Patent Trolls in the Ukrainian Realia

Illya Kostin, Partner with Legal Alliance Company

Nataliia Lavrenova, Counsel with Legal Alliance Company

The importance of intellectual property in economy and society on the whole can hardly be overestimated. Recognition that rights to created objects belong to authors and persons who received intellectual property rights and protection of such rights is one many conditions for development of scientific and technical field, production and trade.

Any law in the field of intellectual property shall protect owners (inventors) against unlawful interference with the results of their intellectual activity. Abuse of rights to intellectual property items, competition restrictions, preventing activity of market participants etc. can be observed recently with increasing frequency.

Current realia of patent trolls at the Ukrainian market attract more and more attention.

So, what is a “patent troll”?

Patent troll is a person or a company who holds patent but does not use patented technology to manufacture products and / or supply services thus asserting claims against those who manufacture such products and / or supply services. They extensively protect their patents initiating legal controversies, blocking competitors’ activity. Thus such persons and companies act in order to “sale patents” but not to manufacture products, supply services. Earlier “patent trolls’ appeared to help inventors who did not have sufficient funds and experience to promote their patents at the market and protect their rights. But in due course of time such companies started to abuse their rights. The term “patent troll” was used in 1933 for the first time to describe companies that filed aggressive lawsuits. Patent trolls may include institutes, individual inventors, companies that protect their rights in a wrong area of economic activity etc.

The year before Boston University specialists published their research in which they tried to estimate financial expenses caused by patent trolls’ activity in the US economy. Research authors found out that the most sufficient direct incidental expenses are born by small and medium innovative companies. While big companies are induced more rarely. As a result of patent trolls’ claims small companies bear heavy expenses, they have to reduce investments and close business. Patent trolls’ actions cause considerable business losses thus they are criticized more often. Apart from losses patent trolls’ stifle scientific research, competition and normal business cooperation. Excessive patent trolls’ actions refocus market from research, new developments, innovative technologies to mass patents, patents protecting commonly used standard procedures which do not have any inventive level or features of novelty. Attention paid to such patents is caused by the fact that such “simple” patents are widely used by producers to manufacture products or provide services which make it possible for patent trolls to act aggressively and get profit.

According to estimations of Boston University specialists patent trolls have become more active in recent years. Thus 1400 claims were filed in 2005 whereas 2500 companies defended themselves in 5842 court proceedings in 2011. Herewith small and medium companies account for 59% of court proceedings. The said study made it possible to estimate the problem of patent trolls. Information earlier not available for research and analysis was collected as a part of the study; the information contains patent trolls’ claims, costs associated with legal controversies, amounts of license fees etc. Herewith the study did not cover incidental costs but according to the authors’ estimations incidental costs make up a sum twice as big as annual average of direct costs.

Patent trolls are no exception for Ukraine. Recent trends evidence greater attention to patent trolls.

In Ukraine it is common to obtain declaration patents to utility models and inventions that do not meet patentability requirements. Such declaration patents protect utility models and inventions which are well known and do not have any features of novelty and inventive level.

Possibility to obtain such patents is provided by the Law of Ukraine “On Protection of Rights to Inventions and Utility Models”. Declaration patent application is subject to examination as to form only; it does not concern any features of novelty, inventive level and industrial applicability. It takes several months to conduct examination. According to Article 25 of the Law based on the results of examination as to form declaration patent shall be issued under the responsibility of patent holder for conformity of invention (utility model) to patentability requirements. But in spite of formal registration procedure declaration patent holders actually acquire the right to control the market of such products because patents grant exclusive rights to permit or prohibit usage of a patented invention (utility model).
Such control is also supported by the new Customs Code of Ukraine entered into force on 01.06.2012. With the adoption of the new Customs Code of Ukraine inventions, utility models, plants varieties can be enrolled into the Customs Intellectual Property Registry apart from copyright items, trademarks, industrial samples and geographical indications included in the previous code. Enrollment of intellectual property item into the customs registry is free of charge.

Thus with the adoption of the new Customs Code patent trolls have possibility to suspend customs registration of goods that breach their rights certified by patents. Suspension of a lot release on customs border inspires so called infringers to be quite accommodating which makes it possible for patent trolls to get proceeds of their “activity”.

After receipt of patent to a bicycle for example the holder should just wait for customs registration of a bicycles lot. Then the situation may develop in the following two ways: either importer “settles dispute” with patent holder or the parties resolve the dispute through legal proceedings. During the period of legal proceedings competitor can freely sale its products at the territory of Ukraine, undermining the importer’s authority and distracting attention to dispute resolution through legal proceedings.

Patent trolls development is now possible due to imperfections of intellectual property legislation. On the one hand quick and simple procedure of utility models registration allows inventors to quickly protect their products and start manufacturing process before it entered the market but on the other hand it makes possible for patent trolls to obtain patents to already existing products and abuse their patent rights.

When struggling with patent trolls in the EU and the USA the so called “FRAND” concept is used. “FRAND” term comes from the English “fair, reasonable and non-discriminatory”. The concept is expressed through wordings of definite prohibitions to license grantees and provides fair conditions of competition protection. Fair conditions stipule reasonable remuneration amount and non-discriminatory – equal terms for all license grantees.

According to many experts patent rights system shall be reviewed. Also development of concept aiming to struggle with patent trolls at the level of the Antimonopoly Committee of Ukraine is possible. But till legislation is unchanged market participants should rely only on the existing remedies and balance the interests.

Market participants should not neglect copyright items on the contrary they should pay them more attention, monitor registered patents, and analyze Customs Intellectual Property Registry. Also it is worth using the right to file request to the Ukrainian Institute of Industrial Property (Ukrpatent) about examination of patented invention (utility model) against its conformity to patentability requirements. According to Article 23 of the Law of Ukraine “On Protection of Rights to Inventions and Utility Models” such request can be filed by any person.