Bizness & Baltija

July 16, 2001

Failure to observe rights - makes for a bad image

by Yegor Yerohomovics

Annual losses of Baltic companies caused by violations of intellectual property rights exceed 100 million US$. Inadequate protection of these rights - this is the fourth of the most serious problems hindering business development and increased investments in this region. These were the conclusions made on the basis on the first survey performed in the Baltic states by the international non-governmental organisation CIPR (Coalition for Intellectual Property Rights).

Opinions expressed

The publication of the survey was followed by an extensive discussion held in Riga last Friday. Participants included the owners of intellectual property rights (predominantly - industrial), as well as representatives from the public institutions whose task is to protect these rights. The main objects of industrial property rights are brand names, trademarks and patents. 102 companies from Latvia, Lithuania and Estonia participated in the survey, including both local companies, as well as representatives of world corporations, to name just a few - Aldaris, Cido, Gutta, Hanzas maiznica, Latvijas Balzams, Olainfram, ACME Baltija, Nemunas, Sanitas, Eesti Mobiiltelfeon, Kalev, Statoil, Philip Morris, Ericsson, Kraft Foods, Coca-Cola, IBM, Adidas, and others.

Baltic business executives consider inadequate protection of intellectual property rights a top problem, right after taxation, customs and government bureaucracy. Therefore violations of trademarks, various forms of counterfeiting and infringement of patent rights pose threats to business development in the Baltic States. Public corruption, problems with investment and shareholders' rights legislation follow as the next most important private sector concerns.

Nothing would surprise us

CIPR president Peter Necarsulmer announced that the annual losses caused by all these violations comprised 100 million US$ (analogous surveys performed in Russia and the Ukraine show losses worth 1.5 billion US$). 34% of the respondent companies admitted that their annual losses made up 100 thousand US$ or less, 7% indicated sums from 100 to 500 thousand. The companies rated co-operation with Ministry of Interior, customs offices and Competition Council of their respective countries as ineffective. These are the public institutions they have to deal with when seeking protection for their rights. P. Necarsulmer noted insufficient funding from the state budget allocated to police, customs and the courts, as well as lack of knowledge and technical means of the institutions functioning in the field of intellectual property.

The head of the Department of Copyright and Neighbouring Rights of the Latvian Ministry of Culture Ieva Platpere assured those present that the existing Law on Copyright has been harmonised with all EU directives, international conventions and treaties. Ms. Platpere also spoke of the total lack of state policy and support to this field and indicated that the work of police and customs has been inefficient. Her conclusions came as a surprise to no one present, least of all Ainars Lagons, the head of the Department for Protection of Intellectual Property of the Central Customs Board. A. Lagons is not only the head of this department, but also its only (!) staff member. He said that last year customs officers had seized pirated goods worth a total of 250 thousand US$. The sum seems ridiculous, but, being well aware of the existing situation, no one seemed to be surprised.

The active ones and the passive ones

The participants of the round-table discussion all agreed that blaming only the governments was neither just, nor the right thing to do. The survey of the Baltic companies showed that in the previous year only slightly more than half of the respondents had registered their trademarks, 16% had begun court proceedings, 14% performed their own independent anti-piracy raids. Estonian lawyer Andres Aavik indicated that even now many owners of famous trademarks have been very passive. For example, Mr. Aavik is representing the rights of Adidas, but Reebok has done nothing in this respect in Estonia. "They decided that it is not worth it to waste so much effort in such a small market," said A.Aavik.

Ineta Krodere-Imsa, representative of the attorneys' office Grunte&Cers (protecting the rights of Philip Morris, Nike, UDV, Lee, Wrangler in Latvia) is of the opinion that after the decision was taken to admit Latvia to the negotiations on joining the EU, many major companies changed their attitude, "the Baltic states are now regarded as a small part of Europe. Those companies who are fighting for their rights all over the world are also doing it here," she said. But is this fight really cost effective? "World producers are not calculating this in numbers. Rights violations bring not only material losses, but are also damaging to the corporate image," the lawyer stressed.

Ways out

I.Krodere-Imsa emphasised that certain progress in this realm has been made. The enforcement of the Criminal law is still problematic, and even the Administrative code is still creating unusual cases. The lawyer mentioned a specific example when a large shipment of pirated Nike sports shoes was seized. "We failed to achieve criminal penalties. The court was unable to prove criminal intent: someone had ordered a shipment of tiles, but got sports shoes instead. Others explained that they had ordered cheap sports shoes, but not these counterfeited sports shoes." Presently the only means to fight illegal trade in counterfeit goods taking place in the Central Market, as well as retail supermarkets like Children's World and Sports Hall, is to impose administrative norms (providing the possibility to seize and destroy illegal goods).

Producing companies are looking to various forms of protection. Vegetable and fruit products company Spilva financial director Martins Biezais admitted that "registration of patents is not the most effective way." Therefore Spilva decided to implement a 70 thousand-Lats special programme; the company signed an agreement with a glass packaging producer to make an exclusive packaging of special shape that is the registered industrial property of Spilva. In the near future the company will register its property rights to other exclusive types of packaging.