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Cobwebs of Invention
Recent sale of shares in Aviadvigatel Design Bureau (DB) performed by Interros company nullified the state’s second in ten years attempt to capitalize the engineering developments of the USSR times. After months of arguments with co-owners of Perm engine companies, state authorities gave up the idea of property redistribution, though it was once established on budget money. Moreover, engineering documentation on aircraft engines is merely a small part of gigantic assets, which the state seems to have irretrievably lost.
Unaccounted Knowledge
During the mass privatization of enterprises in early 1990s, the cost of intellectual property (IP) at their disposal was not taken into account. At the time there were neither any IP valuation methods, nor any legislative basis for it.
“Until 1991, 70% of scientific research was conducted in the area of military engineering, says the head of IP Department of the Ministry of Industry, Science and Technology, Yuri Fomichev, - which means that its developments could neither be commercialized nor be employed in civilian sphere. Neither was there any definite notion of patent, instead there were only author’s certificates. Having lost government orders enterprises started closing the subdivisions, which seemed useless and the first to be closed were patent offices. As a result their rights to IP became quite defenseless.”
This problem had been forgotten until in 1998 the government issued new regulations, under which the rights to results of scientific research and experimental design work(NIOKR) financed from the RF, RSFSR or Soviet budget belong to the state. However, almost in all normative documents this statement was followed by numerous stipulations, which provided a large margin for lawyers’ activity.
On the basis of this innovation the Ministry of Justice created Federal Agency for the Legal Protection of Military, Special, and Dual-Use Intellectual Property (FAPRID). First of all, FAPRID revised export contracts for military production. “FAPRID has been playing a positive role, - Mr. Fomichev notes, before it appeared it was impossible to make somebody even talk about IP. This part of international contracts simply was not translated into Russian.” There are however different opinions: “FAPRID suspended performance of export contracts amounting to $1 billion and created problems to hundreds of science production exporters, and all it got for the budget was $800 thousand. This is less than was expected and a lot less than the damage suffered by exporting companies.” - this is how the agency’s work was estimated by experts from Military Enterprises Assistance League. FAPRID’s only project that seriously affected the civil sphere was forming of OAO Tupolev. On the part of the state the agency invested in OAO the rights to engineering documentation and the assets of A.N.Tupolev Scientific and Technological Aviation Complex (Tupolev ANTK) and the Ulyanovsk Aviastar Factory. The creation of OAO began in 1999 and lasted over three years. Its legitimacy was argued by a number of experts. Since neither ANTK nor Aviastar had any influential private owner, the voices of the amalgamation opponents played no role. However, OAO still remains a rather virtual superstructure with both of its members working almost independently.
A Might-Have-Been Precedent
Another serious attempt to redistribute rights to IP and thus reorganize the industry was initiated by a private company. In late 2000 Interros holding, which controlled large packets of shares in Perm Motor Factory, DB Aviadvigatel, Proton-PM, Reductor-PM and other Perm companies, proposed the creation of Perm Center of Motor Engineering (PTsD) on their base. The plan was as follows: private investors were to bring into PTsD the blocking packages of enterprises and get 49% of shares. The state was to hand over to the Center: rights to IP connected with PS-90 engines (used in Tu-204, Tu-214, Il-96 airplanes and energy stations) and D-30 (for Tu-154, Il-62, Il-76 airplanes), its papers of Perm companies, as well as partially write off their debts to the Pension Fund. In return the state would have 51% of shares in PTsD.
The realization of this project by the owners of Perm Motor Factory would strengthen their rights to PS-90, moreover it would annihilate their competitor Rybinsk Motor Factory. In the Soviet times Rybinsk enterprise manufactured D-30 engines developed in Perm, hence all the engine documentation was allocated to it. Unlike PS-90, outmoded D-30 is installed in the airplanes, which form the bulk of Russian airlines’ fleet and the rights to IP connected with D-30 brings in real money to Rybinsk Motor Factory, unlike just several tens of PS-90 engines used on the market.
We should mention that the PTsD creation skidded already at the stage of business-plan development. It was problematic to ground the cost of IP on engine development. According to the representative of the valuator company - it was impossible to define the legal status of the intangible assets. Only part of documentation on PS-90A had been patented and the rights to it were held not merely by the author, but by “other legal persons” as well. Moreover, the state’s rights to this IP were not secured in any way.
As a result preliminary estimates of their cost spread from $50 to $800 million, while the range of the state’s possible share in PTsD would be 21%-81%. This divergence became the framework of trade between the state and private auctioneers. For all that, the price was fixed at $220 million, but the evaluation method was severely criticized by independent valuators. Some experts simply “condoled PS-90A”.
More or less valid laws on inventory, account, appraisal, reappraisal and IP in enterprises’ capital and its involvement in economic circulation were formed by late 2002. But the PTsD project never made it to this happy day. Both the ministries and Perm enterprises’ private owners were tired of endless negotiations and buried the idea of Center creation.
Interros put up its shares for sale already last spring, while state authorities, which just two years ago were seriously considering the possibility to get substantial extra budget income from redistribution of rights to IP, hopelessly admitted the lack of any prospects in this area.
Civil Amnesty
“Starting 2002, privatization of state enterprises is accompanied by full appraisal and account of its IP,” – says Evgeny Dietrich the deputy head of Standard-and-Method Department of the Property Ministry. When an enterprise is privatized, it is necessary to enter IP objects in their balance. But in many cases it is no longer topical and cannot bring in any serious extra profit to the budget for one simple reason: a significant part of the developments is by now outdated and depreciated. But then legal order is being established”.
When one sells state package of shares of already privatized enterprise, the rights to IP undergo a rather relative reappraisal. The procedure is established by the enactment as of January 14, 2002 and if the owners or the management wish it can be conducted in corpore. But it looks like the authorities have given up on previously unaccounted IP. “If the enterprise was privatized long ago, there is no sense in its reappraisal, - maintains Mr. Dietrich, - for most of IP had not been considered and the rights to it not registered. Changing anything behindhand is complicated and needless, of course if it does not concern defense establishment”.
This view is shared by the Ministry for Industry, Science, and Technologies: “What has been privatized is gone and has nothing to do with us,” - says Mr. Fomichev. As to the defense industry, the Ministry’s attitude if far more aggressive. Head of the office, Ilya Klebanov has announced the beginning of intimidation of the defense enterprises owners. “If you hinder the concentration of resources, we will switch on the mechanism of IP reappraisal,” – he threatened. But the Ministry has no clear-cut idea as to the implementation of its threat. “There is a temptation to start the reappraisal in defense establishment, – says one of the top officials of Ministry for Industry, Science, and Technologies, - but at the moment we do not even understand whether this should be done or not.”
Invaluable Inventions
Moreover, the question of commercialization of IP created on the budget money in recent time, is still in midair. “When I hear the statement that Russia’s IP amounts to $400 billion, I want to ask, who, where, and when counted it and how, – sighs Mr. Fomichev – there is a long way between an abstract invention and a market product. Many of our scientists and designers still do not realize their role in this chain. They can get maximum 30% of profit from their invention (when it is a software product), while not so long ago, they expected nearly 100%. Introducing inventions to the market is a different area, which requires special training.
It is noteworthy, that in most of the countries it is the state that is one of the largest customers of NIOKR, it makes orders for defense and social needs, for internal security and struggle against terrorism. Yet, the question of passing the inventions further to industry is inevitable. “The laws, which defend and introduce IP products into business not related to the state, are already existent and functioning, - Mr. Fomichev maintains, - but NIOKR created on budget money remains a problem. The Ministry of Finance suggests allotting all the rights rigidly to the state and if anyone needs them, they will have to pay. But in this case one has to pay for patent support, and on the country scale the sum is not small. The Ministry of Finance refuses to assign extra means and suggests that they should be found in NIOKR’s budget, which is insufficient itself. Besides, there are tons of engineering documentation. The performer of government order has the right to ask for money from the state after the order is executed. Another arising question is the organization of authors’ support. To solve it we may have to create one or even several analogues of FAPRID.
The Ministry of Industry, Science and Technology suggests that the state be allotted only limited range of most important issues in defense and other areas connected to safety. All the rest should belong to the performer of NIOKR order, but with restrictions on terms of introducing the developments, technology exports, production for the government needs without paying the fee to the author. In the Ministry of Industry, Science and Technology they insist on distribution of rights between the executor of order and the state. The Ministry of Defense is secretly competing with FAPRID for the rights to NIOKR. Both organizations are bogged down in terminology and snowed under with this argument, while intellectual property is still lying on the shelves, in mothballs, growing obsolete and depreciated.
Renata Yambaeva
All the Article in Russian as of Mar. 03, 2003
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