A landmark recent judgment of the Grand Chamber of the CJEU was the first occasion on which the CJEU has considered the validity of a decision authorising enhanced cooperation. This is particularly topical given the flurry of initiatives relying upon this mechanism, some of which are now being challenged (such as the UK’s proposed proceedings against the Financial Transactions or “Tobin” Tax). However, it also calls for a post in this blog as it raises a number of interesting practical and legal issues for competition practitioners.
In Joined Cases C‑274/11 and C‑295/11, Spain v Council and Italy v Council, the two Member States challenged the proposal by the other 25 Member States authorising enhanced cooperation in the creation of unitary patent protection. Negotiations relating to the unitary patent system have been ongoing since 2000 and have struggled through various iterations (see paragraphs 119 to 123 of Advocate General Bot’s Opinion). Finally, a subset of Member States sought to press ahead with their own agreed version of the initiative, which proposed that the languages used for submission of patent applications should be restricted to English, French and German. Spain and Italy sought to block this agreement on the basis of a number of arguments, including misuse of powers and failure to have due regard for the judicial system of the Union as well as breach of the conditions set forth in Article 20 TEU and in Articles 326 TFEU and 327 TFEU. On 16 April 2013, the CJEU rejected these challenges, effectively giving the green light to the initiative (although another challenge by Spain to the proposed initiative is pending).
Of particular note for competition practitioners, however, is the Court’s approach to the interaction between the creation of common IP rules and the Union’s exclusive competence to establish ‘competition rules necessary for the functioning of the internal market’ under art. 3(1)(b) TFEU. Italy and Spain argued that a unitary patent will define the “extent and the limitations of the monopoly granted by that intellectual property right” and will therefore concern the drafting of “rules essential to the preservation of undistorted competition”. Given the Commission and the CJEU’s recent activism in the field of IP and competition law (from Magill through to AstraZeneca), this appeared to be a reasonable argument. Had this won out, article 2(1) TFEU would have precluded Member States from legislating on the issue unless specifically authorised by “the Union” – which Italy and Spain read as meaning the entire Union.
The Council and the proponents of the initiative relied upon Article 4(2)(a) TFEU, arguing that the rules governing intellectual property fall more appropriately within the ambit of the “internal market” and were therefore a shared competence with the Union. The key provision was article 118 TFEU, a new competence, which provides:
In the context of the establishment and functioning of the internal market, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation, coordination and supervision arrangements.
The Council, acting in accordance with a special legislative procedure, shall by means of regulations establish language arrangements for the European intellectual property rights. The Council shall act unanimously after consulting the European Parliament.
The CJEU, at paragraphs 17 to 26, stressed the initial words of this article, considering that the competence to introduce such centralised arrangements falls “within the ambit of the functioning of the internal market”. Adopting the Advocate General’s formalistic approach to the identification of “competition rules” under article 3(1)(b) TFEU, the Court stressed that the relevant provision for the creation of centralised IP rules fell outside Articles 101 to 109 TFEU and as such “[a]lthough it is true that rules on intellectual property are essential in order to maintain competition undistorted on the internal market, they do not, for all that […] constitute ‘competition rules’ for the purpose of Article 3(1)(b) TFEU”.
Given the importance of the unitary patent initiative for many undertakings affected by competition law in the exercise of their patents (for instance in the pharmaceutical or software industries), this result may seem curious. However, the Court’s approach is a cautionary tale to those who would seek to identify “competition rules” outside the nine articles in Part Three, Title VII, Chapter 1 of the TFEU. Rules “essential […] to maintain competition undistorted” cannot be equated with rules “necessary for the functioning of the internal market”. Essentially, it appears that as in its case-law on the “centre of gravity” of a measure when identifying the correct legal basis, the Court weighs an initiative such as this and ultimately decided to emphasise the role of article 118 TFEU in fostering creativity and innovation and “uniform protection of intellectual property rights” through the Union. This should perhaps encourage a more circumspect approach to IP rights in the context of competition enforcement.