Select Committee on European Union Fortieth Report


Letter from the Chairman to Gerry Sutcliffe MP, Parliamentary Under Secretary of State, Home Office

  Select Committee E (Law and Institutions) considered this proposal at its meeting of 7 June 2006.

CASE C-176/03

  We note that there are likely to be difficulties with this proposal as a result of the Commission's wide interpretation of the ECJ judgment in Case C-176/03 Commission v Council. We fully support a cautious approach to the present Directive. Is there a realistic prospect of the proposal being agreed in its current form? As you know, we are due to meet on Wednesday 21 June but any information you can provide in advance of that meeting would be most helpful. We shall likely raise this proposal with you in the course of your evidence.


  Although limiting the obligations created by the Directive to IP rights under Community law appears to be an attractive way to limit the proposal, we are concerned that this may create its own problems. How would this work in practice? Is there a danger that two concurrent regimes for sentencing in IP offence cases will apply in the UK, one where the offence is derived from Community law and the other where it is not?


  You say that you are not convinced that further approximation in this area is necessary. Has an impact assessment been prepared by the Commission? We have not seen this and would be grateful to receive a copy.

  We raised a number of points in the context of correspondence on the original proposal. Those which remain unanswered are set out again in our comments below.


  In addition to the implications of Case C-176/03, the Committee is concerned by the Commission's assertion (in the explanatory memorandum accompanying the original proposal) that the mere existence of disparities between the national systems of penalties distorts the internal market and justifies the adoption of this Directive. This which would appear to have potentially wide implications in the context of Article 95 (internal market) as well as Article 65 (judicial cooperation in civil matters). Your predecessor undertook in her letter of 17 November 2005 to return to the Committee on this subject and we look forward to hearing your views.


  We note that you favour limiting the application of the Directive to counterfeiting and piracy, rather than extending it to cover all IP rights. Is this a position supported by other Member States? If the Directive is to cover all IP rights, will this term be defined in the body of the text, either fully or by reference to Commission Statement 2005/295/EC?


  We agree that it is necessary to clarify the meaning of "on a commercial scale", particularly as the Directive would introduce criminal liability for offences. We note that the term also arises in Directive 2004/48/EC; however, in that instance efforts have been made to explain its meaning in the recitals. The recitals of the present proposal do not contain a similar explanation.

  Article 5(1) refers to offences committed "under the aegis of a criminal organisation within the meaning of" the Framework Decision on the fight against organised crime. Is the reference to the latter only intended to mean that "criminal organisation" is to have the same meaning in both instruments or is something more intended? We note that the organised crime Decision does not use the phrase "under the aegis of" but "within the framework of". It would be helpful to ensure consistency of expression wherever possible.

  We have decided to retain the present proposal under scrutiny. As the original version (document 11245/05) has been superseded by the present amended proposal, we take this opportunity to clear that version from scrutiny. We would of course expect any document containing substantial changes to the present proposal to be submitted to Parliament for scrutiny.

8 June 2006

Letter from Gerry Sutcliffe MP to the Chairman

  Thank you for your letter of 8 June 2006. I note that the proposal is retained under scrutiny by the Committee. I will take each of your points in turn.

CASE C-176/03

  I agree that the true meaning and effect of the judgment of the ECJ in the environment Framework Decision case will have a profound impact on this proposal. The difficulty at the moment, of course, is that Member States and the Commission cannot reach agreement on the competence issue. The situation is now further complicated by the Commission's challenge to the maritime pollution FD. As you know, the European Parliament has intervened in support of the Commission. But 19 Member States, including the UK, have intervened in support of the Council. The UK intervention supports the Council's defence that the effects of the judgment of the ECJ in the environment case should be restricted to the environment. We have not yet been given access to other Member State's interventions but it is likely that a number of Member States will take the same position. Accordingly, a political agreement for anything other than the maintenance of the status quo looks very unlikely in advance of the judgment in the maritime pollution case which is not expected before 2008. If the ECJ rules in favour of the Commission in the maritime pollution case, the prospects for a proposal that resembles the current draft will be enhanced substantially. Much will of course depend on the detail of that judgment when it is handed down.


  The ECJ ruled in the environment case that the Community could legislate to require Member States to apply criminal law in order to ensure the effectiveness of community rules on the environment. If that principle is extended to other policy areas we would argue that it must be on the basis that the criminal provision applies only to national laws implementing existing community norms or standards. As regards intellectual property the fact that we may be required to apply common sanctions to Community and national rights, which are largely equivalent, should not present any difficulty. Much will depend on the final detail but we recently undertook a provisional assessment of Community standards or norms in the intellectual property area. In general terms they cover trademarks, designs, copyright and related rights, plant varieties and geographical indications. I stress that this is a very provisional preliminary assessment used here for illustrative purposes only, but on the basis of the existing extent of Community rules the Directive may oblige the UK to create new offences, with a maximum of no less than "x", in respect of infringements of plant variety rights and geographical indications rights. On the evidence of the current proposal it is likely that the agreed minimum maximum penalty will be well within the level of existing UK national penalties for the protection of IP rights and therefore it will be a relatively simple task to incorporate the new offences into a coherent and internally consistent UK regime.


  I attach a copy of the Commission's impact assessment. Unfortunately this has only been issued in French and no translation is available. Should an English translation become available I will forward it on to you.


  You ask whether the mere existence of disparities between the national systems of penalties distorts the internal market and justifies the adoption of this Directive. We do not consider that the mere existence of disparities between the laws of member States justifies Community internal market measures. Action by the Community should not go beyond what is necessary to achieve its internal market objective and should only require the approximation of the laws of member States where the existing disparities are inhibiting the proper functioning of the internal market.


  The definition of intellectual property rights has proved in the past to be fraught with difficulty. During the negotiations of the adopted enforcement Directive of 2004 (2004/48/EC) it was not possible to reach agreement on this issue. Consequently, after the adoption of the Directive, the Commission published their Statement 2005/295/EC setting out their view of the scope of the term "intellectual property rights" for the purposes of legislation. Earlier this year the Austrian Presidency asked delegations for written views on which of the rights set out in the Commission's Statement should be included within the scope of the current draft instrument. The views expressed ranged from those, including the UK, who favoured a very limited scope, to those who favoured inclusion of all of the items on the Commission's list. Generally speaking the consensus would appear to favour the inclusion of the majority of the rights listed in the Commission's Statement. Views are also divided on the best way to express in the body of the text any definition of the rights to be included, but due to the suspension of discussion of the substantive issues pending agreement on the way forward on the competency issue, this topic has not yet been subject to any detailed discussion in negotiations.


  I note your comments on the definition of "on a commercial scale". The Government agrees with your suggestion and would favour the inclusion in this instrument of a definition modelled on that which appears in the recitals to the 2004 enforcement Directive.

  In the Government's view the provision of Article 5(1) stipulating that the phrase "under the aegis of a criminal organisation" is to have the meaning of the Framework Decision on the fight against organised crime is intended only to ensure that the phrase "criminal organisation" is consistently interpreted. We agree, however, that there should be consistency between the two instruments and that therefore the reference in the intellectual property instrument should be "within the framework of' rather than "under the aegis of".

  I hope you find my explanations helpful. I am, of course, available to answer any further questions you may have.

Undated received 12 July 2006

Letter from the Chairman to Gerry Sutcliffe MP

  Thank you for your letter received on 12 July 2006, which has been considered by Sub-Committee E (Law and Institutions).

  We are grateful to you for the clarifications you provide. In particular we are pleased that you agree with some of our suggestions to enhance the clarity and consistency of the proposed Directive and we trust that you will press for these changes when the negotiations recommence.


  You confirm that a political agreement for anything other than the maintenance of the status quo looks very unlikely until the judgment in the Ship source pollution case is handed down in 2008. We recall that the Working Group has suspended discussion of substantive articles; are discussions likely to recommence prior to the judgment in that case? What timetable is currently envisaged for progress on this dossier?


  Regardless of how the First Pillar v Third Pillar dispute is finally resolved, the issue of an Article 95 legal base will remain relevant. As we have previously said, we are concerned at the proposed use of Article 95 for this Directive. Although this legal base was used for Directive 2004/48/EC on civil enforcement of IP rights, we do not consider that this in itself justifies its use in the present case. Some support for this view can be found in the Court's recent judgment in Cases C-317 and 318/04 Parliament v Council and Parliament v Commission.

  For Article 95 to be appropriate, the Directive should have as its objective and subject-matter the establishment and functioning of the internal market by contributing to the removal of obstacles to the freedom to provide goods and services. The recitals to the proposed Directive make reference to the internal market, as does the Impact Assessment you provided. However, no evidence is provided to show that the absence of harmonised sanctions has any real impact on the internal market. The Impact Assessment does little more than assert an impact on the internal market. It is for consideration whether the proposed Directive has been too hastily adopted by the Commission, coming as it does so soon after the adoption of Directive 2004/48/EC and therefore before the full impact of that Directive has been measured.

  Our concern is that the proposed Directive may be intended to achieve a substantially different goal. The Impact Assessment explains that "La contrefaçon représente souvent un volet de l'enterprise criminelle, ayant de multiples liens avec d'autres formes du crime organisé" which in turn helps "financer d'autres activités criminelles comme le traffic d'armes, la contrefaçon d'argent, la traite des êtres humains, le vol de voitures ou le traffic de drogue" (page 6). It later refers to the role of counterfeiting and piracy in funding terrorism. Reference is also made to consumer protection and the dangers to health associated with counterfeit products.

  What assessment has been made, both by the Government and within the Council, of the true objective of the proposed legislation? You say that you do not consider that the mere existence of disparities between the laws of Member States justifies Community internal market measures. Are the Government satisfied that the proposed Directive is a genuine internal market measure? If so, is the impact of disparities among Member States' laws on the internal market such as to satisfy the Article 95 test?


  Why do the Government favour a limited scope for the definition of intellectual property rights and what impact would a wider definition have on the current position in the UK?

  We have decided to hold the proposal under scrutiny.

25 July 2006

Letter from Gerry Sutcliffe MP to the Chairman

  Thank you for your letter of 25 July 2006 regarding the above proposed Directive. I have dealt with your points in turn below but I should first stress that in respect of the first two my responses are by necessity provisional. We will of course provide you with a fuller response on these points in due course.

  You asked about the timetable for work on this dossier. At present this is unclear but the dossier has been referred to the Article 36 Committee meeting of 12-13 September. Papers are not yet available but our understanding is that one of the questions the Committee will be asked to consider is whether the negotiations on the substantive Articles can resume pending the judgment in the ship source pollution case.

  Your comments on the Article 95 legal base are very interesting and helpful. I agree that there are many question marks about the Commission's justification for the proposed measures. Our initial view is that we are yet to be convinced that this dossier is an internal market measure as we are still in the process of examining the case and will provide you with a more detailed view once we are in a position to do so.

  You asked why the Government favours a limited scope for the definition of Intellectual Property Rights and what impact a wider definition would have on the current position in the UK. A precise definition of Intellectual Property Rights is difficult to achieve. No agreement, for example, was reached during the negotiations of Directive 2004/48/EC despite lengthy consideration. However, the recitals[164] in the proposed Directive suggest that the purpose is to deal with counterfeiting and piracy rather than the full range of intellectual property rights. Consequently the Government's view is that the measure should be restricted, and any extension beyond wilful trade mark counterfeiting and copyright piracy[165], needs clear justification. Our experience is that these are the infringements that may be linked to serious/organised crime and are suitable for criminal proceedings. Infringements of other forms of intellectual property rights, such as patent rights, would on the other hand present problems for the criminal courts due to their technical complexity involved; this in turn would lead to resource issues. Our view is that the protection of these less easily identified infringements is a matter more rightfully dealt with by the specialist civil courts, such as the Patents Court or Patents County Court. The Government is of the view that there is no strong and compelling evidence to justify any extension beyond the scope set out in Article 61 of the TRIPS.

  I hope you find my explanations helpful.

22 August 2006

164   Extract from recital 5 "Certain criminal provisions need to be harmonised so that counterfeiting and piracy in the internal market can be combated effectively". Back

165   As defined in Article 61 of the TRIPS Agreement (Trade-Related aspect of Intellectual Property Rights). Back

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