On 18 March 2019 the president signed the Federal Law on Amendments to Parts 1, 2 and Article 1124 of Part 3 of the Civil Code of the Russian Federation (34-FZ) (the Digital Rights Law), which will take effect on 1 October 2019.
The Digital Rights Law has introduced a number of new legal concepts into Russian legislation, including:
- digital rights;
- e-transactions;
- smart contracts; and
- Big Data.
Notably, digital currencies and cryptocurrencies have been left outside the scope of the law.
The implementation of the Digital Rights Law was not fast tracked. When the Digital Rights Bill was initially introduced for consideration by Parliament in March 2018, the initial text and the accompanying explanatory note were much broader in scope and also covered digital currencies and cryptocurrencies. However, the bill's scope was narrowed significantly following further readings in Parliament.
The Digital Rights Law contains specific provisions which have been drafted from a civil law perspective. However, it establishes no administrative or public rules for the circulation of digital assets, which will need to be implemented through additional national regulations.
In this regard, companies doing business on the digital level in Russia should familiarise themselves with the background and key provisions of the law to ensure that they are ready to operate in the new legislative environment.
The law expressly includes the notion of digital rights in the category of property assets protected by Russian civil legislation, such as money, securities and intellectual property. The newly introduced Article 141.1 of the Civil Code now deals specifically with the concept of digital rights.
Pursuant to the new Article 141.1, 'digital rights' are "obligations and other rights, the content and conditions of which are determined in accordance with the rules of the information system that meets the criteria established by law". The exercise, disposal (including transfer), pledge and encumbrance of digital rights by other means, as well as restrictions on the disposal of digital rights, are possible only within an information system, without the engagement of a third party. The transfer of digital rights as a result of a transaction will not require consent from the person liable under such digital rights.
More specifically, rights over civil law assets may, in cases provided by law, be certified with a combination of electronic data (ie, a digital code or mark) that will obtain the status of a digital right when:
- the electronic data needs to operate within an information system which fits the criteria of a decentralised information system (as set out by law); and
- the system's information technology and technical means will enable a person with unique access to the electronic data to learn the description of the relevant asset at any time.
Unless otherwise provided by law, digital rights owners are the only parties that are entitled to dispose of such rights under the relevant information system rules. Further, the Digital Rights Law states that rights owner may be defined in cases and on the grounds set out by law.
The law has amended the general concept of written transactions under Russian law. Until now, as a general rule, the requirements for written transactions were considered to have been complied with where a document expressing the transaction's content had been signed by the parties.
Under the Digital Rights Law, the requirements for transactions will also be complied with:
- where a transaction is made via electronic or technical means which enable its contents to be accurately reproduced on a material medium; and
- there is a means for the will of the parties to the transaction to be determined (the law may provide additional requirements in this regard).
Further, certain amendments have been made to the legal provisions on nominal bank account and insurance contracts. The related provisions of the law now expressly provide that said contracts may be concluded by way of an exchange of e-documents or the execution of one e-document (ie, an electronic agreement).
Notably, e-voting in the corporate sense is now permitted by the law. However, the law has modified Article 1124(1) of the Civil Code, which now prohibits the issuance of e-testaments or the preparation of testaments through other technical means.
Article 309 of the Civil Code is supplemented by Paragraph 2 of the Digital Rights Law, which states that the terms and conditions of a transaction may, in certain circumstances, enable the parties to perform their obligations thereunder without expressing any individual and additional will of the parties with regard to such performance, through the use of 'information technologies', as defined by the terms and conditions of the transaction.
Therefore, smart contracts are a condition for the automatic execution of any civil law contract (eg, a contract of sale and purchase). After a user has been identified, their behaviour is subject to algorithmic software control. Transactions are secured by the relevant IT system and parties need not express their will (ie, by signing a document).
The law has introduced a new type of service agreement – namely, the data provision service agreement.
Article 783.1 of the Civil Code now specifies that contractors which are bound by a data provision service agreement must provide certain information to customers. The agreement may stipulate the obligation of one or all parties to refrain from activities for a definite term until this information may be disclosed.
According to the explanatory note to the bill, the purpose of this amendment is to legalise the collection and processing of significant amounts of non-personal data (ie, Big Data).
The Digital Rights Law may be treated as a threshold for the development of an efficient legal landscape, as it reflects the current technology and digital economy challenges faced in Russia. The law will undoubtedly be supported by subsequent laws, regulations and clarifications. However, its fundamental rules and principles, including those outlined above, have already been established. That said, it remains to be seen how these will play out in practice.
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