The CJEU’ s volte-face on TRIPS in light of Treaty modifications

The summer holidays are over and it is time to start with a particularly interesting Grand Chamber ruling by the CJEU from this summer. In Case C-414/11, Daiichi Sankyo Co. Ltd, Sanofi-Aventis Deutschland GmbH v DEMO Anonimos Viomikhaniki kai Emporiki Etairia Farmakon, the CJEU turned its highly contentious Opinion 1/94 on its head in light of a number of Treaty changes to the scope of the common commercial policy. Significantly, the Court seems less concerned with the potential ‘abuse’ of certain legal bases by regulating ‘internally’ through international agreements. The CJEU also clarified its case law on the distinction between the scope of article 114 TFEU (internal market) as opposed to article 207 TFEU (common commercial policy).

 Opinion 1/94 and the scope of the Common Commercial Policy

The scope of the CCP is probably one of the most hotly debated areas between the Commission on the one hand, and the Council and the Member States on the other hand. The reasons are obvious. The CCP is exclusive EU competence, so the broader it is construed the less Member States can act themselves. Moreover, the CCP concerns an area of foreign policy, a particularly politically sensitive area. In the early days, the CJEU interpreted the CCP relatively broadly (see in particular Opinions 1/75 and 1/78), but this momentum came to a complete stop in Opinion 1/94. In that Opinion the CJEU had to assess the competence of the EU under the CCP to conclude the World Trade Organisation Agreements.

The WTO Agreements are pretty comprehensive in scope, including trade in services (GATS) and harmonizing trade-related aspects of intellectual property rights (TRIPS).  The EU’s exclusive competence to conclude the agreements in these matters was fiercely contested by the Council and the Member States, and one of the reasons they brought forward to limit the scope of the CCP was that it would serve as a means to ‘get around’ other legal bases and harmonize laws internally within the EU without having recourse to the proper legal basis for it. Of course, it is notoriously difficult to demarcate between internal and external trade. Internal harmonization can have significant external trade effects and can serve as a means to regulate external trade without formally doing so. In the same way, a measure intended to harmonize trade between the EU and its trading partners can have substantial impacts on the regulation of internal trade as well.

The CJEU agreed with those arguments in relation to large parts of the TRIPS Agreement. It held that ‘[admittedly, there is a connection between intellectual property and trade in goods’ but that was ‘not enough to bring them within the scope of Article 113. Intellectual property rights do not relate specifically to international trade; they affect internal trade just as much as, if not more than, international trade.’ (para 57) It then went on to exclude most of the TRIPS agreement from the scope of the CCP (only the part relating to border measures fell within its scope) because

 60) If the Community were to be recognized as having exclusive competence to enter into agreements with non-member countries to harmonize the protection of intellectual property and, at the same time, to achieve harmonization at Community level, the Community institutions would be able to escape the internal constraints to which they are subject in relation to procedures and to rules as to voting.

These are classic conferral of powers arguments, noting simultaneously the importance of division of competences and procedure on the one hand, and trying to delimit the scope of the CCP vis-à-vis the internal market legal basis on the other hand. The main argument was that the TRIPS Agreement did not specifically relate to international trade. Apparently, only if an agreement (and TRIPS in particular, note that TRIPS stands for trade related aspects of intellectual property) specifically relates to international trade, it falls within the scope of the CCP, and as such cannot be used to circumvent article 114 TFEU or other legal basis for that matter.

 Treaty amendments and a fresh start with Case C-414/11

In subsequent Treaty amendments the old article 113 EC has been amended as to include ‘commercial aspects of intellectual property’ as part of the Common Commercial Policy. The question before the Court in this case was thus whether ‘that significant development of primary law’ would make the Court change its views expressed in Opinion 1/94. In fact, it did so quite substantially. The Court first stated that Opinion 1/94 was no longer relevant in this case (para 48) and proceeded with a fresh start on whether the TRIPS agreement fell within exclusive competence.

 The CJEU then proceeded with a useful summary of its case law as well as some innovative aspects on the scope of the CCP. It started by noting (and this is new) that as the new provision mentions that the CCP operates within the context of the Union’s external action, ‘that policy relates to trade with non-member countries, not to trade in the internal market.’ (para 50) It then continues to state that

 51      It is also common ground that the mere fact that an act of the European Union, such as an agreement concluded by it, is liable to have implications for international trade is not enough for it to be concluded that the act must be classified as falling within the common commercial policy. On the other hand, a European Union act falls within the common commercial policy if it relates specifically to international trade in that it is essentially intended to promote, facilitate or govern trade and has direct and immediate effects on trade (Opinion 2/00 [2001] ECR I‑9713, paragraph 40; Case C‑347/03 Regione autonoma Friuli-Venezia Giulia and ERSA [2005] ECR I‑3785, paragraph 75; and Case C‑411/06 Commission v Parliament and Council [2009] ECR I‑7585, paragraph 71).

 This is actually not very far off from what the CJEU held in Opinion 1/94. However, it then proceeded to interpret the new addition in article 207 TFEU of ‘commercial aspects of intellectual property’ in light of this case-law. The CJEU thus stated that ‘[i]t follows that, of the rules adopted by the European Union in the field of intellectual property, only those with a specific link to international trade are capable of falling within the concept of ‘commercial aspects of intellectual property’ in Article 207(1) TFEU and hence the field of the common commercial policy.’ (para 52).

 Enter the volte-face:

 53      That is the case of the rules in the TRIPs Agreement. Although those rules do not relate to the details, as regards customs or otherwise, of operations of international trade as such, they have a specific link with international trade. The TRIPs Agreement is an integral part of the WTO system and is one of the principal multilateral agreements on which that system is based.

 Thus, whereas in Opinion 1/94 the CJEU had concluded that most of TRIPS did not specifically relate to international trade, here it stated that there was a specific link with international trade and thus the agreement did fall within the scope of the CCP. The CJEU  mentioned the WTO Dispute Settlement Procedures which emphasized the specific link with international trade, adding thereby an argument it had not used in Opinion 1/94. It proceeded with a textual argument by noting that according to article 207 (1) TFEU ‘the ‘commercial aspects of intellectual property’ are now fully part of the common commercial policy; the authors of the FEU Treaty could not have been unaware that the terms thus used in that provision correspond almost literally to the very title of the TRIPs Agreement.’ I find this quite ironic in light of paragraph 57 of Opinion 1/94 where the CJEU ignored the very title of TRIPS to conclude that it dealt with harmonization, not trade regulation.

 The most interesting part, in my opinion, is where the CJEU departs from its concerns over potential abuse of 207 TFEU to harmonize laws internally:

 58      The primary objective of the TRIPs Agreement is to strengthen and harmonise the protection of intellectual property on a worldwide scale (Case C‑89/99 Schieving-Nijstad and Others [2001] ECR I‑5851, paragraph 36). As follows from its preamble, the TRIPs Agreement has the objective of reducing distortions of international trade by ensuring, in the territory of each member of the WTO, the effective and adequate protection of intellectual property rights. Part II of the agreement contributes to attaining that objective by setting out, for each of the principal categories of intellectual property rights, rules which must be applied by every member of the WTO.

 59      Admittedly, it remains altogether open to the European Union, after the entry into force of the FEU Treaty, to legislate on the subject of intellectual property rights by virtue of competence relating to the field of the internal market. However, acts adopted on that basis and intended to have validity specifically for the European Union will have to comply with the rules concerning the availability, scope and use of intellectual property rights in the TRIPs Agreement, as those rules are still, as previously, intended to standardise certain rules on the subject at world level and thereby to facilitate international trade.

 60      Consequently, as the Commission observes, to regard the rules on patentable subject-matter in Article 27 of the TRIPs Agreement as falling within the field of the common commercial policy rather than the field of the internal market correctly reflects the fact that the context of those rules is the liberalisation of international trade, not the harmonisation of the laws of the Member States of the European Union.

 This is a somewhat logical conclusion in my opinion. Let’s assume hypothetically that the EU has adopted a certain product rule, for example regulating the percentage of carbon allowed in widgets, and this product rule creates significant barriers to trade between the EU and the US which has its own product rule on widgets. It would make sense that an agreement between the EU and the US to set one standard or to agree on mutual recognition would fall within the scope of the CCP, since such an agreement relates specifically to international trade and has a direct and immediate impact on trade between the other countries. In that respect, the EU legislator, when regulating the EU internal market, will need to comply with the international agreement and cannot deviate from it. It is clear then that the CCP can have consequences for the exercise of competences in other fields, but this is the same for instance if a regulation would be adopted under article 207 TFEU. That regulation needs to take into account international agreements concluded by the EU on the basis of other legal bases.

However, the CJEU did not truly address the question of potential abuse of article 207 TFEU, and I will be curious to discover whether the CJEU might invalidate the conclusion of, let’s say, an international agreement between Liechtenstein and the EU which entails substantial harmonization of rules on tobacco products. This would arguably be struck down on the basis that such a rule does not specifically relate to international trade, but I think there is a pretty grey area between the Liechtenstein example and the US example.


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