Addressing Intellectual Property Rights
Reforms in Kazakhstan

Lyazzat Zhunisbekova

Commercial Diplomacy
Master’s Project

Advisor: Geza Feketekuty

MONTEREY INSTITUTE
OF INTERNATIONAL STUDIES

April, 1999

This paper was researched and written to fulfill the M.A. project requirement for the Monterey Institute of International Studies’ Master of Arts in Commercial Diplomacy. For more information about the Commercial Diplomacy program and the M.A. project requirement, please visit www.commercialdiplomacy.org.

Scenario

This project was completed to fulfill the requirements of the Monterey Institute of International Studies’ Master of Arts in Commercial Diplomacy degree.

For the purpose of this project, I have assumed the role of an independent trade consultant to Kazakhstan’s Ministry of Energy, Industry and Trade. In this fictitious capacity, I propose a strategy for bringing Kazakhstan's Intellectual Property Rights Regime into compliance with the minimum international standards incorporated in the Trade Related Intellectual Property Rights (TRIPS) Agreement of the World Trade Organization (WTO).

Joining the TRIPS Agreement is a key requirement for Kazakhstan's accession to the WTO. Acceding to the TRIPS Agreement will also contribute significantly to the establishment of a stable business and investment environment in Kazakhstan.

The following strategies support the Kazakhstani President's vision to develop Kazakhstan as the first "Asian Snow Leopard," and to bring economic, political and social advances to the country.

Executive Summary

Issue

Inadequate intellectual property rights protection in Kazakhstan is a key obstacle to attracting foreign direct investment to the country; it is also a major impediment to Kazakhstan’s accession to the WTO. The country’s lack of IPR protection results in enormous business losses. Losses to domestic industries from counterfeiting and piracy alone are estimated at $295 million per year, or 1.3 percent of Kazakhstan’s GDP. Kazakhstan’s weak IPR protection has undermined foreign direct investment from the United States, which currently invests $1.5 billion in Kazakhstan per year, accounting for 28 percent of total investment in Kazakhstan.

Objective

Kazakhstan’s IPR regime must be brought into compliance with international standards, the most important of which is the WTO TRIPS Agreement. Strengthening IPR protection will speed Kazakhstan’s accession to the WTO and considerably increase foreign investment inflows.

Background

Creation of a new set of laws, including appropriate enforcement mechanisms, to protect intellectual property rights has been a major challenge for Kazakhstan. Prior to 1991 when the country gained independence, private property did not exist. The country’s centrally planned, soviet system protected state property laws, however even these laws were geared more toward controlling the economy than protecting property.

As a result, the population of present-day Kazakhstan does not understand the concept of intellectual property rights. Within the government and general population, there is a general perception that developed countries gain immediate benefits from IPR protection while Kazakhstan, as a country in transition with an unstable economy, gains very little. The following are some common perceptions:

·        Because developed nations have comparative advantages in supplying technology, capital and services, IPR protection will initially help them more than Kazakhstan.

·        Piracy brings commercial benefits to Kazakhstan because consumers can buy goods at lower prices. This stimulates domestic production and enhances employment.

·        Monetary values cannot be placed on intangible items. People should not pay for expressions of ideas.

IPR Legislation

Kazakhstan has already made great strides toward establishing an IPR regime that meets international standards. In anticipation of the 1992 U.S. – Kazakhstan Bilateral Trade Agreement, Kazakhstan joined a number of international treaties and conventions, including the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty, and the Berne Convention. In 1996, the country also passed the Law on Copyright and Neighboring Rights, which covers a wide number of intellectual property areas such as computer programs, sound recordings, exclusive rights of reproduction for copyright owners, and penalties for infringement. Additionally, the Criminal Code was revised in 1997 to strengthen the Kazakhstani government’s means of enforcing these laws. The new Code includes substantial fines and imprisonment for infringers.

Nonetheless, Kazakhstan’s IPR laws still lack certain provisions crucial to compliance with the TRIPS Agreement. As committed to in the Bilateral Trade Agreement with the United States, Kazakhstan must begin adhering to the Geneva Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms in order to provide protection to sound recordings. Kazakhstan has signed but not ratified the 1997 WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). Laws on the protection of undisclosed information and integrated circuits need to be enacted. Moreover, many of Kazakhstan’s IPR laws still do not include adequate enforcement provisions.

Enforcement

Where enforcement provisions are included in Kazakhstan’s IPR laws, they are often rendered useless by unnecessarily complicated and costly procedures required for invoking these provisions. The enforcement process is extremely slow with many unwarranted delays.

The National Patent Office and the Agency for Copyright at the Ministry of Energy, Industry and Trade are the administrative agencies that oversee IPR protection. Their staffs are small and poorly equipped. Staff incompetence on IPR issues creates difficulties in registering trademarks, obtaining patents and addressing copyright infringements. Kazakhstan’s courts do not have a sufficient number of judges familiar with IPR cases, and court decisions are often biased and lack written reasoning to back them up. All of these factors contribute to the problem of corruption, as well as the inadequate functioning of the judiciary institutions. The Customs Administration does not participate in preventing IPR violations because there are currently no legislative acts that regulate Customs’ involvement in IPR enforcement.

These conditions make the coordination of enforcement activities difficult to manage. To make matters worse, IPR enforcement requires that financial resources be effectively distributed, but corruption often impedes such distribution. The lack of transparency of governmental actions in Kazakhstan, as well as the general non-existence of the rule of law, is also a problem.

To strengthen Kazakhstan’s IPR regime and bring it into compliance with the international standards incorporated in the WTO TRIPS Agreement, I recommend the Ministry of Energy, Industry and Trade take the following actions:

Ø      Necessary Reforms:

1.      Legislative:

a)      Enact the Law on the Protection of Independently Created Industrial Designs

b)      Enact the Law on the Protection of Layout-designs (topographies) of Integrated Circuits

c)      Adopt the Geneva Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms

d)      Issue a Decree Establishing the National Agency for the Protection of Intellectual Property Rights

2.      Procedural:

a)      Reform IPR related administration procedures, including patent and trademark registration procedures

b)      Reform judiciary processes and structures for enforcing IPR laws, including increasing the number of judges knowledgeable about IPR

c)      Revise the Customs Service’s authority for stopping pirated goods at the border, and institute procedures to facilitate the exercise of this authority

Ø      To build broad support for IPR, the Ministry of Energy, Industry and Trade needs the assistance of the private sector. A Coalition for Intellectual Property Rights Protection (CIPRP) should be formed to implement a domestic strategy for passing necessary legislation and strengthening enforcement mechanisms. A Coalition could also help with the development of an international negotiating strategy to help speed Kazakhstan’s accession to the WTO. The Coalition should be comprised of businessmen and scientists who have access to the political elite and can influence the country’s top policymakers. Representatives of domestic and international trade associations should also be included.

Ø      Building consensus among government officials and gaining support of the President is crucial to successful IPR reform in Kazakhstan. All ministries need to understand the long-term economic benefits of a sound IPR regime. The Ministry of Energy, Industry and Trade needs to pursue an executive strategy to target the Prime Minister and the ministers who are close to the President in order to obtain his full support for IPR reform.

Ø      A legislative strategy should be developed to convince the Parliament to adopt the proposed legislation. This strategy should be designed to overcome Parliament’s lack of specific knowledge of IPR, its unwillingness to give priority to this issue until after “more important” issues are solved, and pressures from domestic protectionist groups. The Ministry, with the support of the Coalition, should inform legislators about the benefits of IPR protection. Political parties should be targeted to assure their commitments to the IPR reforms.

Ø      The Coalition for Intellectual Property Rights protection will play an important role in implementing the domestic media strategy. To build public support, the coalition will need to overcome the public’s general lack of awareness of IPR issues.  Members of the Coalition who are well-known public figures can change public opinion through educational campaigns. National writers and singers can inform the general population about the negative impact of IPR violations on their professional activities and job stability. TV advertising campaigns and press conferences in the most popular national newspapers such as “Panorama,” “Caravan,” and “Delovaya Nedelya” will be effective tools for obtaining public support.

Ø      The Government of Kazakhstan, with the assistance of the Coalition, should pursue an international strategy that includes media and negotiation strategies. The objective of the media strategy is to communicate the image of Kazakhstan as a country that is both moving progressively towards a market-oriented economy and implementing the reforms necessary for building a stable business environment. The international media strategy should attract the attention of international organizations and help the country gain technical assistance in conducting IPR reforms.

Ø      The Government of Kazakhstan will need a strategy for its WTO accession negotiations. Kazakhstan should convince WTO members that the IPR reforms Kazakhstan has already implemented are as good as they can be at this stage of the country’s development. Because the domestic political institutions that regulate protection of intellectual property rights and other new areas of trade policy are still relatively weak, Kazakhstan cannot fully comply with the IPR requirements of the WTO Agreement at the present time. Implementing legislation needed for comprehensive IPR protection and enforcement will require considerable time, especially because Kazakhstan is only now beginning the process of organizing its governmental institutions.

Background: IPR Protection in Kazakhstan

Prior to gaining independence, Kazahkstan’s economy was centrally planned for 70 years. During that time, laws and enforcement mechanisms for the protection of state intellectual property were developed, but protection of private property, intellectual or otherwise, was almost non-existent. Wealth and property, whether private or industrial, belonged to the state. Creative ideas and expressions were state property and could be used for the good of the country without authorization from the inventor. Indeed, implementation of private copyright and other private intellectual property rights would have contravened the fundamental communist belief in communal property.[1]

Thus, while the soviet regime did include a system for registering patents, trademarks and copyrights, these rights were held by the state and served the purpose of helping the state regulate the economy rather than that of protecting individuals’ inventions.[2] The system provided no protection for infringements involving producers of sound recordings, performers, or broadcasters. Moreover, criminal code sanctions for copyright infringements were deficient. They lacked jail terms and imposed only small fines or obligatory labor.

The breakdown of the socialist economic system left Kazakhstan with no IPR protection whatsoever. However, since gaining independence in 1991, Kazakhstan has made considerable changes in its IPR regime, putting into place the statutory framework for bringing the country's IPR protection up to modern standards. Specifically, the government of Kazakhstan has adopted the following legislative acts:

1.            In May 1992, Kazakhstan signed a Bilateral Trade Agreement with the United States, which entered into force on February 18, 1993. The Agreement required Kazakhstan to provide high standards of protection for intellectual property and included wide-ranging commitments for Kazakhstan to enact and enforce modern laws protecting intellectual property rights before December 31, 1993. In return, Kazakhstan became eligible for “most favored nation” status and became a beneficiary country under the Generalized System of Preferences (GSP), a program through which the United States grants preferential duty-free status on specified imports.  The GSP program requires that countries provide “adequate and effective” copyright protection and enforcement to U.S. copyright owners. The United States also acknowledged in the Agreement Kazakhstan’s adherence to the Universal Copyright Convention (U.C.C.), which the Soviet Union joined on May 27, 1973. In anticipation of the Bilateral Trade Agreement, Kazakhstan acceded to the Paris convention for the Protection of Industrial Property, the Patent Cooperation Treaty, the Madrid Agreement Concerning the International Registration of Marks, and WIPO. Kazakhstan recently became a member of the Berne Convention for the Protection of Literary and Artistic Works.[3]

2.            In February 1996, Kazakhstan passed a new Law on Copyright and Neighboring Rights, which came into force on June 10, 1996. That law was closely modeled on the Russian Federation’s 1993 copyright law and WIPO’s model law. Among its many features, the law for the first time protects computer programs and sound recordings; it provides copyright owners with exclusive rights of reproduction and distribution (including importation, rental and public lending); and it protects public display and public performance, broadcasting, and the right of translation and adaptation. It provides a Berne-compatible term of life plus fifty years and includes sanctions for infringement. The penalties for copyright or neighboring rights violations include statutory penalties of up to 50,000 times Kazakhstan's minimum wage.[4]

3.            In July 1997, the President of Kazakhstan issued a resolution on the adoption of a new Criminal Code of the Republic of Kazakhstan, which entered into force on January 1, 1998. This code covers copyright and other intellectual property rights violations not previously covered in the 1959 Criminal Code. It includes substantial fines of up to 500 times the monthly wage and imprisonment of up to five years for repeat offenders.

Copyrights

Copyrights are registered at the Agency for Copyright at the Ministry of Energy, Industry and Trade. To begin a civil action against a copyright violator, the copyright holder must file a complaint with the appropriate civil court. The copyright holder must provide a detailed description of the nature of the injury and determine the amount of damages caused by the infringement. In practice, no civil suits are brought because the proceedings are slow and document intensive, and no injunctions or seizures are available. Therefore, most people prefer to pursue criminal actions against copyright violators. Evidence of the crime and the name of the person who allegedly infringes the copyright must be provided. Further, copyright holders must provide a complete statement of the law to the attorney general since copyright violations and copyright law are not well understood. The action can take one year or more. Establishing good personal relations with prosecutors usually helps the right holders win the case.

Industrial Property Rights

Since 1992, the National Patent Office, located in Almaty, the former capital of Kazakhstan, has administered the system of industrial property rights including patents and trademarks. In Kazakhstan, existing Soviet patents were converted to Kazakhstani patents. National legislation on the protection of patents will be enacted in 1999. As noted above Kazakhstan already has joined various international agreements that apply to industrial property rights. Further regulations on integrated circuits and a law on commercial secrets are expected to be enacted in 1999.

Novelty, inventive activity, and industrial application are considered in determining whether or not an invention is eligible for protection. An invention is considered novel when it is not state-of-the-art. Inventive activity is the creative process providing results that cannot be obtained from state-of-the-art methods by a person skilled in the art. The patent legislation excludes certain products such as layout designs and plant variety.

Kazakhstan’s patent registration system works not on the first-to-invent but rather the first-to-file principle. Thus, unlike in the United States, the person or company who first files a patent application is considered the inventor and will be the owner of the future patent. Complete registration can take about two years.

As for trade and service marks, they may be registered with the National Patent Office for a period of 10 years and may be renewed every 10 years. Only visible signs may be registered. If a trademark is similar enough to another that it could cause confusion, the trademark may not be registered. It usually takes one and a half years to complete a trademark registration. Licensing agreements regarding trademarks must also be registered.

The Criminal Code enacted in 1998 covers violations of industrial property rights. Damages can be recovered through a civil trial. However both criminal and civil cases are almost non-existent because they are time-consuming, expensive and almost always unproductive. The Civil Code includes substantial fines for violation of industrial property rights. However, these remedies too are more theoretical than practical.

In addition to the Criminal and Civil Codes, administrative procedures are in place for declaring a patent null or canceling a patent or trademark under certain circumstances. To make a complaint, the complainant must file an application at the National Patent Office in Almaty. The application must be in writing and signed by the interested party, and it must contain the applicant’s and the opposing party’s name and address, as well as the purpose of the application and facts and provisions of the law.

Piracy in Kazakhstan

Kazakhstan has undertaken significant steps toward improving its IPR regime. However, the process of establishing respect for intellectual property rights is very slow. It is still common to watch Western movies on Kazakhstani television long before they are released for the U.S. audiences. Many television stations broadcast U.S. and Western programs via satellite. Illegal distribution of pirated videocassettes comes mostly from Russian intermediaries, who are also the main source of bootleg software.[5]

On May 1, 1998 the USTR included Kazakhstan on its Special 301 Watch List because Kazakhstan had not met its bilateral intellectual property rights obligations. In announcing this determination, the USTR declared that:

“Kazakhstan has several remaining steps to take to fulfill the IPR commitments under our bilateral trade agreement. It needs to adhere to the Berne Convention for the protection of Literary and Artistic Works and the Geneva Phonograms Convention, provide full-term retroactive protection for US copyrights, specify protection for sound recordings under the copyright law, license television, broadcasting stations, and increase copyright enforcement. Piracy of all copyrighted products is reportedly widespread and there have been no known enforcement measures to date. We look to Kazakhstan to begin significant enforcement measures to reduce piracy rates, to complete its bilateral IPR obligations, and to move toward making its IPR regime consistent with the TRIPS Agreement before it accedes to the WTO”.

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