“Gray” market of home appliances and electronics in Ukraine. Online commerce. VERSION 2.0

Konstantin Gamkrelidze

Senior partner, attorney

DEGA Partners Law Firm

According to GfK company research, the share of “gray” imports, sales of “gray” imports of household appliances and electronics in 2019 in Ukraine is 24% of total sales of the legal market of this segment of the economy of Ukraine, which in foreign currency equivalent is 20.5 billion UAH, or 792 million USD.

What are the prospects of the “gray” market of home appliances and electronics in a crisis in the world economy, preventive epidemiological measures related to the pandemic virus COVID-19, restriction of trade networks, temporary closure of international logistics supply channels, closure of customs checkpoints and other negative factors in trade?

According to the results of the comparative analysis of indicators for 2018 and 2019, it should be noted the increase in “gray” imports in 2019. General indicators and market sentiment in early 2020 indicate the expected growth dynamics of “gray” imports.

Among the additional factors that will contribute to this trend in 2020, we can highlight:

forcible restriction of the functioning of trade networks with the appropriate closure of the legal retail market in connection with the introduction in Ukraine of restrictive measures to prevent infection of the population with the COVID-19 virus;
unforeseen currency fluctuations and the presence of consumers of significant financial assets with the risk of their depreciation;
large price dumping in the offers of sellers of products illegally imported into the territory of Ukraine against the background of the absence of a legal market for goods.

The specifics of the work of most subjects of e-commerce of home appliances and electronics is to operate in the “shadow”, in the absence of identification of business entities, in order to evade taxation and avoid liability for violations of the law. Such subjects always have the opportunity to “earn” with the use of illegal schemes. And now they see a real opportunity to work without competitors (entities that legally import and sell equipment in Ukraine), as corporate security measures of the latter are aimed at complying with legal restrictions on the mode of operation of companies as a whole and their staff.

It should be noted that an additional incentive for the growth of the “gray” e-commerce sector is the introduction of restrictions on the influence of regulatory and law enforcement agencies on the implementation of illegal activities, as government agencies also operate in a quarantine regime.

Undoubtedly, the prosperity of “gray” imports in the e-commerce market in 2020 will lead to:

unequal conditions for official players in the market of home appliances and electronics (because the price of “gray” market players is inadequately low – 20-25% lower than the economically justified price per unit of equipment);
losses of the state budget in the form of unpaid taxes both from import, and from sale of equipment to final consumers;
increase of risks for consumers when buying “gray” imports, which are related to non-compliance with the requirements of the Law of Ukraine “On Consumer Protection” in terms of supporting warranty obligations, the possibility of returning the goods received within 14 days, etc. .;
loss of trust of international companies and reduction of investment attractiveness of Ukraine.

The key to success in overcoming such a phenomenon as “gray” imports is the systematic work with violators by legal business; by state institutions of Ukraine at all levels of government (executive, legislative, judicial), as well as by the media, which form the public vision and attitude to this problem.

As for the fight of legal business against “gray” imports, the most effective tools of legal influence on violators are the following:

1. Claim work on behalf of the owner of the trademark, which allows:

to carry out effective claim work through global search engines (for example, Google), administration of social networks (for example, Facebook), administration of video / photo hosting resources (Youtube, Instagram), because these structures are the main driving force for sellers to promote “gray” imports web resources;
to carry out effective claims work through the administration of large marketplaces and price aggregators, which act as platforms for saturating sites with high consumer traffic;
to carry out effective claims work through hosting providers, which are actually responsible for the placement of Internet resources that sell “gray” goods on their technical platforms.

2. Initiation of criminal prosecution of violators by appealing to:

bodies of the National Police of Ukraine with a statement on the commission of an offense under Art. 190 of the Criminal code of Ukraine (fraud);
bodies of the National Police of Ukraine with a statement on the commission of an offense under Art. 229 of the Criminal code of Ukraine (illegal use of TM) (submitted on behalf of the right holder of TM);
bodies of fiscal police with the statement on commission of the offense provided by Art. 212 of the Criminal code of Ukraine (tax evasion).

3. Judicial protection of infringed rights (trademark owner or consumer whose rights have been infringed during the purchase of illegally imported products into Ukraine).

Statistics of successful cases of DEGA Partners Law Firm on the above issues for 2019 allow us to conclude that the skillful use of the above tools of legal influence can be effective for legal business, as it will significantly strengthen its position in the e-commerce market and eliminate dishonest players.

So, in 2019 and the first quarter of 2020, the lawyers of our company:

– pre-trial claims work was carried out with violators engaged in the sale on the Internet of products illegally imported into Ukraine, as a result of which commodity positions on more than 460 web resources, including price aggregators and marketplaces, were closed / removed;

– pre-trial claims work was carried out with violators engaged in offering “fictitious” service on the Internet, as a result of which 12 large “fictitious” services were closed (closing was preceded by a detailed legal investigation to identify persons involved in the service);

– for the first time in law enforcement brought to criminal responsibility under Art. 229 of the Criminal Code of Ukraine, the owner of a large online store (“gray” import) and collected in favor of the owner of the trademark losses for illegal use of the trademark;

– developed a positive practice of conducting domain name disputes in the courts of Ukraine with the obligation of hosting providers to stop delegating the domain name of the Internet resource, which violates the right to use the trademark;

– developed approaches and methodology of interaction with state control bodies of Ukraine to stop the implementation of “gray” imports / counterfeits in Ukraine (Department of Consumer Protection of the State Food and Consumer Services of Ukraine, SFS of Ukraine, etc.), as well as law enforcement agencies of Ukraine to investigate criminal cases and prosecute sellers “Gray” import / counterfeit (Article 190 of the Criminal Code of Ukraine “Fraud”, Article 212 of the Criminal Code of Ukraine “Tax Evasion”).

Under such circumstances, we plan to apply and improve all the experience and skills gained in the fight against “gray” imports and counterfeiting in 2020.