Crux (#04 April 2014)

Sensitive Pointes of IP Landscape

With approaching harmonization of IP legislation with EU provisions, a certain advance has been noted by IP practitioners. However, enforceability of IP rights and sharp legislative loopholes of newly-adopted provisions retain room for infringers to go ahead. We have asked experts to be more specific across sensitive issues of present Ukrainian IP landscape.

Oksana Yefimchuk, lawyer, JURIMEX Law Firm

Oksana Yefimchuk, lawyer, JURIMEX Law Firm

Is Ukrainian legislation in the field of intellectual property compatible with EU legislation? Which parts require further harmonization?

Ukraine is a party to many international treaties in the sphere of intellectual property. More- over, in recent years Ukraine has adopted a range of amendments to legislation aiming to make its IP protection system more harmonized with the European system. This enables us to say that the legislation of Ukraine in the area of intellectual property basically complies with EU legislation.

At the same time, there are certain provisions to be changed. In particular, the terms of protection according to European directives and Ukrainian acts are not always harmonized. For example, in Ukraine databases are protected equally with all other copyright objects, while under European legislation database rights are independent of copyright. Contrary to Ukrainian legislation, which sets 70 years of protection, in the EU databases are protected under “sui generis” right for only 15 years. Taking into account the nature of this object with its content, valuable during a relatively short period of time, it is obvious that Ukrainian laws with regard to databases should be amended.

Regulation of photographs protection also differs in Ukraine and the EU. At first glance, there is no difference, because in both legal systems the general rule applies — photographs have the same legal protection as other copyright objects. At the same time, European legislation allows  countries to introduce their own regulation, which takes into account a minimum level of protection, stipulated by the EU Directive 93/98/EEC (25 years of protection). The mentioned Directive also introduces criterion applying to determine eligibility for protection of photographs, i.e. originality in the sense that it should be the author’s own intellectual creation. In Ukraine there is no regulation with regard to eligibility criteria for photographs. It means that even those photographs which lack creativity and originality are protected under the copyright law. We consider such an approach to be wrong. Thus, Ukrainian legislation in this regard should be harmonized with European legislation.

Oleksandr Padalka, partner, Sayenko Kharenko

Oleksandr Padalka, partner, Sayenko Kharenko

Currently, many companies provide an IP due diligence service. What are the main objectives of such an audit and what does it imply?

Generally, the goals of IP due diligence vary from project to project and depend on the needs of the parties involved in a particular project. In the vast majority of cases the key to the goal of IP due diligence is to detect legal risks (so-called “red flags”) that are associated with IP objects in those transitions where IP objects are regarded as valuable or even key assets (e.g., licensing-in IP, start-up investments, obtainment of financial loans). Where IP due diligence is regarded as a preliminary stage for enforcing IP rights, the main goal would be to assess the pros and cons of the positions of persons involved in an IP dispute. In those cases where IP due diligence is conducted for the purposes of structuring an IP portfolio the main goal could be, for example, to identify opportunities for reducing IP-related costs.

Usually, analytical framework for legal assessment within IP due diligence embraces (i) identification of IP objects (e.g., trademarks, patents and patentable assets such as now-how and secret technology, designs, confidential business information, copyrights); (ii) verification of ownership (e.g., sole or joint) and existence of IP (e.g., scope of license); (iii) detection of restrictions on IP objects (e.g., licenses, JV agreements, pledges); (iv) legal assessment of invalidation risks and strength of IP rights; (v) and evaluation of potential IP infringement (e.g., copyright/design infringements while registering a trademark and vice versa).

Tatiana Sardelli, associate, AstapovLawyers

Tatiana Sardelli, associate, AstapovLawyers

There is a conflict in Ukrainian legislation between the provisions of Article 429 of the Civil Code of Ukraine and Article 16 of the On Copyright and Related Rights Act. Pursuant to the Code, property rights to works made for hire belong jointly to the author and employer, unless otherwise provided by a contract, and the Act gives all rights to the employer. What is the relevant judicial practice?

Court practice shows that the collision between the provision of the Article 429 of Civil Code of Ukraine of 16 January 2003 (the Code) and Article 16 of On Copyright and Related Rights Act of Ukraine of 12 December 1993 is to be solved with the help of the Decree of 4 June 2010, No.5 of Plenum of Supreme Court of Ukraine and Decree of 12 October 2012, No.12 of Plenum of Supreme Economic Court of Ukraine. Those decrees confirm the provisions of the Code as of higher priority, despite the clear theoretical mishap — as is known, that the newer norm is of higher priority than the older one; and a special norm has greater priority than a general one. 

The said way chosen by court practice is highly logical and helps to resolve juridical controversy in case of allocation of the property rights on work made for hire (WFH) between the employee and the employer. It protects the author’s rights in case the said allocation of rights is beyond work contract clauses.

However, despite the positive approach in court practices and taking into account the reasonable amount of court fees, both the employee and employer should carefully consider all the possible risks and decide the property measures of cooperation indicated in the work contract or in the civil law contract; and pay attention to the clause on the terms of royalty payment (for example: it is a distinct payment according to the clause of working contract or a payment as bonuses or compensations). It is much safer for an employer to spell out as explicitly as possible all the terms of the employee’s creation of the WFH and transference of property rights for the benefit of the employer. This will help to prevent possible disputes against the further employer’s operations with the property rights on the WFH (i.e. transference of the property rights to the clients or ordering party, etc.).

Andriy Sydorenko, lawyer, Ilyashev & Partners

Andriy Sydorenko, lawyer, Ilyashev & Partners

What is the procedure of customs control and customs clearance for those goods that contain objects of intellectual property rights?

The order of the customs control and customs clearance of goods with the intellectual property rights is established by the Customs Code of Ukraine (the Code). According to Article 397 of the Code the customs control and customs clearance of the goods with intellectual property is carried out in accordance with the general procedure.

However, in addition to the general procedure, the Code provides for the customs register of intellectual property rights (the Register). The Register is kept by the customs service in order for the intellectual property rights holders, who know or suspect that their rights may be violated during border crossing of the goods, to apply for protection of their rights.

The Customs Service monitors that goods moving across the customs border of Ukraine should be in compliance with the information in the Register. When the Customs Service discovers goods that violate intellectual property rights recorded in the Register (the counterfeit goods), the Customs Service suspends customs clearance of the counterfeit goods and notifies the rights holder on possible infringement of intellectual property rights.

From the time of the notification, the rights holder has 10 working days to apply to court for a ruling on interim relief in the form of suspension of customs clearance of goods, or apply for the extension for another 10-working day period. In the absence of a court ruling on interim relief the Customs Service can continue the customs clearance of the goods.

In order for the declarant to avoid the suspension of the customs clearance of the goods it is highly recommended to have an agreement with the rights holder allowing import/export of the goods with intellectual property rights.

Anton Polikarpov, head of IP practice, Arzinger

Anton Polikarpov, head of IP practice, Arzinger

After the On Personal Data Protection Act of Ukraine came into effect, information about individual owners of domains in the .UA segment is classified. How does this situation affect the protection of the intellectual property in the Internet?

There is no doubt that Ukrainian legislation on personal data protection has a significant influence on intellectual property rights protection in the Internet. Thus, under the provisions of the On Personal Data Protection Act of Ukraine of 1 January 2011 (the Act), third parties were prohibited from transmitting the personal data of individuals without their prior consent. For instance, there is no personal data of individuals contained in the WHOIS search results nowadays with contacts of legal entities being still available in the category “organization”. In practice, if there is a need to find out the intellectual property rights infringer the applicable methods are the following: (i) to send an attorney-at-law request addressed to the registrar of domain names or (ii) to file a claim against the registrar of domain names followed with the ascertaining of infringer’s name based on the court inquiry and further the violator shall be considered as a defendant having passed appropriate court procedure of the change of parties.

In general, it is a rather complicated procedure to get the relevant reply to the attorney-at-law request from the registrar. It is worth mentioning that the appearance of individual as a defendant in the respective court process as well as relevant procedural actions will be considered problematic. Moreover, the proceeding may be terminated because of the case being beyond the jurisdiction of commercial courts. In view of the above-mentioned, there is a real problem of wasting precious time of the rights holder and, as a consequence, the latter has to go to the law one more time taking into consideration the location of the defendant as an individual.

Furthermore, having reviewed the particularities of the present subject matter provided in other jurisdictions we can see that Ukraine is almost the only state with personal data in WHOIS search results.

To sum up we would like to say that the provisions of the Act do not assist the implementation of effective protection of intellectual property rights in the Internet.

Aleksey Prudkyy, associate, LCF Law Group

Aleksey Prudkyy, associate, LCF Law Group

What are the general features of disputes in the field of protection of intellectual property rights?

Legal disputes involving intellectual property are known to be some of the most complex, but also the most interesting categories of cases considered by Ukrainian courts. The complexity of these cases can obviously be explained by the peculiarity of subject matter in such cases. Intellectual property assets are part of the most complex group of civil law matters, which explains the vast amount of standard acts, both national and international, regulating the peculiarities of their definition, civil turnover, means of protection, etc.

It should however be noted that Ukrainian court practice on IP law cases may be reasonably described as relatively stable in terms of substantive law enforcement. This is evidently caused by the relative stability of legislation regulating intellectual property. As opposed to substantive law and court practice regulating, for instance, loan and credit relations, IP law is rarely subject to significant amendments. The differences in judicial decisions on similar cases are often caused by the amount of evidence basis gathered and presented to court by the parties, which affects the final judgment.

Nevertheless, the common problem of considering IP law cases in reasonable time remains unresolved. However, this problem lies more within the scope of reforming the judicial system itself rather than the necessity to alter IP law court practice.

Irina Pavliuk, associate, Konnov & Sozanovsky

Irina Pavliuk, associate, Konnov & Sozanovsky

How is the issue of royalties regulated in Ukraine? What is the Western practice in the field of royalties’ regulation?

It is worth mentioning that royalty payments are not subject to VAT. However, payment of royalty may be subject to transfer pricing. The rules of transfer pricing will be applied to transactions exceeding a threshold of UAH 50 million (approximately EUR 3.5 million) for the respective calendar year between:

— Ukrainian resident and non-resident related parties;

— Ukrainian resident related parties if one of them has declared income tax losses for the previous reporting year, has used a special tax regime at the beginning of the current reporting year, has paid corporate profit tax or VAT at a non-standard rate, or is not a registered corporate profit tax or VAT payer;

— Ukrainian resident and a non-resident registered in a country with an income tax rate of at least 5% lower than the rate applicable in Ukraine, or which pays corporate profit tax at a rate at least 5% lower than the rate applicable in Ukraine.

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