In Re (#4 April 2020)

Utility Model and Patent Trolling: Window of Opportunities Seemingly Closed

by Anton Polikarpov, Anna Kolodenska

Within the last year, Ukraine has taken a lot of measures to limit the possibility of abuse of law. Starting with changes to procedural codes and ending with legislation on intellectual property. As lawyers of big Ukrainian and international companies, we believe that such improvements benefit the conducting of fair business, which has a legal position and hopes to restore infringed rights as soon as possible.

Why do we generally talk about the abuse of law when recalling the utility model as an IP object?

Under Ukrainian law, a utility model, as well as an invention, is the result of human intellectual activity in any field of technology.

The object of a utility model may be a product, a process, and a new application of a product or process.

In Ukraine the difference between an invention and a utility model is that (1) a utility model must meet two criteria for patentability: novelty and industrial applicability (thus, an inventive step is not required) and (2) substantive examination is not carried out in the process of registering a utility model. This enables the applicant to receive a title of protection (a patent) at his/her own risk and without verification by the Ukrainian Institute of Intellectual Property (Ukrpatent) within 8-10 months from the date of filing of the application. The utility model patent provides its owner with the same rights as the owner of a patent for an invention.

Moreover, in order to invalidate a patent for a utility model, a person must go to the court following the same procedure and prepare the same evidence as in the case of a patent for an invention.

As a result of such preferential registration of a utility model and the absence of substantive examination, Ukrpatent has granted many patents for utility models which are unlikely to be new technical solutions. Thus, a box for transporting fruit, a cork for corking bottles, a container for transporting goods, a power cable, a ladder, a promotional medium, and many other patents that do not meet such a patentability criterion as novelty were registered as utility models and, consequently, were invalidated by a court.

Two categories of people have benefited from this situation for many years: (1) obvious patent trolls which have no own production and product as it is, (2) companies with their own production, but which understand that the technical solution may not be registered as an invention, but as they needed a title they obtained utility model patents.

How did these two categories of people proceed to use their exclusive proprietary rights?

The first ones, patent trolls, trying to ban the use of a patented object by means of blackmail, agreed with an alleged УinfringerФ, but in fact a fair business owner, about obtaining a license for their УsolutionФ and a regular or one-time payment. The second lot, noticing a competitor on the market who conducted a patent search when entering their product on the market, found analogues and considered their product as not requiring a patent due to the lack of novelty in the solution, went to a court so as to prohibit sales of such a product by a competitor.

Thus, as we see, the presence of such an IP object as a utility model leads to the fact that patent holders intentionally exercise their monopoly rights and receive unlawful benefits in bad faith.

What has been done at the legislative and enforcement level to solve the problem?

First. State fees were increased for actions related to protecting the rights to utility models.

The state fees for filing an application for an invention and utility model had remained the same till July 2019. However, the state fee for filing an application for a utility model is now 50% higher than the state fee for filing an application for an invention. The same applies to other fees. Thus, the state is building a financial barrier so that an inventor weighs ups the pros and cons when choosing an object to be protected. If he/she chooses a utility model, its protection will be more expensive in terms of state fees.

Second. In October 2019, the Verkhovna Rada of Ukraine adopted a draft law which, among other thing, excluded the utility model from the register of IP objects which are protected by the customs authorities when moving goods through the customs border of Ukraine. As soon as the law came into force, the customs authorities updated the respective register of IP objects. Now, the register does not contain any utility model.

This step enabled importers who were previously banned from importing goods containing a technical solution protected by a utility model patent to import their products into Ukraine. Furthermore, if the patent holder claims against the owner of such a product, he/she may file a lawsuit on the prohibition of the use of his/her patent through a court not during the customs clearance, but after the goods went into commercial circulation. However, this does not prevent honest importers from importing goods into Ukraine, which is a huge plus when deciding on sales. It is likely that a patent troll will not turn to a court to prohibit sales in Ukraine, taking into account known difficulties in obtaining interim measures to prohibit sales during the consideration of a dispute by a court.

Third. In February 2020, the Verkhovna Rada of Ukraine adopted the Draft Law On the Patent Law Reform (No. 2259) in the first reading. Among other changes, members of parliament also specified precisely what can be the object of a utility model. As we mentioned above, as of today, such objects can be products (devices, substances), processes and new applications of products or processes. In accordance with the draft law, only a device can be an object of a utility model. Basically, this makes it impossible to register, for example, the active substances of pharmaceutical and agrochemical preparations, the methods of their manufacture. Such objects should be registered as inventions.

However, the transitional provisions of this draft indicate that all patents granted on applications before the draft lawТs entry into force are valid. Thus, in our opinion, the owners of patents for utility models will find themselves in different conditions before the adoption of the law and after its adoption. It would be more correct to extend the effect of the law to previously granted patents or to enable interested parties to invalidate patents whose objects are not devices.

Patent trolling using a utility model will most likely be virtually impossible after the adoption and coming into force of the law.

Fourth. At the end of 2018, the Antimonopoly Committee of Ukraine adopted a decision on Article 15 of the Law of Ukraine On Protection Against Unfair Competition, according to which, achieving unfair competitive preferences is obtaining such preferences in relation to another business entity by violating current legislation, which is confirmed by the decision of the state authority.

The matter was as follows. In 2005 a company registered a utility model, which was then included in the customs register of IP objects. On the basis of this, the State Customs Service did not allow a competitor of this company to import its goods into the territory of Ukraine. This competitor filed a lawsuit to invalidate this utility model patent due to its non-compliance with such patentability criterion as УnoveltyФ. The court, in its turn, sustained the claim.

When considering this case, the Anti-Monopoly Committee of Ukraine established that the holder of a utility model patent violated current legislation and received unfair competitive preferences. Thus, the AMCU imposed a fine on the transgressor of more than USD 40,000. The AMCU decision was supported by the courts.

All of the above shows that Ukraine is not only aware of the problem of abuse of IP rights, but is also taking active measures to solve the problem.

Anton Polikarpov is a counsel, head of the IP practice at AVELLUM

Anna Kolodenska is an associate at AVELLUM

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