Legal requirements and options for joint ventures and licensing in the Russian market.

Joint ventures

U.S. companies or individuals may become strategic partners with Russian firms by taking equity positions in Russian joint stock companies or establishing joint ventures (JV). The launching of a JV in Russia demands meticulous planning and sustained commitment. In most cases, it is advisable for the U.S. partner to retain managerial and voting control. JVs in which foreign partners hold minority stakes are highly dependent on the good intentions of their Russian majority owners, and foreign minority shareholders could face difficulty protecting their interests in the Russian courts.

A principal benefit of a JV is the possibility of brand recognition for the U.S. company’s products in the Russian market. Russia’s May 2008 Strategic Sectors Law identified 42 industry sectors requiring the Russian government’s prior approval of a foreign firm’s purchase of a controlling interest. Additionally, political pressure is mounting in Russia for domestic content mandates in key sectors and for large-scale procurements, and a JV can sometimes help provide a local footprint with a more Russian “face” for a non-Russian company working in the market.

Russian and U.S. partners often take a different view of JVs. U.S. companies, especially small and medium-sized enterprises (SMEs), often consider JVs as a means of securing a local partner with experience and contacts in the Russian market. On the other hand, many Russian managers view a foreign partner chiefly as a source of working capital, and these managers may place a lower priority on local market development. Before making financial or legal commitments, U.S. firms should thoroughly evaluate whether a potential partner shares their priorities and expectations. Any firm that forms a JV in Russia should be ready to invest the necessary resources, including the personal attention of its managerial staff, to keep the business on course both before and after the establishment of the JV.

Certain types of business activity need a special activity license issued by an authorized licensing body. These include surveying; encryption-capable IT or telecommunication systems; pharmaceutical activities or the production of medicines; development, production, repair, sales or trade of weapons and military equipment; overseas and inland waterway passenger and freight transportation; use of highly explosive or hazardous objects for production; production, storage, usage or distribution of explosive materials for an industrial assignment; and educational activities. The full list of activities that require licenses is stipulated by the Federal Law “On Licensing of Certain Types of Activity” No. 99 of May 4, 2011, with amendments adopted by Federal Law No. 185 (FZ-185) of July 2013.

Licensing

U.S. technology can be licensed for Russian production in the absence of a JV, but there can be significant obstacles to doing so, such as ensuring that desired quality levels are attainable by Russian facilities without significant retooling, addressing uncertain intellectual property protection, and resolving difficulty in receiving regular and prompt payments. Concurrently, Russian companies are usually eager to license their technologies to foreign companies in exchange for the cash infusion.