Parallel Imports Officially Authorized in Ukraine, But Not for All Goods

In November, 2019, amendments to the Customs Code of Ukraine regarding the protection of intellectual property rights when moving goods across the customs border came into force. The principle of international exhaustion of rights was officially introduced into Ukrainian legislation with this Law.

Previous System

Previously, Ukraine’s legislation did not explicitly authorize either an international or national principle of exhaustion of IP rights. Under the previous Customs Code, goods could be suspended at the border on the basis of the Custom Register, which allowed rights owners to submit information about their IP rights. If trademark or patent information was on the register, and the goods were being moved by someone other than an official representative, the customs officer could suspend the goods and ask the right owner to consent to their import. The IP rights owner could then initiate further proceedings or consent to clearance of the goods. Even under the best scenario for the importer, the goods would be detained at the border for at least 10 days.

For perishable goods, this could result in a loss of cargo. In addition, the right holder could initiate a trial and the delay might last months. Furthermore, a phenomenon had developed in which so-called patent trolls had begun patenting car tires, nails and other common goods in order to blackmail legitimate importers. As in any case of legal uncertainty, this led to business conflicts, corruption, and general deterioration of the business climate.

The New Regime

The Amendments to the Customs Code eliminate this problem and improve the mechanism for combating counterfeit products on the border. In particular, Ukraine has brought its legislation into accordance with the provisions of Regulation (EU) 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs enforcement of intellectual property rights.

The document defines such terms as ‘counterfeit goods’, ‘pirated goods’, and ‘goods suspected of infringement of intellectual property rights.’ Thus, at the customs post, the clearance of goods can be suspended only if the inspector has a suspicion that the goods are counterfeit.

The types of intellectual property rights that can be entered into the Customs Register include:

• copyright and related rights;
• patents for inventions;
• patents for industrial designs;
• trademarks;
• geographical indications;
• semiconductor layout designs;
• medicines and plant protection products with supplementary protection certificates.

Although utility models can be patented in Ukraine, they were excluded from this list.

Special Attention to Pharmaceuticals

The addition of pharmaceutical products to the list is significant. If a drug is registered as a medicinal product in Ukraine, parallel importation now becomes nearly impossible. The prohibition does not apply to goods for personal needs worth up to EUR 1,000 while moving through an airport post and up to EUR 500 at other customs posts.

As to pharmaceutical drugs, these are the only type of goods for which an import license is required in Ukraine. Additionally, the Ukrainian parliament recently strengthened criminal liability for falsification of medicines. The deliberate production, supply and sale of falsified medical products, active substances, fillers, components, or other materials can result in 5 to 8 years imprisonment, or even life imprisonment with confiscation of property.

Possible Measures at Customs

If a customs officer suspects goods are infringing IP rights, such goods can be suspended for clearance, their marking may be changed, or they may be destroyed. Small consignments of goods (up to three units, or weighing up to 2 kilograms), which can be moved by international postal and express mail, may also be destroyed.

Products that are intended for the production of pirated or counterfeit goods will also be suspended and destroyed. To assist customs officers in detecting counterfeit goods, IP rights owners can submit information about their intellectual property free of charge into the Custom Register (including providing additional materials describing the characteristics of counterfeit goods). The customs officer can also use additional information resources.

The amendment gives IP rights owners less leverage over unofficial merchants or competitors via the Customs Register of Intellectual Property Rights. However, this does not mean that the official distributor will no longer be able to terminate parallel imports legally. There are other tools for this, such as, for instance, including terms in agreements with official distributors that indicate only authorized companies have a right to sell the goods under the designated trademark in the territory of Ukraine, and taking action against unauthorized distributors via the Antimonopoly Committee and/or in the courts. The amendments are also not a silver bullet for counterfeit goods, as fake products can still outsmart customs agents and may still be produced inside of Ukraine. These amendments mean that the struggle at the external borders simply moves inland to law enforcement agencies, the Antimonopoly Committee, and the courts.

Image Source: Deposit Photos
Photography ID: 179279470
Copyright: Ivanov