Ukraine: Brands & Trends 2019, Issue I

UNFAIR COMPETITION: Protection of trade secrets against unfair competition on the rise. A new enforcement trend?

The Antimonopoly Committee of Ukraine (the "AMC") has recently joined a league of trade secret enforcement bodies through passing its first ever decision to protect a business from the unlawful use of its trade secrets by a competitor. Although victims of unlawful use of trade secrets have had the opportunity to file unfair competition actions for more than 10 years under Articles 16-19 of the Law of Ukraine "On Protection against Unfair Competition", they were either unaware of such opportunities or sceptical about the prospects and thus it was not a priority. The recent success for the victim in the case we discuss below may establish a new trend in Ukraine with respect to protection of trade secrets from misappropriation (be it standalone proceedings or in combination with litigation or criminal investigation).

Background

In 2015, "TVK VEKTOR VS" LLC, a national distributor of electrical products (the "Claimant") brought an unfair competition action with the AMC against its competitor "Ergon-Electric" LLC (the "Defendant") asserting misappropriation of trade secrets. The Defendant was incorporated by two former employees of the Claimant (CFO and Chief Engineer) who left the Claimant to start their own business on the same market (distribution of electrical products).

During the investigation, the AMC found that these two former employees of the Claimant had access to the trade secrets of the latter. The trade secrets at issue were, among others, customer/supplier lists, product prices, retail margins, terms of commercial contacts with suppliers and customers, and revenue levels. Both former employees signed Trade Secret and Confidential Information agreements (the "NDAs") with the Claimant under which they were obliged to keep trade secrets and confidential information undisclosed during employment and three years after termination of their employment. The employment period ended in December 2014. Shortly afterwards (in January 2015), the Defendant was incorporated by two former employees and active business started in May 2015. In a few months, two foreign producers of electrical products and some other business partners of the Claimant informed the latter that they had started to cooperate with the Defendant and/or that the Defendant is currently distributor of their products. These facts were sufficient for the Claimant to prove an unfair competitive advantage gained by the Defendant from the unlawful use of trade secrets.

The fact of unlawful copying of trade secrets (i.e. their storage at the Defendant's computer equipment) was also proved by expert evidence including reports of computer forensics. The expert evidence in question was collected during the criminal investigation with respect to misappropriation of trade secrets initiated in parallel by the Claimant against the two former employees.

The Defendant tried to argue that the disputed commercial information does not enjoy trade secret protection because the Defendant had failed to issue an internal regulation on trade secret protection as well as approve any trade secret policy. The Defendant also contended that part of the disputed commercial information is readily available at its website. The AMC disagreed with the Defendant and held that the concluded NDAs establish a sufficient trade secrets protection regime. The AMC also found that information placed at the Claimant's website differs from the commercial information that the Claimant considers as its trade secrets.

The AMC concluded that the actions of the Defendant constitute unfair competition practice in the form of misappropriation of trade secrets (Article 19 of the Law of Ukraine "On Protection against Unfair Competition"). The AMC imposed a fine on the Defendant (Ukrainian hryvnia fine equivalent of about EUR 12,000) and obliged the Defendant to cease the unlawful use of the Claimant's trade secrets.

What are the implications?

The decision made is an important and positive sign for business that Ukraine's Competition Authority is ready to investigate trade secrets misappropriation cases and demonstrate flexibility in terms of evidence to provide a proper trade secrets protection regime (e.g. a trade secret protection agreement may be basically sufficient). Obviously, success in the above case would not have been possible without the active position of the Claimant that made the Competition Authority's job much easier when conducting an unfair competition investigation.

IP vs UNFAIR COMPETITION: Ukrainian Competition Authority clarifies when recording intellectual property with Custom Registry of Intellectual Property constitutes unfair competition practice

In our Brands & Trends newsletter for February 2017 we looked at an unfair competition case where attempts by the owner of a trademarked shape of the washup (3D mark) was declared unfair competition practice vis-à-vis competitors. Since then, IP law and unfair competition law continue to clash within the walls of the Antimonopoly Committee of Ukraine (the "AMC") trying to elaborate on optimal coexistence rules. In its recent decision of December 2018, the AMC used a new angle on the issue of abusing IP rights to the patented utility model by its owner vis-à-vis competitor. The recording of the patented utility model with the Ukrainian Customs Registry of Intellectual Property (the "Customs Registry") was found by the AMC to impede the import of competing products into Ukraine and thus acknowledged as unfair competition practice.

Background

In 2013, "Ukrferrotrade", a Ukrainian distributor of agricultural machineries and equipment (the "Claimant") appealed to the AMC claiming that the activity of "Electromotor" (the "Defendant"), a Ukrainian producer of electrical products, including food choppers, constituted unfair competition practice. The Claimant argued that the Defendant abused its intellectual property rights in the patented utility model – food chopper (the "Patented Food Chopper").

The reason for the unfair competition action of the Claimant was an evolving dispute with the Defendant with respect to suspension of customs clearance of food choppers from China by an agent of the Claimant, execution of the protocol on violation of customs rules by the Ukrainian customs authorities (infringement of the Defendant's IP rights to the Patented Food Chopper during customs clearance) and further forced sale of the seized food choppers originating from China. Before filing the unfair competition action with the AMC, the Claimant also filed a lawsuit against the Defendant seeking invalidation of the utility model patent for the Patented Food Chopper. The decision of the first instance court was not favorable for the Claimant. The court dismissed the claim.

At the first glance, the Defendant was right in its attempts to protect the Patented Food Chopper against infringement as well as import of similar food choppers from China into Ukraine. A utility model patent for the Patented Food Chopper was granted in August 2005 (i.e. about seven years before the start of the dispute), so the request of the Defendant to suspend customs clearance and recording the Patented Food Choppers with the Customs Registry looked entirely reasonable, legitimate and justified.

However, it transpires that there was a spoonful of tar in the barrel of honey. When imported food choppers were seized by the customs authorities, the Claimant applied for substantive examination of the Patented Food Chopper by the Ukrainian IP Office (NB: as a general rule, only formal examination is carried out in relation to utility models, but substantive examination can be carried out upon request from an interested person). The IP Office decided that the Patented Food Chopper lacked novelty. This conclusion formed the basis of the Claimant's lawsuit with respect to invalidation of the utility model patent for the Patented Food Chopper. Although the decision of the first instance court was not favorable for the Claimant, the court of appeal and cassation court agreed with the position of the Claimant and reversed the verdict of the first instance court to satisfy its claim, i.e. invalidated the utility model patent for the Patented Food Chopper. In its decision, the court of appeal also pointed out that the use of the Patented Food Chopper by the Defendant restricted the business activities of the Claimant.

Further actions of the Defendant with respect to renewing the record of the Patented Food Chopper with the Customs Registry at the stage of consideration of the utility model invalidation action by the cassation court as well as failure of the Defendant to notify the customs authorities when the cassation court upheld the decision of the court of appeal significantly contributed to classification of the Defendant's actions as unfair competition practice. The AMC concluded that the actions of the Defendant constitute unfair competition practice under Article 15 of the Law of Ukraine "On Protection against Unfair Competition" (achieving an unfair competitive advantage) and imposed a fine amounting to Ukrainian hryvnia equivalent of about EUR 31,000 on the Defendant.

Reminder for rights holders

It goes without saying that a patent for design, utility model or invention provides monopoly-style protection and appreciable resources are required to challenge this status quo through the courts. However, this case largely reinforces what was already known about potential pitfalls when the owner of a patented design, utility model or invention decides to actively enforce their intellectual property rights. Great care about the strength of the patent should be taken by the rights holder before enforcing IP rights, including when it comes to customs and border protection. Filing an unfair competition action with the AMC is now one more tool in an affected competitor's armory. This approach was never used before but may be on the rise going forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions