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February 22, 2007

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Reference ID Created Released Classification Origin
07KYIV449 2007-02-22 15:07 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv


DE RUEHKV #0449/01 0531507
P 221507Z FEB 07

E.O. 12958: DECL: N/A 
REFS: A) STATE 7944 
      B) KYIV 348 
      C) 2006 KYIV 4359 
      D) 2006 KIEV 3414 
      E) 2006 KIEV 3293 
      F) 2006 KIEV 3145 
      G) 2006 KIEV 2992 
      H) 2006 KIEV 2723 
      I) 2006 KIEV 2219 
      J) 2006 KIEV 881 
      K) 2006 KIEV 721 
      L) 2005 KIEV 4872 
1. (SBU) Summary and Recommendation: Embassy recommends 
Ukraine remain on the Special 301 Priority Watch List, 
which is statutorily accompanied by Section 306 monitoring 
(Ref A), although the Government of Ukraine is definitely 
moving in the right direction on IPR protection.  The GOU 
has followed up on the substantial progress made in 2005, 
which led to the lifting of Special 301 sanctions and 
restoration of GSP benefits.  Ukraine is no longer a major 
source of pirated goods, although such goods do remain 
readily available on the local market.  Ukraine has made 
important strides in bringing its legislation in line with 
TRIPS and international obligations, notably in the area of 
data protection.  The GOU significantly stepped up 
enforcement efforts in 2006, although internet piracy is a 
looming challenge.  Government procurement/use of 
unlicensed software remains a problem.  The Petrivka open 
air market is Ukraine's most notorious for pirated 
material; GOU authorities have struggled to limit illicit 
sales there, but have not moved to shut down the market. 
Post believes enforcement-related training, especially for 
judges/prosecutors and officials responsible for combating 
internet piracy, is warranted.  End Summary and 
Overall Assessment of IP Climate 
2. (SBU) Although the GOU has significantly stepped up its 
efforts to protect Intellectual Property Rights (IPR) in 
recent years, Ukraine still faces serious problems of 
piracy, especially the widespread sale of pirate optical 
disc material.  Industry reps estimate piracy levels for 
music at 55%, for video at 76%, and for computer software 
at 85%.  Counterfeit goods are also widely available. 
Ukraine's IPR-related legal base has steadily improved and 
only minor adjustments are now needed to bring legislation 
fully in compliance with international norms and to allow 
for improved enforcement.  Courts continue to hand down lax 
sentences for IPR infringers, and customs officials have 
thus far failed to halt the flood of pirated goods coming 
in from Russia. 
Optical Media Piracy 
3. (U) Ukraine now has one of the most comprehensive 
optical media laws in the world, regulating nearly every 
step in the life of an optical disc (OD).  The 2002 law "On 
the Specifics of the Government Regulation of the Activity 
of Subjects of Economic Activity Associated with the 
Manufacture, Export, and Import of Laser-Readable Discs" 
put into place a detailed regulatory regime.  Its 10 
articles outlined a special OD plant licensing regime, 
plant inspection procedures, and measures to be taken when 
violations are discovered.  A package of amendments to the 
2002 law and the Criminal Code of Ukraine, passed in the 
Rada (parliament) in July 2005, improved inspection 
procedures and increased the penalties that apply to 
violations.  The amendments also removed a requirement that 
imported ODs have Source Identification (SID) codes 
imprinted on them. 
4. (SBU) Ukraine is no longer a major source of pirated 
optical media.  According to Vladimir Iling, head of the 
IFPI Kyiv office, the organization's forensic specialists 
have not detected any pirated discs believed to be 
manufactured in Ukraine since the 2005 amendments to the OD 
law.  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 more 
than 20 inspections in 2006.  The Ministry of Internal 
Affairs claims that roughly nine out of ten pirated CDs in 
Ukraine come from Russia.  Yevgeniy Roudyk, deputy head of 
the Internal Affairs Ministry's IPR Department, told 
Econoff on February 9 that GOU investigators had uncovered 
major shipping routes that originate almost exclusively in 
5. (SBU) The hologram sticker program (ref L) remains the 
primary method used by law enforcement to recognize 
potentially pirated materials.  Industry reps have 
complained about the functioning of this program; they 
claim that some importers of pirated discs are able to 
obtain the hologram stickers, while legitimate producers 
have to contend with time-consuming, bureaucratic hurdles. 
Counterfeit hologram stickers are also a problem.  Industry 
and GOU officials have come across several different 
varieties of forged stickers, some of very high qualit
GOU officials, including the head of the Ministry of 
Internal Affairs' IPR Department Serhiy Lebid, argue, 
however, 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 would 
therefore serve to reduce law enforcement's authority to 
seize suspected pirated material. 
International Obligations and TRIPS Compliance 
--------------------------------------------- - 
6. (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. 
Amendments to the Copyright Law passed in 2001 intended to 
implement the WCT and WPPT, but fell short.  New amendments 
to the Copyright Law are needed, in particular to address 
technological protection measures. 
7. (U) While working toward WTO accession, Ukraine's legal 
base has achieved substantial TRIPS compliance.  TRIPS 
omnibus legislation passed in 2002 was a major step, and 
the Rada passed a number of IPR-related laws in November 
2006.  An amendment to the Customs Code granted customs 
officials expanded "ex officio" rights to stop pirated 
material from entering Ukraine and helped bring the Code 
into the compliance with Article 58 of the TRIPS Agreement. 
The Rada also passed an amendment to the law "On Protection 
of Rights for Indications of Origin of Goods," which sought 
to bring Ukraine's geographical indications (GIs) 
legislation into full TRIPS compliance.  Further amendment 
to the GIs law may be necessary, however, in particular to 
ensure that Ukrainian law does not require GI reciprocity. 
Finally, the Rada passed two laws related to data 
protection in order to comply with Article 39.3 of TRIPS 
(see below). 
8. (SBU) Ukraine's system of royalty collecting societies 
functions imperfectly.  Rights holders have complained 
bitterly that some societies collect fees for public use of 
copyrighted material without authorization and do not 
properly return royalty payments to rights holders (refs C- 
F).  SDIP's initial draft amendment to the Copyright Law 
failed to address industry's concerns on royalty collecting 
societies, but the draft is now being reworked.  Legitimate 
rights holders have had opportunities to express their 
views to SDIP via the U.S.-Ukraine Enforcement Cooperation 
Group.  SDIP's recent move to revoke the license of 
collecting society Oberih (ref B), now being settled in the 
courts, was welcomed by music industry representatives who 
claimed Oberih illegitimately collected fees. 
Data Protection 
9. (SBU) Ukraine has improved its protection of undisclosed 
test data, such as that from drug trials, from unfair 
commercial use (TRIPS Article 39.3).  In November 2006, the 
Rada passed amendments to the law "On Medicinal Drugs," 
introducing a five-year period for the protection of 
undisclosed information in the course of registration of 
medical drugs, and to the law "On Pesticides and 
Agrochemicals," introducing a ten-year protection period 
for agricultural chemical products.  The Association of 
Pharmaceutical Research and Development (APRaD), which 
unites local representatives of large international 
pharmaceutical companies, has said it is generally 
satisfied with the new law. 
10. (U) The Ministry of Health has, on occasion, approved 
generic copies of pharmaceutical products under patent in 
other countries, allowing the copies to compete with the 
branded products (ref G).  In one such case, the producer 
of the branded product successfully sued the generic 
producer in a Ukrainian court and got the copy pulled from 
the market.  In another, the generic producer elected not 
to market the copy and so the patent holder suffered no 
commercial loss.  APRaD has argued that the GOU should 
better implement patent linkage. 
Counterfeit Goods 
11. (U) Counterfeited goods, including products that 
contain protected trademarks, remain readily available in 
Ukraine.  DuPont estimates that counterfeit and illegal 
pesticides make up 20% of Ukraine's crop protection market, 
causing roughly USD 40 million worth of damages to 
legitimate producers.  Dominic Watson, DuPont Country 
Manager for Eastern Europe, noted on February 21 that 
counterfeit pesticides are particularly dangerous, as they 
can hurt both crops and consumers, including foreign 
consumers of Ukrainian agricultural products.  Monsanto, 
meanwhile, suffers from illegal use of its genetically- 
modified soybeans, present on an estimated 60% of Ukraine's 
soybean-growing land.  In order to improve enforcement in 
this area, the GOU first needs to create a legal framework 
for the registration and use of biotechnology products. 
Apparel products are also a target for counterfeiters. 
Viktoriya Marchuk, Office Manager for Puma Ukraine, told 
Econoff in December 2006 that Puma was concerned by the 
increasing presence of counterfeited apparel in Ukraine, 
and was pushing the GOU to do more to stop its import. 
Most counterfeit goods are not produced in Ukraine, but are 
imported, usually from China. 
Use/Procurement of Government Software 
12. (U) On March 4, 2004, the Cabinet of Ministers of 
Ukraine passed a resolution "On Approval of a Procedure for 
Software Legalization at the Executive Power Bodies," which 
established an inter-agency working group and procedures 
for phasing out illegal software at government agencies 
through annual inventories.  The GOU signed a software 
legalization agreement with Microsoft Corporation in June 
2005.  However, Microsoft cancelled this agreement in June 
2006, as the GOU had taken little to no action to implement 
it (ref H).  Valeriy Lanovenko, General Manager of 
Microsoft Ukraine, explained that Microsoft had seen only 
12% government compliance with the agreement in 2005 and an 
additional 3% in 2006.  Lanovenko told Econoff in October 
2006 that the GOU officially estimated the piracy level for 
government software at 78%, down only marginally from 84% 
in 2005.  Microsoft recommends that a single government 
agency be named to take responsibility for the issue, and 
cites this problem as a major deterrent to Microsoft in 
considering further investment in Ukraine. 
13. (U) SDIP and the Ministry of Internal Affairs are 
steadily improving enforcement.  Statistics for 2006 show a 
dramatic increase in IPR cases filed and in seizures.  The 
Ministry of Internal Affairs reported that there were 812 
IPR-related criminal investigations in 2006, up 68% from 
2005.  462 cases went to the courts (up 235% from 2005) and 
115 led to convictions (up 311% from 2005).  Roudyk, from 
the Internal Affairs Ministry's IPR Department, credited 
the February 2006 Criminal Code amendments for the improved 
figures.  The 2006 amendments significantly lowered the 
required threshold (from roughly 5,200 USD to 700 USD) 
needed to pursue criminal prosecution and increased 
penalties, including up to seven years imprisonment for 
major offenders (ref K).  According to SDIP, in 2006 the 
GOU seized a total of 1.3 million items, up from 850,000 
items in 2005, and destroyed a total of 90,000 items, down 
from 100,000 in 2005. 
14. (U) The GOU set up an IPR Coordinating Council in 2003 
to enhance interagency communication among the roughly 
eight government bodies responsible for IPR.  Deputy Prime 
Minister Dmitriy Tabachnyk will now chair this IPR 
Coordination Council in an effort to give it more clout to 
address problem areas.  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 
three times in 2006 and in February, 2007 (refs B, C, I, 
and J). 
15. (U) SDIP has just one state inspector per oblast and 
must enlist the assistance of the Internal Affairs Ministry 
to file criminal cases.  In its own Special 301 submission, 
SDIP recognized that enforcement at the local level, 
especially in regions not well covered by inspectors, is 
more difficult.  SDIP also noted that local oblast 
governments often do not properly coordinate their 
enforcement efforts. 
16. (SBU) Lebid, head of the Ministry of Internal Affairs' 
IPR Department, complains that too many IPR cases result 
only in small fines, ranging from 1700-3400 UAH (340-680 
USD).  The courts often decide to penalize violators with 
"correctional works," usually paying 20 percent of one's 
salary for one to five years.  In other cases, the courts 
decide on "imprisonment" but with delayed sentencing, 
similar to probation in the U.S. system.  Lebid has argued 
that some of these rulings were not envisaged under the 
law, and were the result of the judges' own discretion.  No 
one has yet served jail time for IPR crimes partly due to 
actions of the prosecutor general and judges, who often 
lack expertise on IPR issues and do not always take these 
crimes seriously.  The Ministry of Internal Affairs had 
requested in 2006 that the Supreme Court hold a 
coordination session on IPR crimes to issue clearer 
instructions to the lower courts, but this session did not 
yet take place. 
17. (U) January 1, 2004 amendments to the Customs Code 
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.  The State Customs Service Order No. 1061 of 
February 2005 authorized the establishment of special 
intellectual property rights subdivisions at ports of entry 
and inland customs points.  The Customs Service reported 
that as of February 15, 2007, 30 of these subdivisions had 
been established at Ukrainian customs points. 
Notorious Markets - Petrivka 
18. (SBU) 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 become 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, and software.  In 
2005, the GOU undertook "Operation Intellect," an 
enforcement action meant to drive the pirates out of 
Petrivka.  The impact of Operation Intellect and subsequent 
enforcement actions has only been temporary, however.  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. 
19. (U) Ministry of Internal Affairs officials nonetheless 
claim to be making headway.  The Ministry's IPR Department 
formed an ad-hoc working group among Kyiv authorities in 
May 2006 to focus on Petrivka.  During eight months of 
operation, this working group oversaw 320 IPR-related 
investigations, which resulted in 290 administrative 
penalties (usually fines) and 28 criminal cases, nine of 
which have already brought convictions.  Police seized 
100,000 units of pirated material; 40,000 were destroyed in 
September 2006, while the rest is scheduled for destruction 
in February.  Iling noted that law enforcement bodies have 
achieved some limited success in persuading Petrivka Market 
management to revoke the licenses for stalls known to sell 
pirated material.  Roudyk told Econoff on February 9 that 
the Internal Affairs Ministry believes these efforts are 
having a significant impact, reducing the number of pirated 
goods in Petrivka by half. 
Internet Piracy 
20. (U) Internet piracy is a nascent problem in Ukraine. 
Many Ukraine-based websites offer pirated material for 
download with the full knowledge of their Internet Service 
Providers (ISPs).  Industry groups estimate that out of the 
roughly 400 ISPs in Ukraine, 150 of them support websites 
offering pirated material.  Microsoft Ukraine has 
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. 
21. (U) Ministry of Internal Affairs officials have pointed 
to some successes in stopping the mail order piracy, but 
admit that file sharing/downloading is much more difficult. 
GOU representatives have argued that Ukrainian law does not 
give law enforcement officials clear authority to shut down 
websites, although sometimes ISPs can be persuaded to do 
so.  In order to go after the pirates invol
ved, however, 
the GOU needs rights holders to file claims for damages. 
At a meeting of the IPR ECG on February 6, industry and 
SDIP agreed to begin jointly monitoring suspected pirate 
sites (ref B). 
Training Needs 
22. (U) The GOU has demonstrated the political will to 
combat IPR violations, but does not always possess the 
technical competency required.  To assist the GOU in its 
efforts, the Commercial Law Development Program (CLDP) has 
conducted a series of IPR-related seminars, Post has 
utilized USPTO's Global Intellectual Property Academy, and 
industry has chipped in to provide expertise.  Post 
appreciates Washington's consideration for an enforcement- 
related training session in Ukraine, with translation for 
non-English speakers.  Ukraine would especially benefit 
from training in the following two areas: 
-- Judges/Prosecutors: Numerous industry reps, and even the 
Ministry of Internal Affairs, have repeatedly described the 
courts as the weakest link in enforcement efforts.  In 
addition to systemic problems (i.e. corruption), judges and 
prosecutors often lack the required technical background on 
IPR issues. 
-- Internet Piracy: Internet piracy is a growing problem, 
and the GOU admits that it lacks the technical competency 
to properly address it (ref B). 


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