Expert Opinion (#05 May 2017)

Coming IP Courts: the Devil is in the Procedure

by Olena Vardamatska

It is both exciting and challenging to observe the birth of the IP court system in Ukraine. Introduction of specialized courts brings hope both to IP lawyers and right holders that litigation on IP issues will turn from a nightmare into stories with happy endings. Still, aspirations are of little help in resisting statutory uncertainty, taking into account that new laws must be adopted or existing changed to implement IP courts. Though realizing the creativity of MPs and ability to turn a perfect engine into a bicycle, the enthusiasm of lawyers is much to the ground.

Current status of IP courts

Skipping the how it started discussion, lets move to the current status. The journey starts with the entry into force on 30 September 2016 of the Law of Ukraine On Judicial System and Judges Status (hereinafter Judicial System Law). This Law introduced the system of the two-tier IP courts: specialized High Court on Intellectual Property (hereinafter High IP Court) will consider copyright, trademark and patent disputes in the first instance, while the Supreme Court of Ukraine (special chamber in the Commercial Court of Cassation) will review its decisions in the cassation instance.

The Judicial System Law also mentions IP-related experience among qualification requirements to candidates for the post of judge at the High IP Court, while Supreme Court judges are not expressly required to have IP expertise. Still, considering that a specialized chamber is envisaged at the Supreme Court, it implies that its judges will have an IP background or special training.

Last but not least, the Judicial System Law obliges the creation of the High IP Court and invitation of candidates to the position of its judges within one year from the Law coming into force, i.e. by 30 September 2017. Even more ambitious for the higher instance, it requires that the new Supreme Court is created and judges are appointed1 within six months from its validity (by 30 March 2017), with certain postponement references (i.e. validity of new laws of procedure, at least 65 judges appointed). That is basically all the laws on the future IP litigation process that exist at present. Thus, most questions on this complex topic remain unsolved or are rather unregulated in effective statutes.

Establishment of new specialized courts raised discussion among legal professionals about introduction of the relevant codes of procedure, e.g. elaboration of the Intellectual Property Code of Procedure. Specifics related to IP cases, such as gathering evidence, importance of preliminary injunctions, technical expertise are the core reasons supporting this idea. However, in world practice there seem to be no specific IP Codes of Procedure, instead IP codes exist on substantive law (e.g. in France, Sri Lanka). It, therefore, comes as no surprise that the idea of adopting the IP Code of Procedure was not widely supported. Nevertheless, the specifics of IP litigations should be included in the commercial, civil and criminal codes of procedure.

Currently, neither the High IP Court nor the new Supreme Court of Ukraine have been created, but delays with implementation were much expected since the date of adoption of the Judicial System Law. It should be noted that the election of the new judges of the Supreme Court is well on its way, and the names of the candidates who successfully passed their exams are expected at the end of May 2017.

Another piece of good news is that elaboration of new laws necessary to implement the dream court system is moving on. In particular, draft amendments to the codes of procedure were elaborated under the auspices of the Judicial Reform Council and registered by President Petro Poroshenko in Parliament as the Draft Law On Amendments of the Commercial Code of Procedure of Ukraine, Civil Code of Procedure of Ukraine, Administrative Code of Procedure of Ukraine and other Laws, No.6232 of 23 March 2017. It throws light on most outstanding questions, though it also raises some concerns.

Scope of competence of the High IP Court

According to Article 3 of the Draft Commercial Code of Procedure (hereinafter Draft Code), it establishes the procedure for lawsuits considered by the High IP Court. Hence, it made clear that both the first and second instance cases will be heard based on the same rules of commercial law of procedure. As to persons initiating the litigation, Article 4 of the Draft Code sets out that not only individual entrepreneurs and legal entities, but also any individual, state or municipal body can apply to commercial courts. Therefore, the subjects to litigation are defined broadly in the draft.

As to cases subject to consideration, an unexhausted list is provided in Article 21 of the Draft Code. It includes litigations on rights to inventions, trade and service marks, utility models and industrial designs and other intellectual property rights, including prior use right, rights of author or related rights, including on collective management of their property rights. The general wording in the Draft Code allows for rather broad application of these grounds by right holders and gives freedom to courts to accept such lawsuits.

Litigations on the registration of the IP rights, documents affirming the IP rights and their accounting are also expressly included in the competence of the commercial court, thus fixing existing court practice into the law. Recognition of a trademark as well-known, litigations on conclusion, changes, termination and performance of agreements on exercise of IP rights, including the franchising agreements, shall also be considered by the High IP Court.

As to the unfair competition cases, only those related to unlawful use of designations or goods of another producer, copying of the external view of a product (i.e. trade dress), collection, use and disclosure of commercial secrets2 will fall within the competence of the High IP Court, as well as disputes over the decisions of the Antimonopoly Committee of Ukraine on the issues mentioned.

Other litigations related to the protection of the competition or from unfair competition in commercial activity, the challenging of decisions adopted by the Antimonopoly Committee, are considered by commercial courts. There have been discussions on the introduction of specialized antimonopoly courts. However, it appears that they will not be created in the near future. Only at the cassation instance will a special chamber be established in the Commercial Court of Cassation (of the new Supreme Court of Ukraine)3.

Possibilities for IP litigations to be submitted to the arbitral tribunal or international commercial arbitration are expressly limited by the Draft Code. It will be allowed for those cases related to (i) rights to an invention, trade and service mark, utility models and industrial designs and other intellectual property rights (including the right of prior use), (ii) rights of author or related rights (including about collective management of their property rights) and (iii) conclusion, changes, termination and performance of agreements on exercise of IP rights, including the franchising agreements4. Only the civil law aspects of litigations on unlawful use of designations or goods of another producer, copying of the external view of a product, collection, use and disclosure of the commercial secrets can be subject to international commercial arbitration.

The competence of general courts on IP lawsuits remains in place. In particular, the administrative5 and criminal6 infringements are not submitted to the competence of the High IP Court. Regretfully, existing imperfections of the enforcement of IP rights by criminal proceeding are not improved by the draft codes. Thus, the criminal law and procedure provisions still need to be amended to ensure effective protection of IP rights.

Considering the wide competence of the High IP Court and the limited number of exclusions from its jurisdiction, it seems that jurisdiction shopping will be extremely rare, which is a positive feature for IP rights protection in Ukraine.

How many instances and judges

As mentioned, the Judicial System Law provided for the two-tier system of IP courts: High IP Court as the first instance and the Supreme Court of Ukraine as the second instance. However, the wording on the Supreme Court is rather general, it is not explicitly set as an appeal court. Hence variations remain possible. This possibility was realized by the Draft Code, it provides details on the instances in IP litigation. The High IP Court is the first instance court for IP-related cases. However, its Appeal Chamber shall act as the second (appeal) instance of the decisions taken by the High IP Court7. The Supreme Court of Ukraine will be the third (cassation) instance.

Based on the above, the presence of all three instances will be reinstituted for IP litigations. However, the initial two-tier system was welcomed for the time and money efficiency of the litigation procedure. Return of the tree-tier system will require involvement of more judges, ideally specialized. Is it possible at this stage? It looks so, considering that the process of election of the High IP Court has not been initiated yet. Thus, the number of necessary candidates can be still calculated and adjusted to include the appeal chambers judges. Still, the court fees and overall cost of litigation will increase, compared to the two-tier structure, thus affecting the attractiveness of the litigation for the right-holders.

As to the number of judges, things are clear. For the High IP Court, only three judges will consider lawsuits. It includes both the first and the appeal instance. At the Supreme Court, at least three judges should review the decision, still a greater number of judges is also possible. It should be mentioned that at the first instance commercial litigations are generally considered by a sole judge.

The question is why in the tree-tier court system is a case considered by three specialized judges at the very initial stage? Is it efficient use of the limited human resources of those who possess IP expertise? The author suggests aligning the number of first instance judges with the general rule, i.e. reducing their number to one person. In practical terms, it will help the consideration of litigations in a more time-efficient way. Moreover, one specialized judge should have the competence to hear at the first instance the majority of IP cases that exist in Ukraine.

Preliminary injunctions procedure

The Draft Code suggests a slightly amended approach to injunctive remedies. Firstly, among the types of the injunction are witness examination, appointment of expert examination, demand and/or examination of evidence, including at their location, prohibition to perform certain actions towards the evidence or obligation to act in a specific way regarding evidence.

It appears that the existing seizure of property was replaced with the obligation to act or not to act. Besides, it is possible to apply for other types of injunctive remedies as defined by the court8. Instead, the seizure of property is listed as a method of safeguarding evidence (of an ongoing litigation). Thus, the list of injunctive remedies is rather indicative, allowing the applicant request court for the acts most relevant in a given situation. Such flexibility is highly welcomed: it will enable more efficient application of this procedural tool in IP litigations.

Secondly, the preliminary remedies are granted by the first instance court possessing competence over the territory (i) of the location of evidence or (ii) of the contemplated procedural action location. After the lawsuit is filed, the court which has jurisdiction will be responsible for securing evidence. In other words, notwithstanding the fact that the High IP Court will most probably be located in Kyiv, one will be able to request the preliminary injunction at any location and the local court would be obliged to send the file on the granted preliminary injunction9 to the High IP Court. This option is of core importance, as it allows the elimination of limited application of the preliminary remedies due to the existence of only one first instance IP court and, additionally, would allow avoiding the overflow of the relevant request to specialized courts.

Thirdly, the timing differs. The court will be able to consider the preliminary injunction request within five days from the date of its submission (compared to the currently existing two days), which is far from the aspirations of the applicants addressing the court for fast action. However, starting from the date of the issuance of the injunction award the applicant will have ten days (instead of five days at present) to file the lawsuit. Taking into account that the Draft Code has not been considered by Parliament yet, the deadlines for both actions may be amended by MPs by the time it is finally adopted.

To sum up, provisions of the Draft Code include positive revisions to the commercial law of procedure, introduce many long-awaited novelties (e.g. those related to use of witnesses in commercial procedure, simplified litigation procedure, submission on electronic evidence, etc.). However, the final wording of its provisions may be significantly altered as the draft passes the legislative procedure. Thus, lawyers should follow this process attentively and unite their efforts to resist improper amendments to the existing draft or suggest their changes to it. At the end of the day, IP legal professionals will work with both new IP courts and new judicial procedures. It is much better to observe it closely at the current stage and get ready for the new realities.

1 As result of vacancy competition.

2 As defined in the Law of Ukraine On Protection against Unfair Competition, No. 236/96-BP of 7 June 1996.

3 Under Article 37 of the Judicial System Law.

According to Article 23 of the Draft Code.

4 According to Article 23 of the Draft Code.

5 Article 51-2 of the Code of Ukraine of Administrative

6 Articles 176 and 177 of the Criminal Code of Ukraine.

7 According to Articles 26 and 254 of the Draft Code.

8 According to Article 111 of the Draft Code.

9 Following Article 113 of the Draft Code.

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