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Cablegate: Ukraine Ipr: 2008 Special 301 -- Post Input

VZCZCXRO3878
PP RUEHLN RUEHVK RUEHYG
DE RUEHKV #0404/01 0521311
ZNR UUUUU ZZH
P 211311Z FEB 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 5021
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUCPDOC/USDOC WASHDC
RUEHMO/AMEMBASSY MOSCOW 0308
RUEHWR/AMEMBASSY WARSAW 0185
RUEHPG/AMEMBASSY PRAGUE 0026
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 06 KYIV 000404

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/TPP/IPE - JBOGER/JURBAN
STATE PLEASE PASS TO USTR FOR PBURKHEAD/JGROVES
USDOC FOR ITA/MAC/OIPR - CPETERS
USDOC FOR 4231/ITA/OEENIS/NISD - CLUCYCK
COMMERCE PLEASE PASS TO USPTO AND CLDP

E.O. 12958: DECL: N/A
TAGS: ETRD KIPR ECON UP
SUBJECT: UKRAINE IPR: 2008 SPECIAL 301 -- POST INPUT

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

SENSITIVE BUT UNCLASSIFIED; NOT FOR INTERNET PUBLICATION.

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

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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
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.

--------------------------------------------- -
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
Note.)

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

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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.

-----------
Enforcement
-----------

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

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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
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. 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 www.mp3.ua, considered the largest
Ukrainian source of pirated music online (ref C). The
ruling forced mp3.ua 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 mp3.ua 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 mp3.ua had personally intervened on behalf of

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the site's owners.

Customs
-------

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
Government.

---------------
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
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

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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.

TAYLOR

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