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March 2, 2009

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Reference ID Created Released Classification Origin
09KYIV399 2009-03-02 11:08 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

DE RUEHKV #0399/01 0611108
P 021108Z MAR 09

E.O. 12958: DECL: N/A 
REFS: A) STATE 8410 
      B) KYIV 360 
      C) KYIV 292 
      D) 2008 KYIV 2460 
      E) 2008 KYIV 2265 
      F) 2008 KYIV 1411 
      G) 2008 KYIV 1056 
      H) 2008 KYIV 821 
      I) 2008 KYIV 503 
      J) 2008 KYIV 456 
      K) 2007 KYIV 348 
1. (SBU) Summary and Recommendation: Embassy recommends 
that Ukraine remain on the Special 301 Watch List.  Ukraine 
has continued to make progress on IPR enforcement and 
therefore does not warrant a return to the Priority Watch 
List, but the GOU still has work to do before we should 
consider removing Ukraine from the Watch List altogether. 
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 is now 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.  Industry reps 
estimate piracy levels for music and video at 60 percent, 
and for computer software at 84 percent.  The transshipment 
of pirated and counterfeit goods, particularly optical 
discs produced in Russia, is a major challenge for Customs 
officials.  Government procurement/use of unlicensed 
software remains a problem.  Courts continue to hand down 
lax sentences for IPR infringers. 
3. (SBU) Some progress was made during the year in 
addressing these remaining problems.  The GOU established a 
special Music Industry Working Group that helped improve 
the regulatory environment for royalty collecting 
societies.  The courts ruled that the National Radio 
Company must pay royalties to rights holders.  Police 
focused more attention on internet piracy, stepping up 
investigations of suspected pirate sites, and shutting a 
few down.  Police also launched the first criminal case 
involving file downloading.  Law enforcement officials 
uncovered a smuggling ring that imported pirated CDs and 
DVDs by rail from Russia.  End Summary and Recommendation. 
TRIPS Implementation 
4. (U) In the process of joining the WTO, which occurred on 
May 16, 2008, Ukraine made significant changes to its legal 
base in order to achieve TRIPS compliance.  GOU officials 
have repeatedly stated, and experts generally agree, that 
Ukrainian legislation is now in line with TRIPS, although 
of course improvements could be made.  The GOU plans to 
introduce amendments to Ukraine's law on geographical 
indications (GIs) to address some outstanding complaints 
from the EU.  Although the Civil and Criminal Codes now 
give the GOU authority to destroy all counterfeit/pirated 
goods, the GOU still lacks the technical capability to make 
full use of this authority, and some industry reps have 
suggested that certain laws and regulations should be 
amended to clarify the government's authority to destroy 
(ref C). 
Optical Media Piracy 
5. (U) Ukraine has one of the most comprehensive optical 
media laws in the world, regulating nearly every step in 
KYIV 00000399  002 OF 006 
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 2005, improved inspection procedures and increased the 
penalties that apply to violations. 
6. (SBU) Ukraine is no longer a major source of pirated 
optical media.  Ignat Berezhny, Director of the IFPI- 
affiliated Ukrainian Association of the Music Industry, 
confirmed to Econoff on February 17 that industry 
specialists have not detected any pirated discs believed to 
be manufactured in Ukrainian OD plants since the 2005 
amendments to the OD law.  Berezhny noted that small scale 
CD-R burning operations remain common, however.  Berezhny 
added that about 80 percent of pirated discs in Ukraine are 
imported from Russia.  The State Department for 
Intellectual Property (SDIP) coordinates inspections of t
seven OD plants operating in Ukraine, and GOU officials 
reported that they did not detect any signs of pirate 
production during their inspections in 2008. 
7. (U) In October 2008, PM Yulia Tymoshenko created a 
governmental Music Industry Working Group tasked to draft 
legal and regulatory amendments of concern to music rights 
holders.  Industry reported that the Working Group 
"facilitated and led to a series of high-level meetings 
with key Government officials resulting in formal and 
informal cooperation."  The Working Group has already shown 
some positive results, particularly on collective 
management (see below). 
8. (U) The hologram sticker program (ref I) 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, 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 
officials 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.  The GOU has drafted an 
amendment to the Law "On distribution of audiovisual works, 
phonograms, videograms, computer programs, and databases" 
that would partially address industry's concerns by 
requiring that all information concerning applications for 
hologram stickers be made publicly available on SDIP's 
official website. 
Collective Management Problems 
9. (U) Ukraine's system of collective management functions 
imperfectly.  Rights holders have complained 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, and 
that many local businesses simply do not pay at all.  The 
music industry reports that only about 7% of the market is 
properly paying performance royalties. 
10. (U) The GOU has recently made some progress in 
addressing collective management problems, however.  SDIP's 
2007 revocation of the operating license of rogue 
collecting society Oberih (ref K), hailed by industry reps 
as a major step forward, was upheld in 2008 both by the 
Court of First Instance and the Administrative Appeal 
Court.  In addition, the Music Industry Working Group 
created by PM Tymoshenko developed several regulatory 
amendments (to Cabinet of Ministers Resolutions and to an 
Order of the Ministry of Education and Science) designed to 
KYIV 00000399  003 OF 006 
neutralise rogue collecting societies by ensuring that only 
those organizations which formally represent the majority 
of rights in a specific sector will be allowed to collect 
under the principle of "extended licensing."  The changes 
went into effect on January 22, 2009.  Industry reps 
praised this move, saying it will "allow the societies 
supported by IFPI to strengthen their position in the 
market."  In addition, the Ministry of Interior in January 
2009 signed a Memorandum of Understanding on music piracy 
with the Ukrainian Association of the Music Industry, 
Ukraine's IFPI-affiliated industry association.  The 
agreement calls for the Ministry to cooperate with industry 
to systematically tackle music piracy issues. 
11. (U) Recently, industry reps have focused on the non- 
payment of broadcasting royalties by television and radio 
stations.  Here too there has been some progress, as the 
royalty collecting society Ukrainian Music Alliance (UMA) 
brought a successful case against the National Radio 
Company of Ukraine (the biggest state-owned radio 
broadcaster) within the Kyiv Commercial Court.  On December 
12, 2008, the court ruled that the National Radio Company 
had to conclude a music rights licensing agreement with 
UMA, although an appeal is still pending.  In addition, 
police opened a criminal case in early 2009 against several 
television channels in the western Rivne oblast for 
illegally re-broadcasting copyrighted material without 
paying royalties to the rights holders. 
Internet Piracy 
12. (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).  Internet piracy rates 
are near 100 percent (i.e. virtually all downloads of 
music, movies, or software are from illegal websites). 
Microsoft has also 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.  Vladimir 
Iling, head of the Ukrainian Anti-Piracy Association, which 
represents MPA in Ukraine, told Econoff on February 26 that 
Ukraine remains a source of "camcorded" movies (i.e. 
illegal tapings of movies made in Ukrainian movie theaters) 
that are then posted to pirate download sites hosted 
throughout the world.  Iling said that a draft law 
currently being considered by the GOU to make "camcording" 
a criminal offense was necessary to address this problem. 
13. (SBU) Serhiy Lebid, Deputy Head of the Interior 
Ministry's Economic Crimes Department, told a meeting of 
the American Chamber of Commerce on February 18 that the 
GOU recognized the dangers of internet piracy and was 
trying to adapt its enforcement strategies to this new 
threat.  Ministry of Interior officials previously had 
success only in stopping the mail order piracy and seemed 
unsure of how to address file sharing/downloading.  Police 
have complained that Ukrainian law does not give them clear 
authority to shut down websites, and they instead have to 
work with sometimes uncooperative ISPs to do so. 
14. (SBU) Some progress has been made, however.  On 
February 11, 2009, the Ministry of Interior issued a press 
release regarding a recent campaign focusing on online 
piracy.  The Ministry reported that it had investigated 71 
Ukraine-based websites and, working with ISPs, shut down 
five sites hosting pirated material.  (Comment: Because 
they were shut down without going through the courts, 
however, many of these sites could reappear on a new ISP or 
in a modified format.  End Comment.)  The Ministry of 
Interior also launched the first ever criminal case 
involving file downloading in 2008.  (Note: The GOU has not 
provided much information regarding this case, as it 
remains open.  We learned of the case from the
officer in the eastern city of Zaporizhya who was the 
primary investigator and happened to be a participant in a 
recent USG-sponsored training workshop (ref D).  End note.) 
KYIV 00000399  004 OF 006 
Data Protection 
15. (U) Ukraine has improved its protection of undisclosed 
test data, such as that from drug trials, from unfair 
commercial use (TRIPS Article 39.3).  After amendments made 
as part of WTO accession, Ukrainian law now provides a 
five-year period for the protection of undisclosed 
information in the course of registration of medical drugs 
and a ten-year period for agricultural chemicals.  The 
Association of Pharmaceutical Qearch and Development 
(APRaD), which unites local representatives of large 
international pharmaceutical companies, has said it is 
generally satisfied with the law, but industry reps 
continue to complain of a lack of transparency by GOU 
bodies responsible for granting market approval for generic 
drugs (ref G).  Post notes that the Pharmaceutical Research 
and Manufacturers of America (PhRMA) recommended that 
Ukraine not be listed on any of the Special 301 lists, 
indicating that there has been some improvement in this 
Counterfeit Goods 
16. (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.  GOU officials have said that they believe most 
counterfeit products, especially apparel, are imported from 
China, with counterfeit pharmaceuticals coming more from 
India, and IPR-infringing food products -- from Turkey. 
Use/Procurement of Government Software 
17. (SBU) The majority of GOU agencies, excluding those 
that handle sensitive national security or law enforcement 
material, continue to use unlicensed software on their 
computer systems.  Industry estimates put the piracy level 
for government software at about 75%.  The GOU launched a 
campaign back in 2004 to phase out illegal software at 
government agencies through annual inventories but has 
never followed through with the necessary funding. 
Microsoft cancelled a software legalization agreement with 
the government in 2006 as a result of noncompliance.  GOU 
officials, particularly from SDIP and the Ministry of 
Interior, regularly express their commitment to 
legalization, but complain that the government continually 
fails to provide the necessary funding.  With a severe 
budget crisis facing the government (ref B), we do not 
expect progress this year.  Nikola Mircic, Microsoft 
Ukraine Anti Piracy Manager, told Econoff on February 23 
that he appreciated the government's budget problems and 
would first push for legalization in Ukrainian educational 
institutions.  (Note: Most Ukrainian universities and high 
schools are public.  End note.)  Microsoft could offer 
software to educational institutions at a steep discount, 
said Mircic, making legalization relatively cheap.  Such a 
move would hopefully help generate momentum for a wider 
legalization effort. 
Seizures/Prosecutions Steady, Quality over Quantity? 
--------------------------------------------- ------- 
18. (U) After an explosion in the number of IPR-related 
investigations from 2005-2007, statistics from the Ministry 
of Interior for 2008 showed a leveling in terms of IPR 
cases filed and in seizures.  The Ministry of Interior 
reported that there were 985 IPR-related criminal 
investigations in 2008, down some 7% from 2007.  Out of 
those, 688 cases went to the courts (up 8% from 2007). 
During the first eight months of 2008, 120 cases resulted 
KYIV 00000399  005 OF 006 
in convictions, compared to 186 for all of 2007.  The 
number of IPR-related administrative offenses has remained 
steady at about 5,500 for 2008.  Police seized a total of 
1.1 million IPR-infringing goods, worth an estimated 19 
million UAH (about 2.3 million USD) and down somewhat from 
1.4 million items in 2007. 
19. (U) Serhiy Lebid, Deputy Head of the Interior 
Ministry's Economic Crimes Department, told a meeting of 
the American Chamber of Commerce on February 18 that law 
enforcement was now focusing more on the "end result" -- 
i.e. securing convictions of serious offenders -- rather 
than on opening as many cases and seizing as many items as 
20. (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 twice in 2008 
and once so far in 2009 (refs C, E, and H).  (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 Ministry of 
Interior to file criminal cases. 
Courts Still a Problem 
21. (SBU) The Ministry of Interior complains that too many 
IPR cases result only in small fines, ranging from 1700- 
3400 UAH (340-680 USD) for criminal cases.  No one has yet 
to serve jail time in Ukraine for IPR crimes.  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, through INL's IPR Enforcement Training Funds 
Program (refs F and J) and USPTO's Global Intellectual 
Property Academy.  End note.) 
22. (SBU) The Supreme Court has not held a coordination 
session on IPR crimes to issue clearer guidelines to the 
lower courts, and the lack of such guidelines has hurt 
enforcement.  Ministry of Interior officials continue to 
urge the Supreme Court to do so. 
23. (U) 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. 
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.  Vladimir Iling, 
from the Ukrainian Anti-Piracy Association, told Econoff on 
February 26 that police had recently
 filed a criminal case 
against a train conductor and a local supplier of pirated 
goods responsible for a major smuggling operation from 
Notorious Markets - Petrivka 
24. (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 long been 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, 
KYIV 00000399  006 OF 006 
and software.  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. 
International Agreements 
25. (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. 
Comment: GOU Holding Steady 
26. (SBU) In the aftermath of the 2004 Orange Revolution, 
Ukraine embarked on a major overhaul of its system of IPR 
enforcement, and went from the only country listed as a 
Priority Foreign Country in 2004 down to the Watch List in 
2008.  During that period, Ukraine successfully tackled the 
most critical IPR issues -- like shutting down pirated 
optical disc production and ensuring compliance with TRIPS. 
Ukraine, having completed this period of major reform, is 
now turning to more complicated and numerous IPR problems. 
Law enforcement is right to focus more attention on 
internet piracy and collective management problems, not 
just physical piracy.  The police are also right to focus 
more on gaining convictions of the criminals behind the 
trade, rather than just issuing fines for low-level 
dealers.  In short, continued progress on IPR enforcement 
should preclude Ukraine from returning to the Priority 
Watch List, but the GOU still has work to do before we 
should consider removing Ukraine from the Watch List 
altogether.  End comment. 


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