UKRAINE IPR: 2009 SPECIAL 301 -- POST INPUT

UNCLAS SECTION 01 OF 06 KYIV 000399

SENSITIVE
SIPDIS

STATE FOR EB/TPP/IPE (TRMCGOWAN/JURBAN) AND EUR/UMB
STATE PLEASE PASS TO USTR FOR PBURKHEAD/JGROVES/RBAE
USDOC FOR ITA/MAC/OIPR - CPETERS
USDOC FOR 4231/ITA/OEENIS/NISD - CLUCYCK
COMMERCE PLEASE PASS TO USPTO AND CLDP
SOFIA FOR MLAMBERTI

E.O. 12958: DECL: N/A
TAGS: ETRD KIPR ECON UP
SUBJECT: UKRAINE IPR: 2009 SPECIAL 301 -- POST INPUT

REFS: A) STATE 8410
B) KYIV 360
C) KYIV 292
D) 2008 KYIV 2460
E) 2008 KYIV 2265
F) 2008 KYIV 1411
G) 2008 KYIV 1056
H) 2008 KYIV 821
I) 2008 KYIV 503
J) 2008 KYIV 456
K) 2007 KYIV 348

SENSITIVE BUT UNCLASSIFIED; NOT FOR INTERNET PUBLICATION.


1. (SBU) Summary and Recommendation: Embassy recommends
that Ukraine remain on the Special 301 Watch List. Ukraine
has continued to make progress on IPR enforcement and
therefore does not warrant a return to the Priority Watch
List, but the GOU still has work to do before we should
consider removing Ukraine from the Watch List altogether.


2. (SBU) The GOU has substantially improved its enforcement
of IPR in recent years, in part to meet the requirements
for accession to the World Trade Organization. Ukraine's
IPR-related legal base is now in compliance with TRIPS and
other international norms. Law enforcement bodies have
also stepped up efforts to seize IPR-infringing goods and
to prosecute those involved in their trade. Perhaps most
importantly, illegal production of pirated and counterfeit
goods has been halted almost completely. The GOU still
faces serious IPR enforcement problems, however. Pirated
optical discs and counterfeit goods remain widely
available, particularly in large open-air markets
throughout the country's larger cities. Industry reps
estimate piracy levels for music and video at 60 percent,
and for computer software at 84 percent. The transshipment
of pirated and counterfeit goods, particularly optical
discs produced in Russia, is a major challenge for Customs
officials. Government procurement/use of unlicensed
software remains a problem. Courts continue to hand down
lax sentences for IPR infringers.


3. (SBU) Some progress was made during the year in
addressing these remaining problems. The GOU established a
special Music Industry Working Group that helped improve
the regulatory environment for royalty collecting
societies. The courts ruled that the National Radio
Company must pay royalties to rights holders. Police
focused more attention on internet piracy, stepping up
investigations of suspected pirate sites, and shutting a
few down. Police also launched the first criminal case
involving file downloading. Law enforcement officials
uncovered a smuggling ring that imported pirated CDs and
DVDs by rail from Russia. End Summary and Recommendation.

TRIPS Implementation
--------------


4. (U) In the process of joining the WTO, which occurred on
May 16, 2008, Ukraine made significant changes to its legal
base in order to achieve TRIPS compliance. GOU officials
have repeatedly stated, and experts generally agree, that
Ukrainian legislation is now in line with TRIPS, although
of course improvements could be made. The GOU plans to
introduce amendments to Ukraine's law on geographical
indications (GIs) to address some outstanding complaints
from the EU. Although the Civil and Criminal Codes now
give the GOU authority to destroy all counterfeit/pirated
goods, the GOU still lacks the technical capability to make
full use of this authority, and some industry reps have
suggested that certain laws and regulations should be
amended to clarify the government's authority to destroy
(ref C).

Optical Media Piracy
--------------


5. (U) Ukraine has one of the most comprehensive optical
media laws in the world, regulating nearly every step in

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the life of an optical disc (OD). The 2002 OD law put into
place a detailed regulatory regime, outlining a special OD
plant licensing regime, plant inspection procedures, and
measures to be taken when violations are discovered. A
crucial package of amendments to the 2002 law and the
Criminal Code of Ukraine, passed in the Rada (parliament)
in 2005, improved inspection procedures and increased the
penalties that apply to violations.


6. (SBU) Ukraine is no longer a major source of pirated
optical media. Ignat Berezhny, Director of the IFPI-
affiliated Ukrainian Association of the Music Industry,
confirmed to Econoff on February 17 that industry
specialists have not detected any pirated discs believed to
be manufactured in Ukrainian OD plants since the 2005
amendments to the OD law. Berezhny noted that small scale
CD-R burning operations remain common, however. Berezhny
added that about 80 percent of pirated discs in Ukraine are
imported from Russia. The State Department for
Intellectual Property (SDIP) coordinates inspections of the
seven OD plants operating in Ukraine, and GOU officials
reported that they did not detect any signs of pirate
production during their inspections in 2008.


7. (U) In October 2008, PM Yulia Tymoshenko created a
governmental Music Industry Working Group tasked to draft
legal and regulatory amendments of concern to music rights
holders. Industry reported that the Working Group
"facilitated and led to a series of high-level meetings
with key Government officials resulting in formal and
informal cooperation." The Working Group has already shown
some positive results, particularly on collective
management (see below).


8. (U) The hologram sticker program (ref I) remains the
primary method used by law enforcement to recognize
potentially pirated materials. Industry reps have
complained about the functioning of this program. They say
the procedures for acquiring stickers are time-consuming
and bureaucratic, and they claim that some importers of
pirated discs are able to obtain the hologram stickers.
Counterfeit hologram stickers are also a problem. GOU
officials recognize these problems but argue that
eliminating the program altogether would be a mistake.
Article 203 of the Criminal Code provides law enforcement
officials with some "ex officio" powers when they encounter
suspected pirated products without a hologram sticker.
Eliminating the hologram program could therefore serve to
reduce law enforcement's authority to seize suspected
pirated material, they argue. The GOU has drafted an
amendment to the Law "On distribution of audiovisual works,
phonograms, videograms, computer programs, and databases"
that would partially address industry's concerns by
requiring that all information concerning applications for
hologram stickers be made publicly available on SDIP's
official website.

Collective Management Problems
--------------


9. (U) Ukraine's system of collective management functions
imperfectly. Rights holders have complained that some
royalty collecting societies collect fees for public use of
copyrighted material without authorization and do not
properly return royalty payments to rights holders, and
that many local businesses simply do not pay at all. The
music industry reports that only about 7% of the market is
properly paying performance royalties.


10. (U) The GOU has recently made some progress in
addressing collective management problems, however. SDIP's
2007 revocation of the operating license of rogue
collecting society Oberih (ref K),hailed by industry reps
as a major step forward, was upheld in 2008 both by the
Court of First Instance and the Administrative Appeal
Court. In addition, the Music Industry Working Group
created by PM Tymoshenko developed several regulatory
amendments (to Cabinet of Ministers Resolutions and to an
Order of the Ministry of Education and Science) designed to

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neutralise rogue collecting societies by ensuring that only
those organizations which formally represent the majority
of rights in a specific sector will be allowed to collect
under the principle of "extended licensing." The changes
went into effect on January 22, 2009. Industry reps
praised this move, saying it will "allow the societies
supported by IFPI to strengthen their position in the
market." In addition, the Ministry of Interior in January
2009 signed a Memorandum of Understanding on music piracy
with the Ukrainian Association of the Music Industry,
Ukraine's IFPI-affiliated industry association. The
agreement calls for the Ministry to cooperate with industry
to systematically tackle music piracy issues.


11. (U) Recently, industry reps have focused on the non-
payment of broadcasting royalties by television and radio
stations. Here too there has been some progress, as the
royalty collecting society Ukrainian Music Alliance (UMA)
brought a successful case against the National Radio
Company of Ukraine (the biggest state-owned radio
broadcaster) within the Kyiv Commercial Court. On December
12, 2008, the court ruled that the National Radio Company
had to conclude a music rights licensing agreement with
UMA, although an appeal is still pending. In addition,
police opened a criminal case in early 2009 against several
television channels in the western Rivne oblast for
illegally re-broadcasting copyrighted material without
paying royalties to the rights holders.

Internet Piracy
--------------


12. (U) Internet piracy is a nascent and growing problem in
Ukraine. Many Ukraine-based websites offer pirated
material for download with the full knowledge of their
Internet Service Providers (ISPs). Internet piracy rates
are near 100 percent (i.e. virtually all downloads of
music, movies, or software are from illegal websites).
Microsoft has also complained that Local Area Networks
(LAN),some of which cover entire Ukrainian cities, allow
for widespread software piracy. Another common type of
Internet piracy is on-line mail order sites. Vladimir
Iling, head of the Ukrainian Anti-Piracy Association, which
represents MPA in Ukraine, told Econoff on February 26 that
Ukraine remains a source of "camcorded" movies (i.e.
illegal tapings of movies made in Ukrainian movie theaters)
that are then posted to pirate download sites hosted
throughout the world. Iling said that a draft law
currently being considered by the GOU to make "camcording"
a criminal offense was necessary to address this problem.


13. (SBU) Serhiy Lebid, Deputy Head of the Interior
Ministry's Economic Crimes Department, told a meeting of
the American Chamber of Commerce on February 18 that the
GOU recognized the dangers of internet piracy and was
trying to adapt its enforcement strategies to this new
threat. Ministry of Interior officials previously had
success only in stopping the mail order piracy and seemed
unsure of how to address file sharing/downloading. Police
have complained that Ukrainian law does not give them clear
authority to shut down websites, and they instead have to
work with sometimes uncooperative ISPs to do so.


14. (SBU) Some progress has been made, however. On
February 11, 2009, the Ministry of Interior issued a press
release regarding a recent campaign focusing on online
piracy. The Ministry reported that it had investigated 71
Ukraine-based websites and, working with ISPs, shut down
five sites hosting pirated material. (Comment: Because
they were shut down without going through the courts,
however, many of these sites could reappear on a new ISP or
in a modified format. End Comment.) The Ministry of
Interior also launched the first ever criminal case
involving file downloading in 2008. (Note: The GOU has not
provided much information regarding this case, as it
remains open. We learned of the case from the police
officer in the eastern city of Zaporizhya who was the
primary investigator and happened to be a participant in a
recent USG-sponsored training workshop (ref D). End note.)

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Data Protection
--------------


15. (U) Ukraine has improved its protection of undisclosed
test data, such as that from drug trials, from unfair
commercial use (TRIPS Article 39.3). After amendments made
as part of WTO accession, Ukrainian law now provides a
five-year period for the protection of undisclosed
information in the course of registration of medical drugs
and a ten-year period for agricultural chemicals. The
Association of Pharmaceutical Qearch and Development
(APRaD),which unites local representatives of large
international pharmaceutical companies, has said it is
generally satisfied with the law, but industry reps
continue to complain of a lack of transparency by GOU
bodies responsible for granting market approval for generic
drugs (ref G). Post notes that the Pharmaceutical Research
and Manufacturers of America (PhRMA) recommended that
Ukraine not be listed on any of the Special 301 lists,
indicating that there has been some improvement in this
area.

Counterfeit Goods
--------------


16. (U) Counterfeit goods, including products that contain
protected trademarks, remain readily available in Ukraine.
Counterfeit apparel products are particularly common. Most
counterfeit goods are not produced in Ukraine, but are
imported. GOU officials have said that they believe most
counterfeit products, especially apparel, are imported from
China, with counterfeit pharmaceuticals coming more from
India, and IPR-infringing food products -- from Turkey.

Use/Procurement of Government Software
--------------


17. (SBU) The majority of GOU agencies, excluding those
that handle sensitive national security or law enforcement
material, continue to use unlicensed software on their
computer systems. Industry estimates put the piracy level
for government software at about 75%. The GOU launched a
campaign back in 2004 to phase out illegal software at
government agencies through annual inventories but has
never followed through with the necessary funding.
Microsoft cancelled a software legalization agreement with
the government in 2006 as a result of noncompliance. GOU
officials, particularly from SDIP and the Ministry of
Interior, regularly express their commitment to
legalization, but complain that the government continually
fails to provide the necessary funding. With a severe
budget crisis facing the government (ref B),we do not
expect progress this year. Nikola Mircic, Microsoft
Ukraine Anti Piracy Manager, told Econoff on February 23
that he appreciated the government's budget problems and
would first push for legalization in Ukrainian educational
institutions. (Note: Most Ukrainian universities and high
schools are public. End note.) Microsoft could offer
software to educational institutions at a steep discount,
said Mircic, making legalization relatively cheap. Such a
move would hopefully help generate momentum for a wider
legalization effort.

--------------
Enforcement
--------------

Seizures/Prosecutions Steady, Quality over Quantity?
-------------- --------------


18. (U) After an explosion in the number of IPR-related
investigations from 2005-2007, statistics from the Ministry
of Interior for 2008 showed a leveling in terms of IPR
cases filed and in seizures. The Ministry of Interior
reported that there were 985 IPR-related criminal
investigations in 2008, down some 7% from 2007. Out of
those, 688 cases went to the courts (up 8% from 2007).
During the first eight months of 2008, 120 cases resulted

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in convictions, compared to 186 for all of 2007. The
number of IPR-related administrative offenses has remained
steady at about 5,500 for 2008. Police seized a total of
1.1 million IPR-infringing goods, worth an estimated 19
million UAH (about 2.3 million USD) and down somewhat from
1.4 million items in 2007.


19. (U) Serhiy Lebid, Deputy Head of the Interior
Ministry's Economic Crimes Department, told a meeting of
the American Chamber of Commerce on February 18 that law
enforcement was now focusing more on the "end result" --
i.e. securing convictions of serious offenders -- rather
than on opening as many cases and seizing as many items as
possible.


20. (U) SDIP is responsible for coordinating all IPR
protection efforts, and in 2005 agreed to form an
Enforcement Cooperation Group (ECG) jointly with the United
States and with rights holders. The ECG met twice in 2008
and once so far in 2009 (refs C, E, and H). (Note: The GOU
also conducts a biannual IP Dialogue with the European
Union. End note.) SDIP has just one state inspector per
oblast and must enlist the assistance of the Ministry of
Interior to file criminal cases.

Courts Still a Problem
--------------


21. (SBU) The Ministry of Interior complains that too many
IPR cases result only in small fines, ranging from 1700-
3400 UAH (340-680 USD) for criminal cases. No one has yet
to serve jail time in Ukraine for IPR crimes. Some judges,
particularly in the regions, lack expertise on IPR issues
and do not always take IPR crimes seriously. (Note: Post
has expanded efforts to provide IPR training to the
judiciary, through INL's IPR Enforcement Training Funds
Program (refs F and J) and USPTO's Global Intellectual
Property Academy. End note.)


22. (SBU) The Supreme Court has not held a coordination
session on IPR crimes to issue clearer guidelines to the
lower courts, and the lack of such guidelines has hurt
enforcement. Ministry of Interior officials continue to
urge the Supreme Court to do so.

Customs
--------------


23. (U) The State Customs Service has a separate division
focusing on IPR enforcement and has established special IPR
subdivisions at ports of entry and inland customs points.
Amendments to the Customs Code made in 2004 empowered
customs officers to impound illegal material at the border,
but only if it was included in the "Register of Goods
Containing Intellectual Property." Customs officials had
also needed to refer impounded goods to the courts for an
official determination as to whether they are counterfeit
or not. A November 2006 amendment to the Customs Code,
however, granted expanded "ex officio" powers, allowing
customs officials to act on their own initiative without a
right holder's claim or court decision. Vladimir Iling,
from the Ukrainian Anti-Piracy Association, told Econoff on
February 26 that police had recently filed a criminal case
against a train conductor and a local supplier of pirated
goods responsible for a major smuggling operation from
Russia.

Notorious Markets - Petrivka
--------------


24. (SBU) Pirated and counterfeit products remain brazenly
available at outdoor, open air markets that exist in many
of Ukraine's larger cities. Kyiv's Petrivka Market, a
massive open air market where as many as 300 stands may be
selling illegal material at any given time, has long been a
symbol of piracy in Ukraine. Although Ukrainian law
enforcement has pushed most of the smaller vendors off
street corners, Petrivka remains a sanctuary for all kinds
of illegal, pirated goods, including music, films, games,

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and software. One barrier to enforcement, according to
industry sources, is that the owners of pirate stalls are
often influential businessmen with ties to local
government. Law enforcement officials may be wary to
undertake major operations against Petrivka without clear
directives from the highest levels of the Government.

International Agreements
--------------


25. (U) Ukraine is a member of the Universal Copyright
Convention, the Convention establishing the World
Intellectual Property Organization (WIPO),the Paris
Convention, the Madrid Agreement, the Patent Cooperation
Treaty, the International Convention for the Protection of
New Varieties of Plants, the Berne Convention, the Geneva
Phonograms Convention, the Trademark Law Treaty, and the
Budapest Treaty. Ukraine is a party to the 1996 WIPO
Copyright Treaty (WCT),the WIPO Performances and
Phonograms Treaty (WPPT),and the Rome Convention.

Comment: GOU Holding Steady
--------------


26. (SBU) In the aftermath of the 2004 Orange Revolution,
Ukraine embarked on a major overhaul of its system of IPR
enforcement, and went from the only country listed as a
Priority Foreign Country in 2004 down to the Watch List in

2008. During that period, Ukraine successfully tackled the
most critical IPR issues -- like shutting down pirated
optical disc production and ensuring compliance with TRIPS.
Ukraine, having completed this period of major reform, is
now turning to more complicated and numerous IPR problems.
Law enforcement is right to focus more attention on
internet piracy and collective management problems, not
just physical piracy. The police are also right to focus
more on gaining convictions of the criminals behind the
trade, rather than just issuing fines for low-level
dealers. In short, continued progress on IPR enforcement
should preclude Ukraine from returning to the Priority
Watch List, but the GOU still has work to do before we
should consider removing Ukraine from the Watch List
altogether. End comment.

TAYLOR