Analysis

Amended proposal for a Directive of the European Parliament and of the Council on criminal measures aimed at ensuring the enforcement of intellectual property rights

2005/0127 (COD)

Introduction

European Commission criminalises the industry

See [http://www.ipred.org frontpage]

Conclusion

For reasons of legitimacy and competence, the directive has to be rejected.

If not rejected,

• the definitions have to be as narrow as possible (See Elements of a crime and Criminal intention)
• the scope has to be more narrow,
  • for some rights, like patents, criminal measures will have an adverse effect on competition and innovation
  • in general, the directive should be limited to rights of which it is proven that civil protection is not enough
  • copyright piracy and trade mark counterfeiting are already forbidden in all European countries
  • the directive should not criminalise inciting and abetting beyond general rules that exist in some countries making it a crime to incite to a crime
• the directive needs measures against abuse and legal threats
• the directive threatens the neutrality of police investigation, this should be removed

Legitimacy

It is the first time the European Union proposes criminal measures, without the member states having a veto. The first question to be asked is whether we want this. Should we want a Union with a democratic deficit to write our criminal laws? In our opinion, only countries have enough legitimacy to make criminal laws.

Competence

A recent European Court of Justice judgment (C-176/03) opens the possibility for the European Commission and Parliament to make directives containing criminal measures together, without the member states having a veto.

The Commission can only make directives with criminal measures together with the European Parliament if both the objective of the Community and the measures are essential.

The [http://wiki.ffii.org/IpredNlParl060629En Dutch Parliament concluded unanimously] that no competence has been granted to the Community for criminal measures against "IP-rights" infringements. The Dutch Parliament sent a letter to commission Frattini about this. [http://europapoort.eerstekamer.nl/9310000/1/j9tvgajcovz8izf_j9vvgbwoimqf9iv/vg7slw5im1tl?key=vhc0fvdga1qw English] version, [http://europapoort.eerstekamer.nl/9310000/1/j9tvgajcovz8izf_j9vvgbwoimqf9iv/vg7slw5im1tl?key=vhc0fy66g2qw French] version

Donner, minister of Justice for the Netherlands, [http://wiki.ffii.org/IpredDonner060428En pointed out] that harmonisation of penalties should only be done if there is a real EU interest.

Jan 31st 2006 the European Parliament's JURI committee held a [http://wiki.ffii.org/JuriHearing060131En public hearing] on "The Effective Protection of Intellectual Property: a Challenge for Europe"

Reto M. Hilty, Managing Director, Max Planck Institute for IP, Professor of Law said:

"Issuing a directive on the basis of Art. 95 EC presupposes that it is essential for the realisation of the single market (Art. 14 EC), i.e. that without harmonisation a distortion in trade between Member States would occur. (...)

• Whether pirated goods are available within individual Member States is irrelevant from the point of view of European law. Relevant are only barriers to entry to national markets, for example, in the form of border controls, and direct or indirect discrimination. Mere obstacles to trade are insufficient for the adoption of a Community measure according to Art. 95 EC after the ECJ abandoned its jurisprudence to the opposite effect with the Keck decision of 1993.
• Article 61 TRIPS already contains relatively wide-reaching provisions against trademark and copyright pirating which are binding on the Member States and the EU. It is doubtful whether additional wider-reaching harmonisation would be permissible.
• In many countries (e.g. Germany), the IP criminal law – although well-developed – only plays a subordinate role in actual practice; criminal judgments in patent law are seldom; they have only marginal significance in copyright and trademark law.
• The indispensability to harmonisation of, for example, environmental criminal law does not permit automatic conclusions with regard to other areas of law; what needs to be examined in each individual case is whether a lack of harmonisation results in a distortion of competition." (end of quote)

The Commission does not even try to motivate that there is a distortion of trade.

Subsidiarity

Since the Community does not have competence to make this directive, it is unnecessary to look at the subsidiarity principle. For the record we note that

• Trade mark counterfeiting and copyright piracy are already forbidden in the EU, the TRIPS -treaty sees to that.
• In 2004 the Council and European Parliament adopted the Intellectual Property Rights Enforcement Directive (IPRED), with civil measures. It is being implemented at the moment. Effects are not clear yet, it is unknown whether further measures are needed.
• The directive can go only as far as needed for reaching the goal of the EC treaty.
• There is no indication that criminals would choose the jurisdiction with the lowest penalties to operate from. Indeed, it is known that the chance to be caught plays a much bigger role, but the Union has no say over the prosecution priorities.

See also the section Elements of a crime, here below.

Elements of a crime

Hilty also remarked at the hearing, that national legislature remains free beyond narrow qualification characteristics of the elements of a crime. He notes that the threat potential of criminal sanctions may hamper the (desired) freedom to act in a market. Only sanctions against obvious cases of pirating can be harmonised. The term "commercial scale" is not precise enough. Hilty adds:

"As a matter of fact, a harmonisation of IP criminal statutes can be justified from the point of view of the principles of subsidiarity and proportionality only in connection with actions by which the following elements of a crime are fulfilled cumulatively:

• Identity of the exploited object of protection (the good takes on characteristic elements of a protected product or label in a targeted and unmodified fashion – construction, assembly, etc.)
• Commercial activity with an intention to earn a profit
• Potential to cause considerable damage
• Intent or contingent intent (dolus eventualis)" (end of quote)

The Commission proposal does not even meet the minimal elements.

Criminal intention

The above mentioned elements of a crime are the minimal elements. It would be better to define them more sharply. Since the stated aim of the directive is to combat "piracy", the fourth requirement should be "criminal intention", not "Intent or contingent intent".

Scope

The explanation on art 1 mentions the "[http://europa.eu.int/eur-lex/lex/LexUriServ/site/en/oj/2005/l_094/l_09420050413en00370037.pdf STATEMENT BY THE COMMISSION] concerning Article 2 of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights"

This statement says: "The Commission considers that at least the following intellectual property rights are covered by the scope of the Directive:"

"At least" it says, and then follows a list with 11 "IP-rights". We do not know how many rights are covered by the directive. In some countries there may be more rights covered than in others - possibly a distortion of trade, rather than a solution for it. Note the last right mentioned: "trade names, in so far as these are protected as exclusive property rights in the national law concerned". If in the future a right will be seen as an "IP-right", it will be under this directive.

All the concerned "IP-rights" have to be mentioned in the directive itself to avoid confusion.

Copyright piracy and trade mark counterfeiting are already forbidden in all European countries. And for some other rights, like patents, criminal measures will have an adverse effect on competition and innovation.

Below we will say more about the concerned "IP-rights". This is the list of the IP-rights concerned: copyright, rights related to copyright, sui generis right of a database maker, rights of the creator of the topographies of a semiconductor product, trademark rights, design rights patent rights, including rights derived from supplementary protection certificates, geographical indications, utility model rights, plant variety rights, trade names, in so far as these are protected as exclusive property rights in the national law concerned.

These IP-rights are very different from each other. Possible issues with them have not been investigated by the Commission.

The directive should not criminalise inciting and abetting beyond general rules that exist in some countries making it a crime to incite to a crime.

See [http://register.consilium.europa.eu/pdf/en/06/st08/st08319.en06.pdf here] for discussion on scope in the European Council. See also [http://www.ipjur.com/2006/06/eu-discussions-on-criminal-measures.php3 Axel Horns].

Intentional commercial scale violations

All commercial activities are intentional

All commercial activities are intentional in the normal sense of criminal law in many countries. The question may arise whether indeed in the case of patent law “intent” must be interpreted more restrictively, requiring what is called in Dutch “boos opzet”. But the IPRED text only says “intentional”, not “criminal intention”.

But even if prior knowledge is needed that, for instance, a patent is violated, it will not help. In the software field, it is impossible not to violate patents. And patents are often invalid, but you will only find out in court. A letter with: "You are violating our patent, stop with it otherwise we will call the police." is a big threat, even if it is clear the patent is trivial and will never survive in court.

Not all commercial scale violations scale are piracy

Not all intentional commercial scale violations of “intellectual property rights" are piracy. Trademark and patent infringements are always commercial infringements (if not deemed commercial they are not infringements), but by no means always piracy. The principal issue with the directive is that it is confusing piracy and commercial infringement. The directive criminalises companies that are not pirates.

Commercial scale

The "commercial scale" requirement is not clear enough. Some right holders claim a possible loss of income is enough - an interpretation contrary to TRIPS. Depending on interpretation by courts, not for profit activities will be a crime, or organised crime or not.

We even see a call to remove "commercial scale" from the directive. The call to remove "commercial scale" from the directive was motivated by the remark that courts could interpret "commercial scale" differently. This is not an argument, since the ECJ will have the final say. More importantly, removing or undermining "commercial scale" will have enormous consequenses. As we saw in the subsidiarity section, definitions have to be more narrow.

Do we want not for profit file sharing to be organised crime?

As seen above, not for profit activitiies may become organised crime. We could see adolescents' actions countered with means suited for fighting organised crime. We should be very clear about whether we want this. It should not be an "accidental" byproduct of this directive.

Many countries have levies on writeable CDs and DVDs, etc. Public and companies are already paying, even if they store only their own material.

We are about to lower our standard of what is crime and organised crime. We are about to make many in our societies criminals and criminalise many commercial organisations that are not pirates. We may cross the line. If our youngsters are criminals already, what would they care about other crimes? If companies are criminalised, shouldn't they go underground or leave Europe?

Internet file sharing of copyrighted material is a new issue, that requires a balanced and well thought-out solution. The above mentioned levies are an indication that there are more possible ways to follow. And first it should be clear too in how far file sharing actually stimulates buying.

The question may be asked whether a society that reacts to new developments with an everything-is-a-crime approach is a viable society. The reaction is panic-stricken, not wise.

In our opinion we are witnessing an overreaction that will cause more damage than good.

Counterfeiting and piracy are already forbidden

Trade mark counterfeiting and copyright piracy are already forbidden in European countries. On a world-wide scale, the TRIPS treaty sees to that. TRIPS compliance can be forced by WTO. Trade mark counterfeiting and copyright piracy are the two main problems.

“Art. 61: Members shall provide for criminal procedures and penalties to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale. Remedies available shall include imprisonment and/or monetary fines sufficient to provide a deterrent, consistently with the level of penalties applied for crimes of a corresponding gravity. In appropriate cases, remedies available shall also include the seizure, forfeiture and destruction of the infringing goods and of any materials and implements the predominant use of which has been in the commission of the offence. Members may provide for criminal procedures and penalties to be applied in other cases of infringement of intellectual property rights, in particular where they are committed wilfully and on a commercial scale.”

Criminal law should be the ultimum remedium

Private law:

• constructive: geared to compensation
• not all infringements are piracy
• parties are in control
• mainly paid by parties

Criminal law:

• destructive: geared to punishment
• human rights require very precise definitions
• public prosecutor lacks specialist knowledge
• mainly paid by taxpayer

Questions like whether something is an “independent recreation” or a “violation of copyright” is a subtle question. Questions like these should be handled in civil courts, not in criminal courts. For reasons of human rights, criminal laws require precise definitions. And criminal law should be the ultimum remedium.

Unlike in criminal law, the usual point of tort law is to get disagreeing parties to come to some sort of an agreement and then settle out of court. And this is a very good thing, because the courts are all very busy as it is.

But nobody will settle for their own imprisonment. Or being branded a criminal. What is worse, the side that is winning may not want to quit with a big pile of cash, but instead insist that proceedings continue “because I want to see that bastard in jail”.

We can say: "Fact X is a crime". This rule has to be written down in a law in advance. Before the act. Criminal laws are strict. They have to be, it is a protection against arbitrary power. People are entitled to know what is a crime in advance.

Civil law is less strict. In a copyright case a Dutch court decided a smell can be “a work” in the sense of the copyright law. The scope of the copyright law became broader. In criminal law this would be a violation of the legitimacy principle. People could not know it is a crime to violate a smell.

If you add or increase sanctions to a law that is enforced in a civil way, definitions have to be interpreted in a more strict way. The scope of the law will become more narrow.

No harmonisation

The directive is not just a harmonisation.

In many cases, minor offences become criminal offences. Fines go up. Maximum custodial sentences go up, in the case of Dutch trade name violations more than a 100 times. Violations that do not have criminal sanctions now are criminalised. For instance patents have criminal sanctions in only 10 EU countries, while in the Netherlands the government proposed to remove the criminal sanctions. the directive also covers attempting, aiding or abetting and inciting such offences, it is not clear in which countries this is already the case.

Extra measures are the seizure of goods belonging to the offender, including the infringing goods and the materials, implements or media used predominantly for the manufacture or distribution of the goods in question. Other penalties are provided for specific cases: destruction of infringing the seizure of goods belonging to the offender, including the infringing goods and the materials, implements or media used predominantly for the manufacture or distribution of the goods in question. These extra measures and penalties may or may not exist in member states.

There is no overview of all the changes, but they are many.

Patents unfit for criminal sanctions

The European Patent Office grants many weak patents, that should never have been granted. Companies often intentionally violate patents, because they believe the patent will not be strong enough to survive a civil procedure. But with criminal measures against patent infringement, such conduct is inhibited. Weak patents will gain a great threat potential, limiting the freedom to act in the market.

Even companies which merely use properly licensed software are criminalised, since such use is intentional, commercial scale and can infringe on software patents.

In the countries that have criminal provisions against patent infringement, they are hardly ever used, even by SMEs. Commercial parties prefer settlement, not punishment.

The “As such” exclusions (software as such, business methods as such, etc) are unclear and drifting.

It is impossible to write software without violating patents. “Independent (re)discovery” occurs daily. A whole industry will be criminalised. Microsoft has been violating many patents, and had to pay huge damages. But do we really want to see Bill Gates in prison?

There are more sectors with much incremental development which may face the same problems.

Criminal sanctions and community patent (and London Agreement) do not go together. People are entitled to read the rules they can violate in their own language.

Utility models

With utility models, the situation is worse than with patents. Utility models are not even examined as to the validity criteria before they are granted.

Copyright not straightforward

Copyright may look straightforward. Yet in copyright, parodies, independent recreations and citations are free. Parody, independent recreation and citation are defined well enough for civil law, not for criminal law. The definition of "work" is not straighforward either.

Authors may actually benefit from “unauthorised” copying.

Freedom of speech may suffer. With the directive, a journalist could be prosecuted that uses a citation that is too long, not considered a citation any more. People revealing documents could be prosecuted for violation of copyright. Artists may be prosecuted if their work is not considered a parody. Software developers and others could be prosecuted if their work is not considered an independent recreation.

Criminal laws should be limited to what is clearly wrong.

Trade marks cases complicated and subtle

In trade marks, currently typically only counterfeiting is a crime, e.g. art. 337 Dutch Criminal Code. Trademark infringement in general is very complicated and subtle (“confusion” criterion after Puma/Sabel). the directive creates a risk of reverse hijacking, prosecuting legitimate owners under false pretexts, for instance with domain names in particular.

Trade marks have to be defended rigorously, otherwise they are lost. Trade marks are unstable. Except for counterfeiting, trade marks are not suited for criminal sanctions.

Distortion of carefully balanced procedural law systems

In the Netherlands in trade name cases, on first offence the civil servant can propose measures to take to stop the offence. Then there will be no punishment. Violating a trade name is a minor offence in the Netherlands, the fine is 2250 euro. On second offence the fine is the same or two weeks of prison.

With the directive violating trade names is a criminal offence, the sanctions for a first offence are 100.000 or 300.000 euro, depending on the circumstances, or 4 years of prison.

The prison sentence is more than 100 times as severe for a first offense as it is now in the Netherlands for a second offence. In the Netherlands, there have not been cases for the last 50 years. Clearly, there is a total lack of necessity. And the sanctions are disproportionate to the offense, which is a violation of article 49(3) of the Charter of Fundamental Rights.

National laws make distinctions between minor and criminal offences, between lower and higher sanctions. They may offer other solutions than sanctions. All these subtleties are destroyed with the directive's all-is-a-crime approach. The question may be asked whether this approach is legal nihilism. Carefully balanced national procedural law systems are distorted.

Legal threats

Severe sanctions pose a threat, and will provoke false threats. A US study of a sample of nearly 900 take down notices collected by the Chilling Effects project revealed that a third of them demanded removal when the target had a clear legal defense.

Take down notices often result in online materials being pulled from the Internet, generally without notice to the target.

http://lawweb.usc.edu/news/releases/2005/legalFlaws.html

Privatise the police

Right-holders may assist the police with the investigation, help to draw conclusions (see also the explanatory memorandum). This threatens the neutrality of police investigation.

Abuse

A criminal procedure may help to obtain information from the alleged infringer which is not as easily available in a civil procedure. An acknowledged problem in "intellectual property" is the conduct of mala fide (would-be) rights owners to obtain information from competitors under the pretext of false infringement claims. Civil procedural law contains some safeguards against such behaviour - that may not be matched by a corresponding level of "subtlety" in criminal law. Prosecuting authorities (police etc.) have a reputation of regularly breaking the law in their eagerness to prove crimes (we had some dreadful examples of such behaviour recently in NL). The courts eventually are supposed to correct such mistakes (e.g. by reducing sanctions or even by deciding not to be admissable at all) - but a broken secret can hardly be compensated for.