Alternative Dispute Resolution: Mongolian Approach to Mediation

Mediation a method of alternative dispute resolution parties to any agreement should consider, aside from arbitration. Mediation is essentially a negotiation facilitated by a neutral third party. Unlike arbitration, which takes a form more similar to trial, mediation doesn’t involve decision making by the neutral third party, but seeks to find a mutually acceptable resolution or compromise between the parties. Mediation procedures can be initiated by the parties or may be compelled by legislation, the courts, or contractual terms. When parties are unwilling or unable to resolve a dispute, one good option is to turn to mediation. Mediation is generally a short-term, structured, task-oriented, and “hands-on” process.

In Mongolia the institution of mediation was established by adoption of the Law on Mediation in 2012. Pursuant to Law, mediation may be used in civil legal disputes, individual labor disputes and disputes arising from family relationships, and in some other disputes only if specified by law.

In mediation, the disputing parties work with a neutral third party, the mediator, to resolve their disputes. The mediator facilitates the resolution of the parties’ disputes by supervising the exchange of information and the bargaining process. The mediator helps the parties find common ground and deal with unrealistic expectations. The mediator may also offer creative solutions and assist in drafting a final settlement. The role of the mediator is to interpret concerns, relay information between the parties, frame issues, and define the problems. Unlike the litigation process or arbitration, where a neutral third party (judge or arbitrator) imposes a decision over the matter, the parties and their mediator ordinarily control the mediation process – deciding when and where the mediation takes place, who will be present, how the mediation will be paid for, and how the mediator will interact with the parties.

A mediator is a specialized person, who is certified and registered in the list of mediators. Anyone with higher education may attend training courses for mediators and become a certified and registered mediator. However, currently most certified and registered mediators are usually lawyers or persons with certain legal or economic background. Law on Mediation provides presence of mediation centers at courts of first instance. Law also permits government authorities, NGOs and professional associations to have medication centers in accordance with their direction of professional activity, provided that certified and registered mediators are employed.

New Law Needed to Protect Internet Domain Names as Intellectual Property

Many companies wish to utilize a national top level domain in their online “URL” to indicate that the company, and products or services offered are local to a specific country. For example, a Mongolian company may utilize “.mn” to indicate to the world it is based in Mongolia, while an international company may establish a separate “.mn” website to target the Mongolia market.

Datacom LLC, a Mongolian company, holds the right to issue “.mn” domain name and has been doing so since 1996. Also, Erdemnet issues “edu.mn” domain name for educational organizations and National Data Center issues “gov.mn” domain name for government organizations.

Currently, there is a domain name registration system operated by the the National Data Center. However, there are many violations of the domain registration process because there is no legislation regarding registration and use of domain names in Mongolia. Many in the Mongolia IT sector have advocated for such a law as it is required to establish the legal basis for registering, possessing and using domain names. Having such law is also critical to avoid and mitigate potential for intellectual property rights infringement.

Illegal circulation of intellectual property in the internet or electronic environment is widespread. In particular, copyright ingringement, namely the music and film are widely copied illegally and available online.

Both the General Authority for Intellectual Property and the State Registration and Communications Regulatory Commission of Mongolia fight againt the copyright’s infringement in the internet and have authority to shut down the domain names which are found to use or make available intellectual property without constant of the owners. However, there is a continous cycle in which a site which finds it’s domain name shut-down quickly re-openeds and posts copyrighted contend under a new domain name. A formal domain name law would help to stop this process.

The Mongolian Parliament adopted the Resolution /No.11/, “List of Laws and Regulations need to be updated by 2020” on 12 January, 2017. According to the resolution, Law on Domain Names is scheduled to be enacted in the near future.

Franchising in Mongolia: Licensing your IP

This is the third part of our look at the uses of intellectual property in Mongolian franchises. You can find the first part here, and the second part here. We will discuss the use of licensing agreements as part of franchise IP management.

While in general, franchisors do own their intellectual property, this is not always strictly the case. In many franchise businesses, trademarks and other intellectual property elements may instead be owned by a parent company or even an affiliated company. In such cases, intellectual property is usually licensed from the legal entity that owns it to the franchisor, which then has the right to sell franchises and sub-license the use of intellectual property to the franchisees.

If the franchise agreement has been properly drafted, then this licensing/sub-licensing relationship between parent company or affiliated entity and the franchisor will be reflected in the wording of the agreement. There are quite a few places in a franchise agreement where special care must be given to properly set out who actually owns trademarks and other intellectual property if the franchisor itself is not their owner.

Pursuant to the Law on Trademarks and Geographical Indications, any licensing agreement is subject to state registration with intellectual property authority, otherwise such licensing agreement is deemed invalid.

Whenever someone uses, without permission, a trademark (sometimes even a trade dress) that is the same as or confusingly similar to that of a franchise system, that is a case of trademark infringement. It is becoming increasingly common to find the look, feel and design of one franchise business being copied elsewhere. In some of these cases, there is clearly an intent to pass off the copycat operation as a franchise.

A strong franchise system depends on a strong brand and must therefore protect its trademarks, copyrights, trade secrets and trade dress. For these reasons, franchisors need to spend a lot of time, attention and money to maintain, improve and protect their intellectual property. Their franchisees, in turn, will benefit from a strong protection strategy, as it ensures the rights for which they have paid, over the stated term.

Franchising in Mongolia: Intellectual Property is More than Trademarks

In the first part of this series we have discussed about trademarks as part of franchise system. In this part we will discuss about other elements of intellectual property that may be utilized in franchise system.

Other critical element of intellectual property in franchise systems are copyrights. Pursuant to law copyright protects the fixation of the expression of an idea in a tangible form, whether written, verbal, graphical or other objective forms. Copyright exists in a variety of items commonly used by a franchise: training videos, marketing material, ads, websites, music, logos and software. There is significant value to the copyright-protected materials incorporated into a franchise system and, like trademarks, these elements are licensed by the franchisor to the franchisee for use in the franchised business. And, unlike trademarks, copyrights do not have to be registered in order to be protected.

Trade dress is what makes a franchise system unique and distinctive from others, including the overall visual look, feel and impression of a location. Some part of trade dress may be protected by copyrights.

Not all franchises involve trade secrets (i.e. confidential information), but it is typical to see franchise systems maintaining some aspects of their operations as strictly confidential and maintained as trade secrets. In Mongolia there is no law that regulates specifically trade secrets or business aspects of trade secrets. However pursuant to Law on Corporate secret, any corporate information, document, research, method, solution, project and etc. which holds economic value may be considered confidential corporate secret (trade secret) and may be protected from divulgence. In the context of the franchise arrangement, the need and desire to share information with franchisees competes with the legal necessity of limiting the distribution of true trade secret material. Reasonable steps to ensure the identification and protectability of trade secrets include: confidentiality or non-disclosure agreements and clauses; marking of claimed trade secret material, limiting the distribution to “need to know”, password protected computer systems and databases, and locks on cabinets and doors. In some cases, a franchisor’s trade secrets are not even divulged to the franchisee, such as the specific recipes or bulk ingredients required to create a quick-service restaurant chain’s signature sauces.

Patents are usually not included in franchise systems, but they can be. Patent registrations are intended to protect an inventor’s rights to specific inventions, such as a newly engineered product, medical device, drug or other innovation. Unless a franchise system has specifically developed its own equipment, it generally will not include any patents within its intellectual property.

It is very important for franchisor, as well as franchisee, to take the time to fully analyze and review any franchise agreement, disclosure document and respective attachments before signing them. While the above information serves as a general overview, as always, one should seek their own legal advice when reviewing a franchise agreement. Only then it is possible to obtain specific information and recommendations relevant to particular circumstances.

Establishing a Mongolian Franchise Business: Protect Your Intellectual Property

In a recent blog post we discussed the franchise business model and it’s rapid growth in Mongolia. In a new three-part article series, we will dive deeper into franchise agreements in Mongolia and look at intellectual property, which is one of the most important aspects of a franchise system, and its importance.

Intellectual property law and business law have many areas that overlap. Franchising, in particular, is a unique business model, with the franchisor’s intellectual property at its core.

As such, intellectual property is one of the most important elements of any franchise. Within the franchise agreement, one of the core assets and rights that franchisor will be granting to franchisees will be a license permitting a franchisee to utilize their intellectual property and, in turn, franchisor is declaring to a franchisee that franchisor owns the intellectual property and will protect and defend it. So, it is important for franchisor to make sure that they actually own and can protect intellectual property that they are purportedly licensing to franchisees. Especially, when entering into a franchise agreement with franchisee, who will operate in another country.

These days most people are familiar with the term “intellectual property”, but not everyone understands the differences between various types of it. Intellectual property may include trademarks, copyrights, trade secrets, trade dress (i.e. the look, feel and distinctive elements of a franchise system, such as the interior design, layout and other visual aspects of a franchise location) and sometimes patents under which franchise businesses operate.

Trademarks are perhaps the most commonly recognized and well-known element of intellectual property. The Mongolia Law on Trademarks and Geographical Indications defines trademarks as expressions with distinction, which are used by legal entity or individual in order to distinguish their products or services from that of others. Trademarks can include business names, taglines, service names, logo designs and specific color or color combinations, etc. They are among the visual components of a franchise business.

Just because franchisor has used their trademark for many years it does not mean that trademark is legally protectable nor that they own it. First, franchisor needs to properly register their trademark with intellectual property authority. Secondly, if franchisor is entering into franchise agreement with franchisee, who will operate in another country, franchisor needs to register their trademark in the country where franchisee will operate as well. This way franchisor asserts their ownership of trademark and ensures protection of their trademark from other infringers (such as copycats and confusingly similar marks).

Mongolia’s Double Taxation Treaties

Many countries have entered into tax treaties (also called double tax agreements, or DTAs) with other countries to avoid or mitigate double taxationDouble taxation is the levying of tax by two or more jurisdictions on the same declared income, asset or financial transaction. Double liability is mitigated in a number of ways, for example:

  • the main taxing jurisdiction may exempt foreign-source income from tax,
  • the main taxing jurisdiction may exempt foreign-source income from tax if tax had been paid on it in another jurisdiction, or above some benchmark to not include tax haven jurisdictions,
  • the main taxing jurisdiction may tax the foreign-source income but give a credit for foreign jurisdiction taxes paid.

Another approach is for the jurisdictions affected to enter into a tax treaty which sets out rules to avoid double taxation. In the all over the world, over 3000 double taxation agreement (DTAs) are in effect.

Mongolia has entered into “The Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital” with other 25 jurisdictions as of 2017. Namely,

Country In force since
1 The People’s Republic of China Jan 01, 1993
2 The Republic of Korea Jan 01, 1993
3 The Federal Republic of Germany Jan 01, 1997
4 The Republic of India Jan 01, 1997
5 The Socialist Republic of Vietnam Jan 01, 1997
6 The Republic of Turkey Jan 01, 1997
7 The United Kingdom of Great Britain and Northern Ireland Jan 01, 1997
8 The Republic of Hungary Jan 01, 1997
9 Malaysia Jan 01, 1997
10 The Russian Federation Jan 01, 1998
11 The Republic of Indonesia Jan 01, 1998
12 The Republic of France Jan 01, 1999
13 Czech Republic Jan 01, 1999
14 The Kingdom of Belgium Jan 01, 1999
15 The Republic of Kazakhstan Jan 01, 2000
16 The Republic of Kyrgyz Jan 01, 2000
17 The Republic of Poland Jan 01, 2002
18 The Republic of Bulgaria Jan 01, 2002
19 The Swiss Confederation Jan 01, 2002
20 Ukraine Jan 01, 2003
21 Canada Jan 01, 2003
22 The Republic of Singapore Jan 01, 2005
23 The Democratic People’s Republic of Korea Jan 01, 2005
24 The Republic of Austria Jan 01, 2005
25 The Republic of Belarus May 28, 2001

Mongolia’s double tax treaties with United Arab Emirates and Kuwait were terminated from 1 January 2015 and 1 April 2015 respectively. Mongolia’s double tax treaties with Luxembourg and The Netherlands were terminated from 1 January 2014 due to failure to provide for the balance and equity rights of parties.

Mandatory Military Service in Mongolia

Soldiers’ Day in Mongolia was recognized on March 18th.

In Mongolia, one year of military service is compulsory for all male citizens between 18 and 25 years of age. Male citizens must perform conscript service of 12 months in armed forces or border forces. However, laws also provide alternative ways to perform military service. Male citizens, who are of age of military service, due to religious grounds or conscientious objections may opt for alternative service of 24 months by assisting in humanitarian activities, or assisting in combating the natural disasters, or assisting the border services. For this alternative service the conscript may continue his life as usual but must be ready at all times to serve when summoned for duty by military staff of relevant province, city or district.

Another alternative way of performing military services is available for college and university male students – a program called “Student-soldier”, an accelerated training and performance of military service. “Student-soldier” program allows first-year college and university students to take general military preparation and training classes over the course of two months of classroom training and two months of field training.

For those who has reached the maximum age of military service and due to reasons, specified in law, did not perform military service must pay the cost of one year’s training and upkeep for a soldier. The amount of payment is set by the Government annually. The amount of payment for 2017 was equal to 5 052 230 (Five million fifty-two thousand and two hundred thirty) MNT.

A voluntary (contractual) military service is available for male citizens, who has finished conscript service, and female citizens with military professions. The Government approves the list of military professions. Also, students, who attended military school and obtained military profession, are considered to have duly performed military service; and may be recruited for contractual military service.

Laws also provide cases for exemption and temporary deferral from military service. Pursuant to laws exemption cases allow full exemption from conscription for military service, while temporary deferrals exempt from conscription until next year.

In Mongolia performance of military service is one of key requirements for hiring a public (government) officer. However, only performance of compulsory conscript service, completion of “Student-soldier” program and voluntary military service shall be considered for hiring public officer.

The Mongolian Government Going Online

Mongolia may have a reputation of a sparsely populated nomadic country, but the Mongolian government in increasingly adopting the technologies of the 21st century to reach and serve the people even in the furthest reaches of the steppe. Several major government agencies have implemented systems to provide services online with great success. Foreign investors are able to take advantage of these systems to make doing business in Mongolia more effective and efficient.

The tax authority is one example. In 2014 the tax authority implemented a new online tax filing and tax payment system. A digital signature issued by the tax office is required to access the online tax portal. An individual authorized by a company to sign financial statements and tax returns must apply for a digital signature in order to be able to access the online tax portal system. The online tax filing and tax payments have proven to be more cost and time saving. The social insurance office has taken inspiration from this system and is now also online.

Recently several government bodies, such as Ministry of Finance, Bank of Mongolia, General Tax Administration, National Transportation Department and others, have collaborated and launch a website www.smartcar.mn. Through this site vehicle owners, both individuals and organizations, can pay vehicle taxes, driver’s insurance payments, traffic tickets and receive other vehicle related services.

The General Authority for Intellectual Property and State Registration recently announced that they are in process of preparation and implementation of a “One citizen, one registration” project. According to officials, one of the main purposes of this project is to create a unified national registration database for ownership and property related information of natural personas and legal entities. This project aims to eliminate duplication and discrepancies in information over multiple platforms and create a unified national registration database. Such database is planned to accessible online both for internal access for government bodies as well as to general public with certain limitations. This project envisages the use of digital signatures by individuals to obtain online services from government bodies. Currently, digital signatures used only by legal entities for online tax filing and public tenders (bidding). While this project is in planning stages and has yet to be approved by the Government, we have high hopes for successful implementation. Officials claim that, if this project gets approved, this will decrease the amount of paperwork, will be cost and time saving both for general public and government bodies, government services will be easier, more accessible and closer to general public, and for foreign investors.

At such rate of increasing online government services, it looks like in coming years we should expect less bureaucracy and more accessibility from Mongolian government bodies, which should contribute to increasing economic activity in the developing nation.

Mongolia Deliberates Major Tax Revamp

Under the leadership and coordination of the Ministry of Finance, consultations on the Ministry’s proposed tax amendments started on March 5. The first session was held with business sector representatives regarding tax law reforms and amendments at the Mongolian National Chamber of Commerce and Industry.

Ministry of Finance is conducting a public discussion on revising 24 tax-related laws, including General Taxation Law of Mongolia, Laws on Corporate Tax, Personal Income Tax and Value Added Tax, in order to hear voices of taxpayers and collect best proposals from the relevant parties. The Government noted that no fundamental changes and revisions were made to tax laws in the last decade and the taxation law ‘package’ was created to improve tax environment and decrease some taxes. The taxpayers expect favorable environment from this tax reform.

According to the proposed tax law amendment, if the annual revenue of enterprises operating in Mongolia is lower than MNT 1.5 billion, the government will return 90 percent of paid taxes. Furthermore, small and medium sized enterprises which have MNT 50 million of annual revenue, will be able to pay only one percent tax from sale revenue. The proposed amendments would also reduce the number of reports required from SMEs. Companies with an annual income of over three billion MNT would be required to issue tax reports four times a year, and those with less than three billion MNT in annual income would be required to file reports twice per year. The amendments include major changes to the VAT law.

The proposed amendments expect to be discussed and voted on during the spring parliamentary session and, if approved, will come into force on  January 1, 2019.

Switzerland Aids Mongolian Small-Scale Artisanal Mining

The Sustainable Artisanal Mining (SAM) Project started in 2005 and built on Swiss Agency for Development and Cooperation’s (SDC) experience in Artisanal and small-scale mining (ASM) projects in Ecuador, Bolivia, and Peru. Since 2005, the SAM Project has been contributing to the organization and formalization of Mongolian ASM sector, advocating for environmentally sound mining practices and raising awareness amongst stakeholders on responsible ASM. The SAM Project has been implemented in four Phases, so far, with goals and aims to develop an economically sustainable, environmentally responsible and human rights-based ASM sector in Mongolia benefiting from and contributing to, global best practice regarding ASM. Phase 1 of the SAM Project aimed to develop ASM as a motor for sustainable rural development under an integrated sustainable resource management by the Government of Mongolia. Goal of Phase 2 was to support ASM to create favorable conditions and structures for the ASM sector so that its contributions to socio-economic development based on the careful use of natural resources in selected areas will increase. Phase 3 secured the recognition of ASM as a formal sub-sector contributing to Mongolia’s economic development. Phase 4 of the SAM Project seeks to transform Mongolia into an international knowledge hub for ASM best practice. In Phase 4 of the SAM Project, SDC initiated and funded the development of ASM Knowledge Hub, a web-based platform, opening ceremony for which was held on March 1, 2018. The ASM Knowledge Hub is a web-based interactive platform, which will provide active exchange and distribution of ASM information and connect ASM actors and knowledge contributors in Mongolia as well as with global ASM stakeholders. The platform features latest news and updates in ASM sector and provides information on upcoming events regarding the sector. Visit ASM Knowledge Hub at www.asmhub.mn for various articles, studies, researches and publications produced by ASM stakeholders.