CJEU Approves Rule-of-Law Conditionality Regulation
Also — WTO, Africa, Space, Tech, Media
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CJEU Approves Rule-of-Law Conditionality Regulation
The Court of Justice of the EU (CJEU) decided in a landmark ruling that the rule-of-law mechanism — that ties the EU's budget to the Member State's respect for the rule of law — is compatible with the principles of EU law. This gives the European Commission significant leverage over Poland and Hungary to address concerns about the independence of their judiciaries.
CONTEXTO • Progress of the Article 7 procedure against Poland (initiated by the Commission in 2017) and Hungary (initiated by the Parliament in 2018) has stagnated as the two Member States are widely expected to defend each other in the European Council and prevent unanimity.
As this route to address the EU's concerns has been blocked, the remaining Member States opted for the Regulation 2020/2092 of 16 December 2020, which establishes a "general regime of conditionality for the protection of the Union budget in the case of breaches of the principles of the rule of law in a Member State." In essence, the Regulation allows the European Commission to suspend EU budget payments to particular Member States in case of established rule-of-law violations that affect or seriously risk the sound financial management of the Union budget or the protection of the financial interests of the EU.
The Regulation was negotiated in December 2020 alongside the Multiannual Financial Framework (MFF), the EU's budget for the next seven years. As Poland and Hungary were unable to block the adoption of the Regulation, they tied their approval of the MFF to concessions on the application of the Regulation.
In the December European Council conclusions, the Member States agreed to have the Commission refrain from applying the Regulation until any legal challenges before the CJEU would be settled. Poland and Hungary both brought actions for annulment of the Regulation in early 2021.
ZE RULING • In essence, Poland and Hungary argued that the Regulation should be struck down because it lacks a legal basis and circumvents the Article 7 procedure.
On the legal basis, the Court considered the values of the EU, including respect for the rule of law, to be a continuing obligation under the fundamental principle of mutual trust. The EU's budget is the principal instrument to implement the EU's values and can be seriously compromised by violations of the rule of law. Accordingly, the rule-of-law mechanism to protect the financial management of the budget falls within the powers of the EU.
On the circumvention of the Article 7 procedure, the Court ruled that the Regulation serves a different aim, i.e. the protection of the Union budget, and that it has a clearly distinct subject matter. Nonetheless, the Court specified that a genuine link must be proven between the breach of the rule of law and serious risks to the financial management of the EU budget. This may be difficult to establish in practice.
IN THE NEXT EPISODE • Pressure is building on the European Commission to now formally trigger the penalty procedure under the Regulation and start a political dialogue on the rule-of-law breaches. Already in November last year, the Commission sent informal letters to Poland and Hungary to inquire about the independence of the judiciary and respect for EU law. The results would feed into the Commission's assessment.
FRENCH COUNCIL PRESIDENCY • Rule of law is also an important topic on the agenda of the French Council Presidency. The top French courts held a conference with Chief Justices of the Supreme Courts of the Member States to discuss the role of judges to uphold the rule of law, and to discuss the relationship between EU and national law.
EU goes to WTO Again to Denounce Chinese Patent Practices
On 18 February, the European Union launched a consultation at the World Trade Organisation (WTO) against China, which it accused of siphoning off European companies' telecommunication patents.
SEPs • Standards Essential Patents (SEPs) cover technologies that are required for the production of certain products, such as mobile phones. As part of the international regulation of these technologies, SEP patent holders must license the patents to manufacturers under FRAND conditions - fair, reasonable, and non-discriminatory.
EXPLANATIONS • It is up to courts to decide when disputes arise — over the price of licences or when the SEP patent holder refuses to grant the patent. China has real leadership in some critical technologies, such as 5G. As a result, smartphone manufacturers often have to turn to Chinese companies to negotiate the price of licences.
ECONOMIC WAR • The nationality of judges is not an indifferent matter. Chinese judges have the ambitious goals of technological leadership set out in the Made in China 2025 plan, in mind when their decisions can contribute to the country's economic development. The Chinese Supreme People's Court ruled in August 2020 that courts in the People's Republic can issue "anti-suit injunctions". These injunctions prohibit patent holders from bringing cases before a non-Chinese court, on pain of a fine of up to 130,000 euros per day.
Chinese courts set prices well below those elsewhere in the world, allowing for cheaper technology transfers to Chinese players —Oppo, Vivo, Xiaomi, Honor. These rulings are very costly - one unfavourable ruling in China cut Ericsson's revenues by $100-150 million per half-year, notes the Financial Times. The European Commission considers this practice to be contrary to the TRIPS agreement, the agreement on trade-related aspects of intellectual property rights.
China severely restricts EU companies with rights to key technologies (such as 3G, 4G and 5G) from protecting these rights when their patents are used illegally or without appropriate compensation by, for example, Chinese mobile phone manufacturers. The patent holders that do go to court outside China often face significant fines in China, putting them under pressure to settle for licensing fees below market rates. " — European Commission
NEXT STEPS • The European Commission has tried to find a bilateral solution with China — without success. The US and Japan are likely to support the European initiative. China now has sixty days to respond to the EU before the matter is referred to a WTO panel to resolve the dispute.
This is the second time in weeks that the Commission has used the WTO to settle a dispute with China, which was accused of economic coercion against Lithuania on 27 January (What's up EU, 01/02/2022)
EU and African Union Leaders Meet in Brussels as Troops Leave Mali
On 17 and 18 February, 40 African heads of state and government met in Brussels with their European counterparts for the EU-African Union (AU) summit. The summit comes as the French and other Europeans prepare to leave Mali, in the context of the Barkhane and Takuba operations.
CHINAFRICA • The main ambition was to renew the EU-AU partnership at a time when European influence in Africa is being questioned. The EU is committing at least €150 billion to an Africa-Europe investment package, via the new "Global Gateway" investment package —a comprehensive infrastructure development strategy in response to China's Belt and Road Initiative.
In parallel to the summit, the EU-Africa Business Forum 2022, which brings together political and business leaders from both continents, showed the interest of European companies to invest more in Africa. Africa's population is expected to double by 2050, which offers many economic opportunities for the future.
VAX • African leaders reiterated their key demand to waive intellectual property rights for Covid-19 vaccines — in order to boost vaccine manufacturing in Africa. The request builds on South Africa's formal proposal, submitted in October 2020 to the World Trade Organisation. The European Union, alongside countries such as the UK, have strongly opposed it, arguing that intellectual property rights have played a "positive role" in the creation of innovative vaccines against the virus.
PAX • The EU and the AU also agreed on renewed and enhanced cooperation on peace and security and a strengthened and reciprocal partnership on migration and mobility.
UKRAINE? • The prospect of a new war in Eastern Europe diverted much of the summit's attention. EU leaders met in an ad hoc meeting moments before the start of the EU-AU summit to discuss the issue. Last night, European Commission President Ursula von der Leyen and European Council President Charles Michel issued a statement on sanctions following Russia's recognition of the non-government-controlled areas of the Donetsk and Luhansk oblasts in Ukraine as independent states.
OUT OF AFRICA ? NOT QUITE • The EU-AU summit takes place against the backdrop of major geopolitical developments in West Africa. After a nine-year peacekeeping mission under Operation Barkhane, French troops are leaving Mali. The French-led Task Force Takuba, composed of special forces units from several European Union countries, is also leaving Mali. The withdrawal from Mali and the redeployment of Task Force Takuba to the Sahel were announced at the Elysée Palace on 17 February, just before the EU/EU summit.
EU’s Space Strategy to Avoid Being a US Satellite
On 16 February in Toulouse, a pioneer city in the aerospace sector, France brought together the European Union ministers responsible for space (in France, it was the Minister for the Economy, Bruno Le Maire) and the ministers of non-EU countries that are members of the European Space Agency (ESA) for an informal "space format competitiveness council".
POLITICS • The French President gave the "la" and a speech on his French and European space strategy. For Emmanuel Macron, control of space is an essential component of the European Union's sovereignty, technologically (access to the Internet and satellite navigation), industrially and economically (the space industry represents 32,000 direct jobs for France), and scientifically since "without control of space, there can be no scientific progress or detailed knowledge of the major environmental and climatic issues". It is also a facet of "strategic and military sovereignty".
THE PROJECTS • The Heads of State welcomed the publication of two projects on 15 February 2022. The first is a draft regulation on the governance and financing of a European "connectivity" constellation to improve the Union's resilience in accessing high-speed internet and government satellite communications (GovSatCom) at an estimated cost of €6 billion.
In concrete terms, the EU plans to deploy a constellation of 250 satellites in space by 2028. This figure may seem ridiculously low compared to Elon Musk's ambitions with Space X and Starlink — which have already set up a constellation of 2000 satellites providing access to the Internet, and aim to increase this figure to 20,000. However, whereas Elon Musk's satellites are for commercial use, the EU's satellites would be for governments only.
The second text is a joint communication from the Council and the European Parliament proposing a common approach to space traffic management (STM) and waste management in space, a complementary issue to the constellation project.
Apple’s Tulpenmanie Continues with Another Fine in The Netherlands
The inflation of tulip bulbs in the Netherlands in the 17th century — the tulip-mana — is a well known story. For the Apple company, it is the fines that are multiplying at the rate of this newsletter, i.e. weekly. On 21 February, Apple was fined yet another 5 million euros by the Netherlands’ antitrust watchdog.
ADDING UP • This is the fifth time the Dutch Authority for Consumers and Markets (ACM) imposes a 5 million euro fine for failing to comply with a December court order. The bill now stands at 25 million euros and is likely to go up to 50 million, the maximum amount allowed for weekly fines.
PRICING POLICY • Apple allowed Dutch app developers to use third-party payments in the Netherlands in January 2022. However, dating-app providers who wished to use an alternative payment system were required to develop a completely new app. The Dutch ACM considers that the conditions applied are “unreasonable”.
“Apple’s so-called ‘solutions’ continue to create too many barriers for dating app-providers that wish to use their own payment systems”, the regulator says. Apple repeatedly did not offer any satisfactory proposals to the regulator about updating its policies — which is why the fines are adding up. The US tech giant previously offered developers a 27% commission for using non-Apple payment systems, instead of 30%.
SPILLOVERS • The case echoes the Epic Games v. Apple saga — a long-running dispute initiated over the App Store’s commission by the video game company that developed the popular game Fortnite. The Dutch saga will likely embolden other antitrust authorities, after a similar court order was issued in South Korea in August 2021. It could soon have an EU dimension, as the ACM uses not only Dutch but also EU competition law.
“The Dutch dating-app case has the potential — if the same reasoning is applied to other app categories and spills over to other (especially European) markets. But it's all taking time, and in some jurisdictions (including the EU) new legislation may make an impact ahead of definitive and tangible results from any enforcement of the existing laws”, according to Florian Muller, an intellectual property activist and founder of the FOSS Patents blog.
DMA • The Dutch fines could soon be dwarfed by the ones which would be enforced under the EU’s Digital Markets Act (DMA) — of up to 10% of global turnover for companies which qualify as “gatekeepers”.
Media Concentration is a Hot Topic in France
The French Senate committee of enquiry into media concentration continues its hearings.
CORPORATE BATTLEGROUND • The most memorable episode of the hearings involved Martin Bouygues (the owner of TF1) and Xavier Niel (the owner of Iliad), who traded insults at the Luxembourg Palace about the prospective merger between TF1 and M6 At the same time, Vivendi launched a takeover bid for the Lagardère group on Monday, which could create a publishing giant by combining Editis and Hachette.
COMPETITION CONCERNS • Given the turnovers involved in the Hachette-Editis and TF1-M6 cases, it is very likely that these operations will be handled by DG Competition. The services of Margrethe Vestager, the Competition Commissioner, will no doubt have in mind the European Media Freedom Act announced in 2021 and for which a consultation was opened in January 2022.
MEDIA FREEDOM ACT • The Media Act focuses on editorial independence, the stranglehold of large technology platforms on online advertising, and media concentration. A documentary by Médiapart, published online on 15 February, investigates the influence of national media owners on editorial policy — a key issue in times of elections.
What we’ve been reading this week
Alain De Neve’s report for the IFRI takes a deep dive into the contemporary space race and the challenges it raises for Europe
At Vox EU, six economists try to make sense of the Digital Markets Act
Future of the euro: Massimo Amato makes the case for a European Debt Agency
Writing for CEPS, Daniel Gros takes a critical view of the European Chips Initiative
For the Institut Montaigne, Mahaut de Fougières and Cécilia Vidotto Labastie take a look at the EU-AU relations
Dylan Macchiarini Crosson contributes to the debate on Europe’s role in Africa with a review of the Union’s record
We also highly recommend the upcoming webinar held by EU Law Live on 24 February (4:00-6:00PM) with the Colle of Europe on judgments in Cases C-156/21 and C-157/21. All necessary info is here.
Thanks to those who helped put this edition together — Filip Filipek, Théo Larue, Nathan Munch, Roemer Sijmons, Aleksandra Wierzbicka, Briac de Charry, Maxence de La Rochère, Rogier Prins, Agnès de Fortanier et Thomas Harbor. See you next Tuesday !