Changes to Customs Tax and VAT Exemptions



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During Parliament’s regular session on May 10, a final review of amendments to the Value-Added Tax Law and Customs Tax Exemptions Law were conducted and approved with a majority vote from Parliament members in attendance.

According to the amendments, all imported wood construction materials except oriented strand board (OSB), standardized pre-fabricated wood building structures, and logs will be exempt from customs duty. Other imported wood products, except those related to forestry and horticulture, will be exempt from value-added tax until 2022.

The Amendments to Value-Added Tax Law and Customs Tax Exemptions Law will be effective from January 1, 2018.

Issues with Effective IP Enforcement Actions in Mongolia



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Several clients in recent months have contacted the firm requesting assistance in tracking down and stopping intellectual property infringers in Mongolia. After working closely on many of these cases, our Mongolian Attorneys and licensed Intellectual Property specialists are among the forefront of the Mongolian IP enforcement practice in Mongolia. Our team has a few key insights that those doing business in Mongolia should be aware of.

In Mongolia, the systems for investigation and resolution of IP infringement issues is relatively unsophisticated. IP infringement cases often are not able to be resolved or punished effectively due to a lack in the number of state inspectors and the resulting workload for those inspectors who are on the job. Only a few State Inspectors handle IP issues, and such inspectors are obliged to inspect shops or markets selling infringing goods throughout Ulaanbaatar in accordance with the specific demands of each case. It is often very difficult for the state inspectors to identify possible infringers. State inspectors will normally punish known infringers identified during an IP enforcement action by warnings, confiscation of infringing goods, and fines for repeat offenses. General lack of education in Mongolia account IP and the limited effectiveness of such examinations result in infringing products for which sales have been shut down at a particular market showing up again for sale elsewhere at a different shop or different market.

Another problem is that the estimation of intangible asset related damages caused by IP infringement is not clear and is not well defined or regulated under law. Though the law says such damages will be settled under applicable regulations and administrative acts, regulation applicable to estimation of intangible asset related damages caused by IP infringement is unclear in Mongolia. The complaint regarding intangible asset associated damages cannot be resolved properly under such procedure. In fact, it is very few cases which filed complaint concerning the said infringement with IP office and there is no good practice on this issue.

The Mongolian government needs to pay attention on eliminating violations of intellectual property rights and properly compensating damages caused by IP infringement.  Those seeking effective IP enforcement in Mongolia need to come prepared with a large amount of investigation preformed and research compiled ready to be presented in a complaint to the IP Office, and should have a clearly documented and easily calculatable claim for damages caused due to the alleged infringement.

 

Alternative Dispute Resolution: Finalizing Mediation



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In a recent post we have previously discussed the practical aspects of mediation in Mongolia. Mediation is one of the better alternative dispute resolution methods for those who are seeking short-term and inexpensive way to settle a dispute. In this article we’ll explore the closing of the mediation process and aftermath.

The mediation process is generally considered more prompt, inexpensive, and procedurally simple than formal litigation. It allows the parties to focus on the underlying circumstances that contributed to the dispute, rather than on narrow legal issues. The mediation process does not focus on truth or fault. Questions of which party is right or wrong are generally less important than the issue of how the problem can be resolved. Disputing parties who are seeking vindication of their rights or a determination of fault will not likely be satisfied with the mediation process.

Nonetheless, if in the mediation process a resolution is reached between parties, a written settlement agreement must be executed. Such settlement agreement is binding for all parties of dispute and considered enforceable contract. As mentioned in our previous post mediation centers operate at courts of first instance (court-based mediation centers), and may operate at government authorities, NGOs and professional associations (other mediation centers). Settlement agreements executed by mediators of a court-based mediation center become a sort of court judgement, as judge of corresponding court issues a court decision confirming such settlement agreement. And if parties fail to voluntarily perform their obligation under settlement agreement, it shall be enforced same as court decision. On the other hand, while settlement agreements executed by mediators of other mediation center are also binding for parties of dispute, these are not enforced same as settlement agreements executed by mediator of court-based mediation center. If parties fail to voluntarily perform their obligations under such settlement agreement, parties have the right to pursue their claims in other forms (such as litigation or arbitration).

However, if in the mediation process parties could not reach any resolution, or parties did not actively seek any resolution, or for other reasons the mediation process could not further proceed, the mediation process shall be terminated. At this point parties of dispute may decide to resolve their dispute through litigation or arbitration.

Alternative Dispute Resolution: Mongolian Approach to Mediation



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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



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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



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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



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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



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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



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Many countries have entered into tax treaties (also called double tax agreements, or DTAs) with other countries to avoid or mitigate double taxation.  Double 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



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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.