IP & Antitrust

Last verified on Thursday 20th September 2018

Ukraine

Timur Bondaryev, Lana Sinichkina and Kateryna Oliinyk
Arzinger
  1. 1.

    Applicable rules

    Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?

  2. Ukranian 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 the Protection Against Unfair Competition” (Unfair Competition Law). To be more specific, the Unfair Competition Law prohibits any unlawful use of trademarks, 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 intellectual property rights). Paragraph 1 of article 9 of this law deems lawful those agreements that put limitations over transfer or exercise of IP objects (exclusive right of the IP holder). However, since exclusive IP rights cannot be treated as absolute and the fair use of IP rights has the respective boundaries, any restriction of activities that go beyond the IP rights 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 p.1 of article 9.

    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” (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.
  3. 2.

    Competent authorities

    Which 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?

  4. 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 Antimonopoly Committee of Ukraine” provides for the 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 intellectual property rights. Thus, it comes to general procedures of domestic competition law.

    As for the enforcement powers, the AMCU is entitled to:

    • take a decision on competition law violation;
    • take a decision on termination of competition law violation; and
    • provide recommendations on termination of actions containing signs of competition law violation.

    The following fines can be applied by the AMCU for competition law infringements (including violations in the IP area):

    • up to 5 per cent of an undertaking’s annual turnover for the last financial year – unfair competition infringements; and
    • up to 10 per cent of an undertaking’s annual turnover for the last financial year – abuse of dominance and anticompetitive concerted practices.

    While calculating the actual fine amount the AMCU applies its recommendations on fine calculation. The Recommendations provides 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.

    In addition, the persons who have been affected by the anticompetitive actions may claim damages.

  5. 3.

    Market definition

    How are markets involving intellectual property rights defined?

  6. The market definition involving IP rights 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 an entry market barriers subject to certain conditions.

  7. 4.

    Acquisition and sale

    Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?

  8. The obtainment or grant of IPRs may be deemed anticompetitive when, in general, it affects the independence of undertakings, acquirers of IPRs or licences to independently make business decisions: for instance, such 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 connected with 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 an asset which is subject to acquisition. In May 2015 the AMCU gave a national authorisation to a merger, which 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.

  9. 5.

    Licensing

    How does competition law apply to technology transfer and licensing agreements?

  10. 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 transferor that are not applied during the manufacturing; obligations to sell the products manufactured upon 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 IP rights. For the purposes of the IP valuation, the expert is free to choose different methodologies for the valuation of IP rights.

    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.

  11. 6.

    Market power and dominance

    In 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?

  12. First of all, the Ukrainian competition legislation does not stipulate any special approaches for determination of markets involving intellectual property rights. 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 said in answer 3). Thus, the possession of IPRs 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 to entering the market, etc.

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

  13. 7.

    Unilateral conduct

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

  14. 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 the existence of substantial competition.

    In addition, article 13 of the 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 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, 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 intellectual property right, which is necessary and essential in order to perform certain activity on the respective market; or
    • refusal is not reasonably justified.

    At the same time, the Patent Law of Ukraine provides for the procedures for obtaining compulsory licences, which issue is heavily debated in the context of granting the compulsory licences for original pharmaceuticals. Additionally, if a patented invention has not been in use within 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.

  15. 8.

    Patent settlements

    In what circumstances may patent settlements be deemed to infringe competition law?

  16. 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.

  17. 9.

    Merger control (jurisdiction)

    In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?

  18. 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 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 "On protection of economic competition" 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). In its case the AMCU considers different entities' assets as “parts of economic entities”, which triggers 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 influence Ukrainian pharmaceutical market concerned the transfer of intangible assets such as (patent rights, know-how, marketing authorisations, the rights to conduct the clinical trials, trademarks and domain names, etc).

  19. 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?

  20. Intellectual property rights 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 intellectual property rights, 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 intellectual property rights (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.

  21. 11.

    Standardisation

    How, 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?

  22. 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.

  23. 12.

    Standardisation and anticompetitive agreements

    How do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?

  24. 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 efficiency increase of industry functioning (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.

  25. 13.

    Standardisation and unilateral conduct

    How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?

  26. The competition rules regarding the unilateral conduct are applied in the general order to the exercise of intellectual property rights for technology that may be essential to a standard, since there are no special rules in Ukraine in this regard. In other words, in case of monopolisation in the sphere of standardisation the provisions of article 13 of the Law of Ukraine “On protection of economic competition” may be enforced.

  27. 14.

    Recent cases and other developments


  28. Neither the AMCU nor any other national authority have yet issued any guidelines covering competition and IP matters in Ukraine.

    Predominantly, the majority of cases concerning IPR relate to the sphere of an unfair competition control. As for recent cases in the scope of unfair competition, on 29 December 2015 the AMCU fined one of the largest producers of alcoholic drinks for 14 million hruvnia. The AMCU found that Simferopol wine and brandy factory”LLC sold the alcoholic drink “Cany” “CAPTAIN JACK” on the territory of Ukraine. The drinks labels contained the inscription rum, but simultaneously, the inscription “strong alcoholic drink Cany” was placed on the back labels.

    The AMCU found that the company misled consumers since the plcaement of the “Gold RUM” and “Black RUM” inscription on the labels could lead to a situation when the consumer would think that he or she had bought rum, while this alcoholic drink was not rum. The AMCU launched an investigation on the claim of the International Corporation Diageo Scotland Limited, which supplies the original alcohol product Captain Morgan in Ukraine. The fine imposed on the company was the largest AMCU fine for unfair competition in 2015.

    Moreover, on 20 December 2016 Simferopol wine and brandy factory LLC was fined 128,000 hryvnia for unlawful use of trademarks, since the AMCU found out the design of the labels of Captain Morgan products (produced by the International Corporation Diageo Scotland Limited) and design of the labels of Captain Jack products (produced by Simferopol wine and brandy factory LLC) are similar insofar as they may be confused with each other by both the original names and the dominant signs of the labels.

    Roshen Cake case is the most famous case of unfair competition investigated by AMCU in 2017. On 23 November 2017 PJSC “KYIVKHLIB”, producer of bread and bakery products, was fined 219 000 UAH for unlawful use of packaging design of Roshen’s Cake without its permission, which could lead to confusion with Rochen activities. Now KYIVKHLIB is appealing the decision of the court of first instance refusing to satisfy its claim on invalidation of the AMCU decision.

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Questions

  1. 1.

    Applicable rules

    Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?


  2. 2.

    Competent authorities

    Which 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?


  3. 3.

    Market definition

    How are markets involving intellectual property rights defined?


  4. 4.

    Acquisition and sale

    Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?


  5. 5.

    Licensing

    How does competition law apply to technology transfer and licensing agreements?


  6. 6.

    Market power and dominance

    In 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?


  7. 7.

    Unilateral conduct

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


  8. 8.

    Patent settlements

    In what circumstances may patent settlements be deemed to infringe competition law?


  9. 9.

    Merger control (jurisdiction)

    In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?


  10. 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?


  11. 11.

    Standardisation

    How, 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?


  12. 12.

    Standardisation and anticompetitive agreements

    How do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?


  13. 13.

    Standardisation and unilateral conduct

    How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?


  14. 14.

    Recent cases and other developments