One Down - Two, Three or More to Go … A Closer Look at the CJEU’s Decision on Enhanced Cooperation for the Unitary Patent

Paparazzi caught El Kato, still utterly
confused after the cold shower from the CJEU
(his pal Kattocini went into hiding)

Did we really need proof that the widespread mistrust lingering among the patent community against a CJEU involvement in patent affairs might in the end be justified? After all, the shaky setup of the new patent system for the Internal Market is owed to, in particular, the desire to shut the CJEU and EU law out. On Tuesday, the Court disillusioned the zealots opposing that shaky setup by dismissing the actions brought by Spain and Italy (see here) against Council Decision 2011/167/EU of 10 March 2011 authorising enhanced cooperation in the area of the creation of unitary patent protection (Joint Cases C-274/11 and C-295/11). It is about time to have a closer look at the decision.

Of course, the dismissal by the Court’s Grand Chamber came as no surprise after Advocate General Bot had recommended this outcome in his Opinion delivered last December. The Advocate General’s assessment was markedly based on “a limited review” of the case, out of respect for the Council’s margin of discretion in authorizing enhanced cooperation. As a consequence, Bot trimmed down the scope of the dispute to a minimum by removing all aspects relating to the substance of the cooperation and its effects. He thus accepted to review essentially only whether the procedural prerequisites for enhanced cooperation were fulfilled, i.e. most importantly the non-exclusivity of the competence used and the requirement of last resort for the cooperation. By contrast, all arguments relating to the allegedly negative effects of the cooperation, e.g. for coherence, on non-discrimination or for non-preclusion, were only checked from the coarse point of view of a manifest misuse of powers by the Council. For neither of those points did the Advocate General find a problem in the Decision.

The CJEU’s dismissal of the Spanish and Italian concerns over their exclusion from the cooperation handed down Tuesday is essentially along the same lines. The basic difference is that the Court gives even less reasoning for its findings: This suggests that potentially controversial issues, such as for example an outspoken endorsement of the Advocate General’s limited approach for the review, were just deleted in the judges’ deliberations. This is a problem routed in the CJEU’s procedural rules. In contrast to the US Supreme Court, there are no dissenting opinions. While that may explain the half-hearted reasoning of yesterday’s ruling, it doesn’t excuse the shortcomings of the decision.

On substance, the Court endorses Bot’s assessment that the legal basis used for the Unitary Patent Regulation and the Language Regulation, Art. 118 TFEU, did not incorporate an exclusive EU competence, but instead formed part of the general shared competence for the Internal Market (paras. 16 to 26). This assessment is based on the observations, that the Internal Market is a shared competence and that the competition chapter is an exclusive one, but that Art. 118 TFEU did not relate to competition. Both arguments are as correct as they are beside the point: The competence issue is dismissed under just a systematic interpretation of the structure of the Treaty provisions and without a teleological approach asking about the actual purpose of limiting enhanced cooperation to areas of shared competence. The really interesting question of how on earth the activity that Art. 118 TFEU relates to, i.e. the setup of an own EU patent, could possibly be exercised by the Member States alone (which is what shared competence presupposes) remains untouched and unanswered by the Court. Art. 118 TFEU entitles the Union to define its own, autonomous policy of IP protection. What role are Member States supposed to assume in that context? Clearly, enhanced cooperation for IP can only have its proper place in the context of a harmonization of national patent laws under Art. 114 TFEU.

By the way, allow a side-remark for the competition people: By way of obiter dictum, the CJEU also endorsed the ill-fitted attribution of the competition chapter to the area of exclusive competences. If that was really true, all national competition laws would be pre-empted (at least above the inter-state threshold). For Art. 102 TFEU in particular, we know that this is not the case. The fact that competition law is fully harmonized, which it is, is not to be mistaken for an exclusive competence. The Court overlooked, for competition as well as for IP, that already by virtue of Art. 2(6) TFEU, the competence catalogue is only of a declaratory, not constitutive, character. If it wasn’t, the EU was in real trouble, since the enumeration of competences in the catalogue is at the same time incomplete and chaotic. Be that as it may – in short: IP and competition law competences were badly struck by this judgment. It is to be hoped that its truncated and imprudent approach to interpreting EU competences is not carried on to other areas.

Back to IP proper: In paras. 33 to 41, the Court held that the Decision did not constitute a circumvention of the unanimity requirement for the Language Regulation contained in Art. 118(2) TFEU. There, the Court essentially followed the reasoning of the Advocate General that anything else would have the effect of excluding areas of unanimity from enhanced cooperation because every cooperation could be seen as an attempt to side-step unanimity. While again this is probably true in principle, the Court in that context as well as in the contexts dealing with cohesion and non-preclusion (paras. 75 to 78 and 81 to 86) fails to address the essential question of the relationship between the unanimity requirement and a possible preclusion of the possibility of outside Member States to participate at a later point. In other words, not all unanimity requirements are equal: Some are more important than others. In this case, the unanimity requirement relates to the languages used within the cooperation. Without re-entering here into a discussion of the substance of the language regime, it must nonetheless be remembered that Art. 118(2) TFEU aims at protecting the language interests (cultural interests) of each Member State. This is why it imposes an obligation to find consensus. The exclusion of the language of any Member State permanently prejudices its incentives, prospects and potential accede to the cooperation at a later stage. Given that the Court has repeatedly acknowledged in other contexts that languages are a particularly sensitive area in EU law (ironically even in the judgment in C-202/11, rendered the same day), the Court’s avoidance of this issue in the judgment is as striking as it is telling.

Less controversial points in the judgment relate to the Court’s confirmation (paras. 47 to 59) of the Advocate General’s finding that the venture into enhanced cooperation was indeed one of last resort, as required by primary law. This is in part a question of fact, and in part, it is one of political discretion. It is true that the negotiations among Member States had indeed reached a standstill at the time. But the question remains whether the language controversy really led to a cul-de-sac with respect to the entire project of creating an EU patent, or whether enhanced cooperation was just used as an excuse to change policy and strip down the unitary and autonomous EU patent into a mere shadow of its former self. Of course, the Court also failed to see that, as was checked in other contexts, even where the measure is one of last resort, the intrinsic formal and substantive conditions for enhanced cooperation and its foreseeable effects must still be satisfied. The framework of legal constraints in which enhanced cooperation is embedded is not about balancing the positive effects of that cooperation against its disadvantages for the non-participating Member States, but about ensuring that cooperation is based on an act of mutual agreement and good faith. However broad the Council’s discretion in assessing the political stalemate of negotiations may be, it is the CJEU’s duty to conduct a minimum substantial review in order to safeguard the rule of law in the political decision-making process. The Court failed to assume this responsibility.

A more or less hopeless argument advanced by the plaintiffs, easily dismissed by the Court (paras. 60 to 69), related to an alleged lack of unity of the unitary patent throughout the Internal Market as envisaged by Art. 118 TFEU due to enhanced cooperation. As the Court rightly points out, the fact that in the event of enhanced cooperation only some Member States are covered is a “consequence [that] necessarily follows” from enhanced cooperation and is in itself no sufficient argument against its legality. Even so, what about the effects of enhanced cooperation on the Internal Market, on trade between Member States, and on competition between them? The Commission and the Council already brushed aside this issue by stressing that equal access to unitary patent protection is ensured to all patent holders whether they come from participating Member States or from non-participating Member States. This is a truism, but it completely misses the point. The Court didn’t even bother to dig deeper into the actual problems caused by the segregation of markets along the borders of participating and non-participating Member States. It neglected the fact that in comparison to the status quo of equal fragmentation of the Internal Market for all Member States, a common patent system for just some of them has particularly severe discriminatory and exclusionary market effects. In other words, the assumption that some commonality is always better for the Internal Market than no commonality at all is not always true and it is particularly not true for patents, which are typically directed to cross-border trade in the Internal Market.

So what can we make of this judgment? Clearly, with its partially incomplete, partially unconvincing reasoning it provides hardly the quality of CJEU decisions that we hope for in the patent area or anywhere else. And while it might be greeted enthusiastically by the proponents of the new system, the decision might also backfire on the Court by entrenching mistrust even further.

What does the judgment tell us in terms of assessing the fate of the two actions for annulment Spain recently lodged against the two Regulations for the unitary patent (Cases C-146/13 and C-147/13, see here)? Probably not much: The precise pleas lodged there were not made public yet, but it is to be expected that they will mainly relate to an infringement of fundamental principles of EU law through the unprecedented regulatory technique used and, perhaps, once more to conflicts of the system with the general framework established for enhanced cooperation in primary law. The first point of EU law principles is not touched upon at all in Tuesday's judgment. From a purely legal perspective and blinding out possible Court politics, those arguments would seem particularly promising for the plaintiffs. As regards the second point, i.e. another shot at proving that the way this cooperation works is contrary to the primary law framework, the holes permeating the judgment in terms of issues not touched upon in the reasoning certainly leave some leeway for fresh arguments.

Even though the first CJEU action in the unitary patent saga has thus been struck down, two more are already launched and on the go. But even if these two should also come up empty, more subsequent litigation might be on the horizon: Infringement actions might be lodged against the Unified Patent Court Agreement once ratified by the participating EU Member States. Subsequently, any points of illegality not answered by the CJEU in any of these proceedings might still be picked up by national courts once the system is up and running. So one down, but two, three or more are yet to go. The unitary patent match continues – and while it does, users of the system will not have legal certainty for their economic decisions.

Like AmeriKat already said, the decision did not come as a surprise – which is perhaps even its most worrying feature. Tuesday’s judgment dented this Kat’s and her co-author’s naïve faith in the Court’s capacity to separate law from politics. Yet a spark of hope remains. This Kat is therefore prepared to take AmeriKat’s bet and raise the stake... It calls the hat and raises to a pair of dirty socks.

Posted by: Thomas Jaeger & Matthias Lamping