In a Word

The ‘Notice and Takedown’ Rule

Nov 2, 2011:

The Supreme Commercial Court has supported, once again, a hosting provider in a dispute regarding pirated content on its servers (case VAS – 6672/2011, Top 7 Ltd v Dignata Media et al). The judges have confirmed that the ‘notice and takedown’ rule exists in the Russian law and extends, at minimum, to hosters.

The court, however, went further than that. Protection will also be provided to social networks and file sharing websites, likely the worst violators of copyright in the Russian Internet.

The ‘notice and takedown’ rule means that an internet company does not have to monitor what happens within its network. It is not required to prevent the misuse of its services pro-actively, but it may get in trouble only if it was notified of the pirated material on its servers but did not remove it.

The judges have said that this legal position can also be applied to the owners of file-sharing and social networking services. Technically, this is an obiter dictum as it has no relation to the dispute and, therefore, does not bear the precedential value. In practical terms, the judges have made it clear that they will give shelter to pirates: they will only be liable if a copyright owner proves that they knew of illegal content on their resources.

This means that the Supreme Commercial Court gives effect to the ‘notice and take down’ rule similar to that found in the US Online Copyright Infringement Liability Limitation Act, but which, strictly speaking, does not abide within the Russian laws.

Gasprom Will Not Be Exempt From Transfer Pricing

Oct 31, 2011:

The bill aiming to exempt Gazprom’s operations from the transfer pricing regulation has been withdrawn.

The transfer pricing regulation restricts the sale of goods or services by affiliated companies at non-market prices and, by doing so, the redistribution of profit to a company that pays lower taxes. The new law on arm’s length transactions comes into force in two months. It was adopted after several years of strenuous discussions, quiet but tenacious resistance and obstruction.

The law not only dramatically increases the odds of revision, for tax purposes, of prices set between affiliated companies but seek to focus the taxmen’s time and efforts on large scale transactions and transactions with foreign companies.

Earlier, Russian business daily Vedomosti reported that Gazprom’s CEO Alexei Miller sent a letter to Vladimir Putin asking to exempt the company from the transfer pricing law. Mr Miller wanted special provisions that would deem any transaction of the gas major or its subsidiaries struck at the market price.

The day after the publication the Russian Deputy Finance Minister Sergei Shatalov stood up to the proposition. ‘Gazprom should not be entitled to a waiver; it should comply with the transfer pricing law. We are not ready for any exceptions,’ he said.

Supreme Court Rules For Arbitration

Oct 27, 2011:

The person authorized to represent one’s interests in court is also empowered to represent one’s interests in arbitration. This is the immediate conclusion that follows from the Supreme Commercial Court's decision in yet another case between Tander and Moiseeva.

This is the third time when the Supreme Court turned to the dispute over the $4,500 of rent payments between an entrepreneur and Magnit, one of the largest retail chains in Russia with a turnover of about $8 billion.

In essence, the matter is about whether a company that signed an arbitration agreement and participated in the proceedings can put the system upside down and refuse to execute the award on the grounds that the power of attorney issued by the company to its branch does not specifically mention the authority to arbitrate. It turns out that it can’t.

In 2009 Svetlana Moiseeva, a sole trader, filed a claim with the arbitration court at the Ulyainovsk Chamber of Trade and Commerce against Tander for recovery of rent payments. The tribunal ruled in her favour. The respondent then filed a barrage of suits in state courts to invalidate the award claiming that the director of its branch, who entered into the contract and then, through an attorney, participated in the proceedings, was not properly authorized.

Also on the case here.

Adversarial or Inquisitorial

Oct 24, 2011:

The Treasury must compensate damage caused by an unlawful criminal conviction of private prosecution. Until now, the government refused to take responsibility for cases initiated and supported by an individual or private organisation.

Only a court can impose criminal liability and assign punishment, reads the decision of the Constitutional Court. Therefore, any harm caused must be paid by the government.

Cases of private prosecution (injury, assault, slander) are initiated and maintained by individuals instead of a public prosecutor who represents the state.

In theory, a judge does not interfere in the process: it is not looking for evidence or facts nor does it help either side in any way. It is an impartial observer watching the fight. In practice, it is actively involved in the process. The Russian criminal court, as the Soviet court was, is not adversarial but inquisitorial. It is stuck in the 19th century.

The judges, brought up under Soviet law, have no illusions about how justice works. This, probably, explains their strange yet generous decision.

Stop Fly-By-Night Companies

Oct 19, 2011:

Every second company in Russia is created for tax evasion. Thus, the State Duma plans to criminalize creation of fly-by-night companies.

The talks of fighting sham organisations as instruments of fraud and corruption have been going on for at least 15 years. In modern Russia, which came into existence in 1991, it means almost the same as ‘since the beginning of times’.

The bill introduces the new article to the Criminal Code ‘Creation of a commercial organization with the purpose of committing a crime’. Those behind sham companies will face five years’ imprisonment. Registration of a company on someone else’s passport will be punishable by three years and those crackpots who for a fee lend their passports to set a sham company will end up behind bars for two years.

Appraisers Should Be Criminally Liable

Oct 17, 2011:

Criminal liability for bogus valuation can be introduced in Russia. ‘The problem of draining resources from a company with the help of appraisers who knowingly make false reports does exist', admitted the representative of the Investigative Committee Georgy Smirnov.

Smirnov believes that civil liability for false appraisal is not good enough and that making it a crime can help law enforcement agencies in the fight against corporate raiders, invaders of property under the guise of a legitimate legal struggle.

There are lots of questions to appraisers both from private companies and the state. In March 2011, for example, inspectors discovered huge overpricing in the contracts for construction of Olympic facilities.

When a company is courting investors, its reports get ‘improved’; the company’s business looks gloomier than it really is in order to drag the company into bankruptcy.

Currently, auditors are criminally liable for knowingly producing inaccurate reports. Why Russian law makes an exception for appraisers is a mystery.

Pay, Then Go

Oct 12, 2011:

The Supreme Court has ruled that foreign nationals convicted in Russia can serve their sentence at home only if they compensate their victims.

The Supreme Court has handed down the decision on the petition of a Ukrainian citizen serving his term in jail in Siberia. The convict asked to be allowed to be sent home to Ukraine. However, he had debts: according to his sentence he must pay a significant amount of money to the victims. He promised to collect the required amount at home and send to his victims in Russia, arguing that this would be easier for him.

The court dismissed his petition saying that 'Ukraine, as is evident from the response of the Ukraine’s Deputy Minister of Justice, cannot guarantee the payment’ and Mr D-ko’s claims are just ‘empty promises’.

Last year civil damages from crime reached $1 billion, including about $300 million to individuals. Statistically convicts pay off about a quarter of the amount.

On Unreasonably Disproportionate Penalty

Oct 12, 2011:

The draft resolution of the Plenum of the Supreme Commercial Court ‘On some issues of the application of article 333 of the Civil Code of the Russian Federation’ limits the right to reduce unreasonably disproportionate penalties.

A creditor must prove non-fulfilment or improper fulfilment of obligations. The burden of proving that the penalty is unreasonably high lies with a defendant.

The issue of reducing the penalty can only be considered in the court of first instance. The court of cassation cannot reduce the amount of penalties. It can, however, increase the penalty if the lower court reduced it on its own initiative.

Bad Work

Oct 11, 2011:

Great minds think alike. The speaker of the Federation Council, the upper house of the Russian Parliament, Valentina Matvienko called senators not to reject laws adopted by the Duma, the lower house. Matvienko called this bad work.

‘Any law rejected by the Federation Council is bad work not only of the State Duma but of ours because at that stage [during the hearings in the lower house] we could have prevented the defects but we didn’t,’ said Matvienko. Earlier, the State Duma speaker Boris Gryzlov said that ‘Parliament is not a place for discussion’.

The Federation Council may reject a new law and send it back to the State Duma. In practice it rarely does so acting as a mere rubber stamp.

More Proportionality, But Later

Oct 10, 2011:

The State Duma has approved a law reducing the minimum percentage of voters a political party needs to set foot in the Parliament from 7% to 5%.

Russia employs a party-list proportional system of voting with a threshold. A party must receive at least 5% of votes to get any seats in the Parliament. Those parties that obtain more than 5% but less than 7% can only be guven two seats. Their MPs are not included in the parliamentary factions.

The new law will not apply to the elections taking place in December.