Category: Serbia

After much rescheduling and protraction, the long-awaited new Trademark Act was finally adopted on 24 January 2020 and came into force a week later. The new law introduces a number of fundamental changes, eliminating certain shortcomings of the previous law, allowing for more efficient protection and further harmonisation of Serbia’s legislation with EU law.

The key novelties introduced by the new Trademark Act are:

1. The trademark opposition system: a posteriori complaint

Until now, the Serbian Intellectual Property Office (IPO) examined trademark applications both on absolute and relative grounds, while interested parties could only file a written observation to the Serbian IPO (during the registration process) and/or initiate cancellation proceedings due to similarity (once the trademark has been registered). The new Trademark Act introduces a heterogeneous solution, retaining the previous observation system where the IPO still examines trademarks on absolute and relative grounds, while also introducing an opposition system where interested parties can challenge trademark registration through opposition proceedings.

After 1 February 2020, all applications that successfully pass the ex officio examination will be published in the IPO’s Official Gazette. Interested parties will have the opportunity to file an opposition based on relative grounds within three months from publication, whereas the applicant will be allowed to submit a written response within 60 days from receiving the opposition. Failure to respond will lead to acceptance of the opposition. Furthermore, the applicant may require the opponent to prove that their earlier trademark was used in Serbia during a prior period of five years. If the opponent does not file evidence in this respect, the opposition will be refused. The law also allows for a 24-month cooling-off period during which the parties may temporarily suspend the proceedings to negotiate an amicable solution.

Apart from creating a more transparent and holder-protective system, the new Trademark Act could have significant practical implications for trademark holders who will need to monitor new applications in order to become aware of potential conflicts as early as possible.

2. Parallel imports: the international exhaustion system

Another important novelty is the reintroduction of an international exhaustion system for parallel imports (which was previously in place for several years until the changes from 2013). From 2013 until now, the principle of national exhaustion applied, meaning that trademark holders could not prohibit the use of their trademarks with respect to goods bearing such marks if such goods were placed on the Serbian market by the holder or other person authorised by the holder, i.e. the law allowed trademark owners to prevent parallel imports to the Serbian market. The new Trademark Act introduces the worldwide exhaustion principle, meaning that the trademark holder cannot prohibit others from reselling products that were legally put into circulation anywhere in the world.

This novelty reflects the position of the Serbian Competition Authority, which previously issued several opinions and statements in favour of changing the concept of national exhaustion. In its 2018 Opinion on draft trademark law, the Competition Authority recommended that international exhaustion should replace the current solution, allowing for parallel trade, since it would increase competition and remove price disparities between the Serbian and other markets. It also stated that parallel import could improve competition between bidders in the context of public procurement, because the number of potential bidders could increase and they would have numerous sources of supply (instead of just one, such as an exclusive importer / licence holder). In its Opinion on the revised draft trademark law in 2019, the Competition Authority welcomed the proposed provision on international exhaustion and reiterated the need to remove the statutory prohibition of parallel import.

This novelty represents a success for the Competition Authority and, therefore, we can expect the competition watchdog to heavily scrutinise and sanction any attempt to prevent parallel trade in Serbia. This also raises an additional antirust risk for businesses in Serbia which should now adapt their commercial policies and compliance programmes to this new circumstance. On the other hand, the worldwide exhaustion principle (as well as any other point where competition and intellectual property collide) might create practical problems for trademark holders and legal distributors, who will now have a practical problem in fighting the black market / illegal imports, thus decreasing the motivation to invest in the market.

3. Amended deadlines for trademark litigation proceedings

Another key, pragmatic novelty concerns the statute of limitations for initiating a civil procedure for a trademark infringement. The previous solution was very restrictive and problematic from a practical point of view, since it provided that the statute of limitation for filing a claim is three years from the moment when the rightsholder learned of the injury and the perpetrator (subjective term), and no more than five years from the date when the injury was first done (objective deadline).

Due to the limitations of this definition, rightsholders were often prevented from fighting even ongoing infringements, if the five-year term from the first infringement has expired, and the courts have dismissed the legitimate claims of rightsholders as outdated even if the rightsholder had no prior knowledge that his right had been violated. The new Trademark Act finally corrects this major shortcoming by removing “done for the first time” from the definition of the statute of limitations and ensuring that ongoing infringements cannot become time-barred.

Along with a few other, secondary changes, such as narrower interpretation of goods/services, elimination of the graphical representation requirement, a more harmonised approach to collective trademarks, explicit introduction of intermediary liability, expanding the scope of potential trademark infringement actions (licence breaches, comparative advertising in a manner contrary to law), abandoning the two-instance procedure before the IPO, etc., all in all, the strategic amendments introduced by the new Trademark Act should allow for a more balanced and efficient trademark system, while further aligning Serbian legislation with the EU. The key task that remains for the stakeholders in Serbia is to efficiently and promptly apply the new rules.

By Andrea Radonjanin, Partner, and Zoran Soljaga, Attorney at Law, Schoenherr

Throughout its history, Serbia, located as it is at the intersection between major trading centers, has been recognized as a point of utmost importance in terms of transportation, and it remains so today. This requires constant improvement in transportation conditions and compliance with European Union regulations. In order to meet these requirements, the General Master Plan for Transport in Serbia (TMP) was adopted in 2009, providing the guidelines and plans for each transportation sector until 2027. The TMP is also the platform for current and future transportation-related projects, irrespective of the funding modality.

The most significant sector of transportation in Serbia is road transportation, so it is not surprising that the major investments are attributed to this segment. From 2014 to 2018, 1,258 kilometers of state roads were reconstructed. In 2019, it was announced that in the next three years nearly 5,000 kilometers of roads in Serbia will be rehabilitated, for which purpose the Government of Serbia shall invest EUR 1 billion. According to the Government’s plan, during this period 143 roads shall be reconstructed, including six sections of freeways (283 kilometers), 48 highways (2,054 kilometers), 80 regional roads (2,350 kilometers), and nine local roads (92.5 kilometers). Certainly, the greatest achievement in this field was the opening of the “Milos the Great” freeway – the section of Corridor 11 from Obrenovac to Preljina, in August 2019. This 103-kilometer-long freeway made travelling to Western Serbia, Montenegro, and Bosnia & Herzegovina significantly easier.

The Public Enterprise Roads of Serbia controls 2,960 bridges, and the Infrastructure of Serbian Railways JSC oversees another 956 bridges. Bridges are monitored daily, periodically, and/ or annually, and a special commission of experts is authorized to order the rehabilitation and repair of bridges when necessary.

Railway transportation is perhaps the least popular form of transportation in Serbia and its potential has barely been touched since the 1990s. As the intention of the Government is to fundamentally reform railway transportation, comprehensive modernization of the railway infrastructure and construction of new lines is in progress. At this moment, in what is the largest and most significant infrastructure project in this part of Europe, a high-speed line of 74.7 kilometers between Belgrade and Novi Sad is being constructed, which is expected to allow for speeds of up to 200 kilometers per hour. In addition, reconstruction of 68.8 kilometers of the international Corridor 10 railway and the reconstruction of 259 kilometers of regional lines were initiated during 2019.

Water transportation in Serbia has been neglected for decades, despite the importance of the Danube for Europe’s river transport. The Government has invested approximately EUR 300 million in the renovation and expansion of existing ports and the construction of new ports, as well as in reconstructing conduits on the Tisa and removing the fleets that have prevented the Danube from becoming navigable. Furthermore, the reconstruction of the ports of Smederevo, Belgrade, and Sremska Mitrovica has been planned. The greatest investment in the field of water transportation in 2019 was the privatization of the Port of Novi Sad, which is expected to become the subject of a EUR 30 million investment by its new owner, DP World, in the near future. It is expected that Serbia shall become the multimodal hub of the Western Balkans, connecting modern ports to Corridor 10.

Regarding air transportation, despite the fact that there are as many as 39 airports in Serbia, there are currently only three airports for commercial use. The largest international airport in Serbia is Belgrade Nikola Tesla Airport, the management of which was taken over by Vinci Airports in December 2018 on the basis of a concession agreement. Nis Constantine the Great Airport, outside the city of Nis, is the second largest airport in Serbia, and in June 2019 the Morava airport in Kraljevo was opened for civil transport. The Government plans to invest EUR several million in Uzice’s Ponikve Airport in order to open it for commercial use by the end of 2020.

To conclude, the improvement of transportation infrastructure and the applicable regulatory framework will contribute to positioning Serbia as a regional leader in this field in the near future.

By Igor Zivkovski, Partner, Zivkovic Samardzic Law Office

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

With the last Amendments to the Income Tax Law, at the end of 2019, new rules have been introduced that aim to test whether the relationship between an entrepreneur and principal can be considered independent.

The main intention of the legislator was to prevent in this way the increasingly common practice that natural persons, instead of concluding a contract with employers, decide to register as entrepreneurs and in this way they provide services to the aforementioned employers (ie the principle).

It is also important to emphasize that the tax authorities of the Republic of Serbia have so far had the right to challenge the above practice by applying the so-called “principle of fact” according to which transactions can be viewed in accordance with their economic substance. However, the introduction of the so-called “independence test” is, first and foremost, an attempt to reduce the possible risk of arbitrary interpretation and application of the principle of factuality by the tax authorities of the Republic of Serbia by applying more precise rules.

The independence test consists of nine criteria through which the contractual relationship between the entrepreneur and the principal must be considered. If the entrepreneur fulfills at least 5 of the 9 criteria, he  will be considered to be independent of the principal and the entrepreneur’s compensation will be taxed at the rate of 20% with additional calculation of the corresponding contributions.

However, with the introduction of the independence test, new questions and dilemmas have been raised regarding the interpretation of the criteria in the test. Some of these common dilemmas that have been addressed to our office so far will be addressed in the following section:

1. Who is legally obliged and responsible for conducting the “independence test”?

Each entrepreneur should, together with their principal from Serbia, conduct a “test of independence”, since if the entrepreneur was not considered to be independent in relation to the principal, it was the principal who would have to pay taxes and contributions on behalf of the entrepreneur.

If an entrepreneur cooperates with a foreign client, he or she must carry out an “independence test” since, in the event that independence is established, it is the entrepreneur who would have to pay taxes and any contributions through “self-taxation”.

2. By what time should the “independence test” be conducted?

Since the introduction of the “independence test” is prescribed from 1. March 2020, this means that by that time entrepreneurs will have to determine whether they are independent of the originator.

3. If a person, in accordance with the established “independence test”, is not considered independent in relation to the principal, by which time can he harmonize his business according to the law?

If an entrepreneur finds that he or she cannot be considered independent of the originator, he or she should by 1 March, 2020, reconcile his / her business. Failure to do so risks the tax inspector, in the case of tax control, to determine the existence of irregularities, which will have further consequences in terms of higher tax expenditures and contributions.

In addition, persons who already operate as entrepreneurs and wish to benefit from the prescribed tax and contribution benefits have until 30 April, 2020, to reconcile their businesses.

4. Will an entrepreneur be considered to be self-employed if the principal assigns working hours to the entrepreneur while the entrepreneur’s remuneration is reduced in proportion to the time he spends on vacation?

In this case, the criterion can be considered fulfilled since the principal determines the working hours of the entrepreneur. The fact that the entrepreneur’s remuneration is reduced by the time he spends on vacation will not mean that the criterion in question will not be met.

5. Will an entrepreneur be considered independent if his remuneration is fixed at a fixed amount and is not reduced during the entrepreneur’s (vacation) absence?

If the remuneration of the entrepreneur is fixed at a fixed amount and if it is not reduced during his absence, this can be a strong indicator of the entrepreneur’s independence in relation to the principal.

However, in interpreting this criterion, the way in which the compensation of entrepreneurs is contracted may also be relevant.

Namely, it is not unusual for the provision of certain types of services to determine the compensation in a lump sum (fixed) amount for a certain number of hours or days during which the entrepreneur will potentially be available to the client. In other words, it is possible that an entrepreneur will be absent (on vacation) one part of the month while in the second part of the same month he will work and earn the stipulated (contracted) compensation. If the entrepreneur invoices the client once a month, his remuneration for the month in which he was absent will be the same as for the other months.

In addition, one of the features of the IT sector is the flexibility of business. That is, an IT entrepreneur can usually do his / her work assignments from anywhere in the world at any time. In this sense, entrepreneurs operating in the IT sector have the opportunity to carry out their work tasks, and to receive compensation, even during their absence.

6. Will an entrepreneur be considered independent if the principal organizes trainings for entrepreneurs?

In the event that the client organizes trainings, ie trainings for entrepreneurs, this can be a strong indicator that the relationship between the client and the entrepreneur is not independent.

In certain situations, the training itself may be a prerequisite for the entrepreneur to start cooperating with the principal at all, where the entrepreneur must undergo specific training in order to be able to provide the service in a manner appropriate to the principal.

7. Will an entrepreneur be considered independent if he normally provides IT services to the principal within premises other than the principal’s business premises, but provided by the principal for these purposes (eg premises are leased)?

Although the law itself does not define more precisely what can be considered as the ordinary use of premises, in this case it can be considered that the relationship between the principal and the entrepreneur is not independent, primarily because the use of the premises within which the entrepreneurs will provide services is provided by the principle.

Therefore, if the client leases business premises within which entrepreneurs provide IT services, the criterion will be considered fulfilled.

8. Will an entrepreneur be considered to be self-employed if he is hired after he has submitted an advertisement for the principal posted on the principal’s website?

Although, according to the current interpretation of the law, this situation implies that the relationship between the entrepreneur and the client is not independent, it may raise the question of the correctness of its application in certain situations.

In the IT industry, for example, it is a common situation for local entrepreneurs to be hired by foreign companies not physically located in Serbia. Due to the fact that these companies are not physically present in Serbia, one of the most common (and even the only) ways to engage the persons who will provide them with services is through advertisements or by hiring head hunting agencies.

This fact may place domestic IT entrepreneurs who provide services to companies not registered in Serbia in a slightly more unequal position than other participants, since, according to the current interpretation of the law, this criterion will be met by a significant part of those persons.

9. Will an entrepreneur be considered independent if the principal provides the basic means in the form of a computer and a mobile phone to be used by the entrepreneur?

In the aforementioned case, the entrepreneur will be considered to be independent in relation to the principal.

10. Will the entrepreneur be considered independent if, at the request of the principal, he purchases a computer and a mobile phone, which will be used to provide the service to the principal, where the customer reimburses the costs to the entrepreneur?

In this case, the client may be considered to have financed the acquisition of the basic material assets that the entrepreneur will use to continue providing the service. In this sense, based on this criterion, entrepreneurs will be considered independent in relation to the originator.

11. Will an entrepreneur be considered independent if he provides his services using his own computer, where the principal requires that he install special software on the computer that exclusively controls the entrepreneur’s activities and potentially gives the principal control over the computer in the event of a computer failure?

Assuming that the special software so installed is not necessary for the provision of the service by the entrepreneur, that is, it will not result in the process of providing the service being in any way managed by the client, but solely for the purposes of protecting the data and property of the client, can be considered that in this case the relationship between the entrepreneur and the principal is independent.

12. Will an entrepreneur be considered independent if he provides IT services to a client using his own computer, while providing services through special software of the principal installed on the entrepreneur’s computer for data protection purposes?

If an entrepreneur directly uses his or her own fixed asset (computer) when providing a service to a client, then in this case it would not be considered reasonable to consider the relationship between the entrepreneur and the client as an independent one, given that the purpose of the special software is to protect important business information that is of importance to the principal. On the other hand, the basic asset used in providing the service (computer) is owned by the entrepreneur.

13. Will an entrepreneur be considered independent if the contract between the entrepreneur and the principal contains a provision under which the entrepreneur, within a period of 6 months after termination of the contract, will not be engaged in the provision of services that can be considered competitive in relation to the services provided to the principal?

One of the main features of entrepreneurial activity is the independence in work, ie the fact that the entrepreneur can independently choose the clients with whom he wants to establish business cooperation.

In this respect, the contract between the entrepreneur and the principal should not contain a provision restricting the entrepreneur’s activities with regard to further engagement, regardless of whether that restriction applies to the period during which the entrepreneur provides services to the principal or to the period after the end of the cooperation between the entrepreneur and the principal.

If the contract between the entrepreneur and the principal contains such a provision, in that case it may be considered that the entrepreneur is not independent in relation to the principal.

In any case, the practical dilemmas mentioned above are just some that entrepreneurs will have in the coming period as far as the “independence test” is concerned. In the coming period, it will be of great importance to follow the instructions and interpretations of the Tax Administration regarding the criteria of the “independence test”, in order to see the understanding or interpretation of the tax authorities of certain criteria from the test.

By Miomir Stojkovic, Principal, Stojkovic Attorneys

Zivkovic Samardzic has advised Serbia’s national commercial broadcaster B92, a subsidiary of the Kopernikus Corporation, on its transformation from a joint-stock company into a limited liability company.

B92 was established in 1989 and has since expanded, now providing a national radio station, television network, and websites. According to Zivkovic Samardzic, “B92 and its journalists have won numerous prestigious international awards for journalistic courage and advocacy of human rights.”

According to Zivkovic Samardzic, “the transformation marks the completion of the takeover process, with the company Astonko as the only remaining shareholder, and introduces a simpler governance system without the Management Board. The simplified governance will allow more efficient management and decision-making within B92, thus enabling it to respond promptly to the challenges and changes in the harsh business environment.”

Zivkovic Samardzic’s team was led by Partner Igor Zivkovski.

Former Prica & Partners Partner Milos Vulic has established a new firm in Belgrade – Vulic Law.

Vulic started his legal career with Prica & Partners in 2007 as a junior associate. Working within the firm’s real estate team and in commercial litigation, often involving bankruptcy, reorganization, and liquidation procedures, in 2009 he was promoted to Senior Associate and in 2014 he became Junior Partner (as reported by CEE Legal Matters on March 17, 2014). He was made Partner in 2016 (as reported by CEE Legal Matters on June 8, 2016).

“After being part of the Prica & Partners for 13 years, I felt that it was time for a new stage of my professional career,” Vulic explained, adding that, “Vulic Law has been established and organized in a manner to provide clients with complete legal support in Serbia and the region.”

The Vulic Law team currently consists of Vulic as the Managing Partner and three other lawyers.

Serbia recently reworked its Law on Trademarks, coming into force on 1 February 2020. What has changed? In local parlance: “Everything and nothing”. The changes are not extensive, but concern key features of the local trademark rules.

1. Oppositions

The new law introduced an opposition system, as an auxiliary system to the existing framework. Per previous regular procedure, the Intellectual Property Office performed an official examination of both the absolute and relative grounds for refusal of trademark applications. The rule regulating this part of the procedure has remained unchanged. However, an additional step was introduced. After the examiner reviews all the refusal grounds, trademark applications are published, and oppositions can be filed within a three-month period. This approach exists in similar forms in countries like Portugal and Sweden.

2. Parallel Imports

With the new law, Serbia again changed its national trademark exhaustion system back to a worldwide trademark exhaustion system, which was in place several years ago until changes were made in 2013. A national trademark exhaustion system means that a trademark does not entitle its holder to prohibit others to use it in connection with goods marked already placed in circulation in the national territory. This means that trademark holders would be entitled to prohibit legal product imports and sales in Serbia in connection with goods already marketed abroad, i.e. they would be authorised to prevent parallel imports. In contrast, a worldwide system means that the trademark holder cannot prohibit others from reselling the products legally put into circulation anywhere in the world.

There has been somewhat of a clash between various institutions in Serbia vis-à-vis the framework for parallel imports: the Intellectual Property Office tended to encourage preventions of parallel imports and was supported by the courts on the basis of trademark rules. However, restrictions to parallel imports prevent intra-brand competition, generally leading to higher prices for consumers. Therefore, the Serbian Competition Commission had several times come out forcefully against the system, advocating for liberalisation of parallel imports and against perceived abuses and protectionism by exclusive importers. The legal changes represent a significant victory for the Competition Commission and the parallel importers and imply a significant compliance risk of antitrust investigations facing any Serbian distributors looking to hinder parallel imports. However, bearing in mind the trademark’s territorial nature, there is a significant downside, as well, in the reduction of incentives for distributors to invest in product and market development, which may very well lead to a lower quality of service across the board. Having in mind the expansion of e-commerce in particular, including cross-border sales, time will tell what the ultimate effects of these legal changes will have on the Serbian consumers.

Other smaller amendments related to the Trademark Law concern a narrower interpretation of the goods and services covered by trademark registrations and specifying the appeal process in revocation proceedings, but should not have as large of an impact as the previously-described changes. The Serbian trademark rules ran in a well-defined system for a number of years, but a nominally small change has the potential of significantly upsetting the apple cart.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Veljko Smiljanic and Nikola Kliska, Senior Associates, in cooperation with Karanovic & Partners

A new law firm — MPartners Legal — has opened its doors for business in Belgrade.

MPartners has three partners, including Managing Partner Mihajlo Matkovic, plus another two full-time lawyers and what Matkovic describes as “five external counsel/ industry experts in Energy, PPP, Competition, Real Estate and Shipping, engaged from project to project basis and cooperative offices in all WB6 jurisdictions.”

According to the firm, “as a new market player in the Serbian market, [it] aspires, to provide to its clients a unique blend of premium legal services primarily in Banking & Finance, Projects & Energy, Real Estate, White Collar & Government Investigations, Employment, Competition and Dispute Resolution.” According to the firm “our business model is based on flexibility, strong sectoral expertise and prowess in tackling seemingly insoluble legal problems.”

MPartners claims that “our experts have proven track records [as] part of legal teams on major transactions in the Serbian, Montenegrin, Macedonian and Bosnia & Herzegovina market, including the landmark Belgrade Airport Concession, the financing and construction of the first large scale Wind Farm in the WB6 region, the incorporation of the Bank of China, … General Electric … and Zijin Mining, one of the world biggest gold producers, on the acquisition of a mining business in Serbia.”