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News-Archiv

01.05.2009
Ukraine

The Problem of Parallel Imports in Ukraine

It is Still Hard to Prove Infringement of IP Rights on the Internet


by Andrey Petrov, Kiev

Ukrainian law does not provide for clear rules on the collection and presentation of evidence to show the infringement of IP rights in the Internet. Court practice has not yet developed a unified approach on this matter either.

Technology usually develops much faster than its regulatory base. This trend particularly applies to regulations related to the Internet, and Ukraine is not an exception.

Effective codes on court procedure are quite conservative when it comes to evidence. As a general rule, written documents, expert opinions and, in some procedures, witness testimonies are accepted by courts as evidence about the circumstances giving rise to disputes.

The rule works well when matters concern certain material issues, such as breach of contract, invalidation of state registration, etc. However, when it comes to proving IP infringement in the Internet, the rules reveal a regulatory gap. The problem is that there is no way to “put” the Internet on paper to make it acceptable by a court. There is no neutral third party authorized by the law to print out a web-page with infringed content. Thus, when the claimant presents his or her own print-out, the court usually refuses to accept it, since the claimant is an interested party and can provide inappropriate or unsupported information to back up his position.

In ordinary cases, a private notary is used as a neutral party when certification of certain documents or excerpts is necessary. Nevertheless, even when notarized, printouts of a web-page are still unacceptable evidence of IP infringement on the Internet.

The abovementioned restrictive approach was confirmed, for instance, in the Resolution by the Highest Commercial Court in the Tender Chamber of Ukraine v. Ministry of Economy of Ukraine court case. The approach was later reaffirmed by the Supreme Court of Ukraine, which rejected an appeal in the same case.

The only approach that could be recommended as a solution of the problem is the use of court experts to certify infringement.

Court experts in Ukraine are specialists in certain areas of knowledge and are admitted by the Ministry of Justice to provide their opinions in the course of court proceedings. Experts include computer-technology specialists, and in a number of court cases it has been ruled that they can certify infringement on the Internet by means of their expert opinions.

At the moment the Supreme Court of Ukraine is developing its recommendations to the courts on IP cases. Hopefully, the recommendations will cover the issue of providing evidence of IP infringement on the Internet.

Theory and Practice in Combating Parallel Imports

Ukraine is becoming more active in combating parallel import and ‘grey’ dealers, although there are still no clear and unified legislative regulations in this regard. This article provides an overview of applicable law instruments and recent practice on these matters.

The issue

Although Ukrainian law does not provide for definition of parallel imports (PI), the market defines it as import of goods without authorization of its manufacturer.

Usually PI causes most significant damage to authorized importers, whose prices are higher than those of ‘grey’ importers. Also it can damage the manufacturer’s reputation and increase the number of warranty repairs when PI products are not adapted for the Ukrainian market and can breakdown during normal use. Consumers can be also affected by inappropriate quality of products not destined for Ukraine and by an absence of necessary information for safe use of the products. The state sometimes is also hit by PI by the way of nonreceived customs fees, since in some cases ‘grey’ products are imported with violations of customs procedure to minimize its price.

The automotive industry is a typical victim of PI due to the large number of passenger cars imported to Ukraine.

A common scheme is when the car manufacturer delivers cars to one or several local official dealers at the same price. And ‘grey’ dealers import cars from the US or Middle East where car manufacturers for different economic reasons keep prices lower. This results in presence of cheaper US and Middle East destined cars in Ukraine. Especially it relates to middle class and luxury cars with the share of ‘grey’ cars up to 25-30%.

Consumer electronics, pharmaceuticals and branded clothes are also usual subjects to PI in Ukraine.

Law instruments and practice

Trademark law

PI always deals with original products, which usually bear registered trademarks. And although trademark is a perfect weapon against counterfeited goods, it is not always effective against PI. The matter is that Ukrainian law provides for so-called exhaustion of rights, when the sale of goods does not require authorization of the trademark owner, if the goods were previously sold by the trademark owner or under his consent. In other words if the trademark owner or its authorized company have sold some goods anywhere in the world, it can not prevent further sales of the goods in Ukraine by any person.

At the same time if the trademark is owned in Ukraine and abroad by different persons this may allow combating PI based on trademark rights. For instance if company A owns a trademark in the EU and has sold respective goods anywhere in the world, company B, that owns the trademark in Ukraine, can prohibit import and sales of the goods in Ukraine.

So far we have not heard about the application of the above instrument. We believe the reason for this could be a reluctance of foreign trademark owners to transfer its trademark rights to any third parties who can run out of control of the trademark owner. However, we believe that such risk can be eliminated by respective corporate regulation, which makes this instrument the most effective in combating PI.

Unfair competition Ukrainian law prohibits unfair competition. Legislative definition of the unfair competition is relatively broad and provides that it is any competitive act that contradicts to fair trade and commercial practice. At the same time there are no official sources explaining what the fair practice is. This allows the State authority to decide at its discretion whether the particular competitive act is unfair or not.

Recent trends in the activities of the Anti-Monopoly Committee of Ukraine (AMC) shows that sometimes PI can be regarded as unfair competition. The logic for this is as follows. A trademark owner and its official distributors invest in the promotion of the product, its advertising and service, which makes the product more attractive for consumers. At the same time ‘grey’ distributors do not make such investments, however enjoy attractive image of the product created at the cost of the trademark owner and official distributors. This results in unfair advantages in the grey distributor activities, and constitutes unfair competition.

For this reason in March 2009 the AMC posed a fine in the amount of about EUR 50,000 on a ‘grey’ dealer of Infiniti luxury cars. Now the question is whether the courts support such an approach, since the courts are the last instance deciding on unfair competition matters.

If the courts agree with the AMC, this will provide another effective instrument to combat PI in Ukraine.

Casual regulations

Since PI heavily hits local official distributors, they often unite and try to lobby state regulations prohibiting unauthorized imports. For instance in 2008 car dealers managed to achieve a change in customs rules used by ‘grey’ distributors, which resulted in increased customs fees for the ‘grey’ dealers and less attractive ultimate price.

Efforts of such kind are usually not effective enough, since after some time ‘grey’ distributors find ways to get around such casual regulations and proceed with PI.

Conclusion

Although Ukrainian law does not strictly prohibit PI, it still provides for valid instruments to combat it. However such instruments are not of simple nature and require professional assistance to be applied effectively and safely.