Category: Bosnia and Herzegovina

According to the applicable legislation in Bosnia and Herzegovina (BH), domains are not considered as intellectual property rights (IP). The owner of the national domain .ba is the state of BH and any legal or natural person is considered a user of the registered domains, for as long as the yearly maintenance fees are paid regularly.

The Internet Domain Name of an individual country belongs to ccTLD. We can often read that the state domain of the highest level is a valuable resource of every state and is one of the elements of state sovereignty and recognizability in the virtual world. The domain of BH is .ba – it was assigned to BH by IANA, in 1996.

The registration of the domain grants the exclusive right to use the registered name, with the obligation to pay yearly maintenance and registration fees. The act of registering a particular domain exhausts a specific combination of marks, as it is impossible for two identical domains to exist at the same time. No subjective IP arises (copyright, patent, trademark, or otherwise) based on the registration itself.

When a registrant registers the name of a domain, it acquires the right to use that domain. The question arises as to what specific right belongs to the registrant on the basis of registration: contract or ownership? Or both?

The right from the registration is of a contractual nature because it is established by the contract that the registrant concluded with the authorized register. The registrant’s right arises as a consequence of a contractual chain that begins with ICANN and ends with the registrant. First, ICANN authorizes a specific TLD registry operator to enter into agreements with authorized registries, and then the registrant acquires the right to use the domain based on the agreement with the authorized registry.

Further, the domain is an intangible asset and, as such, it cannot be owned in the classical sense of ownership of things. Also, it is clear that the name of a domain cannot be the subject of IP, given the fact that no law places it in the group of legally protected IP in BH. Thus, the proprietary character of a domain can only exist in one indirect sense, derived on the basis of an analogy to objects and IP.

Currently, it is impossible to provide a single answer to the question about the legal nature of the rights from the registration of domains. There are elements of both contractual and proprietary character, coming into play to a greater or lesser extent depending on the specific situation so that the perspective of the contractual-proprietary nature of rights arising from domain registration is the most acceptable.

Pledging, Acquiring, and Granting Security Over Domains

Are those possible when it comes to business transactions? The status of a domain is that it is not owned or held by legal entities, nor does it represent IP, therefore how can one pledge something they do not own? Domains are sometimes equated with other IP rights but such a view is incorrect. There is no valid legal basis to register and consequently to release such pledges, but this is not strictly prohibited, either. Relevant practices show this is practically quite possible in BH. Domains are often subject to business transactions and, together with IP rights, are the subject of the IP Pledge Agreement. The State IP Office is not the competent authority to grant pledges over domains, as these are not IP rights. However, regardless of the legal nature of domains and the fact that the owner of the national domains .ba is the state, relevant practices also show that, in business transactions, domains are usually established and registered as proprietary rights before the state pledge register maintained by the Ministry of Justice of BH. This is possible because this register technically accepts and does not exercise any kind of control over pledged movables and rights.

It is legally allowed, however, to register another entity instead – as the user of the domain, before the relevant authority that manages national domains. The right to use domains cannot lawfully be acquired outside this due procedure.

By Anisa Tomic, Partner, Maric & Co

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Sajic has advised both Pavgord Foca as the seller and Kutjevo Banja Luka as the buyer on a EUR 2.9 million real estate transaction in Bosnia & Herzegovina.

According to the firm, the real estate assets are located in Bijeljina, in the vicinity of the former Zitopromet grain processing plant, and include a grain storage facility.

The Sajic team included Managing Partner Aleksandar Sajic and Partners Natasa Krejic and Zeljko Vlacic.

Bosnia & Herzegovina remains open for business, despite political instability – caused by increasing secessionist tendencies – and slowing reforms, according to DMB Legal Managing Partner Dina Durakovic.

“Bosnia & Herzegovina is a rather complex country in terms of administrative structure, with two separate administrative entities: the Republika Srpska and the Federation of Bosnia and Herzegovina and the autonomous Brcko District,” Durakovic begins. “All of these constituent parts have their own legislative systems and executive powers. Currently, state-level institutions are facing challenges due to the decision-making blockade by representatives of one of the entities, Republika Srpska, meaning that passing laws on the state level is nearly impossible and executive powers are not functioning properly.”

According to Durakovic, such instability affects undertaking the potential reforms, due to the inability to pass any new legislation. “We do have some important reforms in progress,” she reports. “We all started strongly relying on digital technologies everywhere, during the COVID-19 pandemic, yet we still do not have implemented legislation required for the use of e-signatures. The absence of such legislation hinders further developments in this area and creates many challenges,” she says. “However, the private sector, including financial institutions, manages to find a way by introducing various smart solutions to promote the digitalization of processes.”

“Another reform that we are looking forward to is related to tax and contributions in the Federation of Bosnia and Herzegovina,” she adds. “The taxes and contributions payable in relation to salaries are rather high, and their reduction would have a significant impact on businesses.”

As for the business sector, Durakovic points out that “the political instability, coupled with the COVID-19 pandemic, has impacted direct foreign investments, which are crucial for the development of Bosnia & Herzegovina.” Still, she says that since the third quarter of 2021 the country has witnessed economic growth and increased M&A activity. “This is mostly a result of the fact that we have learned how to live with the pandemic and political instability in the country,” she notes.

“In particular, we have seen increased activity in the IT and mining sectors. Like the recent Orion deal – a fund specializing in investments in the base and precious metals mining sector – one of the largest investments in the past ten years, in the Vares mining project, owned by London-based publicly-traded company Adriatic Metals,” Durakovic says. “Their total investment in Bosnia & Herzegovina is evaluated to be above USD 240 million, which is the largest single investment in this sector to date. It is a significant deal not only for the Vares project but for the country’s whole economy,” she notes.

“Additionally, we had a number of M&A transactions in the IT sector, which is a growing field in the entire country and the region, where local firms compete successfully. Generally, the whole last year has proved that our economy, despite facing significant challenges, is a resilient one, attracting significant attention from foreign investors,” she concludes.

The Milosevic Law Firm has successfully represented Alumina before the Higher Commercial Court in Banja Luka in a property-related dispute with Pavgord and Ukio Bank.

“On February 5, 2021, the District Commercial Court in Banja Luka passed a first-instance verdict in which it fully adopted the claim of the company Alumina against Pavgord Foca and the Lithuanian Ukio Bank,” the firm informed. “This verdict, now final, found that the three pledges registered in 2012 on Alumina’s property, with a total value of around EUR 79 million, are null and void.”

The verdict “represents an important segment of the legal practice in Bosnia and Herzegovina, and in Republika Srpska,” the Milosevic Law Firm reported.

Alumina is a metal industry and chemicals company and an important regional economic factor, employing over 1,500 people, according to the firm.

The Milosevic Law Firm team was led by Partner Vladimir Milosevic.

Sajic has successfully represented the interests of Bitminer Factory against UniCredit Bank before the court of first instance.

According to Sajic, “the judgment obliges UniCredit Bank to pay compensation for the damage caused to Bitminer Factory d.o.o. Gradiska in the amount of approximately EUR 130 million.”

According to the firm, this is an important precedent because “this is the first time the court in Bosnia and Herzegovina has taken a clear position on this type of matter. Through the procedure, it was proven that the actions undertaken by the Bank directly influenced the failure of the ICO project based on blockchain technology, and then consequently it caused damage to the company.”

As Sajic reports, “the plan of the project was to produce electricity through renewable energy sources, which would be partly sold to a partner company for cryptocurrency mining, while part would go to the electricity grid. That is exactly why the project needed investors who would purchase digital tokens in order to participate in the project, through an account opened in Unicredit Bank in Banja Luka. However, as soon as the first payments were received in the account, the Bank decided to return the money, justifying it that they could not do business with companies that deal with cryptocurrencies and terminated the contract with the company. During the procedure, it was proven that the damage was caused to the company, and the company’s claim was accepted by the court.”

Sajic’s team included Managing Partner Aleksandar Sajic and Senior Associates Milica Karadza and Tijana Tatic.

Schoenherr has advised the borrower HE Dabar on a EUR 190 million loan facility granted by the Export-Import Bank of China for the development of the 160-megawatt Dabar hydropower plant. Milbank reportedly advised CEXIM Bank on the deal.

The Dabar project will be one of the largest hydropower plants in the region, according to Schoenherr: “Located on the Trebisnjica River in Republika Srpska, Bosnia and Herzegovina, the Dabar plant is expected to produce about 250 gigawatt-hours of electricity per year and is the most significant hydropower plant within the planned Gornji Horizonti hydropower complex. The project company Dabar is a subsidiary of the incumbent power utility of the Republic of Srpska – Elektroprivreda Republike Srpske.”

Schoenherr’s team included Partners Matija Vojnovic, Ivana Panic, and Srdjana Petronijevic and Attorneys Jelena Arsic, Bojan Rajic, Minela Sehovic, and Zoran Soljaga.

Editor’s Note: After this article was published, Sajic announced it had worked alongside Milbank on advising CEXIM on the financing. Its team included Managing Partner Aleksandar Sajic, Senior Partner Sanja Djukic, Senior Associate Milica Karadza, and Associate Nikolina Zubac.

Bosnia & Herzegovina is going through the gravest political crisis since the end of the war in 1995, according to Prebanic & Jusufbasic-Goloman Partner Arela Jusufbasic-Goloman, but it is registering a stable financial sector and an increase M&A activity.

“Political parties, analysts, and international organizations largely agree that the political situation is very tough in Bosnia & Herzegovina,” Jusufbasic-Goloman explains. “Namely, the Republic of Srpska, one of the entities of Bosnia and Herzegovina, is pushing to cut ties with the central government by adopting decisions to achieve full autonomy. Such actions are considered a violation of the 1995 Dayton Peace Accords,” she says. “Corruption remains another one of the most widespread problems at all levels of government. This problem has been acknowledged by the international community as well, however, we have not seen any results so far.”

“In addition, in Bosnia & Herzegovina, one of the most controversial issues is carrying out long-overdue reforms regarding the state electoral system,” Jusufbasic-Goloman notes. “The reform is crucial for the upcoming 2022 general elections, that will shape the democratic development of the country. However, despite the lengthy negotiations, no progress has been achieved in improving the electoral legislative framework so far. The legislation needs to be in line with the European standards, and to ensure transparency on political party financing,” she adds.

“In the meantime, the Parliamentary Assembly of Bosnia & Herzegovina was blocked for political reasons, leading to a legislative backlog, therefore, we don’t have many updates in that sphere,” Jusufbasic-Goloman explains.

According to Jusufbasic-Goloman, a political crisis, together with the COVID-19 related hurdles, has a major influence on the country’s social and economic life. “Recently, food, accommodation, transport, and electricity prices have been increasing. Many investors are currently considering how to enter the local market, taking into account the sensitive political environment,” she points out. “Accordingly, the political situation has an impact on investors. While the inflation rate is not significantly high at the moment, it might still negatively affect the future,” she says. According to her, considering these factors, there are not many sources for optimism.

“In terms of legal market activities, M&A has been increasingly active in the past few months. It includes not only large deals but also ones with a rather lower value,” Jusufbasic-Goloman notes. “Our firm participated in one of them, related to DuluxGroup’s acquisition of JUB Group in Slovenia. The value of this cross-border deal was EUR 194 million and involved many jurisdictions, including the Adriatic region, UK, Australia, and Japan.”

“At the same time, currently, the financial sector remains stable and we also witness increased investment activities, however, next year’s election and further results of the political crisis will decide the main trends for the market and economic growth,” she concludes.

Distribution agreements are a necessary legal basis for any distribution chain across industries, and are very important both for the cooperation of companies within individual countries, and for the cooperation of distribution chain companies coming from different countries. In an attempt to retain or conquer the market, certain companies (manufacturers or main distributors) may try to restrict local distributors or wholesalers to selling only their products or to selling at certain prices, by imposing specific distribution conditions on them in (exclusive) distribution agreements. Most of those companies are not aware that such imposed distribution conditions are prohibited by law and that very high penalties are prescribed for such actions in Bosnia and Herzegovina.

The Competition Act of Bosnia and Herzegovina, Official Gazette no. 48/05, 76/07, and 80/09 (the Law), prohibits some competition practices, including distribution agreements, that aim and have the effect of preventing or restricting market competition by, inter alia, directly or indirectly determining or imposing purchase and selling prices and other conditions; restricting production, markets, and others; market sharing; by applying different conditions to identical transactions with other entities; by conditioning the other contracting party to accept additional obligations that are not related to the subject of the contract; and others. 

All such practices and agreements are considered null and void by the Law. However, it takes a special procedure initiated before the local antitrust authority for determination of such agreements as prohibited, which always leads to the imposition of significant fines, mostly to the contractual parties that imposed such prohibited distribution clauses within the same agreements.

What needs to be emphasized, however, especially for manufacturers and main distributors trying to protect their products and market share on the local market of Bosnia and Herzegovina through such prohibited distribution conditions, is that there is a solution for some of these distribution agreements.

The Law regulates the possibility for contractual parties to such distribution agreements – that contain certain restrictions for distributors – to apply to the antitrust authority of Bosnia and Herzegovina for an individual exemption from the prohibition. If obtained, such an exemption would be valid for the market of Bosnia and Herzegovina only.

In order to secure the exemption, the distribution agreement (as well as any other agreement) should contribute to the improvement of production or distribution of goods and/or services within Bosnia and Herzegovina, or to the promotion of technical and economic progress, while allowing consumers a fair share of the resulting benefit. The agreement: a) shall impose only those restrictions necessary to achieve these objectives; and b) shall not enable the exclusion of competition in the substantial part of the products or services.   

The parties to such agreements can apply for individual exemption by filing a request to the local antitrust authority, the Competition Council of Bosnia and Herzegovina, with the distribution agreement attached, before entering such a distribution agreement or before it comes into force. Individual exemptions cannot be given for an unlimited period of time. The period of validity is limited to five years maximum, which can be extended for another five years, provided that the agreement still meets the statutory requirements related to the limitation of restrictions which needed to be met when the first request for exemption was filed.

When granted by the antitrust authority, an individual exemption usually contains certain conditions and prohibitions determined by the authority in order to ensure the protection of end customers and the market availability of all products. However, even limited in scope, the individual exemption still enables the contractual parties to protect their interests.

It is important to emphasize that a fine of up to 10% of the total annual income of the company – for the year preceding the one in which the violation of the Law took place – shall be imposed on the company if it concludes a prohibited agreement or otherwise participates in an agreement which violates, restricts, or prevents market competition. An additional fine between EUR 7,500 and EUR 25,000 may be imposed on the company’s CEO, as well.

By Dzana Smailagic-Hromic and Ezmana Turkovic, Partners and Co-Heads of Competition, Maric & Co

This Article was originally published in Issue 8.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Zeljko Vlacic has been promoted to Partner at Sajic law firm.

Vlacic started his legal career as a trainee with Sajic in 2011 and has been with the firm since. He is a graduate of the University of Banja Luka Faculty of Law.

According to Sajic, Vlacic “has shown excellence in his fields of work and his commitment to the success of the company” and “is known as an expert in the field of intellectual property rights, insurance, bankruptcy and liquidation, concessions, etc.”

On June 23, 2021, the lower chamber of the Parliament of the Federation of Bosnia & Herzegovina, the House of Representatives, passed a decision instructing the Government to “analyze the existing legal framework in relation to the construction of small hydroelectric power plants and to initiate the parliamentary procedure of amending the existing laws in order to protect the rivers and the environment.” Such a broad and generic decision comes after months of campaigning by several NGOs, supported by local and Hollywood celebrities, aimed against the construction of SHPPs on Bosnian rivers, citing environmental concerns.

In the years after the war, the construction and commissioning of SHPP became one of the most attractive and lucrative investment opportunities. The principal reason for this is the rich hydrological potential of rivers in Bosnia & Herzegovina, supported by significant incentives granted by the authorities. As a result, dozens of SHPPs have been constructed and commissioned across the country, with dozens more foreseen by executed concession agreements. However, in recent years, the SHPPs went from a praised symbol of renewable energy to the focus of environmental protection issues.

Nonetheless, the parliamentary decision is not only vague in its contents, but also of questionable legal potential. Namely, the legal competence for granting concessions in the Federation of Bosnia & Herzegovina is divided between the Federation and ten of its Cantons, whereby the Cantons are competent for facilities with a production capacity of up to five megawatts, while the Federation is in charge of those exceeding this threshold. In practice, not a single concession has been granted by the Federation, under its Law on Concessions, in the 25 years of its history, and all of the concessions, including those for the construction of SHPPs, have been granted by the Cantons. As a result, the Government and the Parliament of the Federation of Bosnia & Herzegovina cannot formally prevent the implementation of the concession agreements already concluded between investors and Cantonal governments, and it is highly questionable if they can affect the granting of new concessions by the Cantons.

However, all SHPPs, as well as other energy production facilities, must be constructed in compliance with the general physical planning documents. The general physical plan of the Federation of Bosnia & Herzegovina is prepared by the Federal Ministry of Physical Planning and must be adopted by the Federal Parliament. Unfortunately, no such physical plan has yet been adopted by the Federation, resulting in a legal vacuum in which previous and/or temporary physical planning documents are used for construction permits. Furthermore, all energy production facilities must obtain an energy production license, issued by the Federal Ministry of Energy, Mining and Industry, regardless of who granted the concession.

Mostly due to the fact that concession fees are a significant source of income for the Cantons, and that any breach of concession rights could potentially expose them to legal disputes with investors, the Cantons don’t share the view of the Federal Parliament and so far show no signs of changing their attitude towards SHPPs. All of this could result in a constitutional dispute between the two levels of governance in the Federation, potentially placing investors and their projects right between them.

So far, the Government of the Federation did not show any intention of abusing the aforementioned authority in order to prevent the construction and commissioning of new SHPPs or to otherwise violate the existing legal framework. Instead, as the Federal Minister of Environment and Tourism stated in the aftermath of the parliamentary decision, the Government will undertake activities on amending the existing legal framework, as well as push for the adoption of the general physical plan of the Federation. According to the Minister, the aims of the Government are environmental protection, respecting the principles of the Aarhus Convention, and sustainable development of the energy sector. However, it remains to be seen what measures, if any, will be taken and how the rights of investors will be protected.

By Slaven Dizdar, Head of Real Estate and Energy, Maric & Co

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.