Border Enforcement of IP Rights  during Martial Law and after the Victory

Ukraine is in the state of war now, which means that we suffer painful daily losses, and at the same time we must preserve as much as possible our pre-war gains, including those associated with the enforcement of intellectual property rights.

Respecting IP rights is a Ukraine’s obligation enshrined in the provisions of The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) No. 981_018 and the Association Agreement between the European Union and the European Atomic Energy Community and their member states, of the one part, and Ukraine, of the other part No. 984_011 (Association Agreement). Enforcement of intellectual property rights is one of the important elements of Ukraine’s approaching membership in the EU.

Threats Posed by Counterfeiting

This year’s international studies confirmed that crimes involving infringement of IP rights not only pose a threat to the health and safety of consumers, cause economic losses to the countries, but also constitute a profitable business for organized criminal networks. All this highlights the importance of prioritizing IP crimes in the context of the fight against organized crime and requires coordinated action on the ground.

Counterfeit products are goods bearing the designations identical to trademarks or geographical indications protected in Ukraine for the same type of goods, applied without the permission of the right holder of these marks. Furthermore, counterfeiting is an infringement of IP rights, which carries increased socio-economic risks (compared to other infringements of IP rights), since it involves products of unknown origin and quality, which are produced and sold by organized criminal groups, and the profits from the sales of counterfeit goods are used to finance other serious crimes (such as trafficking in people, arms and drugs).

Since counterfeiting has always sponsored terrorism and all kinds of criminal activity, in the realities of martial law in Ukraine, counterfeiting represents a critical danger for our state, because the “quick money” derived from this activity can very likely be directed to the needs of our enemy.

Let us not forget the fact that counterfeit goods are the goods that have not passed any quality control and no one is responsible for the safety of consumers purchasing such goods.

What shall we do? We should consolidate the efforts of the customs service, law-enforcement, experts, judicial authorities, rights holders, all interested parties, because the exchange of information between the stakeholders and the coordination of joint actions are important for the prevention, detection, control, investigation and prosecution of infringers.

Border control measures at customs are an important element in detecting counterfeit products.

Already in June 2020, Ukraine finalized the adaptation of its customs legislation to the EU legislation, thanks to which the system of protection and enforcement of IP rights at the customs border, compared to previous years, got a chance to become more effective, focusing on the detection of counterfeit products. 

Effectiveness of Border Control Measures

In 2022, the system of enforcement of IP rights at the Ukrainian customs was actively working even during wartime — the customs register of objects of IP rights was being updated, notices about the suspension of goods suspected of infringing IP rights were being sent to the right holders, counterfeit goods were destroyed or administrative protocols were drawn up about violations of customs rules.

Key performance indicators (KPI) of customs offices in the area of the protection of IP rights for the second quarter of 2022 show that only 5 customs offices out of 19 active ones, namely Kyiv, Odesa, Lviv, Zakarpattia and Volyn customs offices appeared to be efficient. Unfortunately, the State Customs Service of Ukraine does not put out to the general public summarized analytical data on the state of implementation of IPR enforcement measures for a certain period of time (the number of suspensions of customs clearance of goods suspected of infringement of IP rights by each customs office, the quantitative and qualitative composition of detected and suspended counterfeit goods, the legal consequences of such suspensions — destruction or drawing up of administrative protocols). Therefore, without the knowledge of the said indicators of customs detention of goods suspected of violation of IP rights, it is impossible to assess the effectiveness of the work of customs officials in terms of preventing counterfeit goods from entering the territory of Ukraine, even for customs offices that have positive KPIs.

The results of cooperation with the customs of the IP & Law Firm Pakharenko and Partners as of 1 July 2022 confirm the KPI of the customs for the current year, available on the official website. The results of our cooperation show that the customs offices that were taking measures in 2022 in the interests of the clients we represent are Odesa, Lviv, Zakarpattia and Kyiv customs. Most of the detentions concerned small batches ranging from 2 items to hundreds, but thanks to the work of the Odesa Customs, there were also batches of several thousand items. The total quantity of detained counterfeit goods in 2022 amounted to about 81,000 items. Thus, the results achieved indicate the need for further improvement of border control measures.

As we know, the cornerstone of border control measures at customs is the point of detection of counterfeit goods during customs control and/or customs clearance of goods using an automated risk management system, which ensures the functioning of the IPR-related risk management system. The most urgent issues the practicing customs officers pay attention to during meetings with businesses are the absence or inadequate functioning of the said IPR-related risk management system, the lack of its synchronization and integration into the general automated risk management system, and then integration into the unified automated information system of the customs authorities (“Inspector”). According to them, even the Customs register of IP rights is not synchronized and not integrated into the customs IT database “Inspector”.

Right holders believe that increasing the efficiency of the work of customs officials can only be achieved through the further automation of all processes related to the suspension of customs clearance of goods suspected of infringement of IP rights, in particular through the digitization of further interaction between rights holders, customs officers and declarants during suspensions of customs clearance in such cases, especially as it is stipulated by the current legislation.

As far as the KPI of customs officers is concerned, according to the rights holders, the work of customs officers in assisting in the enforcement of IP rights can be considered effective only if three indicators are in place:

• counterfeit goods were detected and suspended. A decisive role in this aspect was played by the risk management system which is automated, modern, and is not working selectively, but affecting all violators of customs rules. In such a case the number of detections of counterfeit goods during customs inspection will be high;
• the goods detained are the large-scale batches of counterfeit products, and not the small ones;
• in relation to the detained counterfeit goods, the legal actions provided by law took place, which means that the counterfeit goods were either destroyed or a protocol on the violation of customs rules was drawn up.

Only the synergy of all these results will allow one to state that a certain customs officer has a high KPI and that the results of the application of border measures can in general be considered positive. 

Priority Recommendations for Improving the Situation

To intensify the enforcement of IP rights at the customs border, the following steps are necessary:

• full digitalization and transparency of the work process of customs authorities, and, above all, the creation of modern digital tools for detecting counterfeiting and automating the further interaction of right holders, customs officials and declarants during detentions. At the same time, the work of the customs register of IP rights must be fully automated and synchronized with the customs IT databases “Inspector” and the automated risk management system for timely updating of data in the risk analysis system and for ensuring that the system works out;
• involvement of all active customs offices in the work;
• suspension of particularly large-scale batches of counterfeit goods — batches of several thousand pieces of everyday goods, or small batches of high-value goods, such as iPhones or expensive watches.

The overall priority for the recovery of Ukraine after the victory in the war with russia should be the introduction of the obligation of business entities, when selling any imported goods on the Ukrainian physical market and on the Internet, to have a copy of the declaration or its number, according to which such goods were imported. This will allow the controlling authorities to monitor the legality of the import of any product into Ukraine and to identify the entire logistics chain of the introduction into commerce of a product suspected of infringing IP rights. In addition, it will help to solve the current issue of illegal trade (sale) of goods that were brought to Ukraine as humanitarian aid. 

Practical Recommendations

In order to improve the situation with border measures of IPR enforcement the issue of providing conclusions on the counterfeit nature of detained goods by the right holder remains relevant. According to the Customs Code of Ukraine No. 4495-VI, the sole conclusions of the right holders regarding the counterfeit nature of the detained goods are not sufficient for drawing up a protocol under Art. 476 of the Customs Code of Ukraine. At the same time, there were cases when the customs did not draw up an administrative protocol since the owner of the goods provided an expert report (ordered by him) stating that the goods were not counterfeit. This goes contrary to the current legislation, since the norms of the Customs Code of Ukraine do not provide for competition between the parties in drawing up the administrative protocol, and arranging for the examination is a right holder’s obligation. In addition, only the right holder has up-to-date special knowledge about a certain type of original product and can in practice carry out authentication examination of detained goods. And only the right holder can identify the counterfeit features in a product and draw up the necessary expert report, unlike the subjects of forensic expertise, who cannot provide an answer to the legal question of the availability of counterfeit features in a certain product.

The logic of the procedure for assisting in protection of IP rights at the border and the practice of applying border control measures at EU customs confirm that only the right holder can determine the counterfeit nature of a detained product, so he or she has the final word. In the convincing opinion of the rights holders, it is the conclusions of the right holders that must be taken into consideration in drawing up a customs offence protocol under Art. 476 of the Customs Code of Ukraine.

At the same time, this will not prejudice the rights of the owner of the detained product, because according to current legislation, he has the right to defend his ownership rights to the purchased products in a court proceeding and, if necessary, submit a request for a forensic examination, which will be appointed by the court during the course of the court proceedings.

Thus, the right holder’s conclusion regarding the counterfeit nature of the suspended goods can serve as proper evidence and a ground for drawing up a customs offense protocol under Art. 476 of the Customs Code of Ukraine. To establish such a practice, the amendments must be made in the current customs regulations.

Today, a right holder or his representative is not included in the list of persons participating in the proceedings in cases regarding violation of customs rules. As a result, some judges deny the right holder or his/her representative the opportunity to participate in cases of violation of customs rules under Art. 476 of the Customs Code of Ukraine, which makes effective protection of infringed IP rights impossible. As a result, there were cases when counterfeit products were returned to their owners. Therefore, it is necessary to include a right holder or representative in a list of persons who participate in the proceedings in cases of violation of customs rules in accordance with Art. 497 of the Customs Code of Ukraine, which will ensure better guarantees of protection of right holders’ procedural rights  during consideration of such cases in court.

Another urgent issue for right holders that needs to be resolved as soon as possible is the issue of destroying counterfeit goods. According to Art. 46 of the TRIPS Agreement, judicial authorities are entitled to rule that the goods which are found to be infringing IP rights should be removed from trade channels without any compensation in such a way as to avoid causing any damage to the right holder and destroyed. Still, sometimes judges, referring to Art. 476 of the Customs Code of Ukraine, the sanction of which does not directly provide for the destruction of goods, do not take such decisions. At the same time, par. 8 of Article 243 of the Customs Code of Ukraine provides for the alternative  options of disposing of goods confiscated under Art. 476 of the Customs Code of Ukraine. As a result, despite the fact that according to par.  4 of Art. 6 of the Act of Ukraine On the Protection of Consumer Rights No. 1023-XII prohibits the introduction into circulation of falsified products, counterfeit products confiscated into state revenue may be re-introduced into economic circulation. That is why, according to the right holders, taking into account the significant potential risks that counterfeit products pose for the state, the economy and consumers, it is necessary to introduce a legislative norm on the mandatory destruction of such goods.

As regards the goods that are moved across the border with other infringements of IP rights, according to a court decision and in the absence of objections from the right holders, such goods can be transferred free of charge for the needs of medical, educational institutions, establishments and institutions of the social and cultural sphere, other establishments and institutions that are financed from the state or local budgets, or subject to processing, disposal or destruction if rights holders subject to such transfer of goods.

Another problem is the low level of punishment, which does not help to prevent further infringements. Undoubtedly, for the importer of a large batch of counterfeit products, a fine of  UAH 17,000 is insignificant and does not perform its deterrent function. It is advisable to amend the sanction of Art. 476 of the Customs Code of Ukraine, by introducing an alternative penalty (from UAH 17,000 to UAH 170,000) depending on the quantity of products and other circumstances of the case. Such a change will help fill the budget and prevent further infringements of IP rights.

We hope that the implementation of the mentioned steps in legislation and in practice will help to improve the situation with the current state of border measures for the enforcement of IP rights at Ukrainian customs in the conditions of martial law and in the further post-war recovery of the economy.

Glory to Ukraine!