Through a glass darkly: UK designs case raises complex constitutional issues

25 April 2005

Lorna Brazell, Gary Hopkins

Background

In September 2002, Oakley Inc, the well-known manufacturers of sport sunglasses, commenced an action for infringement of 3 designs registered for sunglasses. Of the designs in issue, the most commercially significant was the “Straight Jacket” which had been prior published in the UK 1 month before the design was applied for. The fact of the prior publication came to light in July 2004, just before trial began. Thus, under the law which applied at the time this design was registered it was clearly invalid.

In the interim, a new law on validity was mandated throughout the European Union by Directive 98/71/EC on the legal protection of designs (“the Directive”). This provides a “grace period” of 12 months for the prospective proprietor to “test the market to see if it was worth their while to incur the expense of registration”. Publication by the proprietor in this period would not invalidate the design. Accordingly, if Oakley could find a way to argue that in fact the new rather than the old law on validity ought to be applied, the design could still be valid. This depends upon the way in which the UK has implemented the Directive.

The Registered Designs Regulations 2001 (“the Regulations”) were brought in to implement the Directive by amendments to the Registered Designs Act 1949 (“the Act”). These Regulations came into force on 9 December 2001, some six weeks after the implementation date specified for the Directive.

Under the amended Act, infringement issues for all registered designs should be considered under the new law, and the new law on validity applies to new registrations, but the old law on validity continued to apply to any existing registration, being one which had been applied for at any time up till 9 December 2001. This continued application of the old law was permitted under the Directive by way of a derogation from the immediate implementation of the new law in respect of all registrations, old or new. However, the parties disagreed as to whether such a derogation, which involves a policy choice, could properly be implemented by the Secretary of State simply laying Regulations before Parliament, or whether primary legislation and proper Parliamentary consideration ought to have be used instead.

The preliminary issue as to the validity of the Regulations was tried in July 2004, but the Judge delayed his judgment to wait for a decision in an ECJ case (Markopoulos C-255/01) on a similar constitutional law point: whether a Member State can implement a derogation under a European Directive after the implementation date has passed. This decision was given on 7 October 2004, and judgment on the preliminary issue was finally handed down on 18 February 2005.

The implementation of EU legislation in the UK

A Directive is binding as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods”. Thus, the UK has to implement the desired goal of a Directive into its national law by the implementation date specified. Failure to do so may result in heavy fines and a visit to the ECJ.

In the UK, implementation may be either through primary legislation – and Act of Parliament - or by secondary legislation under the European Communities Act 1972 (“ECA”). Section 2(2) ECA gives a government minister the power to change laws using regulations “for the purpose of implementing any Community obligation” (s2(2)(a)) or “for the purpose of dealing with matters arising out of or related to any such obligation” (s2(2)(b)). Further, s2(4) ECA permits the minister to make the regulations without necessitating approval from Parliament.

This power is used on a regular basis without question by the UK Government departments and ministers. However, s2(2) together with s2(4) have been described as a “King Henry VIII clause”, so-called because of that monarch’s alleged penchant for legislating without the interference of Parliament. King Henry VIII clauses are required to be construed narrowly and any doubt resolved against the Executive (R v Secretary of State for Social Security, ex parte Britnell [1991 1 WLR 198, 204, HL).

One of the issues in this case was whether a UK minister/ department could use s2(2) ECA to make changes not required by a European obligation. If there is such a power, what is the limit?

In this instance, Oakley argued that the existence of an option to derogate – retain the old law on validity – means there is no absolute Community obligation here. A Member State must make a choice: bring in the new law on validity now, or retain the old law as regards existing registrations? Neither is compulsory; so the power to implement by secondary legislation under the ECA does not reach this far.

The second question is to what extent, if at all, can a member state exercise a derogation after the final implementation date of the Directive?

The 2001 UK Regulations came into force on 9 December 2001, later than the compulsory date of 28 October 2001 and hence in breach of the Directive. The decision of the ECJ in Markopoulos raises a question as to whether the UK (let alone the Secretary of State) retained any right to exercise the option of derogating, by the time the Regulations were brought in.

Judgment

Mr Prescott held that the UK was not under any obligation to use the Article 11.8 derogation so the Secretary of State could not rely on s2(2)(a). He therefore reviewed all of the remarkably scant case law on the scope of the power in s2(2)(b). This reveals a divergence between the Scottish and English Courts:

(i) In R v Secretary of State for Trade and Industry ex parte Unison [1996] ICR 1003, “the court … proceeded on the basis that anything is “related to” a Community obligation so long as it is not distinct, separate or divorced from it”. Mr Prescott was surprised by how wide these departmental powers could apparently be when considering the Unison judgment. There are few areas of law today which have not been touched by some European legislation; accordingly, on the reasoning of that Court it would appear that a minister might be able to pass almost any kind of regulations on the basis that it “related to” some Community obligation. However, the ex p. Unison court was not referred to any of the authorities which interpret King Henry VIII clauses, and the court did not look into the purpose of s2(2)(b).

(ii) Addison v Denholm Ship Management (UK) Ltd [1997] ICR 770 and Perth & Kinross Council v Donaldson, EAT, Scotland, 30/10/03

Lord Johnstone has considered Regulations under s2(2)(b) twice, and concluded that the English Court of Appeal in ex p Unison has interpreted that power too widely.

Mr Prescott concludes that “section 2(2)(b) does not enable the Executive to make secondary legislation with the potential to amend or repeal even an Act of Parliament, and to achieve a result not required by a Community obligation, just because its purpose is in some way related to or arises out of that obligation… if section 2(2) is given a narrow construction, as it must be, it does not enable the attainment of a substantive result that is required neither by the Community nor by Parliament itself”.

The effect of Regulation 12 of the implementing Regulations in this case is to keep the old law on validity even though the Directive did not require it but permitted it – it was not an obligation. Nor was it required by Parliament, nor does it fall within Mr Prescott’s interpretation of a matter “relating to” the Directive: in his view, preferring Lord Johnstone’s approach, the child (UK implementation) cannot be larger, wider or have greater implications than its parent (Directive). He found that a policy choice – to derogate or not to derogate? – is not a mere matter “related to” the Directive within the preferred meaning of s2(2)(b) ECA, and the regulations purporting to implement that choice are therefore ultra vires.

An insight into why Mr Prescott reached the decision he did is given by his remark that the numerous amendments made to the 1949 Act by the amending Regulations were like a “sculptor crafting a cat out of a dog”. Mr Prescott was not pleased with the way they attempt to implement the Directive – a complaint he has raised on other occasions regarding the UK’s implementation of other IP-related Directives, notably in Chapter 2 of The Modern Law of Copyright by Laddie, Prescott & Vitoria. In that chapter he approaches the question somewhat more directly, by reference to the records of the Parliamentary debates around the introduction of the ECA which make it plain that a very narrow meaning was intended for s2(2)(b). However, English law does not allow the Courts to look at Parliament’s discussions unless the section of legislation they are trying to construe is ambiguous on its face. The language of s2(2) appears simple, and has been held to be so by various courts; therefore, this avenue was not open to him in his judicial as opposed to authorial capacity.

Consequences

If part of secondary legislation is ultra vires the courts have the power to remove it or, in appropriate circumstances, to re-write it provided that the offending part is “substantially severable”: if the substance of what remains after severance is essentially unchanged in legislative purpose, operation and effect. If not, the court must treat the offending legislation as invalid as a whole.

Oakley proposed that as Regulation 12 was ultra vires, 12(2) and 12(3) implementing the derogation should simply be struck out, leaving the new validity law applicable to existing as well as new registrations. However, Mr Prescott held that since in passing the 1949 Act Parliament had chosen the regime in relation to validity, absent the ultra vires regulations 12(2) and 12(3), the old law on validity should still apply as that was the intent of Parliament. This aspect of his decision is difficult to understand, since Parliament has never in fact addressed the choice set out in the Directive, but the result is that he finds in favour of Animal.

He then goes on to consider, perhaps superfluously, whether the UK was entitled to use the derogation in Article 11.8 of the Directive after the implementation date.

In the Markopoulos judgment, the ECJ decided that a member state cannot exceed the ultimate time limit for derogation by a late transposition of the [Qualifications of Auditors] Directive retrospectively implementing a derogation. The question is whether that statement is one of general application or confined to the particular circumstances of that Directive. If the former, then the retention through the Regulations of Parliament’s version of the 1949 Act unamended might be argued to be in breach of the UK’s obligations within Europe such that this late exercise of the derogation might entitle Oakley to damages from the State for any loss they suffer as a result (Marleasing SA v La Commercial International De Alimentation SA (Case C-106/89, [1990] ECR I-4135)).

Mr Prescott further notes that as a result of the late implementation of the derogation, designs registered in the “delay window”, i.e. 28 October 2001 to 9 December 2001, are governed by old validity law when they should be governed by new law. This is something which he states cannot be permitted under EU law. His ultimate solution to the invalidity of the Regulations is therefore to “blue pencil” Regulation 12 to change the phrase “before the coming into effect of these Regulations” to the words “before 28 October 2001” to cure the defect. The adversely affected registrations would then have the benefit of the new law on validity, as they indubitably ought to have had. This does not, however, address the question of whether retention of the old law was a legitimate option at the date of the Regulations, a historical fact which Mr Prescott cannot rewrite.

In view of the complexity and potential wider significance of the questions raised by this case, it is not surprising that the judge suggested a potential reference to the ECJ to clarify the issue as to whether the late adoption of the Regulations made late exercise of the derogation contrary to European law. He also states that permission to appeal is likely to be granted if any of the parties request it. It remains to be seen how the parties, and the Secretary of State for Trade and Industry who intervened in the preliminary issue trial, will choose to react.

Also published in WIPR.