Free Movements of Goods and Parallel Imports - Literature review Example

Substantive EU law- Free Movements of Goods and Parallel Imports European Union (EU) came into existence on March 25, 1957 because of the treaty of EEC with the name European Economic Community (EEC) and the then European Common Market. The objective of the EU through this treaty is to bring harmonious development of the economic activities. Along with this, it is formed to increase stability, balanced and continuous expansion, uplifting standard of living and creating closer and stronger relations between the states of the EU. These objectives can be achieved through a common market, which facilitates free movement of goods by eradicating the trade barriers. As a result, EU states will not impose any trade restriction on member States in relation to imports and exports of goods (Dedman 2010). The main treaty provisions that govern the free movement of goods are articles 34, 35 and 36. Article 34 delineates the intra-nation imports and prohibits within the Member States. In addition, it prohibits quantitative restrictions as well as all measures having equivalent effects between the Member States (Bigo and Guild 2005). Article 35 is concerned with exports between the Member States. It also prohibits quantitative restrictions and measures that have equivalent effects. Article 36 on the other hand outlines the derogations to the internal market freedoms mentioned in Article 34 and 35, which are justified on various specific grounds (Bigo and Guild 2005). Articles 34 and 35 incorporate all types of goods and products, which can be valued in monetary terms form the subject of commercial transactions. Notably, basing on its wording, article 34 is applicable to hurdles faced in trade between Member States. Thus, in evaluating a case under this provision, it has to involve cross-borders. In this regard, matters which affect domestic goods only are not categorized within the scope of articles 34-36 (Bigo and Guild 2005). There are clearly stipulated conditions to be met for cross border requirement. This is clearly illustrated in Case 8/74 Dassonville [1974] ECR 837. In this case, the Court of Justice elaborated the meaning and scope of measure of equivalence. In this regard, the terms imply ‘all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially intra-community trade are to be considered as measures having an effect equivalent to quantitative restrictions.’ In the Dassonville case, the court emphasised that the most significant element that determines whether a national measure fall within article 34 is its effect. That is if it is capable of hindering, directly or indirectly, actually or potentially. Consequently, the discriminatory aspect ceased to be the determinant factor for article 34. This was strengthened further by the court’s ruling Case 120/78 Rewe-Zentral (Cassis de Dijon) [1979] ECR 649. It reiterated the previous statements in the Directive70/50/EEC as well as the Dassonville case. The court acknowledged that there might be some differences between the national rules of the EU Member States. This could end up inhibiting trade in goods. In so doing, the court confirmed that article 34 could incorporate national measures that are applied equally to both domestic and imported goods (Dedman 2010). This argument seems to suggest that apart form Article 34 applying to national restrictions discriminating against imported goods, it also is applicable to measures, which in law may seem to apply equally to domestic and imported goods. These rules are also known as indistinctly applicable. Scores of years after the Dassonville case, there was the necessity to establish some limitations to the scope covered by the term ‘measures having equivalent effect’ as stipulated in article 34 (Dedman 2010). In the joined cases C-267/91 and C-268/91 Keck and Mithouard [1993] ECR I-6097, the court held that ‘in the view of increasing tendency of traders to invoke Article 34 of the treaty as means of challenging any rules whose effect is to limit their commercial freedom even where such rules are aimed at products from other Member State, the court considers it necessary to re-examine and clarify its case-law on this matter’ (Dedman 2010). Eventually, in Keck and Mithauard, the court, with reference to Cassis de Dijon held that contrary to what had been decides upon earlier, the application to products from other Member States of national provisions restricting certain selling arrangement is not such a hinder directly or indirectly, actually or potentially, trade between member states (Dedman 2010). Parallel import can be defined as goods, which are produced and sold legally and then exported. There is nothing illegal about the parallel imported goods but as native entrepreneurs sell same goods at higher price, they do not like this competition. In order to remove this competition, intellectual property act has been developed. Intellectual property refers to trade secrets which are usually protected in various forms including trademarks, designs, patents and copyrights.. A product sold or imported by the third party is considered to be infringed if such sale or import falls in the range of copyrights, patent, or trademark of that particular country There is no pervasive European patent system that enables the patentee with one single patent right to work in all the European Union countries and also Jurisdiction of European Court of Justice is limited in relation to patent matters. However, interference of the intellectual property rights in the free movement of goods under section 30 of Treaty of Rome provides the power to ECJ to take the cases of prevention of parallel imports within the European Union. The ECJ held the view that “It cannot be reconciled with the principles of free movement of goods under the provisions of the Treaty of Rome if a patentee exercises his rights under the legal provisions of one Member State to prevent marketing of a patented product in said state when the patented product has been brought into circulation in another Member State by the patentee or with his consent.” (Centrafarm B.V. and Adriaan de Peijper v. Sterling Drug Inc., 6 IIC 102 (1975) – Negram III). With regards to the exhaustion doctrine, ECJ is of the view that “the substance of a patent right should basically confer the exclusive right on the inventor to the first marketing of the patented product in order to permit a remuneration for the inventive activity” (Merck & Co. Inc. V. Stephar, 13 IIC 70 (1982) – Merck.) The ECJ cannot assume exhaustion if the patentee himself or with his consent the product is marketed in the member states of the European Union where no patent was obtained. Here, a question arises in relation to marketing of invented product. It says that if the patentee gets sufficient remuneration by doing first marketing of invention under an exclusive and monopolistic right then, it is insufficient in country where everyone is free to produce and market the invention. Hence, ECJ derived a consensus that either the patentee should obtain a patent in all the member states of EU to get remuneration under an exclusive right or should not circulate the goods in these countries by himself or with his consent (Edwards and Wiessala 1991). This point of the ECJ is not accepted by many producers in EU because obtaining patent is not only expensive, but also time-consuming. In addition to this, the principles of trade-mark exhaustion also apply to the patent. In the case of trade-mark, consent of trade-mark owner needs to be obtained for function as an indication of origin, otherwise these goods can be ascribed to the another source whereas in the case of patent rationale is quite different. Under the monopolistic conditions of a patent right, a patentee gets an opportunity to cash in upon the first marketing of the products. These monopolistic conditions do not have any meaning in a country where patent has not been obtained in relation to the circulation of the product. The patentee does not have a right to object to the parallel importation if he already has sold out the patent right to someone who can market the products and thus the patentee makes money. Along with this, he has get his reward under the previously owned paten right hence he is not entitled to get any remuneration on the marketing of the goods (European Parliament Fact Sheet 2008). If the patentee wants to enjoy reward upon the first sale under a monopolistic right then he/ she needs to apply for the patent in every country of the EU for production and marketing of the product. However, the fact that patent needs a long time for approval of application, fades the attractiveness of this solution for the patentees. In this context, decision of the Merck v. Primecrown case is also unfortunate because it does not apply at world scale in relation to model of exhaustion. In some circles of the Commission, the decision is consistent with the “Fortress Europe” idea entertained, but it is certainly inconsistent with the Community’s true function to minimize barriers world-wide, not only within Europe (Art. 110 Treaty of Rome). Patentees can advocate ban on the parallel importation but it can be a disastrous economic decision, as it hinders the free trade spirit. It has been argued that in order to respond to the price differences in different markets, patentees would want to parallel imports. Here, attention needs to be paid towards the condition of shutting off markets, which runs against the grain of a global economy, by the patentees to perpetuate the price difference. Consumers in the low price countries are subsidized by the consumers in the high price country while responding to the price difference in different countries. Again, question in relation to subsidies arise because it is controversial in most of the countries, as it does not enjoy democratic legitimacy. In addition, entrepreneurial dictatorship will be replaced by the market democracy in the future because entrepreneurs are only accountable to the shareholders and not to the entire public. Therefore, consumers in the industrialized countries are against of imposing surcharges on them as additional profits are only enjoyed by entrepreneurs and shareholders. There is one more question that whether the benefits are reaching to the consumers in the developing countries as consumers in the industrialized countries are paying higher prices (Heath 2008). It creates a classical theory of exhaustion, which states that under the monopolistic conditions of the patent right, the patentee should be allowed to release the goods. As per this theory, parallel import would be eliminated from countries, where the patentee is operating without obtaining the patent right. In addition to this, parallel importation under the scheme of price control and compulsory license. If this theory is practiced properly then it can improve the condition of free market in two ways. Firstly, price control schemes can be ended by the government and secondly, free market forces will be prevailing in the future market (Lungescu 2006). The term Fortress Europe means the impermeable border created by Europe to protect itself from outside cultural influences, economic rivalry, and mass migration. It was aimed at safeguarding its economic interests rather than adaptation of global market. In addition to this, this approach is confined to common agricultural policy and France. Fortress Europe is a convincing concept as it controls immigrants to come into Europe for economic purpose. However, there is some scope left for the importers who wish to import outside Europe (Bigo and Guild 2005). Thus, based on the above discussion it can be concluded that free movement is still a far off dream for the European Union due to different regulations of different country. However, EU has facilitated the concept of four freedom i.e. free movement of goods, services, people and capital by the creation of various treaties and agreements. The European Commission has been established to monitor the free movement of goods smoothly. Along with this, interpretation of ECJ and different theories are also very important in this regard. References Andenas, M. and Roth, W. 2002. Services and free movement in EU law. Oxford University Press, London. Bigo, D. and Guild, E. 2005. Controlling frontiers: free movement into and within Europe. Ashgate Publishing Ltd, London. Dedman, M. 2010. The origins and development of the European Union 1945-2008: a history of European integration. Taylor & Francis, New York. Edwards, G. and Wiessala, G. 1991. The European Union: The Annual Review 1999/2000. John Wiley & Sons, New York. European Parliament Fact Sheet. 2008. Free movement of goods. Available at: http://www.europarl.europa.eu/factsheets/3_2_1_en.htm [Accessed on: 13 Dec 2012]. Free movement of goods in the EU. 2010. Europedia. Available at: http://europedia.moussis.eu/books/Book_2/3/6/02/?all=1 [Accessed on: 13 Dec 2012]. Heath, C. 2008. Parallel imports and international trade. Available at: http://www.wipo.int/edocs/mdocs/sme/en/atrip_gva_99/atrip_gva_99_6.pdf [Accessed on: 13 Dec 2012]. Lelieveldt, H. And Princen, S. 2011. The Politics of the European Union. Cambridge University Press, Cambridge. Lungescu, O. 2006. The new Europe: Fortress Europe. Available at: http://www.bbc.co.uk/worldservice/theneweurope/wk22.htm [Accessed on: 13 Dec 2012]. Read More