European Communities | Free European Law Essay

The European Communities were established with the aim of providing peace and economic stability within Europe. This essay will consider how the European Union has sought to establish:

  • a) a single market;
  • b) diminish and ultimately abolish barriers to trade;
  • c) encourage competition;
  • d) encourage international trade;
  • e) approximate laws of the Member States;
  • f) promote research and technological development and respect property rights.

a) A single market

Article 2 of the EC Treaty explicitly sets out the primary goal of the Community of creating a common market.

Article 3 provides a list of activities that must be put into effect by the Community to ensure that these aims are achieved.

Article 3(c ) provides that all obstacles to the free movement of goods, persons, services and capital are abolished.

b) diminish and ultimately abolish barriers to trade

i) Free movement of goods

Article 3a sets out the principle for the free movement of goods. Article 14 provides that the internal market will comprise an area without frontiers in which free movement is ensured. Free movement of goods will be restricted by quantitative measures, such as customs quotas. Customs quotas would for example, provide that only so many widgets may be imported from a specified state each year.

This is dealt with within Article 28, which provides quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States. Article 29 makes similar provisions for quantitative restrictions on experts.

The right of a patent or trade mark holder to restrain importers, which effectively means that no products may be imported without the right holder's consent, may be perceived as having equivalent effect to a nil quota.

Article 30 assists by providing exceptions for measures that are justified on specified grounds. These include the protection of industrial and commercial property'. It however is also provided that the provisions of Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds ofthe protection of industrial and commercial property. Such prohibition or restrictions shall not, however, constitute a means of arbitary discrimination or disguised restriction on trade between Member States.

Therefore, it is submitted that intellectual property rights may be of equivalent effect to quantitative restrictions.

ii) Exhaustion of intellectual property rights

In the 1970's, the Court developed the doctrine of exhaustion of rights, in an attempt to prevent limited national intellectual property rights dividing the common market.

The Treaty provides a closed list of grounds under which Member States may claim derogation from the provisions of articles 28 and 29. Ground 11 provides that there will be no justification to an obstacle to the free movement of patented goods where the product has been put onto the market in a lawful manner, by the patentee himself or with his consent, in the Member State from which it has been imported, in particular in the case of a proprietor of parallel patents. The courts have subsequently applied this ground literally, and treated a patent as exhausted by any sale in another Member state by or with the consent of the holder, whether or not a monopoly profit could be earned in the country of export. The holders consent is however required if the doctrine of exhaustion is to apply - as confirmed in Keurkoop v Nancy Kean Gifts.

Hugh Hansen has argued that the principle of free movement does not require international exhaustion between Member States. He explains that exhaustion of rights expands the number of peiole selling products that are already on the market in Member States. It does not however increase the amount of different products moving across Europe. On the contrary, it acts as a barrier to entry as parallel trading will be expected to prevent the recover of the costs of introducing the new product on to the market.

c) encourage competition;

Articles 81 and 82 prohibit undertakings from entering into anti-competitive agreements, or from abusing a dominant market position. The aim of these provisions is to prohibit distortion of free competition resulting from collusion or other conduct between two or more undertakings, or the abuse of predominant market power by an undertaking.

Article 81 provides that an anti-competitive agreement that may have a restrictive effect on inter-community trade will be declared void, unless there is a sufficiently valid reason to allow an exception. To invoke Article 18, there must be an 'actual' effect - rather than mere potential for such an outcome. It does not however matter whether such effect is detrimental or not.

Exceptions include block or individual exemptions. A system of comfort letters has also been developed.

Article 82 seems to prevent undertakings from becoming involved in anti-competitive behaviour by prohibiting abuse by one or more undertaking of a dominant market position. Such abuse will be prohibited as incompatible with the common market in so far as it may affect trade between member states. Before abuse can be shown, it must be established that the relevant undertaking is in a dominant potition. It was held in Michelin v Commission that a firm in a dominant position has a special responsibility not to allow its conduct to impair competition. Abuse is considered objectively and it is not necessary to show that the undertaking intended harm. No exemptions apply to Article 82.

d) Encourage international trade

Barriers to trade fall into two categories - pecuniary, and non-pecuniary. Pecuniary barriers include the imposition of for example a customs duty for goods entering and leaving each state.

Article 23 creates a customs union, with all customs duties and charges on goods of equivalent effect being removed. Article 24 provides that once non-domestic goods have been subject to a commons customs tariff (raised by the EC - not member states), they are in free circulation, and are to be treated the same as domestic goods.

Article 25 provides that Member States shall refrain from introducing between themselves any new customs duties or changes having equivalent effect. This applies to both imports and exports. Goods include products which can be valued in money and which are capable of forming the subject of a commercial transaction. This will clearly include intellectual property.

The court has also taken care to encourage international trade through the harmonisation of the laws of member states - as detailed below. Without harmonisation, inter-state trade would be impeded wherever a right holder in the country of import had no rights in the country of export, and the protected product was put on the market by a third party without consent.

e) approximate laws of member states.

National limitations on intellectual property right are contrary to the concept of a common market.

In Jones & Survin EC Competition Law it is noted that despite the introduction of some community-wide rights, intellectual property rights are still typically granted by national laws and enforced on a national basis, conferring protection within national territories. This inevitably leads to a conflict with the community provisions governing the free movement of goods and services.

A particular example of the difficulty is seen with patents. For example, a UK patent extends only through the UK. Similarly, a French patent extends only through France.

Consten and Grundig v Commission was an early case looking to prevent the division of the common market along frontiers through intellectual property rights. Grundig was permitted Grundig to allow its exclusive distributors to register its trade mark 'Gint. Its French distributor, Consten, was then able to sue a parallel importer under French law for trade mark infringement, in addition to unfair competition. The ECJ distinguished the ownership of trade mark rights under national law (protected under Article 295) from their exercise, subject to the Treaty provisions. This avoided the conclusion that Grundig was acting in abuse of trade mark law.

Harmonisation of intellectual property rights is essential to prevent free riders from selling into countries where there are weaker intellectual property rights, which would lead to the creation of piracy havens.

Prior to the Harmonisation Directive copyright protection lasted for different periods in different Member States, which led to divisions within the Common Market. The Directive has led to copyright being extended throughout the Community from the life of the author plus 50 years (as applied in most member states) to the German period of the life of the author plus 70 years.

There has been further harmonisation through the Software Directive which introduced the requirement of all Member States to protect software by copyright. This Directive provides that each member states must incorporate into national law the rights of third parties to decompile programmes sufficiently to permit one programme to work with another.

The Database Directive was intended to harmonise database law. The implementation of the directive through national states has however been varied, and has therefore not completely harmonised the position.

The Trade Mark Directive was adopted in 1993. The Community trade mark office began accepting filings in 1996. National marks still exist, and there will continue to be divisions within the market since honest and concurrent users of independent marks will continue to cause difficulties. However, Community marks will be effective throughout the EEA unless they are challenged within a county on the basis of confusion with a local mark.

f) promote research and technological development and respect property rights.

Exclusive intellectual property rights are by their very nature anti-competitive. They restrain third parties from taking advantage of the property right. By their nature, they constitute a barrier to entry.

However, without encouragement of investment in intellectual property, it would not be beneficial for creators to spend time creating new patented goods, artwork, music, literature etc. Investors of intellectual property would not gain return on their investment, which would cause a massive reduction in the production of new and innovative designs and works.

Erosion of intellectual property rights would allow inventions, designs and other intellectual property to be copied, without the expense of the investment of development time. This is of particular relevance to pharmaceutical products, which are extremely costly to develop as a result of the necessary clinical trials. They can however be cheaply copied. This would have dyer consequences for the advancement of medicine throughout the world, since investment in pharmaceutical products would vanish in such circumstances.

Trade marks similarly are essential in order to increase consumer choice, and make the economy more competitive.

Thus, the EC must endeavour to strike the correct balance.

In its judgments since the 1970's, and in particular cases such as Keurkoop v Nancy Kean Gifts considering exhaustion of rights, the Courts have stressed the importance not to undermine the importance of intellectual property rights. The court is clearly conscious of the importance of rewards and incentives.

Bibliography:

Legislation/Directives

  • EC Treaty, 25th March 1957 as amended OJ 2002 C325/1
  • Commission Regulation (EC) No 772/2004
  • Council Dir 93/98/EEC of 29 October 1993, Harmonising the term of protection of copyright and certain related rights OJ 1993, L290/9
  • Council Dir 91/250, OJ 1991, L122/42, Software Directive
  • Council Dir 96/9 OJ 1996, L77/20, The Database directive
  • Council Dir 89/104 to approximate the laws of the Member States relating to trade marks, OJ 1989, L40/1

Cases

  • Centrafarm bv and de Peijper v Sterling Drug Inc (15/74) ECR 1147 31 Oct 1974
  • Consten and Grundig v Commission (56 & 58/64) [1966] ECR 299
  • Keurkoop v Nancy Kean Gifts (144/81) [1982] ECR 2853
  • Michelin v Commission 322/81

Books

  • Davies, K - Understanding European Union, 2nd Edition 2003, Cavendish Publishing
  • Jones & Surfin EC Competition Law: Test Cases and Materials (2001)
  • Korah, V - An Introductory guide to competition law and practice, 8th Edition 2004, Hart Publishing

Articles

  • Hansen, H international exhaustion: an economic and non-economic policy analysis' -Intellectual Property Law and Policy - vol 6 (New Jersey, Juris Publishing (2001)

Websites

  • www.competition_commission.org.uk
  • Centrafarm bv and de Peijper v Sterling Drug Inc (15/74) ECR 1147 31 October 1974