New regulation of digital rights

Pepeliaev Group advises that a draft law has been adopted in the third reading, which amends the Russian Civil Code in the sphere of digital rights.

The draft federal law “On amending parts one, two and three of the Civil Code of the Russian Federation”[1] is aimed at enacting several fundamental provisions in civil legislation. Building on them, the legislature would be able to regulate the market of new objects of economic relations that exist in IT networks (in common terms, ‘tokens’, ‘cryptocurrency’ and others), and to ensure the conditions for consummating and performing transactions in a digital environment, including transactions that enable large amounts of data (information) to be provided.[2]

New concepts are introduced:

• digital rights are rights under an obligation or other rights the content and conditions for the exercise of which are defined according to the rules of an information system corresponding to the criteria established by the law. A digital right may be exercised, disposed of, including by being transferred, pledged or encumbered in any other way, or its disposal may be restricted only in the information system without applying to a third party;

• a digital right holder is a person that, according to the rules of the information system, may dispose of such right.

In the version drawn up to be considered in the first reading, the draft law contained a concept of “digital money”, but it was later removed. This was recognised as a set of electronic data (a digital code or notation) that does not certify a right to any object of civil law rights and that has been created in a decentralised information system and applied by users of such system to effect payments.

It was determined that digital money is not to be accepted on an obligatory basis for all types of payments effected (is not a lawful means of payment); however in the cases and on the conditions stipulated by the law, individuals and legal entities may use it as a means of payment.

Anatoly Aksakov, Head of the State Duma's Financial Market Committee, stated, ‘In fact digital money will be presented as digital rights which will be permitted to be exchanged. Moreover, digital assets will not be recognised as property as was previously contemplated. The status of “digital rights” will be assigned to them’.[3]

Ways of expressing will are being improved to meet the requirement for the written form of a transaction. This is being done with a view to facilitating transactions with digital rights. The requirement for the written form is deemed to be met if parties consummate a transaction using electronic or other technical means that allow the content of the transaction to be reproduced on tangible media in an unchanged form (in the version of the draft law drawn up to be considered in the first reading it was also explained that this may be done by transmitting a signal, including when a form is filled out in the Internet).

At the same time the draft law introduces a ban on making a bequest using electronic or other technical means.

Legislation as well as the parties by agreement may establish additional requirements with which the form of a transaction should comply (drafting on a special set form, affixing a seal and others) and may provide for consequences if such requirements are not met.

A requirement for a signature to be present is deemed to be complied with if any way is used that allows for a person expressing will to be reliably identified.

Smart contracts are a new construct of so-called ‘self-performing’ transactions. The conditions of a transaction may provide for the parties to discharge the obligations arising out of it if certain circumstances occur without the parties expressing their additional will aimed at the discharge of such obligation, such will being expressed using information technologies determined by the conditions of the transaction. In this case discharge will take place automatically with the aid of the information technology.

A new specific aspect has been introduced for a service agreement for the provision of information. Such agreement may provide for an obligation of one or both parties not to perform actions within a certain period, which may result in information being disclosed to third parties. It is intended that what is referred to as ‘big data’ should be provided in the context of such agreements.

What to think about and what to do

The objective of the draft law is not to describe the conditions under which the circulation of digital objects is possible in principle (such as requirements for parties creating such objects or arranging such circulation) or to enact other public law provisions, including requirements for ensuring the security of the circulation in question. The draft law contains only rules of civil law.[4]

“The draft law on digital rights forms the basis for developing digital economy. This is a new sphere for our laws and that is why it is important for us to lay down fundamental concepts,” Vyacheslav Volodin, the Chairman of the State Duma, remarked.[5]

It is intended that the law should come into force on 1 October 2019.

We recommend starting to use the new technologies now within the legal frameworks that exist both as a completely new regulatory framework and in the forms accepted in traditional regulatory spheres. In deploying modern digital business solutions one should not overlook the efforts of the state in terms of protecting information infrastructure.

Help from your advisers

Pepeliaev Group’s cross-sectoral Digital Economy Support Group comprises experts in the legal regulation of IT, IP and personal data use. The Group will be happy to provide the full range of legal services concerning any aspects of how information technologies might be applied.

Our experts are members of working groups involving business representatives and sectoral agencies which develop proposals for how the regulatory and legal framework can be improved depending on the technological changes that are occurring.