European Commission propose directive to enforce intellectual property rights

In January 2003 the European Commission proposed a new Directive to ensure the enforcement of intellectual property rights (IPRs) in Member States. The aim of the proposed Directive is to create a level playing field for right holders in the EU and act as a strong deterrent to those who engage in piracy and counterfeiting.

Piracy and counterfeiting affects all business sectors from music and software to aircraft parts and drugs. It is estimated that more than 17,000 jobs are lost annually in the EU from counterfeiting and that the average annual lost profit is alarming: Clothing and Footwear - 1,266m euros, Perfumes and Cosmetics - 555m euros, Toys and Sports Articles - 627m euros, Pharmaceuticals - 292m euros (see footnote 1) and Software - 3billion dollars (see footnote 2). Apart from economic losses, some counterfeit products are a threat to consumer safety, for example, counterfeit medicines such as ineffective rabies injections.

What will the Directive cover and how will it affect business?

The proposed Directive aims to target the "big" offenders. Therefore, it covers infringements of all intellectual property rights that have been harmonised in the EU (copyright and industrial property, such as trade marks and designs), where the infringement is for commercial purposes or causes significant harm to the right holder.

The proposed Directive is based on the TRIPS agreement (Trade Related Intellectual Property Rights), which provides a framework for minimum provisions on enforcement within Member States and best practice already used in Member States.

The key provisions of the proposed Directive are:

• Establishing the right for trade associations and legitimate representatives of right holders (as well as right holders) to start legal proceedings
• Injunctions to stop the sale of pirate or counterfeit goods
• Provisional Measures such as freezing bank accounts and the power to force offenders to pay compensation for lost income to right holders (based on the UK Freezing Injunction)
• Establishing the right to seize goods before the case has started if there is a risk that the evidence may be destroyed, this may be subject to the right holder guaranteeing to pay compensation if the seizure is found to be unjustified (based on the UK Search and Seize Order)
• Criminal sanctions for serious infringements (intentional and commercial), including attempting to, participation in and instigation of infringements
• Banning machinery to forge security devices making goods look authentic
• Establishing the power to force those involved in selling counterfeit and pirate goods to give information about the origin of the goods and the production and distribution network
• Publication of judgments
• Withdrawal, at infringer’s expense, of goods from the market
• A right holder will be entitled to either fixed-rate damages, (equal to double the amount of the royalties/fees which would have been due), or to compensatory damages (which correspond to the losses suffered including loss of earnings and may include any profits made by the infringer). Other non-economic elements may be taken into account such as moral prejudice

Most of these provisions are already provided for right holders in the UK (Copyright, Designs and Patents Act 1988, Trade Marks Act 1994 and Copyright etc, and Trade Marks (Offences and Enforcement) Act 2002). The main benefit will be for right holders who need to prosecute counterfeiters based in countries that do not have a robust system of enforcement.

The proposed Directive is a result of a consultation process which began in 1998 when the Commission published a Green Paper on the fight against counterfeiting and piracy in the Single Market. Following this consultation it became clear that there was a need for a means of enforcing IPRs which would be equally effective throughout the EU. It was also clear that it was not possible to achieve this by individual Member State action, Community action was required. After further consultation, the Commission presented an Action Plan on 30 November 2000, which included a series of measures to combat counterfeiting including a proposal for a new Directive.

The Consultation process highlighted disparities between national systems of penalties that weaken and obstruct the fight against counterfeiting. Indeed, they act as an incentive to the counterfeiters to trade in the Internal Market. Counterfeiters choose to operate in countries of low risk and hence, cost. The result is that the legitimate operators whose products are substituted by counterfeit products find they have to reduce prices, whereas traders in countries with tougher IPR enforcement have higher prices. This creates differences in the competition between legitimate traders in the Internal Market and trade flow. Furthermore, it is unacceptable that the disparities can be allowed to benefit counterfeiters who, it is believed, are connected with organised crime.

The proposed Directive is also intended to complement the customs Regulation (EC) 3295/94 (as amended, (see footnote 3) which will soon be replaced by the proposed Regulation to facilitate seizures by customs of counterfeit goods from outside the EU). The customs Regulation applies to suspect counterfeit goods at the boundaries of the EU whereas the proposed Directive deals with suspect counterfeits within the boundaries. Thus right holders will have a number of measures to enforce rights against all illegal goods both within the EU and for those intercepted by customs.

The proposed Directive is also aimed at helping businesses innovate and exploit creativity through the effective protection of IPRs. Innovation is seen as most important in the creation of new products and competition. It is also hoped that by harmonising the enforcement of IPRs, business confidence will be boosted in the Internal Market because businesses will see returns on their investment in research and development.

Where is the proposal now?

The proposed Directive is now being considered by the European Parliament and the Council of Ministers for adoption under the co-decision procedure. The most optimistic date for adoption is end of 2003. However, due to the politically sensitive nature of the Proposal, which aims to amend national civil procedure systems, it is likely that adoption may take much longer. Member States will then have 18 months to implement the directive into national legislation.

To access the full text of the Commission's proposal please click here

For further information, please contact:

Stephen Whybrow by telephone on +44 (0) 20 7367 2175 or by e-mail at [email protected], or Lydia Watts by telephone on +44 (0) 20 7367 2054 or by e-mail at [email protected].

Footnote 1

Economic Impact of Counterfeiting in Europe, Global Anti-Counterfeiting Group, June 2000

Footnote 2

Study by the International Planning and Research Corporation on behalf of the Business Software Alliance, Sixth Annual BSA Global Software

Footnote 3

Council Regulation (EC) No 3295/94 of 22 December 1994 laying down certain measures to prohibit the release for free circulation, export, re-export or entry for a suspensive procedure of counterfeit and pirated goods as amended by Council Regulation (EC0 no. 241/99 of 25 January 1999.