European Communities

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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

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    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

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    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

      • ECTreaty, 25th March 1957 as amended OJ 2002 C325/1
      • CommissionRegulation (EC) No 772/2004
      • Council Dir 93/98/EEC of 29October 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
      • CouncilDir 96/9 OJ 1996, L77/20, The Database directive
      • Council Dir 89/104 to approximatethe laws of the Member States relating to trade marks, OJ 1989, L40/1

      Cases

        • Centrafarmbv and de Peijper v Sterling Drug Inc (15/74) ECR 1147 31 Oct 1974
        • Constenand Grundig v Commission (56 & 58/64) [1966] ECR 299
        • Keurkoopv Nancy Kean Gifts (144/81) [1982] ECR 2853
        • Michelinv 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 internationalexhaustion: 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 SterlingDrug Inc (15/74) ECR 1147 31 October 1974
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