Russia retools laws to build IT industry

Although raw materials have been the cornerstone of Russia's economic growth in the last decade, the country will increasingly attempt to derive wealth from its technological backbone, said speakers at the U.S.-Russia Technology Forum taking place at Stanford University this week.

In two weeks, for example, the national government will issue a decree that will permit state scientific institutions to grant patents and other intellectual property rights to the actual inventors, who will then be allowed to commercially exploit them, said Andrey Fursenko, the acting minister for Industry, Science and Technologies for Russia.

"We want to tell them that, as a result of their work, they will be the ones, not the state, that will own it. It is a big motivation," Fursenko said. "Our motive is not to give them something, but to give them motivation."

Although Fursenko declined to identify the fields where technology transfer would begin (or the exact terms of the grant), he said Russia's strengths lie in information technology, life sciences and alternative energy.

The inability to profit from inventions has long been a problem with Russian science. A Russian institute invented Velcro to fit space suits together, said Fursenko, but "no one ever got a dollar" for the invention. In 1998, when the national government passed a law that decreed the government owned all patents, patent applications dropped to zero, he said.

Similarly, Alexander Galitsky, a Russian entrepreneur who worked with Sun Microsystems in the '90s on various projects, had to prove to the government that his independent businesses in no way leveraged the 30 patents he obtained while working with the state. He also had to prove that he didn't use rubles to start his businesses, he recalled.

Russia does have many of the elements to become a technological power, panelists and attendees said. The country has a long history in mathematics and computer science. The scientific institutes created in the Soviet era are also strong in basic science. Unlike with their western counterparts, profit wasn't an issue back then, so the institutes were free to explore any area that seemed interesting. Engineers also cost less there.

To date, Russian technological exports have been fairly limited. Other than a few companies like Kaspersky Labs, most Russian companies serve the domestic market. Virtually all of the panelists noted that business and managerial skills were lacking in Russia.

"We've got to learn the trees from the forest," Galitsky said. "In the past, we didn't need to develop marketing efforts. I just handed my results to Sun."

The pattern, though, is starting to slowly change. The IBS Group, a technological company that performs research and programming for hire, is currently performing offshore programming for, among others, Dell and IBM, said President Anatoly Karachinsky. Similarly, Epam Systems has around 450 employees (400 in Belarus and 50 in Princeton, N.J.), and is performing programming work for a variety of U.S. companies, said President Arkadiy Dobkin.

American companies are also hiring more in Russia. Intel, for example, maintains labs in Russia that concentrate on wireless technology (a vestige of the Cold War science). Sun Microsystems also retains Russian programmers and has started to make venture investments in Russian companies.

"They aren't so hung up on titles," said Vadim Temkin, of the Java Card Group at Sun. (Temkin was an attendee, not a speaker.) Temkin's group runs quality assurance programs. Typically, American and Indian programmers try to avoid working on QA teams, viewing it as secondary in importance. Russian engineers "try to make it interesting."

In September, Vision Capital, Intel and others will participate in a three-day "tech tour" that will allow U.S. venture investors to meet with Russian start-ups, said Sven Lingjaerde, general partner at Vision Capital. Similar tech fairs have taken place in Italy, Israel and Switzerland, said Lingjaerde, that have led to U.S. investments in European companies.

Still, Few U.S. companies have made direct investments in Russia, noted former Secretary of Defense William Perry.

The exception, Perry said, is Boeing, which participates in Sea Launch, a United States-Russia-Norway-Ukraine venture that launches commercial satellites from a platform in the Pacific Ocean.

Piracy also remains a major problem. Five years ago, 95 percent of foreign software was pirated, now only 79 percent is pirated.

To increase U.S. investment, the U.S. government has devised a number of programs. The Market-Based Commercialization Initiative is seeking to obtain U.S. funds for Russian start-ups in the hope of stabilizing the local economy, said George Atkinson, special science and technology advisor to the U.S. secretary of state.

The U.S. Export Import Bank is initiating a "sub-sovereign" lending program that will allow cities and provincial governments to obtain loans on U.S.-Russian joint ventures, said April Foley, first vice president for the bank. The loans largely exist to benefit U.S. companies seeking to expand into Russia, she said. Generally, U.S. banks won't issue loans for these ventures.

Although some may see these as foreign giveaways, that is not the case, said Esther Dyson, chairman of Edventure Holdings. "If we make a strong, local economy in Russia, we Americans will benefit from an export market," she said.