CIPR's Special 301 Filing to USTR

February 16, 2001

Ms. Sybia Harrison
Special Assistant
Section 301 Committee
Office of the U.S. Trade Representative
600 17^th Street, NW, Room 100A
Washington, DC  20508

RE:     REQUEST FOR REVIEW OF THE INTELLECTUAL PROPERTY RIGHTS PRACTICES OF THE RUSSIAN FEDERATION, UKRAINE, LATVIA AND LITHUANIA

Dear Ms. Harrison:

This statement is filed on behalf of the Coalition for Intellectual Property Rights (CIPR) in response to a request by the Office of the U.S. Trade Representative for comment as required by Section 182 of the Trade Act of 1974.

PETITIONER AND ITS INTEREST:  THE COALITION FOR INTELLECTUAL PROPERTY RIGHTS

CIPR is a private-public partnership dedicated solely to advancing intellectual property rights protection and reform in the Baltic states, CIS countries and other nations that comprised the former Soviet Union. Through research, education, legislative initiatives, coalition building and legal, judicial and regulatory reforms, CIPR assists governments and businesses in the region to establish transparent and non-discriminatory IPR regimes and to adhere to international IPR standards.

CIPR represents a select group of major international companies and business and professional associations concerned with the protection and enforcement of industrial property protection.  CIPR monitors the IP regimes in Russia, Ukraine, Latvia, Lithuania and the other countries in the region through our on-the-ground representatives in those countries and maintains ongoing relationships with relevant government decision-makers and representatives of the business community.

CIPR offers its members highly specific activities to achieve concrete results, including:

1) Providing an effective mechanism for building professional relationships with governmental authorities and decision-makers involved in the protection and enforcement of intellectual property rights in the countries of the former Soviet Union.  CIPR achieves this goal in part through close relationships with 12 patent and trademark offices (PTOs) in the CIS and Baltic States who have strongly endorsed and support CIPRs efforts.  The region’s PTO General Directors participated in the organization’s founding meeting and in numerous enforcement, legislative, consultative dispute resolution and education initiatives undertaken since that time.

2) Developing and working on the enactment of legislation and regulations to bring the countries’ IP regimes into compliance with international standards and expectations.

3) Assisting PTOs in establishing transparent and non-discriminatory IPR regimes.

4) Actively advancing effective country-by-country and regional anti-counterfeiting and trademark enforcement efforts, strategies and education.

5) Securing financing for technical assistance and programs from various international financial institutions and other donor organizations.

6) Establishing a reliable multi-channel communications network among government decision-makers and CIPR members to ensure the effective and timely exchange of information concerning legal, legislative, regulatory and political developments related to intellectual property rights in the countries of the former Soviet Union.

7) Educating and shaping opinions of government and business leaders, as well as the media and general public, as these opinions relate to IPR issues and their importance for investment, economic growth and tax revenues in the region.

8) Establishing strong ties with other international and interstate IPR organizations.  CIPR is the only non-governmental organization officially accredited with the CIS Interstate Council on Industrial Property Protection, comprised of the directors general of the PTOs of the eight CIS countries.  CIPR is also an official observer to the World Intellectual Property Organization (WIPO), and cooperates with the European Commission, World Customs Organization, International Trademark Association and AIPPI national divisions in the region.

RUSSIAN FEDERATION

Recommendation
CIPR recommends the Russian Federation remain on the Priority Watch List.  IP holders in Russia are still subject to violations of their rights and substantial improvement must be made in the Russian Government’s enforcement of IP laws and anti-counterfeiting efforts.  However, if current trends continue, progressive legislation is introduced and enforcement improves, CIPR hopes to be able to recommend in its 2002 Submission to USTR a change in status for Russia.

Effect on International Business

The Coalition for Intellectual Property Rights (CIPR) conducted a survey last year of 135 international companies doing business in Russia.  This survey found that businesses place intellectual property rights protection nearly on par with customs and tax problems as one of the most critical challenges facing foreign businesses operating in Russia.  IPR violations cost government and private industry hundreds of millions of dollars annually, according to the CIPR opinion research survey.

The survey of a select group of 50 major international brand holders selling and investing in Russia includes some of the most famous consumer brand companies in the world whose health, beverage, tobacco, energy, household, automotive and other products are well-known by average consumers throughout Russia.  Among those companies willing to disclose financial information, one-half said their yearly losses amounted to at least US $1-million, and about one-third said their yearly losses due to IPR violations total between US $5-million and more than US $50-million.

Political Leadership

Government of the Russian Federation has recently taken concrete actions and signaled a stronger commitment to further progress in developing IPR protection and enforcement.  A great deal of credit for the positive developments in Russia's IPR policy must be given to the Russian Agency for Patent and Trademarks (Rospatent), which has advocated continuously and vigorously for bringing Russia's IPR legislative regime into compliance with the TRIPS Agreement.  As of this writing, the State Duma has committed to consider the IPR legislative package during its 2001 session.

The Russian Government has adopted a "Plan of Action to Enhance the Fight Against IP Violations." The RF Government has already accomplished several important tasks under the Action Plan:

• The Action Plan places the Ministry of Justice as the lead coordinator for RF federal agencies to strengthen the Criminal and Civil Codes, and places the RF Ministry for Foreign Affairs as the coordinator for all IP activities related to the European Community and Russia. 
• The Plan also establishes intellectual property offices in each of the seven super regions established throughout Russia by President Putin's redistricting plan.
• Also under the Plan, recommendations are being prepared to establish a special database on IPR violators and new procedures for investigating IP violations.

In May 2000, the Ministry of Justice approved Rospatent's "Rules for the Recognition of Trademarks as Well-Known in the Russian Federation."  This was a significant step in moving Russia closer to international standards of protection for well-known trademarks owned by domestic and international companies.  These Rules, and their application, still need to be further refined and clarified to ensure that they reflect marketplace realities.

Notwithstanding Russia’s recent improvements, positive actions and commitment to further improvements in the protection of intellectual property rights, IPR violations, including trademark and patent infringement, counterfeiting, copyright violations and piracy, remain epidemic in Russia.  Corruption, ineffective enforcement, weak criminal penalties, and inadequate education and training of law enforcement and judicial officials are key impediments to better IPR protection and enforcement in Russia.  Significant shortcomings remain in the country’s trademark and patent laws, especially provisions dealing with famous trademarks and geographical indications.

Russia’s failure to protect intellectual property rights is a major obstacle to the country’s efforts to join the World Trade Organization.  Without implementation of tangible reforms in the IPR area, Russia will face added difficulty in successfully reforming its economy and attracting more foreign and domestic investment.

Proposed IP Legislation

The Russian government has prepared IP legislation to present to the State Duma.  This legislation, to the credit of the Russian leadership, reflects input from both the international and Russian private sector and is a significant step towards achieving TRIPS Agreement compliance, particularly for well-known trademarks.  However, the Russian Government has yet to introduce the IP legislation and will likely do so only in late spring or summer 2001.  CIPR strongly urges USTR to press the Russian Government for the introduction and passage of this IP legislation.

Any IPR legislation considered should include the following elements:

1) Trademarks, Service Marks and Names of Places of Goods’ Origin Code (Trademark Law) Amendments

·        Amendment of Article 46 of the Trademark Law to provide for the turnover of counterfeit goods to the trademark owner or for destruction of counterfeit products.

·        Amendment of Article 46 of the Trademark Law to allow for underlying regulations to specifically define the term “counterfeit.”

·        Amendment of Article 46 of the Trademark Law to provide for interim seizure of equipment to satisfy potential civil judgement.

·        Amendment of Article 46 to include concurrent administrative liability in addition to “civil and/or criminal liability” (see section 5 below).

·        Amendment of Article 46 to include the right to have equipment owned by the violator and used in the production of counterfeit product confiscated and destroyed, and decision to be made by a court or arbitration court.

The highest priority facing the Russian government is to lend substance to its IPR enforcement capabilities by strengthening IP legislation.  The following amendments are suggested to improve the effectiveness of Russia’s enforcement capabilities:

1) Criminal Code Amendments

·        Amendment of Article 180 of the Criminal Code to delete requirement that infringement must have been done “repeatedly or caused major damage.”

·        Amendment of Article 180 of the Criminal Code to include possession of counterfeit product within the scope of the article and to define counterfeit product.

·        Amendment of Article 180 of the Criminal Code to provide for the interim confiscation and subsequent destruction of equipment used to produce counterfeit product.

·        Amendment of Article 180 of the Criminal Code to ensure more severe penalties, e.g. a maximum period of imprisonment in excess of five years.

·        Amendment of Article 86 of the Code of Criminal Procedure to specifically provide for interim confiscation and subsequent destruction of equipment that was used to produce counterfeit product.

·        Amendment of Article 86 of the Code of Criminal Procedure to create a presumption that machinery owned by a company not licensed to produce certain consumer products has been used to produce counterfeit product.

·        Amendment of Article 86 of the Code of Criminal Procedure to require an owner of equipment to have a reasonable good faith belief that leased equipment would not be used for counterfeit production.

2) Customs Regulations Amendments

·        Amend the Customs Regulations to extend the list of documents required for customs clearance, including documents confirming the manufacturer’s right to use the trademark on the product in question.  Failure to provide such documents would result in the initiation of administrative proceedings and detention of the product for a specified period.

·        Amend the Customs Regulations to extend their authority to investigate counterfeit shipments.

·        Amend the Customs Regulations to allow interim seizure of suspect goods and all related paperwork until analysis can be completed.

·        Amend the Customs Regulations to destroy counterfeit product.

·        Amend the Customs Regulations to prohibit sale of contraband or in another way to decrease the financial incentive to declare goods as contraband as opposed to counterfeit.

3) Tax Code Amendments

·     Amend Tax Code to provide for forfeiture of all assets used to produce cigarettes not bearing proper fiscal stickers.

4) Administrative Code Amendments

·        Amend the Code of Administrative Wrongdoings to include liability for infringement of trademark rights (e.g. extension of Article 150.4 covering copyright infringement or inclusion of a provision similar to Article 180 of the Russian Criminal Code).

·        Amend the Code of Administrative Wrongdoings to ensure the confiscation and destruction of the counterfeit products when administrative proceedings are initiated.

·        Amend the Code of Administrative Wrongdoings to include a provision defining what constitutes “counterfeit products.”

·        Amend Article 202 of the Code of Administrative Wrongdoings to establish the competence of common courts to consider trademark infringement as an administrative wrongdoing, etc.

·        Amend the Code of Administrative Wrongdoings to ensure that the inclusion of the aforesaid provisions does not preclude the right to concurrent civil remedies.  (See also section 1 – amendment of Article 46 of the Trademark Law to provide for concurrent administrative and civil law actions.)

Enforcement

The Russian Government’s inability to adequately enforce IP laws and protect IP holders continues to be a significant problem for both foreign investors and Russian businesses. The highest priority facing the Russian government is to effect dramatic improvements in the application of laws that do exist.

Enforcement problems in the Russian Federation include:

·        Trademark infringements, the large presence of counterfeit consumer products, and software, audio and video piracy are still rampant throughout the Russian marketplace. 

·        Substantial evidence supports the assertion that Russia is becoming a manufacturing source of counterfeit goods, and that these counterfeit goods are being smuggled into Western Europe.  Published reports have found that counterfeit pharmaceutical products manufactured in Russia are being smuggled into other countries, posing serious health risks to consumers.  Estimates put the number of counterfeit pharmaceuticals on the market at 5-15 percent.

·        Western brand-name consumer healthcare sales are suffering from a high degree of counterfeit products coming from Asia, which are being sold openly throughout Russia.  These products are smuggled through corrupt border checkpoints.  This situation is costing the industry hundreds of millions in lost sales while causing confusion for the consumer about brands and their integrity and quality. 

·        Recently, Russian customs officials in St. Petersburg reported confiscation of three containers of counterfeit cigarettes with a value of approximately $2.5 million bound for a British port.  It has also been reported that the manufacturing of counterfeit cigarettes occurs in guarded military facilities in Russia.  The Russian press reported a case in which customs officials seized 1.9 million packs of counterfeit cigarettes being loaded onto a military transport aircraft at the Mozdok military airbase near Chechnya.  Several press reports have claimed that Chechen groups finance the continued war in the region by engaging in counterfeiting activities.

·        Western European customs officials regularly report seizing counterfeit cigarettes from Russia.

·        Russia still does not have laws mandating the physical destruction of seized counterfeit (and contraband) products.  Such laws are essential given multiple cases, as reported by our members, in which seized machinery used in counterfeit activities is returned to the counterfeiter, without the knowledge of the brand owner, and often after the authorities have verbally committed to pursue the case.

The enforcement effort suffers from a lack of sustained political and bureaucratic will, financial and technical resources, and corruption.  Civil and criminal penalties are highly inadequate.  A fundamental restructuring in Russian law enforcement agencies is essential.  For example, often, only one prosecutor or state investigator is assigned to manage a criminal case which puts too much power into the hands of one individual.  Even if a prosecutor wants to pursue a case, he or she often faces too much pressure from criminal elements to drop the case and/or release machinery and counterfeit goods back to the counterfeiters. A priority in reforming Russia’s legal system should be to distribute authority in such cases more broadly to avoid one or two individuals from being susceptible to threats and pressure.

Judiciary

Fewer problems have been reported as of late by U.S. companies about their treatment in the courts in Moscow and St. Petersburg on IP cases.  Positive outcomes have included a decision in favor of Kodak in a cybersquatting dispute and a ruling by the high appeals chamber of Rospatent in favor of Anheuser-Busch against the Czech Budvar.  However, the Smirnoff trademark dispute remains a major exception, and is an example of a dispute in Russia’s regional courts where serious irregularities have occurred in the application of law and judicial procedures.  Particular attention must be placed on reforming the judicial system at the regional level. 

A number of factors hinder the legal process in Russia generally and specifically in the IP arena.  These factors include lack of specialized training for both attorneys and judges in intellectual property; poor compensation of judges; corruption and the absence of transparency in the judicial process; and, inconsistent treatment of cases among the regional, Moscow and federal courts.

Customs

The RF Customs Committee is working more closely with foreign governments to improve legislation and enforcement regimes.  However, customs officials need additional resources to interdict counterfeit goods at the borders, including computer systems, databases on trademark registrations, more training and better compensation.  Corruption among Russian customs authorities continues to be a major problem nationwide.

Border controls must be improved as a substantial proportion of the counterfeits appearing on the market in Russia and bought by Russian consumers originated outside Russia, mostly in China.

Technical Assistance

Specific steps that CIPR recommends for the U.S. Government to help Russia meet its ambitious IP reform goals include: training of judges, customs and other enforcement officials, as well as providing updated technology, such as computers, databases, and other essential equipment for courts and customs.  CIPR also strongly recommends that the US Government along with the private sector encourage passage by the Duma of the IP legislative package when it is submitted by the Russian Government.

UKRAINE

Recommendations

CIPR recommends Ukraine remain on the Priority Watch List.  Ukraine’s desire to achieve WTO membership continues to be hampered by a lack of political will from the top to the bottom of government to adequately enforce IP protection laws.  Government initiatives to establish stronger laws and coordinated enforcement policy and activities remain unfulfilled as the number of IP violations and counterfeit products in the marketplace multiply. 

Effects on International and Local Business

The negative effects from the sale, manufacture and transport of counterfeit and contraband products to citizens has a widespread negative effect on both local and international companies investing, manufacturing and trading in Ukraine.  A survey of 102 international and local company executives conducted by the Coalition for Intellectual Property Rights (CIPR) in cooperation with the Ukrainian Chamber of Commerce and Industry and the European Business Association in early 2000 found that losses from illicit products were excessive.  When trademark piracy, counterfeits and other industrial property violations are combined with extensive copyright abuses, as well as uncollected customs, excise duties and value-added taxes, the combined loss to government and industry easily approached U.S. $1 billion a year in Ukraine.   The survey found that business executives said the Government of Ukraine was not equipped with the political will or the technical and financial resources necessary to enforce international standards of intellectual property protection.

Political Leadership

During the past year, Ukraine's President Leonid Kuchma issued a decree reforming the Cabinet of Minister's administrative bodies, including those agencies responsible for protecting and enforcing IPR.  For a number of months, the President's administrative streamlining brought the country's IPR regime to a stand still.  New trademark and patent registrations were not issued and administrative appeals were temporarily suspended.  An inter-governmental agency to coordinate IPR policy and enforcement was created in July 2000, chaired by the Deputy Prime Minister for Social and Humanitarian Affairs.  Starting in September 2000, Ukraine's system for protecting IPR began to function again.  A Department for Intellectual Property Rights and a separate Agency for Copyrights and Related Rights were created, both within the Ministry of Education and Science.  The role of the Ministry's Department for Intellectual Property Rights is to formulate and implement public policy in the area of industrial property rights, while the agency focuses on copyrights.

Ukraine has taken administrative actions during the past year to develop and strengthen its system for IPR protection and enforcement.  Draft laws expanding Ukraine's IPR regime were approved by the Rada (national legislative body) and signed into law by the President.  Several governmental law enforcement bodies created internal structures for protecting IPR, including the Ministry of Internal Affairs, State Customs Service, State Security Service and the State Tax Police.  However, these divisions remain weak, insufficiently funded and lack the technical capabilities and expertise required to adequately carryout their responsibilities.

Ukraine has declared its intention to negotiate accession and join the World Trade Organization (WTO) in 2001 and is working closely with the European Commission on implementing a partnership and cooperation agreement.  Both efforts call for Ukraine's greater progress in the area of IPR protection and enforcement. 

Enforcement Activities

The positive steps taken by the executive and legislative branches of government during the past year to create a bureaucratic structure for IPR protection has not been matched with strengthened law enforcement efforts against violators.  Law enforcement efforts to combat and limit IPR violations such as counterfeit, contraband and piracy are sporadic and are neither adequately coordinated nor implemented at the highest levels of government.  Private sector and non-governmental efforts to encourage a coordinated inter-agency approach to strengthening law enforcement bodies' actions against violators have largely gone unheeded by government policy decision-makers.  As a result, the lack of political will to combat and deter IPR violations has provided pirates, counterfeiters and contraband dealers with a green light to pursue illegal manufacture, sale, transport and distribution of illicit products within and across Ukraine's state border.  Street corners and open markets throughout the country are filled with pirated audio disks, videocassettes, contraband and counterfeit cigarettes and a plethora of counterfeit consumer products.  Sporadic police raids clear out retail sites for a short period of time, but they are later restored as traders re-appear on street corners and open markets.  

IP Legislation

Ukraine's legislative base for protecting and enforcing IPR is not fully developed.  While the legal base for protecting and enforcing industrial property rights is more developed than copyrights, both lack adequate enforcement mechanisms.  Ukraine is in the process of adopting new civil, criminal, customs, and other codes that intend to provide law enforcement bodies with the legislative base needed to deter and limit IPR violations through just fines and other penalties.  In some industries highly regulated by the government such as alcohol and tobacco products, IPR protection and enforcement mechanisms exist and should be adequate deterrents for violators, but those mechanisms are not utilized by law enforcement bodies. 

For example, in April 2000, Ukraine's Verkhovna Rada adopted and the President signed a law on "Strengthening Law Enforcement Measures Against the Illicit Manufacture, Sale and Transport of Alcohol and Tobacco Products" (No. 1534-III).  The law increased penalties, fines and other fees for individuals and organizations engaged in manufacturing, selling and transporting counterfeit alcohol and contraband tobacco products.  The law further calls for the removal of seized alcohol and tobacco products from the channels of trade and their destruction, as stipulated by the TRIPS agreement.  However, the Cabinet of Ministers has not implemented the law nor the enabling regulations, which have been effectively blocked for almost one year by the State Tax Police, who in turn sell seized alcohol and tobacco products to the public.  Moreover, despite laws on the books forbidding cigarette sales on the street, thousands of individuals are engaged in the illegal street sale of contraband and counterfeit cigarettes, usually with the acquiescence of local militia.

Despite problems, government officials have taken steps to improve the legislative base required for strengthening IPR protection and enforcement, but much remains to be accomplished.  The Department for Intellectual Property has drafted a long-term program to strengthen and develop the country's system for protecting IPR (2001-2004).  The program has been transmitted to the President, who is expected to introduce the program through a presidential decree.  Its main goals are to harmonize Ukrainian legislation with international legal norms in the area of intellectual property protection and enforcement; increase international cooperation on IPR issues; strengthen court adjudication of legal disputes affecting IPR issues; limit contraband transport across state borders; and strengthen law enforcement efforts against IPR violators.

Technical Assistance

CIPR recommends that the Government of Ukraine focus on strengthening and coordinating law enforcement efforts against the manufacture, sale and transport of illicit products. 

Technical assistance and educational seminars are needed for judges, customs officials, and militia and tax authorities, which are charged with enforcing the law and adjudicating court cases. 

Additional amendments are needed to the existing legislative base, as well as adoption of the civil, criminal and customs code, which will unify many conflicting and contradictory legislative acts.

LATVIA

Recommendations

CIPR recommends Latvia remain on the Special 301 Watch List.  Latvia’s admission into the WTO and efforts to achieve EU membership are indicative of the country’s commitment to achieving international standards of IP protection.  However, Latvia’s ability to effectively enforce its IP laws is still seriously challenged.  Latvia is aware of this problem and is attempting to address these issues.  If efforts to improve enforcement capabilities continue to show results, CIPR will consider recommending in 2002 that Latvia be removed from the Watch List. 

A number of copyright and allied rights organizations as well as CIPR, representing industrial property rights holders, are in the forefront of raising IP issues.  As described below, Latvia, for the most part, has the correct language in place in its legislation.  However, enforcement of those laws is a matter of concern for investors.

The Latvian government and the parliament have supported legislation to bring Latvia’s laws into compliance with the World Trade Organization, and are taking steps to meet European Union requirements.  Though much progress is being made on legislation and regulations, enforcement continues to be a major issue of concern. 

The IP legislative framework is strong and in compliance with WTO requirements, and will soon meet EU requirements as well.  However, the Criminal Code needs major reforms to remove the largely Soviet-era criminal law foundation and replace it with a modern foundation fitting for a democratic market economy.  Penalties for counterfeiting do not hinder repeat offenders.  The US Embassy has a full-time person working with the Republic of Latvia on reform of the criminal code. 

A number of major international brandholders are working with customs and law enforcement on an anti-counterfeiting campaign with some success.  However, criminal laws and penalties are weak and there is a strong distrust of law enforcement officials due to allegations of serious corruption at all levels of customs and the police.  As a result, counterfeit products still exist in the marketplace.  It is estimated, for example, that in the Riga Central Market, 50% of the cigarettes are counterfeit, most originating in Russia.

In February 2001, two forty-foot containers of cigarettes seized by the Latvian police in early January 2001 and assumed to be "contraband" were in fact counterfeit.  This was likely the largest seizure of counterfeit cigarettes in Latvia’s history.  The cigarettes were found in the Daugavpils district of Latvia and were fake versions of well-known western brands.  The counterfeit cigarettes were made in China, confirming that Latvia is a major transshipment port for counterfeit cigarettes from China.

The higher court’s rulings on IP cases are generally consistent with Latvian law and international standards.  The Latvian Supreme Court ruling on the SMIRNOFF trademark and Coca-Cola’s successful challenge in the appeals courts regarding the Fantastika trademark are both good examples.  However, lower courts continue to be plagued by corruption and judges who are not adequately trained on IP law and international practice.

Latvian customs authorities are more active in assisting brandholders, but issues of corruption throughout the customs agency continue to hamper their effectiveness.  The example given above of the counterfeit cigarette seizure attests to the weakness in the customs service.

Technical Assistance

CIPR suggests closer cooperation between the US and the EU to improve IP matters in the Baltic States, including more training for judges, customs and law enforcement officials.  Reform of the criminal code should also continue to be a legislative priority.

LITHUANIA

Recommendations

CIPR recommends Lithuania be removed from the Special 301 Watch List.  Lithuania’s recent admission into the WTO and its successful effort to put into place IP protection legislation that is compliant with the TRIPS Agreement is indicative of the government’s commitment to protecting intellectual property.  In addition, Lithuania appears to be moving forward successfully in its attempt to be admitted into the EU.  Moreover, and equally important, Lithuania’s courts, customs and law enforcement agencies have demonstrated an improved ability to enforce IP laws and to better their capabilities. 

Effect on International Business

A number of copyright and allied rights organizations, as well as CIPR, representing industrial property rights holders, are in the forefront of raising IP issues.  For the most part, Lithuania has or is working toward putting the correct language in place in its legislation.  Enforcement of those laws continues to be a matter of concern for investors, as it does in neighboring countries.

Political Leadership

The Lithuanian Government has demonstrated the political will to improve the IPR regime and awareness is slowly permeating through the civil service.  In late 2000, the country successfully concluded negotiations to accede to the World Trade Organization (WTO) and expects to achieve full membership in a matter of months.  As a result, measures to bring the country into compliance with TRIPS are proceeding as planned.

Lithuania is in the process of making significant changes to its legislation – upgrading, amending, and passing the necessary laws for TRIPS compliance.  An example is the enactment, effective January 1, 2001, of the new Law on Trade and Service Marks designed to enhance protection of trademarks and make Lithuanian law consistent with EU legislation in this area.  The Law is much wider in scope.  New concepts, such as “marks with reputation,” “secondary meaning” and provisions relating to protection of trade dress appear in the law.  As a result, it creates better protections for well-known trademarks.  However, at present, these concepts are still theoretical.  It remains to be seen how the Patent Bureau and the courts will interpret the new Law and how it will be implemented in practice. 

Late last year, a positive and major revision in Lithuanian law regarding import and export of counterfeit goods was passed.  The Law on Protection of Intellectual Property Rights upon Importation or Exportation of Goods as of December 21, 2001, has been harmonized with Council Regulation No. 3295/94 of December 1994, laying down measures to prohibit the release for free circulation, export, re-export or entry of counterfeit and pirated goods. The Law is in effect as of January 1, 2001. It introduces the following mechanism of protecting IPR:

1.      The trademark owner or the person authorized thereby files a written application for seizure of the goods transported across the boarder if he knows or alleges that such goods infringe his IPR.

2.      The application must be supported by a description of the goods, the seizure of which is requested and by evidence of the applicant's right to make such request on behalf of the trademark owner. The applicant is charged a filing fee, the size of which is established by the Government in view of possible costs.

3.      The Customs Department must consider such application within 10 days. If it decides to satisfy the request, it may establish a period, not longer than one year, during which customs surveillance measures must be applied to transportation of allegedly infringing goods.

4.      Goods may also be seized on the initiative of the Customs Department, without an application from the interested person if the customs control of goods allows to allege that the goods under the customs control procedure are likely to infringe IPR.

5.      Cases in connection with seized goods are heard by courts. If the court determines that the goods were manufactured in breach of IPR, it may decide either: (i) to allow the use (further processing, recycling, etc.) of the goods without releasing them for sale; (ii) to transfer the goods to the persons indicated by the applicant so as to deprive the infringing person of any economic benefit; (iii) to destroy the goods at the cost of the infringing person. The court has to make allowance for the opinion of the applicant.

In July 2001, Lithuania is expected to enact a new Civil Code, which will provide better legal instruments for anticounterfeiting efforts.  Like the former Code, the new one provides for strict liability for contraband goods and counterfeit.  The individual selling goods with unauthorized labeling is subject to up to two years imprisonment.

Enforcement

There has been substantial improvement on implementation and enforcement.  However, counterfeit pharmaceuticals originating in a third-country are still a problem, with contraband medicines flowing in from elsewhere in East Europe.

Courts

Lithuanian court rulings have been mixed for international rights holders.  Evidence of inexperience in ruling on IP issues appears in several recent decisions.  In May 2000, the Supreme Court stated in a decision on the trademark dispute between Anheuser-Busch and Budvar, that the Lithuanian courts adjudicating the intellectual property dispute must take into consideration the precedents of the European Court of Justice.  However, in February 2001, the Lithuanian Court of Appeals ruled in favor of Budejovicky Budvar, giving them rights as the exclusive importer of Budweiser beer in Lithuania.  On the other hand, the Lithuanian courts also ruled in favor of Smirnoff in its trademark dispute with the Russian Smirnov.

Customs

The Lithuanian Government has officially declared and assumed obligations to the European Union that by January 1, 2004, it will be ready to adopt ACQUIS in the customs area, including ensuring protection of IP upon importation and exportation of goods.  The terms of this agreement were laid out in Resolution No. 1289 dated October 30, 2000.  To date, Lithuania has adopted major legal acts, including measures to protect IP, to harmonize the country’s legislation with European Union law.  In the next three years, the Government has committed to implementing ACQUIS.

Under the Government’s Action Plan for 2001-2004, the Ministry of the Interior in cooperation with the Ministry of Finance and other agencies have committed to do a study in the first quarter of this year, of the gray market economy, including contraband and counterfeit goods.  They will prepare a proposal for coordinating the activities of Lithuania’s intelligence services to combat the gray market. 

Technical Assistance

CIPR suggests closer cooperation between the US and the EU to improve IP matters in the Baltic States, including more training for judges, customs and law enforcement officials.  Reform of the criminal code should also continue to be a legislative priority.

If you have questions or need additional information, please contact me in Moscow at (7095) 745-8700 or in Washington, DC at (202) 466-6210 or by e-mail at .

Sincerely,
Peter B. Necarsulmer
President and CEO
Coalition for Intellectual Property Rights