Abusing Enhanced Cooperation – Unitary Patent as an Exaple

Enhanced cooperation may enhance also disintegration when abused.

There are three well-known examples of enhanced cooperation, namely in the area of the law applicable to divorce and legal separation in 2009, in the area of creation of unitary patent protection in 2011 and the latest one in the area of financial transaction tax in 2013. The example of unitary patent protection is the most interesting one from the viewpoint of the abuse theme in the topic.

The Commission has made an attempt to introduce a unitary patent along the lines of the Community trademark and design rights. The unitary patent package takes the road of imposed differentiation, since Italy and Spain are unwilling to participate, mainly for linguistic reasons. The linguistic regime of the future unitary patent is based on the language regime of the European Patent Office, namely English, French and German, but not Italian and Spanish languages. Additionally, such language arrangements for European intellectual property rights require unanimity in the Council (Article 118(2) TFEU). However, the rest 25 Member States expressed their wish to establish an enhanced cooperation, since it became evident that the unanimity on the translation arrangements will not be reached in the foreseeable future. I find that this reveals a significant problem with regards to enhanced cooperation.

A measure of last resort required

However, this is not necessarily the case in the real world. The European Court of Justice has elaborated to the legal problems of the enhanced cooperation in the context of the recent patent case C-274/11 & C- 295/11 Spain and Italy v Council (16 April 2013). The Court does not seem to put as much emphasis as I do, on whether the decision to authorize enhanced cooperation with regards to the unitary patent was a measure of last resort or not.

Firstly, the Court did not examine the compatibility of language arrangements in the context of the contested decision. Secondly, the Court held that nothing in the contested decision prejudices any competence, right or obligation of Italy and Spain. It is permissible for those taking part in the enhanced cooperation to prescribe rules with which those non-participating States would not agree if they did take part in it. Additionally, the prescription of such rules does not render ineffective the opportunity for non-participating Member States to join in the enhanced cooperation (paras. 82 and 83).

Matthias Lamping has in his thorough article posed a relevant question: when is it acceptable to adopt enhanced cooperation, which in practice relates to the interpretation of Article 20 TEU. The disintegration, or ”functional asymmetry”, in the internal market may arise in several ways, but the main alternatives are the following:

a) Some Member States have opted out of certain measures of the Union (e.g. CFSP)

b) Some Member States do not meet stipulated conditions for participating in certain measures of the Union (e.g. EMU and the convergence criteria)

Not a tool for political blockades

Differentiation in the context of enhanced cooperation must be temporary and it should reflect objective socio-economic differences rather than subjective political preferences. One has to bear in mind that according to Article 20 TEU enhanced cooperation should be a measure of a last resort, but this does not mean that enhanced cooperation can be used as a measure to circumvent certain unanimity requirements based on the Treaties.

In my opinion one may still question whether this is the case in the unitary patent package. As Lamping has pointed out, in this case enhanced cooperation seems to be used exclusively as secessionist means of applying pressure with the aim of avoiding further negotiations on the translation arrangements. 

 In my opinion, enhanced cooperation should offer a possibility for ”constructive abstention”. It should not provide an aid circumventing political blockades the way unitary patent proposal illustrates. However, as a counter-argument one may point out that Article 20(2) TEU provides Council a relatively broad margin of discretion and therefore the question, whether the condition of last resort is satisfied, is ”largely a matter of political discretion”. This in turn creates a problem on predictability and legal certainty in relation the scope of application of enhanced cooperation.

The idea that every Member State will eventually be included in enhanced cooperation is not fulfilled if there is actually a lasting differentiation at hand. In such a case one may, in my opinion, refer to abuse of enhanced cooperation, since eventually it will increase fragmentation in the internal market, which is not in coherence with the objectives of the Treaty. For example, from the perspective of patent holders, the lack of patent protection in major European markets (Italy, Spain) jeopardizes innovation there. Thus, the unitary patent would need to be flanked by national patents.

Some concluding remarks

In this article I have described how enhanced cooperation has been enhancing not only integration but also disintegration, especially if enhanced cooperation is abused so that it is used as a method to circumvent decision-making procedures adopted in the Treaty. I have elaborated this issue by putting the unitary patent package in the spotlight. I find that the issue of abusing enhanced cooperation mechanism remains unresolved at least partly for the time being, although there is a recent ruling on the matter. This leads one to pose a further question:  have the developments related to the recent economic and political crisis changed the nature of flexibility in the EU? My answer is yes and no.

Firstly, flexibility in the form of enhanced cooperation has become a bit easier to adopt with the latest Treaty amendment. Secondly, the fragmentation and differentiation is not based on Treaty amendments only, but one has to analyse both EU legislation and case law. Only after this analysis one may conclude, how EU law as a whole has developed in relation to differentiation. So to a great extent fragmentation is an on-going process.

Blame the euro crises

However, I would belittle the significance of the euro crisis for this fragmentation too much, if I would not point out any features of contemporary EU law, which have increased the differentiation. Surely many of the measures adopted to maintain stability in the Euro zone may have increased fragmentation. Perhaps the new institutional structures such as the European Stability Mechanism and the proposed partial federalisation of banking supervision (“banking union”) may provide examples of this.

Another example of fragmentation more or less caused by the euro crisis is enhanced cooperation in the area of financial transaction tax (FTT). Council has authorized enhanced cooperation in the area of financial transaction tax on January 22nd 2013 (Decision 2013/52/EU) and the FTT is based on the proposal for a Council Directive on the matter (COM/2013/071 final). FTT is a levy placed on a specific type of monetary transaction for a particular purpose. Financial transactions mean purchase, sale and exchange of financial instruments.

Even in the context of FTT one may ask a question, whether this decision was adopted as a last resort. The FTT has been strongly criticized especially in the United Kingdom. It is labelled as an interesting idea that cannot work in practice, since it needs to be adopted universally, if it is not to be undermined by tax arbitrage. Time will tell, whether the other Member States will eventually opt in and how enhanced cooperation will evolve in the future.

Juha Raitio
Professor of European Law
University of Helsinki

http://eur-lex.europa.eu > Official Journal

Consolidated version of the Treaty on European Union (TEU), OJ C 326, 26.10.2012

Consolidated version of the Treaty on the Functioning of the European Union (TFEU), OJ C 326, 26.10.2012

C-274/11 & C- 295/11 Spain and Italy v Council (16 April 2013)

Lamping, Matthias: Enhanced Cooperation – A Proper Approach to Market Integration in the Field of Unitary Patent Protection. International Review of Intellectual Property and Competition Law, No. 8, 2011, p. 879-925.