IP & Antitrust

Last verified on Tuesday 1st October 2019

IP & Antitrust: Ukraine

Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

Arzinger

All questions

1. Applicable rulesDoes competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?

Ukraine

Ukrainian competition law focuses on the intellectual property rights (IPR) mainly in the context of a fraudulent, deceptive or dishonest trade practice. The respective provisions are reflected in the Law of Ukraine “On Protection Against Unfair Competition” (the Unfair Competition Law). To be more specific, the Unfair Competition Law prohibits any unlawful use of trademarks, trade names, copying the outer appearance of the goods of other manufacturer, comparative advertising, dissemination of misleading information, unlawful collection, disclosure and use of commercial secrets, etc.

Some provisions relating the IPR are also reflected in the Law of Ukraine “On Protection of Economic Competition”. This law provides for a general exemption of concerted practices related to transfer of IPR or granting of IPR. This implies that IPR-related restrictions are not considered as restrictions of economic competition in the sense of this law (thus balancing the economic competition rules and the exclusive IPR). Paragraph 1 of article 9 of this law deems lawful those agreements that put limitations on transfer or exercise of IP objects (exclusive right of the IP holder). However, since exclusive IPR cannot be treated as absolute and the fair use of IPR has respective boundaries, any restriction of activities that go beyond the IPR granted by the law to the IP owner may be deemed to be uncompetitive and constitute a breach of the law.

Paragraph 2 of article 9 of the Law lists the standard restrictions that are within the legal framework and referred to in paragraph 1 of article 9 of the Law.

Nevertheless, the general provisions regarding anticompetitive concerted practices are also applied to IPR. Article 6 of the Law “On Protection of Economic Competition” set forth that only concerted practices that have resulted in or may result in prevention, elimination or restriction of competition will be considered anticompetitive if they, in particular, relate to:

  • the setting of prices or other conditions of purchase or sale of goods;
  • the restriction of production, product markets, technical and technological development, investments or the establishment of control over them;
  • dividing markets or sources of supply in accordance with the territorial principle, the assortment of products, the volume of their sale or purchase, based on the circle of sellers, buyers or consumers or with reference to other features;
  • the distortion of the results of auctions, contests, tenders (bid rigging);
  • the removal of other business entities, buyers, sellers from the market or the limitation of their entry into (exit from) the market; or
  • other actions stipulated by the Law.

This list is not exhaustive.

Article 13 of the Law of Ukraine “On Protection of Economic Competition” concerning abuse of dominance may also be applied to the IP-related matters (see answer 7).

Among them are, inter alia, limitations pertaining to: the volume of transferred rights, the period and territory of validity of the permission to use the IP object, the sphere of use and the minimal volume of production. Moreover, the Law of Ukraine "On state regulation of activities in technology transfer” (the Technology Transfer Law) contains a list of prohibited restraints that is to be taken into account when considering technology transfer agreements. 

To name just a few relating to this topic, the following provisions in the technology transfer agreements are prohibited:

  • payments that are significantly higher than the price of the technology and its components;
  • provisions that bind to buy the materials, equipment or their components, which are not used in the respective technology from the person who transfers the technology;
  • provisions binding the sale of products manufactured with the use of the technology to preferred users, or establishing preferred personnel as defined by the technology seller;
  • provisions defining the selling price for the products or price for reexportation of the products manufactured with the use of the technology;
  • defining ungrounded restrictions regarding the volumes of manufacture of the respective products; and
  • as well as other restrictions related to the use of the technology.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

2. Competent authoritiesWhich authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?

Ukraine

The competent authority is responsible for the application of competition law to IPRs is the Antimonopoly Committee of Ukraine (AMCU). Article 7 of the Law of Ukraine “On the Antimonopoly Committee of Ukraine” provides a list of the AMCU’s powers when exercising control over compliance with the competition legislation. In general, Ukrainian law doesn’t set forth the special procedures with regard to IPR. Thus, these fall under the general procedures of domestic competition law.

As for the enforcement powers on the protection of economic competition related to IPR, the AMCU is usually entitled to make decisions on the basis of the Unfair Competition Law, which are mandatory (article 30 of the Unfair Competition Law):

  • on declaring the fact of unfair competition;
  • on cessation of unfair competition;
  • official disproof of misleading information published by infringer on its own costs;
  • on imposing of fines; and
  • on dismissal of proceeding before the AMCU.

The following fines can be applied by the AMCU for competition law infringements under the Unfair Competition Law (including violations in the IP area): a fine to the amount of up to 5 per cent of an annual income of the company received from the sale of goods during the preceding year (this fine will be collected in favour of the state) (article 21 of this law). The injured party is also entitled to bring a claim to Ukrainian court on recovery of damages caused by the unfair competition act (article 24 of this Law).

If the case relates to the issues on anticompetitive actions and the provisions of the Law of Ukraine “On Protection of Economic Competition” are applied and the amount of fines are determined under this law respectively (which is more complicated in comparison with the system of fines calculation applicable in unfair competition cases). So, while calculating the actual fine amount in cases that fall under the provisions of the Law of Ukraine On Protection of Economic Competition the AMCU applies its recommendations on calculation of fines. The recommendations provide for a two-step methodology: (i) definition of the basic fine amount and (ii) its further adjustment subject to availability of mitigating or aggravating circumstances.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

3. Market definitionHow are markets involving intellectual property rights defined?

Ukraine

The market definition involving IPR is determined under the general approaches specified by the AMCU’s Methodology for determination of business entities’ monopoly (dominant) position on the market where the product boundaries, regional boundaries and temporal boundaries shall be defined.

At the same time, rights arising from an object of IP connected with territorial limitations may be taken into consideration by the AMCU when defining the relevant market. Moreover, the IPR may be regarded as a barrier to entry on the market subject to certain conditions.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

4. Acquisition and saleDoes competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?

Ukraine

The obtainment or grant of IPR may be deemed anticompetitive when, in general, it affects undertakings, acquirers of IPR or licensees in independently making business decisions: for instance, anticompetitive practices concerning the use of IPR that enable a licensee to enjoy absolute territorial protection in its allotted territory (region/several regions) or cases where the acquisition and sale of IPR had additional restrictions concerning resale price maintenance. Hence, this means the establishment of such contractual obligations that outrun the aim of acquiring or transfer of licence, patents or IPR.

In merger cases involving IPR the AMCU regards IPR parts of portfolio product (patents, licences, know-how, etc) as assets subject to acquisition. In May 2015, the AMCU gave national authorisation to a merger that was a part of a global concentration procedure between well-known healthcare companies – Novartis AG (Switzerland) and GlaxoSmithKline plc (UK). The European Commission previously approved the divestment of two of Novartis’ oncology pharmaceutical products that can be used to treat a number of different cancers along with certain conditions.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

5. LicensingHow does competition law apply to technology transfer and licensing agreements?

Ukraine

Under the general procedure, licence overuse is deemed by the AMCU as a mean of creating market barriers leading to the abuse of dominant position.

As it has been discussed in greater detail in question 1, the Technology Transfer Law prohibits certain restrictions on concluding technology transfer agreements, among them are payments that considerably exceed the price of the technology and its components; obligations to buy materials and components from the transferor that are not applied during the manufacturing; obligations to sell products manufactured using the technology determined by the transferor; and other unjustified limitations.

The royalty rates for defining the justified (market) price of the licence may be substantiated in the IP valuation report that is conducted by the respective attested valuation expert based on the specific local regulations establishing the procedure for valuation of the assets, including IPR. The expert is free to choose different methodologies for the valuation of IPR.

Thus, in case of fixing the rates of royalty payments that would be impossible if substantial competition on the market would exist shall be deemed to be a breach of Ukrainian competition law.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

6. Market power and dominanceIn what circumstances is the possession of intellectual property rights deemed to confer substantial market power on the holder such that the rules on unilateral conduct will apply?

Ukraine

First of all, the Ukrainian competition legislation does not stipulate any special approaches for determination of markets involving IPR. In this regard the general approaches for such determination are applied, namely, those stipulated by the AMCU’s Methodology for the determination of business entities’ monopoly (dominant) position on the market (as stated in question 3). Thus, the possession of IPR may trigger substantial market power if the market share of the holder of such rights exceeds 35 per cent or the holder does not suffer the substantial competition. Moreover, when determining the market power and dominance of the business entity, the AMCU considers the access of other business entities to the materials, sales of goods, the existence of barriers to other business entities entering the market, etc.

Consequently, the rules on unilateral conduct will apply if the IPR holder abuses its dominance.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

7. Unilateral conductIn what circumstances may unilateral conduct involving the exercise of intellectual property rights be deemed to be anticompetitive (monopolisation, abuse of dominance, etc)?

Ukraine

While there is no such listed commercial practices, the exercise of exclusive rights may constitute violation in the form of abuse of dominance. Under the Law of Ukraine “On Protection of Economic Competition”, abuse of dominance is defined as actions or inactivity of a business entity occupying a monopoly (dominant) position on the market, which resulted or may result in the prevention, elimination or restriction of competition, in particular the restriction of the competitiveness of other business entities, or in the infringement of the interests of other business entities or consumers, which would be impossible in the case of substantial competition.

In addition, article 13 of this Law sets forth a non-exhaustive list of the actions to be considered as abuse of dominance. They are as follows:

  • the setting of such prices or other conditions for the purchase or sale of a product that would be impossible in the case of the existence of substantial competition on the market;
  • the application of different prices or other different conditions to equivalent agreements with business entities, sellers or buyers without objectively justified causes;
  • the conclusion of agreements on condition that the relevant business entity assumes additional obligations that, due to their nature or in terms of customs in trade and other fair customs in entrepreneurial activities, have nothing in common with the subject of the contract; and
  • the limitation of production, markets or technical development that caused or can cause damage to other economic entities, buyers or sellers.

Thus, the holder of IPR may abuse its monopoly (dominant) position, for instance, by its refusal to license. This may constitute violation if:

  • the refusal concerns the subject of IPR, which is necessary and essential to perform certain activity on the respective market; or
  • refusal is not reasonably justified.

At the same time, patent legislation in Ukraine provides for the procedures for obtaining compulsory licences, an issue that is heavily debated in the context of granting the compulsory licences for original pharmaceuticals. Additionally, if a patented invention has not been in use over three consecutive years as of the registration date or any date as of which the use of the patent has ceased, a person may apply to the court with a request for issuance of a licence by a patent owner if the patent owner has refused to grant the respective licence upon request of such a person.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

8. Patent settlementsIn what circumstances may patent settlements be deemed to infringe competition law?

Ukraine

There is no relevant AMCU’s practice (some specific cases) as for pay-for-delay settlements.

Consequently, the general restrictions are applied to the competition law violation caused by patent settlements.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

9. Merger control (jurisdiction)In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?

Ukraine

Ukrainian legislation provides for the circumstances when a transaction falls under the obligation to notify the AMCU for merger clearance if the relevant financial thresholds are met. And while it becomes clear that formally there is no direct reference to filing obligation in Ukraine in the case of transfer of IPR, such cases do occur in the AMCU's practice.

Based on current legislation and respective practice, the AMCU may consider cases of transfer of IPR. In particular, under the provisions of the Law of Ukraine “On Protection of Economic Competition” Law acquisition of control directly or through other persons over one or several economic entities or over parts of economic entities by one or several economic entities in different ways shall be considered as a merger (concentration). For its part, the AMCU considers different entities’ assets as “parts of economic entities”, which triggers a notification obligation if the financial thresholds are met. Thus, the AMCU very carefully examines any transaction that consists of purchase, acquisition (by other means) or use of different kinds of assets; in particular, it can be assumed that cases of IPR transfer will more often be considered as a merger.

The AMCU regards IPR parts of portfolio product (patents, licences, know-how, etc) as an asset which is subject to concentration. There are a variety of cases when the AMCU granted clearances for mergers involving transferring of IPR. In particular, a merger between famous healthcare companies – Novartis AG (Switzerland) and GlaxoSmithKline plc (UK), which had an influence on the Ukrainian pharmaceutical market – concerned the transfer of intangible assets such as (patent rights, know-how, marketing authorisations, rights to conduct the clinical trials, trademarks and domain names, etc).

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

10. Merger control (substantive)In what circumstances will a merger involving intellectual property rights be deemed anticompetitive? Are there any special considerations for mergers involving intellectual property rights or innovation markets?

Ukraine

IPR in some circumstances are deemed as assets which provide possibility of particular activity. But the Ukrainian competition authority still has not established its sufficient practice regarding mergers involving IPR, to clarify its approaches on this issue. Previous relevant decisions relate to obtaining merger clearance within the framework of foreign-to-foreign transactions.

Also, based on analysed practice, there are no special considerations for mergers involving IPR or innovation markets.

On 27 December 2016, the AMCU approved its Guidelines on the assessment of horizontal mergers on applying Part 1 of article 25 of the Law of Ukraine “On Protection of Economic Competition” aimed to systematise and improve approaches to the assessment of horizontal mergers. According the Guidelines, when making decisions the AMCU should take into account and assess unilateral competitive effects, in particular influence on the ability of competitors to compete. Such influence may arise from the existence of the control of an entity over patents or other types of IPR (for example, trademarks) that are essential for the sale of goods in the markets and may create barriers to entry and expansion of existing competitors.

Otherwise, the AMCU grants merger clearance for merger (concentration) if it does not result in the monopolisation of the whole market or its significant part or in the substantial restriction of competition on the whole market or in its significant part.

Thus, the AMCU is guided by the general provisions when deciding whether a merger involving IPR has an anticompetitive effect.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

11. StandardisationHow, in general, does competition law treat the development of standards in standard-development organisations (SDOs), and the exercise of intellectual property rights for technology that may be essential to a standard?

Ukraine

Ukrainian competition legislation does not cover the development of standards in standard-development organisations; namely, there is no specific legislation in this regard. In the case of an anticompetitive effect of standards, general competition law provisions will be applied.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

12. Standardisation and anticompetitive agreementsHow do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?

Ukraine

Standardisation process falls within the scope of competition legislation in case it violates the competition law rules. Simultaneously, the specific guidelines on issue in question have not yet been developed in Ukraine.

Nevertheless, under the standard requirements to the creation of business association, the association may coordinate its participants’ activity, in particular, in the sphere of standardisation, namely, promotion of an efficient increase in operations (products market) by developing, discussing and making proposals for the objectively classified types of classifiers, product quality standard, operational reliability and safety, standards on ecology issues.

This rule may be an orientation point not only for the members of association, but also for other business entities when coordinating their activity in the sphere of standardisation. It is caused by the absence of special regulation concerning standardisation.

Nevertheless, if in the course of such coordination in the sphere of standardisation it leads, for example, to anticompetitive concerted practices, then these actions may be caught by the relevant competition rules.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

13. Standardisation and unilateral conductHow do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?

Ukraine

The competition rules regarding the unilateral conduct are applied in the general order to the exercise of IPR for technology that may be essential to a standard, since there are no special rules in Ukraine in this regard. In other words, in the case of monopolisation the provisions of the Law of Ukraine “On Protection of Economic Competition” may be enforced.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

14. Recent cases and other developments

Ukraine

Predominantly, the majority of cases concerning IPR relate to the sphere of an unfair competition control. As for recent landmark cases in the scope of unfair competition, note the following:

  • recently, the AMCU’s first decision in the category of illegal disclosure of trade secrets was made. A fine of about US$13,500 was imposed on LLC Ergon-Electric (about 3 per cent of an annual income of the company received from the sale of goods during the preceding year) for unlawful use of a trade secret (Decision of the Interim Administrative Board of the Antimonopoly Committee of Ukraine dated 13 December 2018 on the infringement of article 19 of the Unfair Competition Law). While the fine amount was being decided, the following were considered: (i) it was the first time that LLC Ergon-Electric had committed infringement and (ii) the infringement was ongoing;
  • a prominent decision was taken by the AMCU in a case related to unfair use of a trade name. The company Sanofi Pharm LLC (Dnipro) illegally used the element SANOFI as a part of its trade name operating in the same sphere (pharmaceutical area) as the international corporation Sanofi Aventis. The company infringer illegally took part in state procurements and provided medicines to Ukrainian pharmacies. As a result, the AMCU imposed a fine of €15,000 for this act of unfair competition, as well as an additional fine of €3,300 for the late provision of the requested information;
  • the AMCU fined an ex-dealer of MAN Truck & Bus AG for misleading consumers by illegally informing on the dealer’s relationship, which was considered an act of unfair competition. This information was published on the infringer's official website and at the company's place of provision services. The amount of the fine was €6,600;
  • а leading Ukrainian travel company was fined for €2,000 for misleading consumers with illegal informing on leadership of the company on Ukrainian market, which is considered unfair competition under the legislation of Ukraine. Further, the company was also fined for €50,000 for misleading Ukrainian consumers by informing them that the company allegedly cooperated with the leading avian companies when providing travel services;
  • the AMCU imposed a fine to the amount of €100,000 for misleading consumers with illegal informing on details of the construction projects;
  • it was the first time when the AMCU imposed a fine for misuse of patent protection. The case related to the technology protected by a design patent in Ukraine (under Ukrainian law when registering such type of patents no substantive examination was conducted, patent novelty was not checked and the respective patent was granted under the responsibility of an applicant), which was recorded under the UA Customs Register of IP Objects. As a result, the patentholder misused its IPR and suspended customs clearance of goods imported by the fair companies allegedly because of its IPR infringement. So one of the importers prevailed in a court claim declaring such design patent invalid and further filed an application to the AMCU on unfair competition with illegal limitation of import of goods. The infringer was fined €35,000;
  • Ukrainian margarine manufacturer was fined €5,500 for illegal use of product packaging, which was confusingly similar to the packaging in the same category of products of its competitor;
  • Roshen filed an application to the Antimonopoly Committee of Ukraine on protection against unfair competition against UA bakery manufacturer BKK. The subject to consideration was that BKK allegedly infringed Roshen’s rights with use of packaging for cakes КАЗКОВИЙ КЛЮЧИК, which is confusingly similar to the packaging of Roshen’s cake “ЗОЛОТИЙ КЛЮЧИК”. The AMCU treated BKK’s actions as unfair competition and imposed a fine of about €10,000; and
  • Zdravopharm LLC violated article 4 of the Unfair Competition Law because it used the name White Coal - Zdravopharm without the prior permission of Omnipharma LLC, which had a product of a similar name. The AMCU took the decision to make Zdravopharm LLC stop using the product name White Coal – Zdravopharm. In addition, Zdravopharm LLC was fined a total of €3,000.

Answer contributed by Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk

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