Analysis of Situation with Customs Protection of IP Rights at Customs Border and Recommendations on its Improvement

Ukraine has finalized adaptation of its national legislation to the EU standards and practices and the transformation of its legislation in the sphere of assisting in protection of intellectual property rights (IPR) at the customs border.

The amendments provided the legal framework for such a system of IPR protection at customs, which:

•  first, does not interfere with the legal trade in original goods, but on the contrary facilitates the movement of such goods;
•  secondly, strengthens the efforts to combat against the movement across the customs border of goods involving IPR violations, in particular, counterfeit and pirated goods.

At the present stage, the transition of the customs offices of the State Customs Service of Ukraine to new principles of work should be guaranteed, which will ensure the effective application by all Ukrainian customs offices of the mechanism to promote IPR protection at the border and establish control over this process.

Complex IT System Ensuring Implementation of the Border Measures

According to the order of the Ministry of Finance of 9 June  2020 No. 282 new complex IT system Customs Register of Objects of Intellectual Property Rights, the associated software and information service for owners of intellectual property rights (rights holders) and automated risk analysis system for IPRs were expected to be launched by 1 July 2020.

For the time being, no official information is available on the status of development of these services and on the expected time of their launch.

On the website of the State Customs Service, in the “Personal Cabinet”, there is only a complex IT system Customs Register of Objects of Intellectual Property Rights operating in an old and new format, and an interface for entering applications in electronic form by right holders in the Customs Register of IP rights (https://cabinet.customs.gov.ua/ipr/reg/overview) has also appeared there.

Unfortunately, for the time being, the complex IT system Customs Register of Objects of Intellectual Property Rights has lost its integrity in terms of formation and use of the data. Retrieval and use of the data of customs register by right holders, importers/exporters and other concerned parties is not an easy and transparent process today.

Furthermore, there is a lack of up-to-date information for the broader public that could facilitate the process of obtaining and processing of the Customs Register data by the State Customs Service.

As regards the cooperation between the customs offices and right holders upon identification of the goods involving the features of IPR infringement, such cooperation is currently maintained in the format of the combination of paper/electronic data exchange, which is ineffective and does not provide a full picture of all data exchange operations between the customs offices and right holders in cases of suspensions. Immediacy of such exchange affects the duration of customs procedures and, as a consequence, the right holders’ expenses.

Suspensions Statistics

During 2020 the total number of suspensions of customs clearance carried out by the Customs Service of Ukraine was 1907, out of which 87 suspensions concluded with destruction of counterfeit goods, in 1 case the labelling of counterfeit goods was changed, in 42 cases the protocols on violation of customs rules were drawn up, 30 of which were based on Article 476 of the Customs Code of Ukraine. Therefore, in terms of preventing the counterfeits from entering the territory of Ukraine, only 7% of suspensions appear to be effective.

The leading position in the effectiveness of the applied measures belongs to the Odesa Customs of the State Customs Service, which is a unique customs office that carries out customs control of goods moving by road, sea, river, air and rail. To be specific, the efficiency index of Odesa Customs was almost 80% with an average of 7%; 92% (80 cases) of all cases of destruction of counterfeit products were carried out under the customs control of Odesa customs officers; 87% (26 cases) of all administrative cases under Article 476 of the CCU were initiated by Odesa Customs.

In the first two months of 2021 the customs offices carried out 49 suspensions of customs clearance of goods suspected of infringement of IP rights, out of which only 2 cases concluded with destruction of counterfeits, thus the effectiveness of measures has decreased and is only 4%.

Given that automatized profiles for analysis and management of risks associated with IPR infringements did not work since April 2020, as shown by the practice, all goods infringing IP rights were identified as result of inspections initiated to combat other types of violations of customs legislation.

Although the effectiveness of border measures has increased compared to previous years, 2020 and early 2021 are characterized by lower activity in applying border measures aimed at assisting in the protection of IP rights at customs and a large number of ineffective suspensions of customs clearance of goods suspected of IPR ­violations. The dynamics, unfortunately, are disappointing since the number and effectiveness of measures continues to decline.

Reasons for Decrease in the Number of Effective Cases of Suspension of Customs Clearance

Suspension cases are considered to be effective if they resulted in the destruction of counterfeit goods or their relabeling, drawing up protocols on administrative offenses under Articles 476 or 473 of the Customs Code of Ukraine.

According to the results of a study of the state of border measures aimed to protect intellectual property rights at Ukrainian Customs, conducted in April this year by the Ukraine Alliance Against Counterfeiting and Piracy with participation of right holders whose IP objects were entered in the Customs Register and their representatives, the situation with border measures can result from THE LACK OF:

— political will of the country’s leadership to stop the infringements of intellectual property rights;

— proper monitoring by the leadership of the Ministry of Finance of Ukraine and State Customs Service;

— motivation and appropriate level of guidance from the central office of the State Customs Service in implementation into practice of legislative changes;

— motivation of the employees of structural subdivisions of the customs authority which was made responsible for organization of application of measures aimed at customs protection of IP rights;

— systemic approach of the Customs Offices to measures to assist in the protection of IP rights, considering the fact that most identifications of goods infringing IP rights were carried out as a result of inspections, initiated to counter another types of violation of customs legislation;

— customs officers’ knowledge and skills to respond in cases of detection of goods that infringe intellectual property rights, during customs control.

Recommendations on Improvement of the Situation

For improving the situation and reducing the volumes of counterfeit, pirated and IPR-infringing products (including counterfeit and pirated goods) in the territory of Ukraine, the transition of the customs offices of the State Customs Service to new principles of work in the course of assistance in IP protection at the customs border should be ensured, and control over this process by the state and stakeholders should be established. To achieve these goals, the following changes are required:

A. Administrative

•  The Ministry of Finance of Ukraine should take the implementation of commitments under its control. For this purpose, it will need to decide which subdivision in the Ministry of Finance of Ukraine will take responsibilities for the result of customs reform in terms of assisting in IPR protection as a whole and who personally will be the supervisor in charge in this area;
•  to decide on the name list of officials of the State Customs Service who will be responsible for the practical adaptation of amendments in customs legislation and for increasing the efficiency of Customs Service work in the area of assisting in the protection of intellectual property rights that will be result-oriented;
•  to provide for subordination of the specialized unit for assistance in the protection of intellectual property rights IP (SU) to the central office of the State Customs Service, forming the independent divisions based on these specialized units (SU) and vesting their officials with an exclusive function to assist in protection of intellectual property rights and to staff such SU with goal-oriented, competent and efficient employees;

B. Technical

•  to develop modern IP-related software-based risk profiles, considering European experience in developing such systems;
•  to develop software and information service for right holders aimed at prompt exchange of information between customs officers and right holders and recording of consolidated information on all actions related to suspension of customs clearance;
•  to choose 2-3 destruction enterprises and create Customs Control Areas on their foundation;

C. Informational 

•  As soon as formation of a new SU team is finalized, the State Customs Service should carry out staff training to ensure a uniform approach to the work of the SU of regional customs authorities, teamwork organization, competence development;
•  the State Customs Service should arrange for carrying out, on a weekly basis, of online seminars, workshops attended by representatives of SUs of the State Customs Service, right holders, EU representatives, and other interested parties for exchanging information and experience between customs officers.

D. Legislative

•  to resolve the issue of implementation in customs legislation of Ukraine of the provisions regarding mandatory destruction of counterfeit goods and legalization in the participation of IP rights holder (right holder or his representative) in the administrative case concerning violation of customs rules, which are being brought to the attention of executive and legislative authorities by right holders for the last five years.

We believe that the implementation of the said steps will allow introduction of enhanced state border control over the products involving IPR infringements; minimize environmental risks to human health, protect consumers from goods of unknown origin and quality; reduce corruption and organized crime; increase Ukraine’s attractiveness to investors due to their confidence in reliable protection of IP rights.