Ukraine IT Landscape:
Legal Environment

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In May of 2001, the Business Software Association reported that global piracy increased by 1 percent to 37 percent during 2000.  While Vietnam (97% piracy rate), China (94%) and Indonesia (89%) were the top determinants of these losses, Ukraine followed at an 89% piracy rate, one of the highest rates in Eastern Europe.  Russia was fifth at 88%. 23 That same month, the US Trade Representative (USTR) designated Ukraine a "priority foreign country" which means that the US will not only target counterfeiters but will also apply trade sanctions to export staples such as textiles, steel and chemicals.  Another interested party is the European Union which, under the EU-Ukraine Partnership and Cooperation Agreement, is requiring that Ukraine align their intellectual property laws and enforcement with EU practices by the end of 2001.  This goal has reportedly not yet been met. According to the US and Foreign Commercial Service & the US Department of State, Ukraine is dominated by illegal software.  Illegal software accounts for 10-40% of software used by the government, 10-30% used by corporate customers, and 50-100% used by small and medium businesses.  Foreign software dominates the market for legitimate software users, reaching 95% for corporate customers. Although the piracy rate in Ukraine has been dropping slowly (by a few percentage points each year since 1995), piracy continues to cost retail software sellers in 2000 nearly $30M.  This is due, in large part, to Ukraine's weak intellectual property laws and a government that still lacks transparency and is unreliable in enforcement of existing laws.  This combination presents a major block for US companies interested in entering Ukraine, a market whose private sector desperately needs software solutions and packages to gain expansion success. 24 A legitimate market for computer software is slowly evolving.  This is due primarily to dealers selling computer hardware with preinstalled and legally acquired software.  And in 1999, the government allocated $13.8M to replace pirated software with legal software in some 50,000 personal computers used by the government.  However, that was two years ago.  The existing laws in Ukraine do not regulate the copying of software products.  Progress is moving ever so slowly along that front and will continue to do so in Ukraine until the level of corruption declines, transparency becomes present in monetary transactions, laws are put in place and court decisions are enforced. Domain Names After a decade of negotiation and scandal involving a Ukrainian-born computer programmer who now resides in the United States, local firms are finally authorized to begin selling "dot-ua" domain names (Web addresses).  As a result, Ukrainian Internet users can now register and surf .ua Web sites.  Previously only third-level domain names (www.xxx.kyiv.ua, www.xxx.com.ua) were available to those wanting to use Ukraine's national dot-ua "zone" (meaning all Web addresses that end in dot-ua). The right to assign dot-ua names immigrated to the United States along with the Ukrainian native (Mr. Kokhmanyuk) who, in the early 1990s, was the first person to register the dot-ua zone with the Internet Corporation for Assigned Names and Numbers (ICANN), the international organization that regulates domain names. That gave him control over all domains that end in dot-ua … until now.  Kokhmanyuk has granted the right to administer the second-level domain to Hostmaster Ltd., a Ukrainian company in which he owns an interest. 25 Under the agreement, Hostmaster operates as a domain name wholesaler, collecting an $18 fee for each domain name registered by the selected companies it has authorized to "retail" the domain licenses.  Those companies, called registrars, charge fees of $100 per year to register and maintain second-level dot-ua Web addresses.  That's about three times what registrars in the United States charge.  The new second-level dot-ua domains are the first Ukrainian domains issued for a price. Registration and maintenance of both new and existing third-level domains remains free for now. These new fees will likely scare off many companies, but Hostmaster says they will prove no obstacle for well-heeled international corporations.  Hostmaster also is required to review trademark documents submitted by applicants and verify their authenticity with Ukraine's patent authorities before a domain name can be assigned.  The requirement that domain names be trademarked doesn't apply to applicants for third-tier Ukrainian domains, or to U.S.-based dot-com domains.  That system has resulted in cyber-squatting, which encouraged speculators to reserve names that included high-profile trademarks, and then try to sell the names to the trademark owner - often at astronomical prices. Theoretically, Hostmaster’s system thwarts cyber-squatting.  It does create at least two other problems, though.  It can take years to obtain a routine trademark from Ukraine's patent office, and individuals could find it difficult to obtain hobby or personal domain names without registering them as trademarks first. Finally, the buyer is required to sign a document which binds them to the terms and conditions required by ICANN for name dispute resolution as noted in the ISP's business agreement.   Digital Signature Laws The Ukraine Parliament took its first steps toward providing legal backing and regulation for the use of electronic documents and electronic signatures in September of 2001, according to reports from the Internet newspaper Forum.  The first reading was passed on a bill which recognizes online documents and contracts as legally equivalent to paper-based documents and contracts. 26 The bill also validates contracts settled via e-mail using online signatures and foresees measures for developing electronic commerce and electronic settlements in securities trading.  Finally, the bill establishes state licensing and control over the use of electronic signatures and encryption technology.

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