On January 1, 2016, Government order No.1236 “On Prohibition of Admission of Software originated in Foreign Countries for the Purposes of Procurement for State and Municipal Needs") (the "Order") took effect in the Russian Federation. The Order prohibits government agencies and municipalities from purchasing or licensing-in 'foreign' software.  These government entities are permitted to purchase only software registered and designated as “Russian Software”.

According to the Order, a unified registry of Russian Computer Programs and Databases (the "Registry") will be established by the Ministry of Communication and Mass Media of the Russian Federation (the "Ministry"). Such Registry shall contain a list and classification of the software and databases admitted. The classifications were to be in place by January 16, 2015, but are still being drafted. A software product included within the Registry shall be deemed as “Russian Software”.

Technically, the Order applies only to governmental entities and do not include at this time corporates held by the government (whether in full or in part). However, there is a definite tendency among such corporates to prefer Russian products in general and specifically Russian Software and as a result in many tenders, preference is given to products, including software, originated in Russia. 

Registry of Russian Software

Inclusion in the Registry of Russian Software requires the right holder to submit an application and documentation to an expert committee of the Ministry. The criteria for such admission include the following:

  1. Exclusive worldwide and unlimited right to the software belongs to one or more of the following rights holders (each, a "Right Holder"):
    1. Russian Federation (the "RF");
    2. federal subjects of Russia (constituent entities of the RF);
    3. a municipality;
    4. a citizen of the RF;
    5. a Russian non-commercial organization where the controlling corporate organ nominated directly or indirectly by one or more of the above mentioned Right Holders, provided that a foreign legal entity or individual cannot affect its decisions;
    6. a Russian commercial organization where more than 50% of the share capital/participation interest is held directly or indirectly by one or more of the abovementioned Right Holders.
  2. The software, copies thereof or the right to use it, may be freely commercialized in the RF; 
  3. The annual amount of payments under any license agreements and/or any other agreements for the benefit of foreign parties or any Russian entity controlled by such foreign parties, does not exceed 30% of the revenues generated by the Right Holders from its commercialization;
  4. No information or data, relating to or contained in the software, is considered a state secret;
  5. In case of software containing data security functions:
    • the software must comply with the applicable data protection requirements of the RF;
    • the exclusive worldwide and unlimited right to the software must belong to a Right Holder licensed for development and manufacturing of data security products.

Exceptions

Notwithstanding the foregoing, in the following cases the above mentioned restrictions on purchase of foreign software do not apply:

there is no information in the Registry with respect to Russian Software classified in the same class as the required software; or 

there is information in the Registry with respect to Russian Software classified in the same class as the required software, however, its functional and/or technical and/or operating parameters do not meet the requirements; 

information with respect to required software (or rights to use it) or to the purchase itself is a state secret; 

the purchase of software (and/or rights to use it) is made by diplomatic agencies, consular offices or commercial agencies of the RF operating as part of international organizations, for their needs in foreign countries. 

Requests for exceptions under Sections (a) and (b) above, should be accompanied by written evidence.

Conclusion and Questions 

The Order is unclear as to (a) whether government agencies are allowed to use foreign software purchased prior to the enforcement of the Order; and (b) whether government agencies currently using foreign software may purchase updates to such foreign software and/or to get technical support provided by a foreign party. It is clear that in order to be a supplier of software products in the Russian Federation, foreign entities need to prepare a local alternative and be included in the Registry.