In the face of the rising counterfeiting and piracy across Europe, the Commission is proposing a historical but controversial Directive that would – for the first time ever – force member states to adjust their penal codes and establish harmonised criminal sanctions against IPR-infringers.
Intellectual property infringements – involving anything from pirate music and films to fake handbags or car pieces and counterfeit medicines – have increased dramatically over the past decade, with a 1,600% rise in the volume of counterfeit goods, causing the loss of 125,000 jobs.
Economic losses related to counterfeiting are estimated at around €500 billion per year through lost business opportunities and tax revenues, and some fake products also present a serious health threat.
The protection of intellectual property is governed by various international conventions to which the EU has signed up to, such as
This directive sought to consolidate the fragmented body of EU legislation on intellectual property - i.e. disparate measures on copyrights, trade marks, authors' rights, designs, counterfeiting and piracy, computer programmes, etc - to create more clarity and predictability for European businesses.
It also gave national authorities increased powers to pursue infringers and obtain compensation for rights-holders.
However, as the counterfeiting and piracy phenomenon grows, particularly with the rise of China - the largest source of fake goods - the Commission says additional measures are necessary.
Harmonising national penal codes?
Despite a whole range of rules on the protection of intellectual property, counterfeiting and piracy have continued to grow in the world because offenders have the possibility of making substantial profits without risking any serious legal penalties.
The proposal was redrafted in April 2006, to take into account a judgment by the Court , dating from 13 September 2005, which holds that the EU has powers to harmonise member states' criminal law, if required for the effective implementation of Community law (see Communication COM/2005/0583 final ). If adopted, the Directive would be the first ever to harmonise member states' criminal law.
The double proposal has raised the question of which sanctions are appropriate for infringements of intellectual property rights. The draft Directive mandates that "all intentional infringements of an intellectual property right on a commercial scale, and attempting, aiding or abetting and inciting such infringements, are treated as criminal offences".
The proposal revives measures set out by the Commission in its initial draft for the directive on the enforcement of intellectual property rights, which were scrapped by Parliament when it adopted the directive in 2004.
These include custodial sentences, fines, the destruction or confiscation of fake goods or of products of a corresponding value, the closure establishments used to commit offences, bans on engaging in commercial activities, placing under judicial supervision, bans on access to public assistance or subsidies, and the publication of judicial decisions.
In addition, the draft framework decision provides for extended powers of confiscation and grants holders of intellectual property rights the right to assist the work of joint investigation teams.
The proposals have been criticised by a wide range of industries, including computer and software manufacturers, telecom operators, generic medicines manufacturers and trademark holders, for failing to fence in the Directive's scope on the specific problem of commercial counterfeiting.
Stakeholders said the draft risked criminalising even small-scale infringements for personal use, such as copying the content of a DVD to a computer's hard disk or making a back-up of a copy-protected CD.
A further point of criticism was that the draft would also introduce criminal measures for alleged infringements of unexamined intellectual property rights, such as pending or contested patent applications.
In a first reading vote on 25 April 2007, Parliament took up these concerns and voted to exclude private individuals from the scope of the Directive, so long as they do not generate any profit from the use of the product. Smaller offences will also remain under national civil law.
Furthermore, Parliament also decided to leave patents on inventions out of the Directive on the basis that such breaches are more difficult to verify and that civil law remains the most appropriate instrument for prosecuting this type of infringement.
The scope of the directive would thus be limited to the following intellectual property rights:
Copyright and related rights;
sui generis rights of a database maker;
rights of the creator of a topography of a semi-conductor product;
geographical indications, and;
The Directive will only enter into force if approved by member states. But that could prove somewhat difficult as countries such as the UK and the Netherlands fear that the EU is going too far by harmonising criminal codes – infringing on an area traditionally reserved for member states.
Furthermore, legal experts say the text could be be attacked before the Court for its possible lack of a proper legal foundation (see 'Positions').
Parliament Rapporteur Nicola Zingaretti (PES, IT) said: "We are turning a new page: this is the first directive where criminal law is included. To harmonise criminal codes will be a radical new thing." He explained the amendments made in his report, saying: "It is about punishing mafia-style criminals, not about jailing kids who download music from the internet."
British Conservative MEP Malcolm Harbour said: "The Conservatives are not convinced that there is need for EU legislation here. We believe it would make more sense to establish the effectiveness of the existing legislation before taking further measures."
Austrian Green MEP Legal Affairs Committee Eva Lichtenberger said her group was concerned that the Directive would cause a lot more problems than it solves. "Under the pretence of combating large-scale counterfeiting, the directive proposes criminal sanctions for a potentially far-reaching range of so-called intellectual property infringements. Many of the areas to be covered in the proposed Directive - such as copyright - are already dealt with effectively by national civil laws; so there is no justification for introducing EU-wide criminal penalties for such minor infringements."
However, she welcomed the fact that private individuals would not be covered by the proposed criminal penalties. "Without exempting personal use, something as banal as a music download could be regarded as a criminal act," she said.
Leftist MEP Umberto Guidoni(GUE/NGL) was unhappy that the Directive had not been rejected, saying that it confused counterfeiting with violations of intellectual property and would render the fight against criminal counterfeiting less effective. "It would have been more useful to only limit the application of the directive to violations of copyright and look at the commercial production of counterfeit multimedia products, an area in which organised crime operates intensely," he said, nevertheless adding: "At least we managed to secure some limitations that protect the private not for profit use of P2P and file sharing."
Reto Hilty, Annette Kur, Alexander Peukert of the Max Planck Institute for Intellectual Property Law doubt that the Court's 2005 ruling is a sufficient foundation for the Commission's redrafted proposal: "The question needs to be answered whether the conditions for Community regulation are fulfilled in this particular case. According to the ECJ ruling and with particular respect to penal sanctions, the condition must be met that the latter are absolutely necessary regarding the declared objectives. Indeed, there are grave misgivings as to whether non-harmonisation of national penal sanctions for IPR infringements would hamper the free market in goods and services between member states, as compared to the market within just one member state - after all, intellectual property rights infringements are illegal in all member states. The sole fact that it is possible, in member states, to obtain illegally pirated goods, does not justify EU competency for harmonisation."
25 Apr. 2007: The Directive was adopted in the Parliament's plenary session.
17 Apr. 2008: Expected examination by member states in Council. If agreed by the Council, it will enter into force immediately following its publication in the Official Journal.
Member states would then have 18 months to transpose the Directive.