Insightful Views
In accordance with the Agreement on Virtual Reverse Flow of Natural Gas ratified by the Ukrainian Parliament, Ukraine gets an opportunity to provide the option of virtual trading in natural gas without its cross-border physical movement. Given the absence of agreements, which regulate the virtual reverse flow of natural gas with the Russian Federation, our Eastern neighbor considers reversed gas as illegally expropriated. How would you comment on this situation?
Serhiy Yaroshenko,
Junior Associate, Kinstellar
Backhaul provides for reserving virtual transmission capacity and virtual reverse flow of natural gas. It enables the economizing of gas transmission costs, using the gas infrastructure on borders in full and, importantly, ensuring efficient gas supply. Based on interconnection agreements, it requires the exchange of information on different indices. These include gas flows, directions, capacity, schedules, customers, and recipients. Currently, Ukrtransgaz has only signed an interconnection agreement with Hungary’s FGSZ, and has no available information in respect of the above parameters, which Gazprom should have disclosed. In fact, the import of Russian natural gas from the European Union by virtue of backhaul is in compliance with undertakings by Ukraine accorded by the EU’s Third Energy Package.
The recently adopted Draft No. 3074 further enables backhaul transactions involving natural gas. It aims to facilitate customs clearance of virtual offsetting of natural gas and conforms to European energy legislation.
Arrangements between Gazprom and its European counterparts are based on dated long-term natural gas transmission contracts that, depending on the wording of such contracts, may not include the option of virtual trading in natural gas, without its cross-border physical movement. However, this fact should not automatically affect the legality of natural gas trading through backhaul, which meets European legislation and helps to efficiently use the European natural gas market.
On 14 February 2015, the governments of the United States and Ukraine signed the Air Transport Agreement (effective from 14 January 2016) that provides for an Open Skies regime. What kind of changes could be anticipated in the aviation sector?
Arseniy Herasymiv,
attorney at law, Ilyashev & Partners
On 14 February 2015, the governments of the USA and Ukraine signed the Air Transport Agreement. Let me express cautious pessimism about the signing of this document and its impact on the aviation services market in Ukraine for the following reasons.
First, it should be noted that the US air transportation market is quite specific. Its specific nature means that US carriers focus mainly on domestic transportation, air transportation in the American continent and transatlantic transportation to transit airports in London, Paris, Frankfurt and Amsterdam. The domestic market is dominated by strong European air carriers — aviation alliances. In addition, the US regulatory policy in the field of aviation safety and passengers rights is somewhat different from the European one. Thus, the domestic air market of Europe, and especially Ukraine’s, is hardly of interest for US carriers.
Turning to the Agreement signed, in particular analyzing its content in terms of rights granted to air carriers, it is somewhat declarative as it duplicates the provisions of the Convention on International Civil Aviation. However, some provisions deserve attention. In particular, according to the Agreement, any airline of the United States or Ukraine has the right to perform international air transportation in any part or parts without any restrictions regarding replacement at any point en route of type or number of aircraft operated, provided that, except for cargo transportation, with respect to departing aircraft, transportation beyond such point is a continuation of transportation from the territory of the country of origin of the aviation enterprise, and with respect to arriving aircraft — transportation to the territory of the country of origin of the aviation enterprise is a continuation of transportation from the point beyond the territory, where such point is located. It gets more interesting further on, as the abovementioned is not considered as authorization of the airline or airlines to take on board in the territory of the other party of passengers, luggage, cargo or mail carried for a fee and designated for transportation to another point in the territory of the other party. It means significant liberalization of cargo transportation, but only that performed without remuneration. It means transportation carried out by the state, and this can only be military or related transportation.
Therefore, in my opinion, the said Agreement was signed to facilitate for the USA air transportation of cargos intended for NATO military forces in Southern Europe and Turkey and, therefore, it will not influence the Ukrainian civil aviation market.
What would be the impact of the Act of Ukraine On Amending the Act of Ukraine On Protection of Economic Competition (regarding improvement of the efficiency of merger control system), No.2168a on the legal market? What demands could accrue after its enactment?
Alexander Tretiakov,
senior associate, Antika Law Firm
The adoption of the mentioned Act will definitely have an impact on Ukrainian law firms. Since the main goal of the Act is to increase the financial threshold in cases when the concentration will need a permit, this will doubtless decrease the number of potential clients for law firms. Taking into account the comparatively low number of M&A transaction in recent years, the competition for any potential client in this sphere will be fierce.
At the same time, the need for highly-qualified specialists may raise. This is connected to the fact that the amendments introduce a number of simplification procedures. In particular, the possibility of shortened application consideration within 25 days (instead of the usual 45) cannot be underestimated by the potential parties of the M&A. The same can be said about the possibility to negotiate with the AMCU the undertaking of additional obligations in cases when the Committee discovered a potential threat to the competition, thus granting a permit with an obligation instead of a simple refusal.
In both cases the law firm will need not only to correctly identify the possibility for using such procedures, but to accurately prepare the application in accordance with AMCU requirements. Otherwise, the firm’s clients won’t be able to benefit from the new possibilities granted by the Act.
On 16 February 2016 the Act On Amending to some Acts of Ukraine (with respect to certain provisions), (Draft No.2319) was adopted. The Act promotes a competitive, transparent and professional privatization of state enterprises in 2016. How do you evaluate the norms of the law?
Oleg Malskyy,
partner, AstapovLawyers
I believe that it is necessary to bring all legislation on privatization into line — both legislation and regulations. State-owned Ukrainian enterprises are attractive to foreign investors, but the investor understands that there are so many risks that nobody can appreciate them to oppose. For example, suppose the situation when a Ukrainian State-owned enterprise discovers onerous contracts containing loopholes with huge penalties. By purchasing this state enterprise, the investor realizes that there are no ways to improve this, or to maneuver these contracts and any cumbersome terms.
Accordingly, I believe that it is necessary to envisage the possibility after the change of the owner of a state-owned enterprise to provide legal permission for such an investor, unilaterally, without penalty, to break contracts concluded on the basis of unfair, non-market conditions. This would have the discretion to select contractors able to lop withdrawals from enterprises for contract and just choose contractors, based on their opinion. Improvements would raise value of state enterprises. But it would also raise the search for foreign investors to take part.
Another problem that became apparent in the privatization process is the accountability of state enterprises to various ministries, and ths is not excluded by the state Property Fund. So, for example, with the privatization of the management of Centrenergo, the management of Centrenergo should pass from the Ministry of Fuel and Energy to the State Property Fund.
It is clear that this process is an extremely bureaucratic one and with a high level of resistance from a specific Ministry to hand over "its" asset to the State Property Fund. Accordingly, it would also be nice to facilitate this process with a view to privatization movement forward.
Changes in legislation on privatization have, in general, assisted a positive trend. So, in my opinion, Draft No.2319 rightly believes that it is necessary to cancel the sale of 5-10% of shares for pricing purposes. It is clear that the sale of such shares may not be considered binding on the pricing of the controlling company. The controlling interest will always cost more. Even one share under certain conditions can cost much more than 50% if it gives control over a company. Accordingly, this is the real situation in the mechanism of possible abuse and understating of prices in general.
If we talk generally about the mechanism for evaluating publicly-owned facilities, the question is rather difficult and complex. For example, any investor, evaluating a facility cannot currently adequately understand its true profitability because quite a sizable part of the profit is not provided through the distribution of dividends or profits and can, by concluding agreements with related persons and through contracts, reduce the tax burden but not produce a civilized way of distributing dividends.
According to the Draft Act On State Support of Cinematography in Ukraine No.3081-ä (prepared for its second reading), any legal entity or natural person that is named as a copyright holder can call on the host to delete the content from the pointed website. What measures on illegal distribution of content in the Internet could be suggested for the second reading?
Oleksandr Mamunya,
partner, AEQUO, Patent and Trademark Attorney
For quite a few years now copyright holders suffering significantly from infringements in the Internet and intellectual property professionals protecting the former have been talking about the necessity to establish clear rules for copyright protection in the said domain. Moreover, the community has realized that to make the protection process really effective intermediaries like Internet service providers (including hosting providers) (ISPs) should also be somehow engaged into the said protection. This idea has come to the minds of Ukrainian intellectual property practitioners, inter alia, in light of successful foreign regulations for copyright protection in the Internet engaging ISPs and the respective practice by foreign colleagues. This idea looks very efficient since no one can physically influence content in the Internet more than ISPs storing that content on their own hardware. Moreover, the said approach should be implemented in Ukraine according to the Association Agreement.
The notice-and-takedown mechanism for the effective protection of IP rights in the Internet should, in my opinion, be based on a number of sequential stages, the merit of which should be the following:
(1) Negotiations between right holder and assumed infringer; and if there is a failure to agree
(2) Negotiations between right holder and ISP who should disable the controlled content either temporarily or finally (if the assumed infringer does not argue); and if the assumed infringer argues
(3) The rights holder brings a court action to prove the infringement and disable the infringing content finally.
Any of the above parties should be liable for failure to prove their statements.
The Draft Act On Amendments to Certain Legislative Acts of Ukraine regarding Copyright and Related Rights regulates relations between an employer and employee regarding IP rights on IP objects. What are the advantages of this initiative? What provisions still need to be improved?
Mykyta Polatayko,
IT group coordinator, Sayenko Kharenko
The Draft Act On Amendments to Certain Legislative Acts of Ukraine regarding the Copyright and Related Rights, No.3692 substitutes Draft Acts No.1812-1 and No.2447, which have been the subject of discussions in legal periodicals. It also resolves the conflict between the Civil Code and the Copyright and Related Rights Act regarding the ownership of copyright of works for hire. Copyright belongs to the employer (or customer) if a work is created at his request, unless otherwise stipulated in the agreement. Moreover, Draft No. 3692 treats the moment of the work’s creation as the moment of the copyright assignment; and — as icing on the cake — it legalizes public licenses. Draft No.3692 is also aimed at preventing corruption deals when a state-owned enterprise pays for software creation but does not receive the right to use it as IP.
Approval of Draft No.3692 would exclude further reasons for worry on the part of investors and clients about potential IP disputes and significantly reduce the efforts for documenting the copyright. In such case, online services would become entitled to collect and distribute photos, videos, software, etc. via the Internet without signing hard copies of license agreements. It will enable the use of works available on terms of Creative Commons, Apache and other free public licenses.
However, there is still room for improvement. For example, Draft No.3692 is rather ambiguous about the situation when a service provider does not receive the copyright from the authors. In addition, if the public license does not specify its term, it will expire in five years in accordance with the general rule regarding license agreements.
According to Draft Act No.2696, which introduces legal securing of transparency for database and registration procedures, legislators impose publication of all trademark applications in open electronic databases. Will it procure more effective control of the import and sale of goods? What kind of difficulties could importers face?
Tetiana Kheruvimova,
senior associate, KPMG in Ukraine
Draft Act No.2696 was tailored to ensure the harmonization with the EU–Ukraine Association Agreement as the latter provides for an opportunity for a rights holder to lodge objections against applications for trademark registration. Clearly, to file an objection, one should first be informed about the issue. Thus, the Draft prescribes the obligation to maintain an electronic database and make the information about the trademark applications publicly available.
The Draft was developed in 2015 when the robust framework to introduce sucha database was unavailable. However, Ukrpatent acted proactively and made such information publicly available on its website on a free of charge basis from October 2015. Under the Draft, examination of the application materials itself will be provided for a charge. This is reasonable to go behind the application and pay when identifying a specific one, which may infringe your rights.
The Draft enables right holders to be informed about the intention of others to encroach on their rights and to use remedies at this early stage. It also helps to prevent a situation when unfair agents register trademarks which are similar to currently existing ones, but with minor differences, obtain a certificate and further lodge an application to a customs authority and block imports.
The authors of the Draft Act No. 2696 are proposing to make changes to the Act of Ukraine On Protection of Rights in Marks for Goods and Services in the event of ensuring the national principle of exhaustion of trademark rights. How can it affect the investment attractiveness of the Ukrainian market?
Ihor Konopka,
associate, FCLEX Law Firm
Currently, the On Protection of Rights in Marks for Goods and Services Act establishes the principle of exhaustion of rights, but at the same time it does not determine the type of such principle — international or national. This results in different interpretations of the rule stated in paragraph 6 of Article 16 of this Act.
Draft Act No.2696 excludes any doubts related to the above-mentioned problem and enshrines the national principle of exhaustion of trademark rights directly. If this draft is passed, the following provision will be effective: even if the products have been put on the market in the territory of another country, their import and sale in Ukraine can only take place with the consent of the trademark owner or an authorized person.
On the one hand, the proposed amendment can contribute to the investment attractiveness of Ukraine, because the national principle of exhaustion of rights implies an increase in the level of protection of trademark owners’ rights by directly prohibiting parallel imports. On the other hand, the national principle can lead to higher prices for some products due to mandatory consideration of license fees in pricing.
In general, such a proposal on the part of Ukrainian lawmakers looks quite strange when taking into account the possibility for Ukraine under the Association Agreement to establish its own regime of exhaustion of IP rights, in particular the international regime, which is supported by recent court practice.
