The limit on foreign capital in IT companies can be 20%. Will the gaming sector be affected?

Last Friday, United Russia deputy Anton Gorelkin introduced a controversial bill. He proposed to identify the most important IT products in Russia and limit the participation of foreign individuals or companies in them to 20%. I was looking into the bill and whether it could affect the video game industry App2Top.ru .

About the law

“The essence of the proposal: to introduce a new concept,” he noted in a comment for App2Top.ru Vladislav Arkhipov, Advisor to Dentons‘ Russian practice in the field of intellectual property and Associate Professor at St. Petersburg State University.

This concept is “A significant information resource for the development of information and communication infrastructure in the Russian Federation, as well as data processing technologies.”

Which resource should be considered “significant” will be decided, as the draft says, “by a government commission based on proposals from the federal executive authority.” In other words: “The status of a significant resource will be determined by the government in a “manual mode,” explains Arkhipov. He also points out a fundamental point: the subject will be recognized as an important information resource not by virtue of its existence, as it happens, for example, with search engine operators or news aggregators.

The wording of what can be considered “significant” is very broad in the project. It can be a website, an information system, or even a program that collects data about users in Russia.

“Such a broad formulation in the current realities of the Internet actually means that the government commission, at the suggestion of Roskomnadzor, will be able to recognize almost any website or even just software designed to collect data as a “significant resource”,” Arkhipov notes.

The share of foreign capital recognized as “important” resources should not be more than 20% (however, the draft immediately states that the government commission will be able to set this percentage at will “on the basis of a motivated appeal” by the owner of the resource).

“In case of violation of the condition [we are talking about a 20% threshold – approx.it is prohibited to advertise this resource and its services, as well as advertising on the resource. Moreover, without the prior approval of the government commission, it is impossible to transfer information about Russian users collected by the resource to foreign entities,” says Arkhipov.

And he also points out a few more fundamental points concerning “significant” resources. “The government commission will also have the right to adopt special restrictions for the collection and processing of information about Russian users. The technical means of “significant resources” must be on the territory of Russia. Additionally, it is prohibited to use databases located outside the territory of Russia as part of “significant resources” for processing personal data.”

How does the law apply to games

As already noted, “important” resources also include programs that collect data about Russian users. Today, games can also be attributed to such programs.

This opens up an opportunity for Roskomnadzor to make claims, including against leading domestic products. For example, to the games of the companies Playrix or Game Insight. Formally, these are Russian developers, but in the first case, 100% of the company belongs to a Cypriot legal entity, and in the second — to a Lithuanian one (according to data from the Unified State Register of Legal Entities).

“The adoption of such a bill will definitely reduce the investment attractiveness of Russian gaming assets,” independent consultant Valentin Merzlikin believes. — We will have to restructure the relationship into the format of an “affiliated company with strict royalties“.

However, he believes that this is unlikely: “The law will not be rolled out to companies and businesses that do not form a political agenda.”

Arkhipov agrees with him that even if the law is adopted, it is unlikely that it will affect game studios: “So far, its [the law] is being traced.] obvious focus on large Internet companies engaged in many different areas and large-scale data processing of Russian users. If the gaming company does not belong to them, then the probability of making a decision about a “significant” resource is low.”

Reaction to the law

On the day of publication of the bill , she immediately reacted sharply to it Mail.Ru Group. In a comment to RBC , the company stated: “We believe that this draft law cannot be adopted by the State Duma in the current version.”

The Yandex company’s press service quickly commented on the bill as much: “We believe that the bill in its current form should not be adopted.” However, the company has more fully disclosed its position: “If the bill is adopted, the unique ecosystem of Internet businesses in Russia, where local players successfully compete with global companies, may be destroyed. As a result, end users will suffer.”

Such a prompt reaction of two Russian IT majors was due, among other things, to the fact that the author of the law noted in a comment for Interfax that the law would affect exclusively Russian-oriented companies that occupy a dominant role in it. For example, Yandex and Mail.Ru Group.

Plus, against the background of the initiative, Yandex’s share price has fallen. Mail.Ru Group was not affected by the latter, which is not so surprising, given the increase in its revenue from foreign countries.

Yesterday, on Monday, Communications Minister Konstantin Noskov opposed the bill. He did not see the amendments, but noted that he categorically does not support the restriction of foreign capital in the largest Russian companies.

“These companies exist due to the fact that the state did not tighten the screws at the time. I am convinced that even now these nuts do not need to be twisted. I’m not even talking about the fact that such thoughtless and unthinking initiatives that spill over into the public plane have a negative effect on thousands of the best Russian programmers who have options in Yandex and Mail.ru and, accordingly, their incomes and salaries are falling significantly. I really don’t want these guys to start looking towards other countries,” Noskov said.

Deputy Prime Minister Maxim Akimov also opposed the law. According to Interfax, Akimov called the bill in its current form destructive for the national program “Digital Economy”.

As a result of criticism, today, on July 30, the author of the bill Anton Gorelkin said that he was ready to change it. However, he will do this only after discussion with experts, including representatives of Yandex. He is not going to withdraw the project.

The bill is natural

Contrary to the criticism of Noskov and Akimov, the project is natural. At least, it is natural “in the light of how Internet regulation has been developing in Russia lately,” Arkhipov believes.

He says that the current bill has two components. One concerns data localization, and the second concerns restrictions on foreign ownership. Both points had previously arisen in one form or another within the framework of legislative initiatives.

The localization of data is mentioned, among other things, in the “Strategy for the Development of the Information Society in the Russian Federation for 2017-2030”, which was approved by Decree of the President of the Russian Federation No. 203 of 09.05.2017.

“This document, which has been in force for more than two years, if we generalize, establishes the localization of data within the country as a priority. For other special subjects, the requirements for such localization were established even earlier – since September 1, 2015, Part 5 of Article 18 of the Federal Law “On Personal Data” has been in effect for personal data operators, and since August 1, 2014, there have been requirements for localization of metadata for organizers of information dissemination (subsequently supplemented by the obligation to store and the content of user messages)“, — reveals Arkhipov.

As for the restriction of foreign capital, according to the lawyer, it is “established in a similar way for the media and in almost the same way for the “owners of audiovisual services”, which was widely discussed in the media in relation to online cinemas in 2017 and 2018.”

So it turns out that, on the one hand, the law will be adjusted for subsequent discussion, and, most likely, it will not ultimately affect the video game market, but at the same time it fits perfectly into the general legislative paradigm that the government is building today.