECTION:A BRIEF REVIEW

SECTION 1

Russian IP Protection

• Well-established regime for IP protection based oninternational treaties and domestic laws

• Copyright: no registration required; however, voluntaryregistration possible for software

• Trademarks: registration required; 10-year term initially, with

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• Trademarks: registration required; 10-year term initially, withunlimited renewals

• Patents: registration required; may cover IT solutions

• Trade Secrets: no registration required; covers technicaldata (manufacturing processes, chemical compounds) andcommercial data (customer lists, marketing studies, productlaunch data)

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Russian IP Protection (2)

• Specialized Intellectual Property Court for disputes overcreation and validity of IP rights (except for copyrights) and IPinfringement cases

• Infringement of IP rights may trigger civil, criminal and“administrative” liability

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• Remedies for deceptive practices (any conductthat creates the likelihood of confusion ormisunderstanding) under competition andconsumer protection laws

• Interim measures available; but in practice, notalways easy to obtain unless fake products are involved

• Customs: “Register of Intellectual Property Objects”useful to block imports of pirated goods

Russian IP Protection (3)

• But … IP infringement remains a major issue, despitesubstantial efforts by Russian authorities

• Pirated software and peer-to-peer file sharing platforms(torrents) still widely available

• Amount of software installation without proper licensingin Russia: 67%; commercial value of unlicensed

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in Russia: 67%; commercial value of unlicensedinstallations about US$2.6 billion (BSA Global SoftwareSurvey 2013)

• Russia still prominent in USTR Special 301 Report, PriorityWatch List

• Piracy claims in Russia by major music companies againstVkontakte, the largest social network in Russia; totallost music revenues about US$69 million (IFPI, 2013)

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RUSSIAN INTERNET: THEKEY BATTLEGROUND

SECTION 2

Key Laws for Internet/IP

• Part IV of the Russian Civil Code

• Federal Law No. 149-FZ “On Information, Information Technologies andInformation Protection” (2006) (“Information Law”) as amended byFederal Law of November 24, 2014 № 364-FZ

• Decrees of the Russian Government

• Regulations of Roskomnadzor• Regulations of Roskomnadzor

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Key Regulators for Internet

• Ministry of Communications and Mass Media (Minkomsvyaz)

• Federal Service for Communications, Information Technology and MassCommunications Supervision (Roskomnadzor)

• Federal Antimonopoly Service (FAS)

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Market Overview

Projections until 2018:

• Russian Internet market to grow 15%-20% annually

• Internet retail to grow 7% on CAGR basis

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(Russian Association for Electronic Communications and Higher School of Economics, J’son andPartners)

Legal Regulation of Russian Internet

• Substantial new steps to regulate Internet in 2014

Focus on privacy and data protection for Russian users, including requireddata storage in Russia

Focus on protection of children from information harmful to health anddevelopment

Restricting anonymous online payments Restricting anonymous online payments

Control over social networks and blogger activity, including obligation toregister with the Russian authorities

Risks of further control of content

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Legal Regulation of Russian Internet (2)

• Still some gaps in legal protection for IP:

No clear definitions (e.g., Internet, website, domain, website owner,organizer of dissemination of information on Internet)

Domain name is not IP (however, new Intellectual Property Court hascommented on related cases and interim measures)

Uncertain regulation of technical aspects of software (updates v. Uncertain regulation of technical aspects of software (updates v.modifications)

Unclear status of virtual products and services (virtual money)

• Russian authorities have proposed an onlinepiracy-monitoring system using digitalfingerprinting (registry of IP owners)

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CLAIMS AGAINST ONLINEINFRINGERS – ACTIONPLAN

SECTION 3

Key Principles under Anti-Piracy Law

• First anti-piracy law came into effect in August 2013; covered onlyfilms and TV shows

• Updated law effective from May 1, 2015 to protect all copyrightedcontent (except for photographs), and introduced simplified steps for“take down” of websites with pirated content: Action available for the IP owners and, in certain cases, to exclusive

licensees

Non-judicial measures available – IP owner may send take-down notice Non-judicial measures available – IP owner may send take-down noticedirectly to website owner

Special, fast procedure to seek interim measures – Roskomnadzorinteracts with hosting and communication service providers to block orsuspend infringing content

Perpetual bans for “repeated” IP infringement

Limited liability of online “intermediary” – ISP may avoid liability if notaware of illegal nature of the content uploaded, and it reacts promptly toclaims of IP rights holders regarding alleged infringement

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What IP is Protected against Online Infringement?

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Non-Judicial Measures - How Do They Work?

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Non-Judicial Measures - How Do They Work? (2)

• As of May 1, all website owners must list contact information on theirwebsites (names, postal addresses and email addresses)

• Notice of claimed infringement must contain: information on the IPowner (or its representative), description of allegedly pirated IP, informationon the relevant domain name/website address; statement that no licensehas been granted for the infringing use (Article 15.7 of the Information Law)

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• Within 24 hours of receiving notice, the website owner must either:

remove infringing content or

request additional information or

provide proof that the website owner is authorized to use the allegedlypirated content

Interim Measures – How Do They Work?

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Interim Measures – How Do They Work? (2)

• Faster, clearer procedure available starting on May 1, 2015:

Step 1: right holder files for interim measures against the websiteowner with the Moscow City Court (all issued injunctions areavailable on the Moscow City Court website)

Step 2: once interim measures are awarded, the right holder files anapplication with Roskomnadzor “to restrict access toinformational resources that distribute infringing content”

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informational resources that distribute infringing content”(Roskomnadzor is then responsible for all further actions toblock or suspend infringing content)

Step 3: right holder files a claim for protection of intellectualproperty rights with Moscow City Court (not later than 15days after interim measures awarded)

Interim Measures – How Do They Work? (3)

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Interim Measures – How Do They Work? (4)

In theory, content is blocked or suspended within seven days:

Roskomnadzor has 3 business days to identify hosting provider andnotify

Hosting provider then has 24 hours to advise the website owner toremove the allegedly infringing content or restrict access

Website owner then has 24 hours to comply

If website owner fails to comply, hosting

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If website owner fails to comply, hostingprovider must restrict access to the websitewithin 3 business days after notice fromRoskomnadzor

In case of non-compliance by hostingprovider and website owner, Roskomnadzornotifies the telecom services provider, whichmust restrict access to the website within24 hours

Interim Measures – Practical Guidelines

In May 2015 Roskomnadzor issued practical guidelines for the application ofinterim measures. Roskomnadzor advises IP right holders:

to apply to Moscow City Court only after non-judicial measures areexhausted

do not use non-judicial measures to apply to communication servicesproviders directly

when filing for interim measures to list as many allegedly pirated IP

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when filing for interim measures to list as many allegedly pirated IPobjects as possible

to provide sufficient details to identify allegedly pirated IP objects (name,author, etc) and its location (IP address, URL, screenshots and vidshots)

to mind users interests and exclude blocking of legal content

Perpetual Ban – How Does It Work?

• Special remedy for repeated violations: website may be blockedpermanently, if there has been a prior decision of the Moscow CityCourt against the same website at the request of the same IP owner

• Upon receipt of the court decision, Roskomnadzor notifies the telecomservices provider; it must restrict access to the website within 24hours

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Remedies for Online IP Infringement

• Civil liability:

interim measures

monetary damages

statutory compensation (no need to prove actual damages):

fixed amount ranging up to 5m Rubles (about US$100K);

double the price of pirated goods; or

double the normal fees for licensed use

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double the normal fees for licensed use

• Administrative liability: for unauthorized use of copyrightedworks, monetary fines and seizure of pirated goods

• Criminal liability: for large scale infringements only,monetary fines, “correctional labor” or imprisonment

CASE STUDIESSECTION 4

Recent Cases Involving Online IP Infringement

• Vkontakte cases

Alenikov vs. Vkontakte (2014)

Nikitin Media vs. Vkontakte; Studia Souz vs. Vkontakte(ongoing)

Sony Music Entertainment vs. Vkontakte; Warner Music UK

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Sony Music Entertainment vs. Vkontakte; Warner Music UKLimited vs. Vkontakte and Universal Music vs. Vkontakte(ongoing)

• Torrent trackers cases (2013-2014)

Vkontakte (VK) cases: defendant

• VK.com is one of Russia’s largest social networking sites

• VK.com allows users to download audio and video content totheir personal pages and makes it possible for other users tofind it using search engines

• USTR Out-of-Cycle Review of Notorious Markets 2014 report

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• USTR Out-of-Cycle Review of Notorious Markets 2014 reportstated that “vK’s operators responded to the Federal RegisterRequest with information about their anti-piracy efforts, but thereported continuing scope and volume of infringing contentdemonstrates that more needs to be done to yield positivechange”

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Vkontakte (VK) cases: Alenikov vs. Vkontakte

• August 2013: Alenikov claimed compensation of RUR1,500,000 (about USD 40,000) for unauthorized use of themotion picture “Triumf” (Triumph)

• Alenikov sent a written notice to VK requesting that copies ofthe motion picture posted on VK be deleted; VK failed to

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the motion picture posted on VK be deleted; VK failed torespond

• VK claimed that the notice did not contain the URL

• The court decided that VK should have responded to thenotice nevertheless

• The court awarded compensation in the amount of RUR300,000 (about USD 8,000)

Vkontakte (VK) cases: Nikitin Media vs.Vkontakte; Studia Souz vs. Vkontakte

• June-July 2013: Nikitin Media and Studia Souz claimedcompensation for unauthorized use of phonograms in theamount of RUR 75,000 (about USD 2,300) per phonogram

• Nikitin Media and Studia Souz sent notices to VK requestingthat the phonograms be deleted; VK requested proof of IP

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that the phonograms be deleted; VK requested proof of IPrights

• The court of first instance decided that VK is not liablebecause it was not aware of the illegal nature of the contentuploaded, and it reacted promptly to claims of IP rights holders

• The decision was upheld in appeals court but reversed incassation (in closed session). Next hearing – June 2015

Vkontakte (VK) cases: Major Record Labels vs.Vkontakte

• April 2014: Sony, Warner and Universal:

Claim compensation for unauthorized use of phonogramsin the amount of RUR 1,200,000 (about USD 34,000) perphonogram;

Request an order requiring VK to stop making it

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Request an order requiring VK to stop making ittechnologically possible to upload infringing content andimplement fingerprinting technology to delete copyrightedworks and prevent them from being re-uploaded

• Three cases were initially merged into one but Sony, Warnerand Universal are struggling to separate them

Torrent trackers cases

• 2013-2014: Russian rights holders vs. foreign hostingproviders

• Claims for an order to stop creating technological means tostore, distribute and otherwise use copyrighted works

• No monetary claims

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• No monetary claims

• Claims granted. Potential impact on VK cases?

• Legal issue – torrent trackers store torrent files and notcopyrighted works. This argument was never raised in courtbecause the defendants did not participate

Q&A

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Anastasia DergachevaMoscow

+7.495.212.2516adergacheva@morganlewis.com

Brian ZimblerMoscow

+7.495.212.2500bzimbler@morganlewis.com

Ksenia AndreevaMoscow

+7.495.212.2527kandreeva@morganlewis.com

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