Russian hi-tech center faces ‘closing tech window’

Skolkovo has recently entered into cooperation agreements with a number of hi-tech institutions and companies around the world, including in Israel.

By DAVID SHAMAH
November 7, 2011 23:24
Peres, Skolkovo president  Viktor Vekselberg

Peres and Skolkovo Foundation president Viktor Vekselberg 31. (photo credit: Courtesy of Skolkovo Foundation)

 
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California has its Silicon Valley, Israel has its Silicon Wadi, New York has its Silicon Alley – and the companies there are all making money hand over fist. So it’s not surprising that Russia would want to get in on the act too, with a “Silicon Mir” (village).

And in fact, Russia is indeed in the midst of setting up an advanced technology center, to be called Skolkovo (www.i-gorod.com), located outside Moscow. The site, located next to the campus of Skolkovo Moscow School of Management, a Russian-managed school to produce Westernized business leaders, is cooperating with top American schools, such as MIT. The business school has been a great success and has shown Russia’s leadership that the country can succeed in international trade, moving beyond exporting resources such as oil and gas.

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Russia also still retains its traditional strength in science, including physics and computer sciences. So all it has to do is add the newly minted MBAs from the management school with geeky computer brains, and you get a business case that just screams out for hi-tech start-ups to line up and start innovating.

Thus the impetus for Skolkovo, which has recently entered into cooperation agreements with a number of hi-tech institutions and companies around the world, including in Israel. Over the summer, Ariel University signed a cooperation agreement with the Skolkovo Foundation and established a private partnership (israelsk.com) to help Israeli companies hook up with Russian hi-tech companies to produce technology jointly, both in Israel and Russia, assisting them with contacts, legal help and investments.

Several weeks ago, Ariel and Skolkovo held a conference in Tel Aviv that described the opportunities, as well as the problems, in doing business in Russia. Speakers from both Israel and Russia were featured, describing the business models that would work best and how to ensure that Israeli intellectual property remains protected and does not get siphoned off by the Russian partner, leaving the Israeli partner high and dry.

That, actually, is one of the greatest fears among Israeli and Western businesspeople who are considering investing in Russia. Can you really trust them? Yes, the laws today – two decades after the fall of Communism – are all “Westernized.”

But it’s just a front; in order to get anything done, you have to dole out a lot of “baksheesh,” as they used to call it, and you can be sure that a Russian “oligarch” billionaire – which there seem to be a lot of – can match whatever you can afford to shell out, thus “claiming” your patent or IP as his own.

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That’s the way we’ve always believed it to be and the way it was, until recently, says Anna Moshe, an Israeli attorney who specializes in helping Israeli technology companies get involved in Russia.

“The Russians know what their reputations are in IP protection, and they have taken great strides in correcting the situation, to ensure that Western investors feel comfortable with the system,” she says.

“Two decades may seem like a long time, but it is not long enough to erase the ideas of communism, under which entrepreneurship was totally unacceptable,” says Moshe, a partner at the law firm of Moshe, Bloomfield, Kobo, Baker & Co. “The Russian leadership realizes that no one is going to invest unless they are sure that their money is safe. As a result, they have been updating laws on IP protection, making them consistent with Western laws.”

So, an Israeli start-up that sees an opportunity for support and investment has nothing to fear from making a deal with a Skolkovo company. What they may have to do, though, is give up a part of their ownership of the device or technology, Moshe says.

“In this they are no different than Israel, or even the US,” she says. “The point of Skolkovo is to create more jobs in Russia and to retain tech knowledge in Russia. They are tired of being dependent on the West and want to own their own technology – and least partially.”

As a result, Moshe says, any Israeli or Western company seeking to do business in Russia had better be prepared to give up some control of their intellectual property – either licensing it out for long-term production in Russia, or a joint ownership agreement.

It’s a strategy that another (not yet former) Communist giant, China, is following as well, much to the chagrin of many Americans, who fret over the export of made-inthe- USA technology to China. They are concerned that China will use its cheaper workforce and mass production capacity to make legal knockoffs of what they had formerly purchased from the US.

But that’s the deal – both in China and Russia, Moshe says.

“Israel does the same thing, as do many European countries, and all large corporations in the US expect to own at least part of the intellectual property,” she says. “Nobody thinks this is strange, but when it comes to Russia and China, people are ‘shocked’ that they would want the same thing.”

As things stand now, any Israeli company that plans to work with Russia knows what it’s going to cost them. (To get as good a deal as possible, they ought to be speaking to someone like Moshe, who has a staff of attorneys in Israel and Russia that will protect their rights and ensure that the deal is worthwhile.) The decision to work with Russia is that of the board of directors of the Israeli company; i.e., the decision of an individual company, as long as it does not violate security laws.

But the winds of attitude change are starting to blow in the West. In January, for example, President Barack Obama expressed concern about IP privacy and protection to visiting Chinese President Hu Jintao. More recently there have been numerous comments by American officials decrying arrangements where part of US-developed technology ends up in Chinese hands.

With a presidential election coming up, and a recession still raging, it wouldn’t be out of the question for one of the candidates to propose – and maybe enact once in office – laws against American companies sharing advanced technology with the Chinese, and of course the Russians, unless approved by a government panel. If that does happen, there’s no doubt Israel and other countries will follow suit.

It’s a shame for Russia that they waited so long to build a hi-tech center. It just may be that the window they were hoping the IP would flow through to Skolkovo may be closing.

What will they do with Skolkovo then?

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