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February 21, 2008

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Reference ID Created Released Classification Origin
08KYIV404 2008-02-21 13:11 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

DE RUEHKV #0404/01 0521311
P 211311Z FEB 08

E.O. 12958: DECL: N/A 
REFS: A) STATE 9475 
      B) 2007 KYIV 2865 
      C) 2007 KYIV 2385 
      D) 2007 KYIV 2260 
      E) 2007 KYIV 1888 
      F) 2007 KYIV 1452 
      G) 2007 KYIV 1450 
      H) 2007 STATE 154669 
      I) 2007 STATE 55928 
      J) 2007 KYIV 1417 
      K) 2007 KYIV 1205 
      L) 2007 KYIV 348 
      M) 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 continues to 
move in the right direction on Intellectual Property Rights 
(IPR) protection.  Embassy also recommends that the USG 
develop a roadmap with the GOU for progress on one or more 
troublesome issues, such as the notorious Petrivka open air 
market in Kyiv. 
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 has significantly improved and is 
now almost fully 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; the Petrivka market 
in Kyiv is the most notorious.  Industry reps estimate 
piracy levels for music and video at 60%, and for computer 
software at 84%.  The transshipment of pirated and 
counterfeit goods, particularly optical discs produced in 
Russia, is a major challenge for Customs officials.  The 
GOU has been slow to respond to the growing threat of 
internet piracy, and government procurement/use of 
unlicensed software remains a problem.  Courts continue to 
hand down lax sentences for IPR infringers.  End Summary 
and Recommendation. 
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 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 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.  Alexander Kotlyarevsky, IFPI Deputy 
Regional Coordinator for the CIS, told Econoff on February 
11 that the IFPI's forensic specialists have not detected 
any pirated discs believed to be manufactured in Ukraine 
since the 2005 amendments to the OD law.  (Note: As a sign 
of progress in recent years, IFPI decided to close its 
representative office in Ukraine in 2007 and is now working 
through domestic music industry organizations.  End Note.) 
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 
KYIV 00000404  002 OF 006 
detect any signs of pirate production during their 
inspections in 2007.  Serhiy Lebid, Deputy Head of the 
Internal Affairs Ministry's Economic Crimes Department, 
told Econoff on February 15 that the vast majority of 
pirated ODs in Ukraine come from Russia and that GOU 
investigators have uncovered major shipping routes, 
particularly by rail, originating in Russia. 
5. (SBU) The hologram sticker program (ref M) 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 hurdles, 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 
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. 
--------------------------------------------- - 
International Obligations and TRIPS Compliance 
--------------------------------------------- - 
International Agreements 
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. 
Recent Legislative Improvements 
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 compliance with Article 58 of the TRIPS Agreement. The 
Rada passed two laws related to data protection in order to 
comply with Article 39.3 of TRIPS (see below).   Finally, 
the Rada also passed an amendment to the law "On Protection 
of Rights for Indications of Origin of Goods," and the GOU 
plans to introduce a second amendment in order to bring 
Ukraine's geographical indications (GIs) legislation into 
full TRIPS compliance.  In May 2007, the Rada passed 
amendments to the Civil and Criminal Codes to give the GOU 
authority to destroy counterfeit goods, although the GOU 
still lacks the technical capability to make full use of 
this authority (ref G).  (Note: The GOU already had the 
authority and capability to destroy pirated ODs.  End 
Collective Management Problems 
8. (SBU) Ukraine's system of collective management 
functions imperfectly.  Rights holders have complained 
bitterly 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 (ref D and previous).  The music industry 
reports that only about 5-7% of the market is properly 
paying performance royalties.  SDIP's initial draft 
amendment to the Copyright Law failed to address industry's 
KYIV 00000404  003 OF 006 
concerns on royalty collecting societies, but the draft is 
now being reworked.  (Note: The GOU has promised to provide 
the USG a copy of the draft law for comment once it is 
finalized, but before it goes forward in the Rada.  End 
note.)  Legitimate rights holders have had opportunities to 
express their views to the GOU via the U.S.-Ukraine 
Enforcement Cooperation Group, the EU-Ukraine IP Dialogue, 
and GOU-hosted public events.  SDIP's revocation of the 
license of collecting society Oberih in 2007 (ref L) was 
welcomed by music industry representatives who claimed 
Oberih illegitimately collected fees. 
Data Protection 
9. (U) 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 but industry reps continue to 
complain of a lack of transparency by GOU bodies 
responsible for granting market approval for generic drugs. 
These concerns were the focus of a November 2007 meeting of 
the U.S.-Ukraine IPR Enforcement Cooperation Group (ref B). 
Counterfeit Goods 
10. (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.  Volodymyr Dmytryshyn, Deputy Chairman of SDIP, 
told attendees of a conference on February 19 that the GOU 
believed most counterfeit products, especially apparel, 
were imported from China, with counterfeit pharmaceuticals 
coming more from India, and IPR-infringing food products -- 
from Turkey. 
Use/Procurement of Government Software 
11. (SBU) In March 2004, the GOU launched a campaign to 
phase out illegal software at government agencies through 
annual inventories, and the GOU subsequently signed a 
software legalization agreement with Microsoft in June 
2005.  Microsoft cancelled this agreement in June 2006, 
however, as the GOU had taken little to no action to 
implement it.  Industry estimates put the piracy level for 
government software at 75%, down slightly from 78% in 2006. 
Daniil Klyuchnikov, Anti-Piracy Manager for Microsoft 
Ukraine, told Econoff on February 11 that the GOU had thus 
far failed to demonstrate the political will necessary to 
tackle the problem, but that Microsoft was hoping to 
reengage with the government soon.  The Business Software 
Alliance (BSA) established a presence in Ukraine in 
February to expand its anti-piracy efforts. 
Seizures/Prosecutions Increasing 
12. (U) SDIP and the Ministry of Internal Affairs are 
steadily improving enforcement.  Statistics for 2007 show a 
continuing, dramatic increase in IPR cases filed and in 
seizures.  The Ministry of Internal Affairs reported that 
there were 1,058 IPR-related criminal investigations in 
KYIV 00000404  004 OF 006 
2007, up 30% from 2006.  635 cases went to the courts (up 
37% from 2006) and 186 led to convictions (up 62% from 
2006).  Law enforcement officials have credited the 
February 2006 Criminal Code amendments for the improved 
figures.  The 2006 amendments significantly lowered the 
equired 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.  The number of IPR-related administrative 
offenses has also continued to grow and stood at 6,709 for 
2007.  According to official statistics, in 2007 the GOU 
seized a total of 1.4 million pirated audio/visual items 
(mostly optical discs), worth an estimated 5.4 million USD 
and up slightly from 1.3 million items in 2006.  In 2007 
the GOU also seized an estimated 1.4 million USD worth of 
counterfeit and trademark-infringing goods. 
13. (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 three times in 
2007 (refs B, G, and L).  (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 Internal Affairs Ministry to 
file criminal cases. 
Courts Still a Problem 
14. (SBU) The Ministry of Internal Affairs complains that 
too many IPR cases result only in small fines, ranging from 
1700-3400 UAH (340-680 USD) for criminal cases.  The 
average fine for administrative cases in 2007 was only 250 
UAH (50 USD).  For all criminal convictions in 2007, the 
courts penalized 27% of violators with fines and 20% with 
"correctional works," which usually consists of paying 20% 
of one's salary for one to five years.  In 53% of cases, 
the courts decided on "imprisonment" but with delayed 
sentencing, similar to probation in the U.S. system.  No 
one has yet to serve jail time in Ukraine for IPR crimes. 
Viktor Moskalenko, Deputy Chairman of the High Commercial 
Court, and Mykola Baliuk, Judge of the Supreme Court, have 
separately told Econoff that 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.  Forty 
judges have participated in USG-sponsored IPR training 
seminars held in Ukraine since the beginning of 2007 (ref 
F), and another five have traveled, or will soon travel, to 
Washington for training at USPTO's Global Intellectual 
Property Academy.  Post intends to continue these efforts, 
largely thanks to INL's IPR Enforcement Training Funds 
Program (refs H-J).  End note.) 
15. (SBU) The Ministry of Internal Affairs had requested in 
2006 that the Supreme Court hold a coordination session on 
IPR crimes to issue clearer guidelines to the lower courts, 
but this session did not yet take place.  Baliuk told 
attendees of a USG-sponsored seminar on February 13 that 
the Supreme Court was planning to issue a resolution on IPR 
as part of its upcoming Plenary Session to help clarify 
some procedural questions. 
16. (SBU) In what at the time appeared to be a major step 
forward, in September 2007 local record company Honest 
Music won a landmark civil court case against the owners of 
the internet site, considered the largest 
Ukrainian source of pirated music online (ref C).  The 
ruling forced to pull all of the tracks from Honest 
Music's catalogue off of the download site and to pay 
damages.  The site owners twice appealed, however, and in 
February the initial decision against was overturned 
on the grounds that Honest Music was unable to prove itself 
the rights holder of the music in digital format.  (Note: 
See below for more on internet piracy.  End note.)  Vadim 
Koktysh, Director of Honest Music, told Econoff on February 
19 that he strongly suspected a bribe had been paid to 
obtain this court decision, and that a Member of Parliament 
with ties to had personally intervened on behalf of 
KYIV 00000404  005 OF 006 
the site's owners. 
17. (U) 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.  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. 
Notorious Markets - Petrivka 
18. (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 become a 
symbol of piracy in Ukraine (ref E).  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, including stepped-up 
raids before this year's New Year and Christmas holidays, 
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 
Internet Piracy 
19. (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).  Industry groups 
estimate that out of the roughly 400 ISPs in Ukraine, 150 
of them support websites offering pirated material. 
Microsoft has also complained that Local Area Networks 
(LAN), some of which cover entire Ukrainian cities, allow 
for widespread software piracy (ref K).  Another common 
type of Internet piracy is on-line mail order sites. 
20. (SBU) 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 (ref E).  GOU representatives have argued &#x00
0A;that Ukrainian law does not give law enforcement officials 
clear authority to shut down websites, although sometimes 
ISPs can be persuaded to do so.  Yuriy Shafray, Head of the 
Ministry of Internal Affairs' IPR Division, told us on 
February 14 that law enforcement had succeeded in shutting 
down some 43 pirate sites in 2007 by working informally 
with ISPs.  (Comment: Because they were shut down without 
going through the courts, however, many of these sites may 
have reappeared on a new ISP or in a modified format.  End 
Comment.)  No criminal cases involving file downloading 
went to court in 2007, although the Interior Ministry's 
Lebid told Econoff on February 15 that the GOU does plan to 
bring one or two cases in the near future.  At a meeting of 
the IPR Enforcement Cooperation Group in February 2007, 
industry and SDIP agreed to begin jointly monitoring 
KYIV 00000404  006 OF 006 
suspected pirate sites (ref L). 
Comment: Pushing for a Breakthrough 
21. (SBU) In terms of IPR enforcement, the situation in 
Ukraine today is hardly recognizable from that which 
existed only a few years back.  The GOU has shut down 
illegal production and has a corps of devoted professionals 
across several agencies working to improve enforcement. 
If the GOU can make progress on some of the most 
troublesome outstanding issues -- open air markets, 
transhipment, internet piracy, and government software -- 
it will be time to consider dropping Ukraine from the 
Priority Watch List.  Post recommends that Washington 
consider developing a roadmap with the GOU on one or more 
of these issues to encourage a breakthrough.  Tackling the 
open air markets, perhaps at first focusing exclusively on 
the notorious Petrivka market, might be the most 
appropriate subject for such a roadmap, as the USG has 
already done something similar for neighbouring countries. 
Post will work with Washington to draft a road map proposal 
septel.  End comment. 


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