To Start With...
When it comes to patents, Ukraine should no longer be deemed the final frontier, fit for exploration only by the brave and the bold. A great number of businesses should include Ukraine in their intellectual property (IP) strategy in order to successfully compete in the global market. Given that patents remain the single most important aspect of intellectual property for a wide range of companies (especially for those dealing with life sciences) this chapter aims to highlight issues that the respective executives and IP professionals should be aware of when designing or updating their patent protection and enforcement strategies in view of the permanently developing legislative and practical environment in Ukraine.
A Bit of Basics and Basic Trends
According to the On Protection of Inventions and Utility Models Act of Ukraine a patent is the protective document confirming priority, authorship and ownership of an invention or utility model.
In a broader meaning, a patent is a competitive weapon in the market of innovations. In turn, patenting is quite a tedious, continuous and expensive procedure aimed at obtaining a lawful market monopoly limited in time (i.e. patent may be effective up to 25 years including possible 5-year patent extension) and territory (i.e. patent may cover territory of a certain state). Patenting is a technical and economic matter rigidly regulated by statute. In Ukraine there are currently three main sectors of patenting, including chemical industry, biotechnology and electronics. The vast majority of commercialized patents refer to the above sectors.
A patented invention must be new, not obvious to the "average specialist" in the respective field of techniques, and must be industrially applicable. In fact, the role of "average specialist" is normally performed by experts/ examiners of the Ukrainian Institute of Industrial Property (Ukrpatent), which is the patent examination body in Ukraine. However, actually Ukrpatent experts examine an invention just for novelty and unobviousness. If an applicant convinces the said expert of novelty and, what is more difficult, the unobviousness of the invention, a patent will most probably be issued. It is assumed that industrial applicability is checked by the market. If the applicant does not see a clear market perspective for the invention then there is probably not much sense in obtaining patent thereto.
Utility models in Ukraine shall comply only with two criteria of patentability: novelty and industrial applicability. Unlike unobviousness, the above two criteria may be quite easily proven. Accordingly, utility models are much more frequently patented in Ukraine than inventions. Notably, in Ukraine utility models may refer to any object of techniques, i.e. device, substance, microorganism strain, culture cell and means of production of any goods.
Valid Ukrainian legislation allows a subject to a successful substantive examination to transform a utility model patent into an invention patent. Ukrainian companies have been good at taking advantage of this two-stage patenting scheme; they have focused more on utility model patent protection, given that it is much simpler, cheaper and faster to secure. Despite the lack of substantive examination and the shorter term of protection (10 years from filing date), the value of utility model patents should not be underestimated, as such patents may, for example, be successfully used for defensive purposes in patent litigation.
Ukraine is a first-to-file jurisdiction for patents; unregistered rights such as trade secrets and know-how are more difficult to protect under the current legal framework. In view of this, it is recommended to obtain patents, if applicable, rather than protect intellectual property contractually or on the basis of the statute (i.e. without any specific state registration).
The quality of patents obtained in Ukraine cannot be compared to that of their EU or US counterparts (something is usually lost in translation; Ukrpatent lacks experts in some specific industry sectors, and this affects the quality of examination, etc). Local entities, on the other hand, are becoming more confident and litigious, as they invariably respond to patent infringement actions by initiating invalidity proceedings. Therefore, resources must be committed in order to obtain good-quality Ukrainian patents that can withstand validity challenges.
Patent Due Diligence
Obtaining an accurate and comprehensive intellectual property evaluation in fast-moving, high-pressure mergers, acquisitions and investment transactions is critical. Businesses possessing large IP portfolios in Ukraine require a regular IP audit as well in order to efficiently operate their patents. The possible outcome of pending or potential patent litigation, the assignability of a company's patent-related agreements, and the scope and ownership of patent rights are just some of the issues to consider. Only recently have Ukrainian businessmen started to realize that only deep understanding of varied technologies and mastery of IP law can help their companies to react quickly to any issue that emerges during an IP transaction, to provide thoughtful and accurate answers to investors' questions, and to craft contract terms thatproperly allocate risks. Unlocking and understanding patented assets can reveal a company's position on the innovations market and expose roadblocks to maneuver around and opportunities for moving forward with confidence. In addition, a patent audit helps to leverage patents which, in turn, can often generate revenue streams, open new markets, or shut down competitors. Highly targeted and sophisticated analysis of patented assets can help to drive not only an equitable deal, but an entire innovative business.
The necessity and practical value of regular IP due diligence was recently perceptibly shown by the Decree of the Cabinet of Ministers of Ukraine On Approval of Criteria for Assessment of Risks Associated with Commercial Activities related to Use of Intellectual Property Objects, and Establishment of Frequency of State Inspections of Commercial Activities of 22 December 2010, No.1174. In compliance with the indicated Decree all companies in Ukraine should be divided into three categories of intellectual property risk (high, medium and minor risk categories), depending on the level of their engagement in IP objects use in commercial activities. In turn, the risk category of a company shall influence the frequency of state inspections thereof. Entities marked with a high risk label shall be inspected not more than once a year, those of medium risk — not more than once every three years, and those of minor risk — not more than once every five years. In view of the above Decree almost every business in Ukraine (from those dealing predominantly with IP to those who distantly related to IP) should be prepared well for coming IP inspections.
Ideally, patent due diligence investigations should be conducted at theonset of negotiations, allowing time for a reasoned analysis of the value of the patent portfolio and time for corrective action to address issues that may influence the deal. In the case of long-term, ongoing counseling on complex patent portfolios or litigation related to patent validity, enforceability, misuse issues, licensing potential, patent contract construction and enforcement, a patent audit should be regularly submitted (e.g. annually).
Patent due diligence can be efficiently rendered by a team of professionals in the IP field (patent attorneys, legal experts in patents, patent appraisers and respective technicians) possessing the necessary technical and legal background and experience that quickly identifies key issues, proposes options for mitigating risks, and outlines a strategy for strengthening a company's bargaining position. When choosing an IP adviser one should remember that there is no substitute for knowledge and experience when interpreting the data and how it can be used to shape your IP business strategy within the context of the market.
As the share of innovative business carefully grows in Ukrainian market, patents become more valuable and important assets. Patent regulation and practice evolves accordingly, which entails the necessity of invariable improvement of patent management. Patent due diligence is a necessary step to avoid costly mistakes, and properly conduct transactions involving patents and manage patent portfolios. This is true for both traditional brick and mortar companies and high tech companies. The specialized nature of patent due diligence requires the retention of IP professionals to properly perform the investigations.
Vasil Kisil & Partners
Through relentless focus on client success, the Vasil Kisil & Partners team delivers integrated legal solutions to complex business issues. In Ukraine, the Vasil Kisil & Partners brand is synonymous with great depth and breadth of legal expertise and experience, which has created superior value for our clients since 1992.
Vasil Kisil & Partners is a Ukrainian law firm that delivers integrated business law, dispute resolution services, tax law, energy and natural resources law, intellectual property law, international trade law, labour and employment law, real estate and construction law, as well as public private partnership, concessions & infrastructure law.
The firm serves international and domestic companies, as well as private individuals, dealing in agriculture, banking, chemical, construction, financial, energy, high-tech, general commodities, insurance, IT, media, metallurgy, pharmaceutical, real estate, shipbuilding, telecommunication, trading, transport, and other industries and economy sectors.
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.