Category: Article

On Politics and Law: the decision of “Karlsruhe”

Pierre-Antoine Klethi

LLM in EU Law Candidate, King’s College London; Master’s degree in European Economic Law, IEP Strasbourg and Science-Po Paris .

There was a lot of EU-related news on Wednesday 12th September 2012: besides the eagerly-awaited decision of the German Federal Constitutional Court (located in Karlsruhe), J. M. Barroso addressed the European Parliament in his “State of Union” speech, and Dutch voters elected their new MPs.

This article will focus on the first event: the constitutional judges gave the green light to the German ratification of the TSCG (Treaty on Stability, Coordination and Governance) and of the ESM Treaty (European Stability Mechanism). They declared these two treaties compatible with the Grundgesetz, with some interpretation’s restrictions.

This decision was awaited not only by jurists, but also by political and economic circles. Let us take advantage of this opportunity to discuss the links between Politics and Law.

What are the outlines of the judgement of the Bundesverfassungsgericht?

The German constitutional judges have put two conditions to their approval of the ratification of the two European Treaties which had been challenged by several organisations and elects: the respect of the Parliament’s right to be informed and the respect of the Parliament’s fiscal sovereignty.

The constitutional court has recalled a former decision of September 7th, 2011 (on Greece’s rescue and on the EFSF), in which it stated that the decisions on public receipts and expenses had to be left to the Parliament, as it is an essential basis of the democratic self-determination process.

The judges have also specified that the Parliament would have to be consulted in case the current amount of loans and guarantees (around 190 billion euros for Germany) were to be exceeded. This means that automatic changes by European organs or by the ESM itself would not be compatible with the German constitution.

Furthermore, the German solidarity should benefit other countries only if the counterparties given by the latter are clearly determined. That way, the judges have excluded any “blank check” for other countries. Nevertheless, they have defined that the amounts must have a certain importance (which is the case, in the current situation). Besides, the Bundestag shall have the opportunity to control the good use of the granted funds.

Moreover, the Parliament must be sufficiently informed, without any limitation that could potentially result from the duty of discretion imposed on all ESM members and collaborators.

The judges want the two interpreting conditions (information and fiscal sovereignty of Parliament) to be guaranteed in the concerned treaties or, at least, in the ratification laws.

Apart from these two requirements, the federal constitutional court has declared that both treaties (TSCG and ESM Treaty) were compatible with the German constitution.

First, they have noticed that, if there was indeed a significant change in the functioning of the European and Monetary Union (EMU), the latter nevertheless continued to base on principles guaranteeing its stability, such as the independence of the ECB, the duty of fiscal discipline for all Member States and the national fiscal sovereignty (and responsibility). Article 136, §3 of the TFEU does not transfer new powers to the EU; it only opens the possibility to set up a stability mechanism. The effective establishing of such a mechanism requires the ratification of the Parliament. That way, there is still a potential for scrutiny.

The loss of voting rights for a country that does not meet its deadlines for payments to the ESM is not contrary to the Grundgesetz either, as the Parliament is responsible for fiscal decisions and, as such, has the duty to respect the commitments it has agreed to.

Furthermore, it is not proved that the maximal amount set for the German contribution (around 190 billion euros) exceeds what is bearable for the German budget. So, according to the judges, there is no reason to believe that this amount would lead the German fiscal sovereignty to become a void concept. Additionally, it was the Parliament’s competence to assess that the costs of contributing to the ESM were greater than those incurred in case of an absence of trans-European solidarity.

Moreover, the ESM Treaty must be interpreted in a manner compliant with the other EU Treaties. It is therefore excluded that the ESM could be used as a vehicle for States’ financing by the ECB. It is worth noting that the decision taken by the ECB on September 6th, 2012, to buy sovereign bonds on the secondary market, was not challenged in the frame of this case.

The constitutional court also specifies that the ratification laws of both treaties guarantee in a sufficient manner the Parliament’s implication on the national level and the sharing of competences within it (among the plenary, the budget commission and a special commission).

Regarding the TSCG, its content does not make a big difference with the constitutional limit of deficits (Schuldenbremse) and with the rules set in the TFEU. The TSCG does not foresee any intervention of EU organs in the national fiscal decision-making process: neither the competences of the European Commission, nor those of the European Court of Justice preclude the exercise of national sovereignty. And drawing inspiration from the yearly economic recommendations of the EU Council and the Commission does not imply transferring new competences to the EU; European rules on this matter are more institutional than material.

Finally, the constitutional judges remind us that the ratification of these treaties is not irreversible, in accordance with international custom.

Let us also note that the Bundesverfassungsgericht does not exclude changes in European or German (if appropriate, constitutional) law! By doing so, it shows that Law provides a structural and procedural framework for political decision-making, but does not impede evolutions.

On the relationship between Law and Politics

It is important to keep in mind that Law is fundamentally political: it is determined by democratically elected representatives.

As the German constitutional court puts it, Law provides a procedural framework, guidelines, and rules intended to make smooth political decision-making and life in society possible.

This framework has to retain some stability, some continuity. Yet, it should be able to evolve and adapt to the political and economic situation. It is not the judge’s role, in its judgements and decisions, to express political opinions aimed at keeping the current Law.

Meanwhile, elected representatives should not hide behind legal arguments to fight necessary political changes and to avoid difficult choices. In my opinion, it is in such a way that the recent decisions of the Bundesverfassungsgericht should be understood: the German constitutional judges are not against the European integration, they do not exclude a change in the (European or German) Law, but they require the respect of democratic guarantees, via the respect of the Parliament’s rights, and they want the elects to behave responsibly and to modify existing norms if they want to adopt a new political path.

 

Note: This article was originally published on September 13th, 2012 on the Europe’s Café blog (http://europecafe.wordpress.com/2012/09/13/on-politics-and-law-the-decision-of-karlsruhe/).

A Third Way Out of the European Crisis

Jasper Doomen, J.D

M.A. in Philosophy (Leiden University, 2003); J.D. (Utrecht University, 2005)

Lecturer in law at Leiden University 

The European Monetary Union has been muddling on for a few years now, having to face serious problems and the solutions to which have been insufficiently incorporated into the initial agreements, perhaps from too optimistic a perspective. This has, in the wake of the debt crisis, meant – since far-reaching measures to remedy this defect are difficult to implement afterwards (requiring, after all, financial – and other – sacrifices) – that piecemeal steps have been taken. These have proven ineffective and in some cases even counterproductive. The latest such short-time response to the economic problems the European countries face consists in directly aiding banks that are in trouble; dissent has already emerged with regard to the details. The time has come to propose an alternative that is effective, workable and sustainable.

Hitherto the financial support was provided at the national level, which was hardly a successful approach, as one can now (with the benefit of hindsight) ascertain. Bypassing the national governments through a bank recapitalization is certainly a different but not necessarily a superior approach. Of course, banks will be supervised. Yet considering what is at stake, this outcome is downright disappointing (though not for everyone: Prime Minister Rajoy could barely hide his contentment – see http://www.dailymotion.com/video/xrg15x_spain-s-pm-rajoy-bank-rescue-deal-is-victory-for-euro_news). No structural solutions have been presented, or even a view towards accomplishing them.

More important, however, is the fact that the pressure on countries to implement reforms in order to combat the budget deficits has been reduced. That this is the outcome of the negotiations is not surprising. Discussing a solution with Spain and Italy resembles negotiating with someone who threatens to jump down a cliff while being chained to the other negotiators. His suicide or damage will have serious consequences for everyone else as well. These countries don’t want to go ‘bankrupt’ but they know their downfall will gravely affect the relatively strong countries, and they seem to have become experts in exploiting their stranglehold over them. This negotiation pattern is similar (if not virtually identical) to Greece’s strategy, and in the bleakest scenario, countries such as France will resort to it as well, especially with the current French president in place.

The dilemma is clear: the southern European countries have to economize while a large part of the population already faces grave financial problems. An additional problem for (northern) politicians is their credibility, which erodes with each concession they make. Hitherto Chancellor Merkel has stood her ground as a veritable contemporary Iron Lady, but this position will be difficult to maintain if enough countries are able to profit from Europe’s weaknesses (which are, ironically, the outcome of a desire to make Europe as a whole a strong organization; it seems, pace Lincoln, that a house divided against itself can stand, albeit unsteadily – incidentally, the comparison of north against south comes to mind).

How to resolve this impasse? Are there only two positions (either a United States of Europe or the road towards more sovereignty than is now the case, i.e., a return to the European Economic Community), or is a third option available? It has been proposed to grant countries loans only if they should provide some security, which has been ridiculed by some. It is unclear, however, why this could not be a workable procedure. The basic idea is that the countries that provide financial aid should receive control over state properties to the amount they have lent if the borrowers do not pay the money back. (I will not bother here with the details of how to calculate this or how this control should work if an invasion is considered undesirable.)

This control means that the lenders may use the profits that ensue from these properties (which may range from museum fees to gas revenues). Such profits are (fully or partly) paid to the borrowers if they sin no more and do what is demanded of them. In time, when their affairs are in order, they will be able to buy back the control of these properties. This means, effectively, a state of wardship. If this sounds harsh, consider that the alternative is that such states can continue imposing their will on the others until they will all share the same fate, waiting for China to take over the entire continent and sell it for scraps.

A general issue that must be addressed here is that of state sovereignty. The proposed solution seems to interfere inappositely with the room states have to deal with these matters. Yet clinging inflexibly to such a position means that states that do not keep their promises may simply use this as a shield, even if becomes too heavy for them to bear. Perhaps using a pliable concept of sovereignty, or something like the mitigated sovereignty that is applied in the U.S.A. (the Tenth Amendment to the Constitution specifies that the individual states have sovereign power over matters they have not delegated to the United States) would be desirable. Whether the European Union should, in time, be the equivalent of the U.S.A. is a controversial issue, even within countries (political parties defending very diverse views). An important difference in this regard between Europe and the U.S.A. is, in my view, the fact that the various European have long histories and cultures, a situation that was absent at the foundation of the U.S.A. They have, accordingly, potentially relatively much to lose if they should give up part of their sovereignty. I do not mean to estimate whether a further integration is desirable or not, but merely point out that one must make a choice. One cannot have one’s cake and eat it too (and eating someone else’s cake without recompense is disagreeable).

In any event, the new situation of additional control means that the power relationship is reversed, thus nullifying the ‘suicide’ threat. To use another simile: it is as if all countries share a boat together that continues to show new leaks which the southern countries are unwilling to mend, knowing that the northern countries have far more to gain from it than they do. This means, in the long run, that the boat (the European Monetary Union) may continue to exist but in a seriously weakened condition, which may still be considered preferable to the southern countries (in the short term, in any event) to carrying out the demands made by the northern countries, for the simple reason that all countries are in it together, so to speak. The solution amounts to dividing the boat in two (without resorting to dividing the Euro itself into two (or even more than two) currencies, which may be an – albeit costly – option in the worst scenario), so that it is in the benefit of the southern countries themselves to start working on making the necessary repairs, lest they wind up with nothing more than driftwood. The solution is, by the way, not without benefits for the countries in trouble themselves. Future loans can be granted relatively easily (because the lenders will have more security than is now the case), which means that the borrowers face fewer negative economic effects and can more easily ‘sell’ the new policy to their own populations.

The greatest problem remains that of enforceability. A ‘moral’ appeal on the borrowers to show solidarity with the lenders is equally nonsensical as one made to lenders to provide means in the first place, since this solidarity is as artificial as it gets (and thus meaningless). The alternative is to convince the politicians of the borrowers that a solid policy for the long-term is the only viable approach. In a democracy, with new elections constantly looming, such an appeal may fall on deaf ears, but the prospects of the erection of a statue in compensation for their great deeds may sufficiently appeal to their vanity.

In general, one must ask oneself whether a monetary union that wants to take itself seriously can afford to fail to propose clear and enforceable measures such as those suggested above.

 

The New European Consumer Agenda: improving consumer welfare through continued market integration

Robert Miklós Babirad

J.D. Masters Diploma candidate in EU Law, King’s College London; Post Graduate Diploma in EU Law (Merit); Member of the New York Bar

 

The new European Consumer Agenda released on May 22, 2012 continues the Commission’s trend toward integrating the single market and increasing its efficacy, but from the perspective of the EU consumer.[i]  A new consumer policy strategy is offered by the Commission based upon four key goals, namely “reinforcing consumer safety; enhancing knowledge; stepping up enforcement and securing redress”[ii] and “aligning consumer rights and policies to changes in society and in the economy.”[iii]  Implementing actions to ensure the attainment of these objectives are also provided.[iv]

The Commission also suggests that achieving the goals of Europe 2020 require the Agenda to attain the promises of the single market.[v]  A broad European ambit is evident in the policy, which seeks to eliminate barriers to free movement, to enhance consumer knowledge and choice, and to promote competition.[vi]  Increasing consumer trust in cross-border transactions also appears to be a central aim.[vii]

The advancement of the single market has always played a unique role in the EU’s policy creation.  It has even been argued that economic considerations may at times be relegated to a secondary position with regard to its development and integration.[viii]  The free movement rules, particularly those relating to goods, offer a solid Treaty basis for the Commission’s aims.  An example is Article 34 TFEU, prohibiting “quantitative restrictions on imports and all measures having equivalent effect […] between Member States,” its Article 35 TFEU counterpart relating to exports, and Article 30 TFEU concerning customs duties.  The provisions on the free movement of services such as Article 56 TFEU may also be relevant.  Eliminating barriers for EU consumers involved in cross-border purchasing transactions is essential for ensuring their confidence in the single market.

It may also be argued that the European Consumer Agenda’s effectiveness lies in its potential to eliminate those measures, which although not restrictive at first glance, would create effects upon trade similar to quantitative restrictions or MEQRs as first described in the seminal Dassonville judgment.[ix]  MEQRs have the potential to represent a significant threat to the purchasing ability of the EU consumer, because they tend to be less evident.

The Commission takes a broad view of the single market in its new Agenda by focusing on the elimination of barriers for both physical as well as digital goods, thereby also reflecting the continued importance of developing a single EU-wide digital marketplace.[x]  The European Commission Statement for Schuman Day by President Barroso[xi] reflects this broad view by advocating greater action with regard to development of the single market and eliminating barriers that may hinder its potential.

The European Consumer Agenda appears to be a further development in advancing the EU single market (broadly defined).  The Commission’s underlying objectives of developing and expanding the internal market by eliminating existing barriers to trade while simultaneously fostering consumer awareness and welfare have been set out in the following four objectives and implementing actions of the European Consumer Agenda:

Four objectives of the European Consumer Agenda

1. “Improving consumer safety” [xii]

The first goal of the new EU Consumer Agenda is the improvement of consumer safety by enhancing the product and service safety supervisory framework, developing the framework for market observation and enhancing safety with regard to food products.[xiii]  Consumer safety in the single marketplace requires a system of unified controls in order to be effective.  Consistent rules based upon established expectations of safety are necessary if confidence in cross-border purchasing is to be achieved.

The Commission acknowledges the increased use of services by consumers between Member States is creating a need to address safety through regulations at the national or EU level.[xiv]  In response, a plan is put forth to revise and enhance the existing product safety legislative framework in order to promote consumer protection.[xv]  Creating modern, enhanced, and consistent market surveillance rules will lead to greater participation and cooperation between the authorities of varying Member States and increased consumer safety.[xvi]

2. “Enhancing knowledge” [xvii]

The second goal of the EU Consumer Agenda is improving the degree and availability of knowledge by increasing awareness for both consumers and merchants of consumer rights and interests while enhancing consumer market participation.[xviii]  Providing consumers with greater knowledge of their rights at EU level may encourage greater confidence in cross border purchasing transactions and subsequently lead to increased commerce.  A lack of awareness on the part of consumers, when purchasing in markets other than those with which he or she is already familiar, may act as an impediment to commerce and cross-border transactions.  Such barriers may be eliminated through informed consumers who are in possession of consistent consumer rights that are available to them throughout the internal market.  Enhancing knowledge will not only enable consumers and merchants to possess a greater awareness of their rights and responsibilities, but will also increase trust and the accessibility of finding solutions for difficulties arising during a transaction.[xix]  The European Consumer Centres’ Network embodies the idea of fostering and developing consumer knowledge at EU level.[xx]  Strengthening the Network will enable more effective dissemination of the rights to which consumers are entitled when purchasing across borders and act as an aid and resource for any disputes which may arise.[xxi]  Increasing consumer knowledge may have the ability to eliminate barriers to cross-border transactions and stimulate greater commerce within the internal market.

3. “Improving implementation, stepping up enforcement and securing redress” [xxii]

The third goal of the EU Consumer Agenda is enhancing methods of redress, implementation, and enforcement in order to provide consumers with more effective methods of dispute resolution.[xxiii]  Effective methods of redress must be provided at EU level in order to encourage consumer confidence and safety, particularly with regard to faulty products, and regardless of where the transaction took place within the internal market.  The European Small Claims Procedure will offer increased accessibility and create enhanced value for EU consumers involved in transactions between Member States up to the value of EUR 2000 by reducing litigation expenses and expediting claims.[xxiv]  Prohibitive costs and cross-jurisdictional difficulties are subsequently mitigated by this procedure.  EU consumers will be better informed and perhaps more inclined to defend their rights, because of the availability of an effective method of EU-wide redress for their consumer transactions.

4. “Aligning rights and key policies to economic and societal change”[xxv]

The fourth goal of the EU Consumer Agenda is adapting consumer policies and rights to economical and societal changes with particular regard to the concerns of the digital market and sustainability.[xxvi]  Consumers must have confidence in physical and digital purchases regardless of their point of purchase within the EU.  Promotion of an integrated market for consumers is evidenced in the Agenda by its emphasis on eliminating barriers which may prevent digital products and services from being effectively accessed by consumers within the single market.[xxvii] Additionally, the Common European Sales Law and the Data Protection Reform Package are proposals that will hopefully aid in achieving the aim of eliminating barriers and creating effective access to one’s digital and physical products and services throughout the EU.[xxviii]

The proposed “Online Dispute Resolution” process would also aid in eliminating barriers and provide a method of redress at EU level for consumers.[xxix]  Eliminating obstacles for digital purchases and providing an effective EU-wide means of redress for digital consumers may enhance consumer confidence in cross border transactions and promote the growth of the single market for both physical and digital goods.

Implementing actions

The Commission also provides specific implementing actions that reflect a concern with eliminating obstacles to the free movement of goods for consumers.  Implementing actions set out by the Commission involve measures for the resolution of digital consumer difficulties; financial practices, services and products; food labeling, health and waste; and matters involving efficient energy usage and related technology as well as the development of increased consumer awareness and transparency regarding electric and gas cost consumption.[xxx]  Additional implementing actions will be taken regarding travel packages purchased online, the rights of air and public transport passengers, the fostering of mass transit, and the implementation of steps to aid cleaner fuel usage and awareness.[xxxi]  Measures to increase sustainability and affordability while expanding the quantity of products covered that must meet minimum environmental standards will also be implemented.[xxxii]

One of the most important and challenging steps will be taking action to create a strategy that creates awareness and encourages consumers to make cleaner and more environmentally sustainable fuel choices.[xxxiii]  Additionally, the Commission’s plan for a 2012 legislative initiative to create awareness regarding the fees charged to consumers of retail banks will be challenging, but is essential for facilitating transparency and consumer choice throughout the single market.[xxxiv]

The Commission will also propose potential implementing initiatives, which would determine the necessity of remedies on an EU-wide basis for defective digital products.[xxxv]  EU level solutions intended to increase consumer confidence and welfare within the single market appear to be endorsed.  Additionally, the Commission proposes an implementing measure to update existing rules concerning the rights of airline passengers as of 2013, which would offer protection to travelers who experience cancellations, excessive delays or who are unable to board.[xxxvi]  EU-wide redress for airline passengers would represent a significant step in advancing the single market for consumers.

Conclusion

An emphasis on solutions for consumers at EU level appears to be preferred and advocated by the Commission in its new European Consumer Agenda.  Its proposals and suggested actions for implementation have the aim of eliminating obstructions to the free movement of both physical and digital goods, but with a focus on the consumer, in an effort to further develop the single market.  It remains to be seen between now and 2014 how effective these measures will be for the EU consumer.

 

[i] Commission Press Release of 22 May 2012, A New European Consumer Agenda – Boosting Confidence and Growth by Putting Consumers at the Heart of the Single Market, IP/12/491, p. 1. <http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/491> Accessed 16th of June 2012.

[ii] Ibid.

[iii] Ibid.

[iv] Ibid.

[v] See Commission Communication of 22 May 2012, A European Consumer Agenda – Boosting Confidence and Growth COM (2012) 225, p. 2. <http://ec.europa.eu/consumers/strategy/docs/consumer_agenda_2012_en.pdf> Accessed 16th of June 2012.

[vi] Commission Communication, A European Consumer Agenda, p. 2.

[vii] Commission Press Release of 22 May 2012, A New European Consumer Agenda – Boosting Confidence and Growth by Putting Consumers at the Heart of the Single Market, IP/12/491, p. 1.

[viii] Monti, G. EC Competition Law (Cambridge University Press, New York, 2007), p. 41.

[ix] Case 8/74 Procureur du Roi v. Dassonville [1974] ECR 837, p. 852.

[x] Commission Communication, A European Consumer Agenda, p. 12.

[xi] Statement by President Barroso: “Seizing the Moment to Boost Growth: 9th May Message from the European Commission” Joint press conference with Vice-President Rehn Brussels, 8 May 2012, p. 2. < http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/12/337> Accessed 16th of June 2012.

[xii] Commission Communication, A European Consumer Agenda, p. 8.

[xiii] Ibid.

[xiv] Ibid.

[xv] Ibid.

[xvi] Ibid., 8-9.

[xvii] Ibid., p. 9.

[xviii] Ibid.

[xix] Ibid., 9-10.

[xx] Ibid., p. 10.

[xxi] Ibid.

[xxii] Ibid.

[xxiii] Ibid., p. 10.

[xxiv] Ibid., p. 12.

[xxv] Ibid.

[xxvi] Ibid., p. 13.

[xxvii] Ibid., p. 12.

[xxviii] Ibid.

[xxix] Ibid., 12-13.

[xxx]  Ibid., 13-15.

[xxxi] Ibid., p. 15.

[xxxii] Ibid., p. 16.

[xxxiii] Ibid., p. 15.

[xxxiv] Ibid., p. 14.

[xxxv] Ibid., p. 13.

[xxxvi] Ibid., p. 15.

Oliver Brüstle vs. Greenpeace: how to read the moral compass?

Bertrand Sautier

LLM, King’s College London; Phd candidate in IP Law, EDSJ Grenoble 

On the October 18th, 2011, the European Court of Justice (CJEU) issued a long-awaited judgment in the Oliver Brüstle vs Greenpeace[i] case. The Court had to answer several major questions concerning the patentability of stem cells and the definition of a human embryo[ii].

Based on morality grounds, the Court ruled that such invention was not patentable according to the EU Directive 98/44 on the legal protection of biotechnological inventions (Biotechnology Directive)[iii]. This decision raised a lot of concerns in the scientific and research fields, as it may have severe consequences on the stem cell industry. In order to understand this complicated matter, the background of the decision has to be clearly defined before looking at the case in itself.

What are Stem cells?

Stem cells are biological cells that can divide and differentiate into diverse specialized cell types and can self-renew to produce more stem cells. In mammals, there are two broad types of stem cells: embryonic stem cells, which are isolated from the inner cell mass of blastocysts, and adult stem cells, which are found in various tissues. Once an ovocyte has been fertilized with sperm, the development begins by the division of cells which all have the capacity to develop into a complete human being. Those cells called “totipotent cells”. They have the ability to subsequently divide, and can be artificially produced using cloning methods.

About five days after fertilization, the diversification process between the cells starts. Those cells are then called “pluripotent cells” and do not have the ability to develop into a complete human being anymore. These “pluripotent cells” are the stem cells use in the Oliver Brüstle[iv] invention, which was the subject of the case before CJEU. The removal of said cells may damage or destroy the blastocyst, which contains all the stem cells that later (after implantation in the uterus) turn into a human being.

Stem cells could be used to cure a lot of diseases relating to blindness, baldness, neurological diseases and cancers. The industry is currently making significant improvements in the creation of cures for those diseases.

What does the Mr Brüstle’s invention refer to?

Mr Brüstle filed a German patent in December 1997, which concerned isolated and purified neural precursor cells processed from embryonic stem cells and removed at the blastocyst stage. The application specified that the transplantation of such cells into the nervous system was a promising method of treatment of numerous neurological diseases, like Parkinson’s disease.

By nature, that type of cell exists only during the brain’s development phase, and the patent at issue sought to make it possible to resolve the technical problem of producing an almost unlimited quantity of isolated and purified precursor cells having neural properties, obtained from embryonic stem cells. As such, the invention did not refer to the use of a human embryo.

What rules apply to the stem cell industry?

Stem cell research involves the use of embryonic cells. Thus, the Directive 98/44 was created to determine the patentability of stem cell – based inventions. In Article 6(2)(c), the Directive excludes the patentability for an invention that “uses of human embryos for industrial or commercial purposes”. However, the Directive does not define the notion of a human embryo[v], or the exact meaning of an industrial or commercial purpose.

How did this case end up before the CJEU?

The patent was challenged in Germany by Greenpeace on the grounds of morality. The Bundespatentgericht (Federal Patent Court) ruled that the patent was invalid[vi] because it covered precursor cells obtained from human embryonic stem cells, processed for the production of those precursor cells. The defendant appealed against that judgment to the Bundesgerichtshof (Federal Court of Justice)[vii].

According to the Federal Court, as Article 6(2)(c) of the Directive 98/44 did not allow the Member States any discretion as regards to the fact that the processes and uses listed therein were not patentable[viii], the reference made in German law[ix] to assess the notion of human embryo was not a Union standard. Thus the concept of an embryo used in one Member State’s law cannot be interpreted differently from that of the corresponding concept in Article 6(2)(c) of the Directive. The problem is that no interpretation of such concept had been done by the CJEU in regard of the said directive.

As a result, on November 12th, 2009, the Bundesgerichtshof decided to refer to the CJEU in order to clarify this concept and to determine whether the human embryonic stem cells which served as base material for the patented processes constituted ‘embryos’ within the meaning of Article 6(2)(c).

Therefore, the Court of Justice had to determine the meaning of the term of “human embryos” in Article 6(2)(c) especially the stage of development required to qualify as an embryo. Furthermore, the expression “uses of human embryos for industrial or commercial purposes” in the Article 6(1) had to be defined. Finally, the other major question was to determine if the technical teaching had to be considered unpatentable even if it does not claim the destruction of a human embryo.

Precedents in the area of human embryo

Before the Brüstle case, the European Patent Organisation (EPO) had to consider similar questions in the Warf (Wisconsin Alumni Research Foundation) decision (G2/06) dated November 25th, 2008.

Based on the same rules as Article 6(2)(c) from the Directive[x], the EPO stated that any invention that would involve the destruction of a human embryo was non patentable[xi], but also that the patentability of inventions involving stem cells was not excluded in and of itself.

Many expected the Advocate General to take a position similar to that taken by the EPO in Brüstle case. Clearly, there was no doubt that the Mr. Brüstle application was going to be destroyed on the same basis.

Opinion of the Advocate General

The Advocate General Yves Bot gave a broad definition of a human embryo, stating that “totipotent cells carrying within them the capacity to evolve into a complete human being must be legally classified as human embryos and must therefore be excluded from patentability” [xii].

Similarly, he considered that “the blastocyst stage of development, reached around five days after fertilisation, must also be classified as an embryo, since, the principle of human dignity, to which the directive refers, is a principle which must be applied not only to an existing human person, to a child who has been born, but also to the human body from the first stage in its development, i.e. from fertilisation.”

What did the Court rule? 

Following the General Advocate opinion, the Court gave a very broad interpretation on what should be considered as a human embryo, and therefore would be unpatentable.

Indeed, the Court ruled that “any human ovum after fertilisation, any non-fertilised human ovum into which the cell nucleus from a mature human cell has been transplanted, and any non-fertilised human ovum whose division and further development have been stimulated by parthenogenesis constitute a ‘human embryo’”.

Whit such a definition, regarding the Article 6(2)(c) a stem cell obtained at a blastocyt stage may be considered as a human embryo. As a result, it belongs to each national jurisdiction to determine if a blastocyt constitutes an embryo.[xiii]

Regarding the assessment of the Article 6(2)(c) the Court stated that “the exclusion from patentability concerning the use of human embryos for industrial or commercial purposes set out in Article 6(2)(c) of Directive 98/44 also covers the use of human embryos for purposes of scientific research, only use for therapeutic or diagnostic purposes which are applied to the human embryo and are useful to it being patentable.”

Given this definition, the application of said Article to the Mr. Brüstle patent application (which did not claim the use of human embryos) led to the application being excluded from patentability: “Article 6(2)(c) of Directive 98/44 excludes an invention from patentability where the technical teaching which is the subject-matter of the patent application requires the prior destruction of human embryos or their use as base material, whatever the stage at which that takes place and even if the description of the technical teaching claimed does not refer to the use of human embryos.”

As this decision is taken through the eye of patent law and does not refer to the statute of a human embryo as such[xiv], its consequences remain uncertain.

Thus, the fact that the Court used a moral compass[xv] to determine whether this invention was patentable or not is probably the most discussed point. Human dignity is a very difficult notion to define, and the assessment of such concept may recover important differences between national and European Courts[xvi]. However, it is difficult to tell where the moral compass should be held, especially if it may stop medical research. Using an extreme analogy, could the application of human dignity lead to the refusal to patent a mobile device invention because of the use of slave labour in mine precious metals?[xvii] Of course, the commercial use of rare metals is not contrary to human dignity as such but in the end, the mining of said materials in bad conditions may affect human dignity.

What consequences on the stem cell industry?

The first consequence concerns all granted patents for which inventions involve the destruction of a human embryo, as defined by the Court. They are now deemed to be immoral and thus not patentable.

Therefore, even if such patents still remain in force, they are no longer enforceable before a court. As a result, the value of those assets has dropped to almost nothing.

As the decision has a binding effect on the national courts of the EU Member States, national patent courts will apply this decision strictly. The EPO will probably change its practice to conform to this decision[xviii], as the implementation of this decision does not involve any modification in the European Patent Convention. This is something that has to be commended. The collaboration between the EPO and the CJEU[xix] and the absence of differences in the assessment of the rules is something that will probably be helpful to the construction of the future unitary patent system.

Regarding the economic consequences, a lot of concerns have been raised by the stem cells industry. Whereas Greenpeace and few religious groups welcomed this decision, many scientific organisations now believe that this could be the end of the European stem cell industry[xx].

Even if this decision does not prevent from maintaining research activities in this litigious field of technology, the business model of this industry is based on its ability to raise funds. This activity is very costly, and the best way to attracts investors until today has been to get intellectual property protection. Now if investors cannot obtain patent protection for such inventions in Europe, are they still going to invest in European stem cell companies?

In opposition to this argument, researches made in Europe can still be patented in other countries such as the USA but the fear is that European stem cells companies will be driven out of Europe to the USA, mostly for cost reasons.

Ironically, the main goal of the Directive 98/44 was to enhance and protect biotech investments in Europe. As written in paragraph (2) of said directive:

“In the field of genetic engineering, research and development require a considerable amount of high-risk investment and therefore only adequate legal protection can make them profitable.”

As the application of the Directive now involves the absence of protection by the patent system, it is hard to understand how the research industry in this area will keep on growing.

[i] Case C-34/10 Brüstle [2011] ECR I-0000.

[ii] J.Sándor, M.Varju, ‘Patenting stem cells in Europe: The challenge of multiplicity in European Union law’ (2012) 49 Common Market Law Review, Issue 3, pp. 1007–1037

[iii] Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions. OJ 1998 L 213, p. 13.

[iv] Prof. Dr. Oliver Brüstle is a neuropathologist and a renowned expert in stem cell research. He serves as Professor of Reconstructive Neurobiology at the University of Bonn Medical Center.

[v] Specifically, the Directive does not define the development stage when a human embryo is considered to be created.

[vi] The decision was based on the immorality of the invention (“sittendwidrig”).

[vii]Judgment of the Court (Grand Chamber) para 20 CJUE, not yet published.

[viii] See Case C-377/98 Netherlands v Parliament and Council [2001], para 39, and Case C-456/03 Commission v Italy [2005], para 78.

[ix] See Section 2(2) of the German Patent Act. <http://www.wipo.int/wipolex/en/text.jsp?file_id=238776>

[x] In July 1998, the EPO, which is not an EU organisation, made a modification of the European Patent Convention in order to include a similar version of the Biotechnology Directive.

[xi] As long as the invention implies the use of human embryo to a ‘commercial or industrial purpose’

[xii] Press Release No 18/11, March 10, 2011.

[xiii] The Court stated that it is for the referring court to ascertain, in the light of scientific developments, whether a stem cell obtained from a human embryo at the blastocyst stage constitutes a ‘human embryo’ within the meaning of Article 6(2)(c) of Directive 98/44. Para 38 of Brüstle case.

[xiv]  The Court stated that: “As regards the meaning to be given to the concept of ‘human embryo’ set out in Article 6(2)(c) of the Directive, it should be pointed out that, although, the definition of human embryo is a very sensitive social issue in many Member States, marked by their multiple traditions and value systems, the Court is not called upon, by the present order for reference, to broach questions of a medical or ethical nature, but must restrict itself to a legal interpretation of the relevant provisions of the Directive”. Para 30 of Brüstle case.

[xv] The Court used the concept of human dignity as a legal motivation: “The context and aim of the Directive thus show that the European Union legislature intended to exclude any possibility of patentability where respect for human dignity could thereby be affected. It follows that the concept of ‘human embryo’ within the meaning of Article 6(2)(c) of the Directive must be understood in a wide sense” Para 34 of Brüstle case.

[xvi] For example, in the Commune de Morsang-sur-Orge case dated October 27th 1995 and dealing with dwarf tossing in nightclubs, the French Conseil d’Etat ruled that the respect of human dignity would be legally sufficient to make dwarf tossing illegal, even with personal consent. Contrary to this the ECHR, in the KA and AD Vs Belgium case dated February 17th 2005, ruled that human dignity would not be sufficient to prohibit extremely violent sexual act as long as personal consent was given.

[xvii] As suggested by Dr Philip Webber on the IPKat blog. See Brüstle: what will happen next? (27/10/11) <http://ipkitten.blogspot.fr>

[xviii] Even if formally the EPO does not have to conform with the CJEU decisions.

[xix] The CJEU made several references to the WARF case, unlike the Advocate General.

[xx] See for example a statement made on December 7th 2011 by the Alliance of German Scientific Organizations. <http://www.idw-online.de/pages/en/news455110>

CJEU’s role in reducing discriminatory treatment: construing domestic law in tandem with EU law

Ishita Das

3rd year B.B.A (Hons.), LL.B. (Hons.), National Law University, Jodhpur

 

Abstract: The recent decision of the Court of Justice of the European Union (CJEU) in Commission v Austria (Austria Case) raises interesting substantive issues. It starkly illustrates the scope of conflict between domestic legislation and European Union (EU) law. The CJEU condemned Austria for resorting to unjustified restrictive measures of limiting the deductibility of donations for income tax purposes exclusively to donations made to research and teaching institutions established in Austria. Another case which highlights this conflict is the Meilicke II Case, which evolved from the Meilicke I Case, where the CJEU held that a Member State must accord equivalency in treatment between resident and non-resident companies with regard to payment of dividends to the residents.

Therefore, these cases are prominent examples of the difficulty that the CJEU faces in ensuring that the operation of the domestic law is in consonance with the EU law. Following the decision in the Austria Case, the Austrian Ministry of Finance has issued guidance providing that deductibility of donations must be interpreted in light of that decision, which is reflective of the CJEU’s ability to further the free flow of capital within the EU, in accordance with the EU law, thereby reducing discriminatory treatment and red tapeism.

 

The European Commission, distressed that Austria indulged in discriminatory treatment by exclusively authorising the deduction from tax of gifts to research and teaching institutions established in Austria, brought an action against the Republic of Austria [hereafter “Austria”] before the Court of Justice of the European Union [hereinafter “CJEU”].[i]

It contended that Austria had failed to fulfill its obligations under Article 56 of the Treaty establishing the European Community [hereinafter “EC”][ii] and Article 40 of the Agreement on the European Economic Area of 2 May 1992 [hereinafter “the EEA Agreement”].[iii]

The conflict between the EEA Agreement and the national law

The EEA Agreement

Article 40 of the EEA Agreement essentially provides that there shall be no restrictions between the contracting parties on the movement of capital and it further lays down that there shall be no discrimination based on the nationality or on the place of residence of the parties or on the place where such capital is invested.

Therefore, the provision, if viewed in a two-fold manner, comprises the following:

(1) Prohibition of restriction on the movement of capital;

(2) Prohibition of discrimination on the basis of nationality, place of residence or place of investment of capital.

Austrian National Law

Paragraph 4 of the Law on income tax (Einkommensteuergesetz) of 7 July 1998[iv] [hereinafter “the EStG”] provides that operating expenses are to be deducted from profits. Paragraph 4a(1)  in the version of the Law on tax reform of 2009[v] [hereinafter “the amended EStG”] lists gifts which are deemed to be operating expenses, which includes gifts for carrying out research or teaching activities in establishments for Austrian learning or concerned with the Austrian economy.

The Conflict

The Commission argued that Austria, by authorising the deduction from tax of gifts to research and teaching institutions whose seat were in Austria, to the exclusion of gifts to comparable institutions in other Member States of the European Union [hereinafter “EU”], contravened Article 40 of the EEA Agreement and Article 56 EC by restricting the free movement of capital. It further contended that Paragraph 4a(1) of the amended EStG drew distinctions purely on the basis of geographic criteria in relation to the seat of the recipient of the gifts.

Austria, albeit conceding that Paragraph 4a(1) of the amended EStG distinguishes between some institutions in Austria and those established in other Member States to a certain extent, argued that the provision does not effectuate restriction of movement of capital.

It made two major submissions:

Firstly, it submitted that the research and teaching institutions listed under the provision are not “objectively comparable”[vi] with similar institutions established in other Member States as only the former are subject to the influence of the official authorities of Austria.

Secondly, it asserted that even if restriction of free movement of capital is shown to exist, it is justified by reasons of ‘public interest’. It stated that in the furtherance of its endeavour to maintain and support the position of Austria as a centre of culture and learning, its actions can be sustained. The institutions listed under the disputed provision in the amended EStG encourage the cause of promoting public interest by providing their services and therefore the gifts can take the place of payment of taxes.

The CJEU’s role in settling the conflicting position

The CJEU looked into the arguments of both parties and came to the conclusion that Austria had violated its obligations under Article 56 EC and Article 40 of the EEA Agreement, as Paragraph 4a(1) of the amended EStG limited the deductibility of gifts for income tax purposes to those made exclusively to institutions which were established in Austria, resulting in restriction of the free movement of capital. Its actions cannot be justified on the grounds of ‘public interest’.[vii]

The CJEU said that though direct taxation falls within the competence of the Member States, they must nevertheless exercise their competence in consistence with European Union Law.[viii] The Court also discussed that the reason which a State adopts to justify its action, must be aligned to the achievement of the objective of the legislation and should not exceed the necessity of fulfilling the same.[ix]

In the Meilicke II Case[x], there was a reference for a preliminary ruling from the Germany, concerning the interpretation of Articles 56 EC and 58 EC[xi]. In this case, there was a conflict between the European Community law and the domestic law as in the Austria Case. This case involved the distribution of dividends by a company established in one Member State to a taxable person in another Member State. The Court in the Meilicke I Case[xii] had held that the tax credit applied to dividends received from capital companies fully taxable for corporation tax purposes in Germany or in another Member State. Discussing this judgment, the Court in the Meilicke II Case held that “where a Member State has a system for preventing or mitigating a series of charges to tax or economic double taxation for dividends paid to residents by resident companies, it must treat dividends paid to residents by non-resident companies in the same way”.[xiii]

Reaction to the CJEU’s decision

The Austrian Ministry of Finance issued guidance[xiv] on application of the Austria Case decision on 2 August 2011[xv]  with a view to expedite the delivery of justice. The prompt action of the Ministry should lay down a benchmark for the other States to incorporate the decisions of the CJEU.

Conclusion

Austria engaged in favourable discrimination by providing exclusivity to those institutions established in Austria. Non-discrimination is a universally recognized principle which has been incorporated in the EC and the EEA Agreement. Austria’s regime of tax deduction is not aligned to the scheme of the European Union law where the Member States are discouraged from constituting a means of arbitrary discrimination or a disguised restriction on the free movement of capital.[xvi]

The CJEU plays an important role in not only curbing the discriminatory treatment meted out to the other Member States by a particular State, but also checks the rampant red-tapeism which exists in the social hierarchy and bureaucracy of various member states by interpreting their domestic laws in line with the EU law.

[i] Case C-10/10 European Commission v. Republic of Austria [2010] OJ C 63 [hereafter “Austria Case”].

[ii] Article 56 EC has been replaced from 1 December 2009, by Article 63 of the Provisions of the Treaty on the Functioning of the European Union [hereinafter “TFEU”].

[iii] Agreement on the European Economic Area of 2 May 1992 [1994] OJ L 1, p. 3.

[iv] Law on income tax (Einkommensteuergesetz) of 7 July, 1998 BGBI. 400/1988.

[v] Law on tax reform of 2009 BGBI. I, 26/2009.

[vi] Austria Case, p 17.

[vii] It is settled case-law that the need to prevent the reduction of tax revenues is not an overriding reason in the public interest capable of justifying a restriction on the freedom provided under the Treaty; See Case C-318/07 Persche [2009] ECR I-359, p 46.

[viii] Case C-72/09 Etablissements Rimbaud [2010] ECR I-0000, p 23.

[ix] See Case C-386/04 Centro di Musicologia Walter Stauffer [2006] ECR I-8203, p 32 and Persche, p 41.

[x] Case C-262/09 Wienand Meilicke, Heidi Christa Weyde, Marina Stöffler v Finanzamt Bonn-Innenstadt [2009] OJ C 267.

[xi] Articles 56 EC and 58 EC have been replaced, from 1 December 2009, by Articles 63 TFEU and 65 TFEU.

[xii] Case C-292/04 Meilicke and Others [2007] ECR I-1835.

[xiii] See Case C-315/02 Lenz [2004] ECR I-7063, p 27 to 49; Case C-319/02 Manninen [2004] ECR I‑7477, p 29 to 55, and Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I-11673, p 55.

[xiv] The guidance provides that the Austria Case ruling should apply to all open cases, stipulating that the domestic legislation on the deduction of donations must be interpreted in the light of the CJEU decision and should be applied in a compatible way with EU law.

[xv] See Ernst & Young T Magazine, “Ministry of Finance issues guidance on application of ECJ decision Commission v. Austria (C-10/10)”, 7 September 2011:  <http://tmagazine.ey.com/news/ministry-of-finance-issues-guidance-on-application-of-ecj-decision-commission-v-austria-c-1010 > Accessed 25 April, 2012.

[xvi] Article 58(3) EC.