In Re (#03 March 2012)

Parasitic Copying: Ukraine in Comparison to its EU Counterparts

by Dmitry P. Taranyk, Predrag Krupez

Parasitic copying has had a noticeable anticompetitive effect on Ukrainian competition over the years and, in light of the global proliferation of advertising through the mass media, it is only going to become more prevalent in the future. Although trademark laws can, to an extent, be relied on to prosecute violators, it is the rules of unfair competition law that act as an instrumental agent for protecting the innovative achievements of businesses. In other words, although we are dealing with intellectual property rights, the provisions of trademark laws fall short of providing adequate protection to businesses. This is particularly so in scenarios where intellectual protection has elapsed, where unregistered trademarks are copied as well as when one is dealing with advertising slogans. In the words of Article 1 of the On Protection against Unfair Competition Act (the Act), what we are dealing here with are practices which contradict the rules, market, and other practices in business activity. Thus, the rules of unfair competition law will remain the focus of this article.

It should be noted right at the outset that this is not an area of law where a direct comparison can be made between Ukrainian and EU law. Rather, the laws of individual Member States will be considered. This is because there is no harmonization of principles of how to deal with parasitic copying in the EU, despite having commonly applied instruments such as the EC Trade Marks Directive, the EC Unfair Commercial Practices Directive or the EC Directive on the Enforcement of Intellectual Property Rights. One of the principal reasons for this anomaly is the fact that the rules of unfair competition are much older than competition/antitrust laws, meaning that they were not subject to EU harmonization as Member States were reluctant to depart from considerable legal tradition and case law. In addition, although the principles of unfair competition derive from Article 10bis of the Paris Convention for the Protection of Industrial Property (to which Ukraine is also a signatory), the approaches differ substantially. The Member States vary to such an extent that some do not even have laws on unfair competition i.e. the Republic of Ireland and the UK.

Before commenting on how protection against parasitic copying is divergently afforded across the EU, the focus of this article will firstly shift to how this concept is dealt with in Ukraine under the Act.

The prosecution of parasitic copying in Ukraine

The Act was designed to establish, develop, and secure fair competition practices in commercial market activities. It is derived from Article 10bis of the Paris Convention, which provides that any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition. Parasitic copying falls perfectly within this dishonest practice, as it involves one:

unlawfully employing a name, commercial (brand) name, trademark, advertising materials, product packaging design and periodicals, or similar identifier of another business so as to cause confusion between the activities or products of the perpetrator and those of the other business (Article 4 of the Act);

removing the original manufacturers brand from a product and selling it under the perpetrators brand without the express permission of the original owner (Article 5 of the Act);

causing confusion by copying the exterior appearance of a product that belongs to another business and putting it into circulation without explicitly indicating the manufacturer of the copy (Article 6 of the Act).

In fact, since the year 2000, the Antimonopoly Committee of Ukraine (AMCU) has shown an increasing interest in unfair competition cases, subjecting such unfair businesses practices to increased scrutiny. For example, in 2010, 8% of all activity of the regulator was dedicated to unfair competition.

Violators can face a fine of up to 5% of their gross worldwide income (sales) for the fiscal year preceding the year in which the fine is imposed. In addition, following the AMCUs decision on the illegality of their actions, perpetrators are momentarily obliged to put a stop to their unfair conduct. As an illustration, a fine of UAH 300,000 was imposed on LLC Viva when it copied the packaging of the world famous Raffaello sweet, manufactured by Italian company Ferrero SpA.

A fine of UAH 500,000 was imposed on Rainbow Ltd, a producer of pharmaceutical drugs, when it introduced a drug under the name of Dolar, extracting the name of another drug called Dolaren, produced by a famous Indian company, Nabros Pharma Pvt. Ltd. The exterior design of the packaging was also largely copied. This led AMCU officials to come to the opinion that consumers were confused as to the true origin of the drug and decided to penalize the manufacturer purporting to free ride on the brand popularity and business reputation of another. More importantly, in addition to the fine, violating businesses risk having to recall the infringing product from stores as well as the seizure of the production thereof, a scenario which is much more damaging than a mere administrative fine.

When facing the unfortunate scenario of being the victim of parasitic copying, businesses should notify the AMCU of the infringement. As an illustration, when dealing with the Article 4 violation, the following should be submitted:

material evidence, demonstrating when the particular name, trademark, etc., was used for the first time by the victim;

if possible, material evidence demonstrating when the violator initially resorted to the unlawful conduct;

written argumentation aimed at showing how similar the relevant goods/services are, in an attempt to demonstrate that the victim and the perpetrator are present on the same product market; and

materials evidencing that the victim and the perpetrator are present on the same geographical market.

During its investigations, the AMCU will determine who has priority to the relevant intellectual property and whether the relevant conduct is likely to cause confusion between the activities or products of the perpetrator and those of the other business. No specific timing for a decision has been set by the Act so it depends very much on the complexity of each particular infringement. Following the AMCUs decision, if successful, the victim can address commercial courts in an attempt to obtain reparatory damages. In the same vein, if unsatisfied with the decision of AMCU officials, the perpetrator can follow the prescribed legal channels to challenge the decision as well as the sum of the reparatory damages set by the commercial courts.

The prosecution of parasitic copying across the EU

As mentioned above, the prosecution of parasitic copying varies across the EU.

The European Commission, in its recent study (Study on Trade Secrets and Parasitic Copying (Look-alikes) MARKT/2010/20/D (the Study), has found that generally, the common elements of the distinctive laws of unfair competition need to demonstrate that:

the product that is being copied has distinctive elements that are not common within the trade;

the parasitic copy may cause consumer confusion or be misleading as to trade origin or that it may be deceptive; and

the copying has an unfair element, amounting to either taking an unfair advantage or exploiting another traders reputation.

According to the Study, Germany is often cited as an attractive jurisdiction in which to litigate for parasitic copying, owing to its developed legislation, case law as well as the system of enforcement. Also, the legal threshold that has to be satisfied before a case can be brought is lower than in some Member States. As an illustration, in Germany, whether or not a consumer is deceived or confused by the existence of the parasitic copy is not important because the very fact that there is intention to copy the original product is actionable.

The opposite is true in the UK and the Republic of Ireland, whose jurisprudence is substantially derived from common law and is based on the tort of passing off. Here, whether a consumer is confused is of crucial importance, as otherwise one of the key elements misrepresentation will not be met. Thus, the victim must satisfy the court that a misrepresentation has been made in the course of trade, affecting the victims goodwill and then prove that, as a direct result, the parasitic copy causes damage to the victim.

In practice, this means that as long as a look-alike does not mislead or confuse the public, it amounts to a perfectly legitimate product. This leads to the unfortunate realization that if a parasitic copy would be actionable in another Member State, it would not necessarily be actionable under the tort of passing off in the common law jurisdictions where it all falls down to how the tort is interpreted and applied.

The Study also found that in some Member States (such as the Republic of Ireland, Cyprus, Sweden and Romania) parasitic copying can even have criminal law implications. It showed that most Member States provide for certain remedies aimed at preventing parasitic copying (such as injunctions or desist and cease orders) as well as financial remedies designed to compensate the victims, either by awarding damages or paying for the costs of legal action. Some Member States (such as Cyprus, Denmark and the Republic of Ireland) provide for fines to be levied, whilst others, such as France, Italy, Latvia, Poland and Romania, in recognition that this is an issue of business reputation, insist that the ruling invalidating the parasitic copy must be published either on the infringers website or in a national newspaper. Certain Member States (such as the Republic of Ireland, the UK, Denmark and Hungary) provide for the possibility to have the unlawful parasitic copies destroyed or seized by the relevant authorities.

Conclusively, it is evident that the prosecution of parasitic copying varies considerably across the continent. Unless parasitic copying is defined as a distinctive theory of harm within the laws of competition and antitrust, it is unlikely that the concept will be harmonised within the EU. This, in turn, rules out the possibility for Ukraine to harmonise its own principles with an approach which has been universally adopted by the EU as a whole. Nevertheless, this article attempts to provide a snapshot of how parasitic copying is dealt with in Ukraine and amongst certain Member States, enabling the reader to discern whether it is even worth taking action against this particular form of unfair practice, and if so, in which particular jurisdiction.

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