# C_2011366EN.01016701.xml

| 15.12.2011 | EN | Official Journal of the European Union | C 366/167 |
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15.12.2011

EN

Official Journal of the European Union

C 366/167

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REPORT

on the annual accounts of the Office for Harmonization in the Internal Market for the financial year 2010, together with the Office’s replies

2011/C 366/30

INTRODUCTION

INTRODUCTION

| 1. | The Office for Harmonization in the Internal Market (hereinafter ‘the Office’), which is located in Alicante, was set up by Council Regulation (EC) No 40/94 of 20 December 1993 (1). Its mandate is to implement the Union legislation on trade marks and designs, which gives undertakings uniform protection throughout the entire area of the European Union (2). |
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1.

The Office for Harmonization in the Internal Market (hereinafter ‘the Office’), which is located in Alicante, was set up by Council Regulation (EC) No 40/94 of 20 December 1993 (1). Its mandate is to implement the Union legislation on trade marks and designs, which gives undertakings uniform protection throughout the entire area of the European Union (2).

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| 2. | The Office’s 2010 budget amounted to 365 million euro, compared with 338 million euro the previous year. The number of staff employed by the Office at the end of the year was 741, compared with 742 the previous year. |
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2.

The Office’s 2010 budget amounted to 365 million euro, compared with 338 million euro the previous year. The number of staff employed by the Office at the end of the year was 741, compared with 742 the previous year.

STATEMENT OF ASSURANCE

STATEMENT OF ASSURANCE

| 3. | Pursuant to the provisions of Article 287(1), second subparagraph, of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (3) of the Office, which comprise the ‘financial statements’ (4) and the ‘reports on the implementation of the budget’ (5) for the financial year ended 31 December 2010, and the legality and regularity of the transactions underlying those accounts. |
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3.

Pursuant to the provisions of Article 287(1), second subparagraph, of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (3) of the Office, which comprise the ‘financial statements’ (4) and the ‘reports on the implementation of the budget’ (5) for the financial year ended 31 December 2010, and the legality and regularity of the transactions underlying those accounts.

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| 4. | This Statement is addressed to the Office Budget Committee in accordance with Article 137 of Council Regulation (EC) No 40/94. |
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4.

This Statement is addressed to the Office Budget Committee in accordance with Article 137 of Council Regulation (EC) No 40/94.

The President’s responsibility

The President’s responsibility

| 5. | As authorising officer, the President implements the revenue and expenditure of the budget in accordance with the financial rules of the Office, under his own responsibility and within the limits of the authorised appropriations (6). The President is responsible for putting in place (7) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (8) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular. |
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5.

As authorising officer, the President implements the revenue and expenditure of the budget in accordance with the financial rules of the Office, under his own responsibility and within the limits of the authorised appropriations (6). The President is responsible for putting in place (7) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (8) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular.

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The Court’s responsibility

The Court’s responsibility

| 6. | The Court’s responsibility is to provide, on the basis of its audit, a statement of assurance as to the reliability of the annual accounts of the Office and the legality and regularity of the transactions underlying them. |
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6.

The Court’s responsibility is to provide, on the basis of its audit, a statement of assurance as to the reliability of the annual accounts of the Office and the legality and regularity of the transactions underlying them.

| 7. | The Court conducted its audit in accordance with the IFAC and ISSAI (9) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical requirements and to plan and perform the audit so as to obtain reasonable assurance as to whether the accounts are free of material misstatement and whether the underlying transactions are legal and regular. |
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7.

The Court conducted its audit in accordance with the IFAC and ISSAI (9) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical requirements and to plan and perform the audit so as to obtain reasonable assurance as to whether the accounts are free of material misstatement and whether the underlying transactions are legal and regular.

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| 8. | The Court’s audit involves performing procedures to obtain audit evidence of the amounts and disclosures in the accounts and of the legality and regularity of the transactions underlying them. The procedures selected, including its assessment of the risks of material misstatement of the accounts or of illegal or irregular transactions, whether due to fraud or error, depend on its audit judgement. In making those risk assessments, internal controls relevant to the entity’s preparation and presentation of accounts are considered in order to design audit procedures that are appropriate in the circumstances. The Court’s audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the accounts. |
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8.

The Court’s audit involves performing procedures to obtain audit evidence of the amounts and disclosures in the accounts and of the legality and regularity of the transactions underlying them. The procedures selected, including its assessment of the risks of material misstatement of the accounts or of illegal or irregular transactions, whether due to fraud or error, depend on its audit judgement. In making those risk assessments, internal controls relevant to the entity’s preparation and presentation of accounts are considered in order to design audit procedures that are appropriate in the circumstances. The Court’s audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the accounts.

| 9. | The Court believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below. |
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9.

The Court believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below.

Opinion on the reliability of the accounts

Opinion on the reliability of the accounts

| 10. | In the Court’s opinion, the Office’s Annual Accounts (10) fairly present, in all material respects, its financial position as of 31 December 2010 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation. |
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10.

In the Court’s opinion, the Office’s Annual Accounts (10) fairly present, in all material respects, its financial position as of 31 December 2010 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation.

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Opinion on the legality and the regularity of the transactions underlying the accounts

Opinion on the legality and the regularity of the transactions underlying the accounts

| 11. | In the Court’s opinion, the transactions underlying the annual accounts of the Office for the financial year ended 31 December 2010 are, in all material respects, legal and regular. |
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11.

In the Court’s opinion, the transactions underlying the annual accounts of the Office for the financial year ended 31 December 2010 are, in all material respects, legal and regular.

| 12. | The comments which follow do not call the Court’s opinions into question. |
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12.

The comments which follow do not call the Court’s opinions into question.

COMMENTS ON THE BUDGETARY AND FINANCIAL MANAGEMENT

COMMENTS ON THE BUDGETARY AND FINANCIAL MANAGEMENT

| 13. | The Office has not adopted rules for the reimbursement of fees. Reimbursements related to the years 2005, 2006 and 2007 were still pending in the accounts on 31 December 2010. |
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13.

The Office has not adopted rules for the reimbursement of fees. Reimbursements related to the years 2005, 2006 and 2007 were still pending in the accounts on 31 December 2010.

| 14. | In 2010, 15 million euro was spent on 156 consultants. Among them, 29 had worked on the Office’s premises on a full-time basis for more than five years and seven for more than nine years. There is scope to consider the costs and benefits of its use of external consultants. |
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14.

In 2010, 15 million euro was spent on 156 consultants. Among them, 29 had worked on the Office’s premises on a full-time basis for more than five years and seven for more than nine years. There is scope to consider the costs and benefits of its use of external consultants.

FOLLOW-UP ON PREVIOUS YEAR’S FINDINGS

FOLLOW-UP ON PREVIOUS YEAR’S FINDINGS

| 15. | Cash held by the Office as at 31 December 2010 totalled 495,4 million euro (474,2 million euro in 2009). A treasury management policy has been adopted by the Office. The accumulated budgetary surplus as at 31 December 2010 was 428,8 million euro. The corresponding figure for 2009 was 402,6 million euro. |
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15.

Cash held by the Office as at 31 December 2010 totalled 495,4 million euro (474,2 million euro in 2009). A treasury management policy has been adopted by the Office. The accumulated budgetary surplus as at 31 December 2010 was 428,8 million euro. The corresponding figure for 2009 was 402,6 million euro.

| 16. | Over successive years, fees charged by the Office for its services have been in excess of the Office’s real costs, giving rise to this significant and growing surplus. |
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16.

Over successive years, fees charged by the Office for its services have been in excess of the Office’s real costs, giving rise to this significant and growing surplus.

This Report was adopted by Chamber IV, headed by Mr Igors LUDBORŽS, Member of the Court of Auditors, in Luxembourg at its meeting of 27 September 2011.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President

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(1)  OJ L 11, 14.1.1994, p. 1.

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(2)  The Annex summarises the Office's competences and activities. It is presented for information purposes.

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Annex

(3)  These accounts are accompanied by a report on the budgetary and financial management during the year which gives inter alia an account of the rate of implementation of the appropriations, with summary information on the transfers of appropriations among the various budget items.

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(4)  The financial statements include the balance sheet and the economic outturn account, the cash-flow table, the statement of changes in capital and the annex to the financial statements, which includes a description of the main accounting policies and other explanatory information.

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(5)  The budget implementation reports comprise the budget outturn account and its annex.

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(6)  Article 33 of Commission Regulation (EC, Euratom) No 2343/2002 (OJ L 357, 31.12.2002, p. 72).

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(7)  Article 38 of Regulation (EC, Euratom) No 2343/2002.

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(8)  The rules concerning the presentation of the accounts and accounting by the Agencies are laid down in Chapter 1 of Title VII of Regulation (EC, Euratom) No 2343/2002 as last amended by Regulation (EC, Euratom) No 652/2008 (OJ L 181, 10.7.2008, p. 23) and are integrated as such in the Financial Regulation of the Office.

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(9)  International Federation of Accountants (IFAC) and International Standards of Supreme Audit Institutions (ISSAI).

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(10)  The Final Annual Accounts were drawn up on 30 June 2011 and received by the Court on 1 July 2011. The Final Annual Accounts can be found on the following website http://eca.europa.eu or www.oami.europa.eu

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ANNEX

Office for Harmonization in the Internal Market (Alicante)

Competences and activities

| Area of Union competence deriving from the Treaty


  (Articles 36 and 56 of the Treaty on the Functioning of the European Union) | Free movement of goods

  Prohibitions or restrictions justified on grounds of the protection of industrial and commercial property must not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.
  Restrictions on freedom to provide services within the Union are prohibited in respect of nationals of Member States who are established in a State of the Union other than that of the person for whom the services are intended. |
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| Competences of the Office


  (Council Regulation (EC) No 40/94) | Objective

  To implement the Union legislation on trade marks and designs, which gives undertakings the right to uniform protection throughout the entire area of the European Union.

  Tasks







  — | To receive and enter applications for registration. |

Area of Union competence deriving from the Treaty

(Articles 36 and 56 of the Treaty on the Functioning of the European Union)

Free movement of goods

Prohibitions or restrictions justified on grounds of the protection of industrial and commercial property must not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

Restrictions on freedom to provide services within the Union are prohibited in respect of nationals of Member States who are established in a State of the Union other than that of the person for whom the services are intended.

Competences of the Office

(Council Regulation (EC) No 40/94)

Objective

To implement the Union legislation on trade marks and designs, which gives undertakings the right to uniform protection throughout the entire area of the European Union.

Tasks

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To receive and enter applications for registration.

| — | To examine the conditions for entry in the Register and compatibility with Union legislation. |
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To examine the conditions for entry in the Register and compatibility with Union legislation.

| — | To search at the industrial property offices of the Member States for any pre-existing national trade marks. |
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To search at the industrial property offices of the Member States for any pre-existing national trade marks.

| — | To publish applications. |
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—

To publish applications.

| — | To examine any opposition by third parties. |
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—

To examine any opposition by third parties.

| — | To register or reject applications. |
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To register or reject applications.

| — | To examine applications for revocation or invalidity. |
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To examine applications for revocation or invalidity.

| — | To handle appeals against decisions. |
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—

To handle appeals against decisions.

Governance

1 —   Administrative Board

Composition

| — | One representative of each Member State, one representative of the Commission and their alternates. |
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One representative of each Member State, one representative of the Commission and their alternates.

Task

| — | To advise the President on matters for which the Office is responsible. |
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To advise the President on matters for which the Office is responsible.

| — | To prepare lists of candidates (Article 120) for President, Vice-Presidents and chairmen and members of the Boards of Appeal. |
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To prepare lists of candidates (Article 120) for President, Vice-Presidents and chairmen and members of the Boards of Appeal.

2 —   President of the Office

| — | Appointed by the Council from a list of at most three candidates which has been prepared by the Administrative Board. |
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Appointed by the Council from a list of at most three candidates which has been prepared by the Administrative Board.

3 —   Budget Committee

Composition

| — | One representative of each Member State and one representative of the Commission and their alternates. |
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One representative of each Member State and one representative of the Commission and their alternates.

Task

| — | To adopt the budget and the financial regulation, grant discharge to the President and determine the cost of search reports. |
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To adopt the budget and the financial regulation, grant discharge to the President and determine the cost of search reports.

4 —   Decisions related to the applications

Decisions are taken by:

| — | the Examiners, |
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the Examiners,

| — | the Opposition Divisions, |
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the Opposition Divisions,

| — | the Administration of Trade Marks and Legal Division, |
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the Administration of Trade Marks and Legal Division,

| — | the Cancellation Divisions, |
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the Cancellation Divisions,

| — | the Boards of Appeal. |
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the Boards of Appeal.

5 —   External audit

Court of Auditors.

6 —   Discharge authority

The Office's Budget Committee.

Resources made available to the Office in 2010 (2009)

Budget

365 (338) million euro.

Staff at 31 December 2010

643 (658) posts in the establishment plan, posts occupied 608 (614) + 133 (128) other staff (auxiliary contracts, seconded national experts, local and employment agency staff, special advisers)

Total staff: 741 (742)

Products and services supplied in 2010 (2009)

Trade marks

Number of applications: 98 200(88 300)

Number of registrations: 100 800(90 000)

Cases of opposition: 17 700(13 900)

Appeals to the Boards of Appeal: 2 570(1 588)

Appeals pending: 2 157(1 378)

Designs

Designs received: 74 700(69 500)

Designs registered: 73 500(71 500)

Source: Information supplied by the Office.

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THE OFFICE'S REPLIES

| 13. | The Office intends to issue an administrative decision in 2011 and reinforce the internal control procedures in order to reduce the pending amounts to be adjusted in the Financial Statements. |
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13.

The Office intends to issue an administrative decision in 2011 and reinforce the internal control procedures in order to reduce the pending amounts to be adjusted in the Financial Statements.

| 14. | At the end of 2010 the Office launched an IT audit in order to better balance and adjust the policy related to the outsourcing policy in general.
  As a result of its Strategic Plan, issued in May 2011 and endorsed in a joint session by the Administrative Board and Budget Committee, the Office is further reviewing its sourcing strategy taking into account cost/benefit analysis and principles of efficiency and effectiveness. The Office is taking steps in order to internalise specialised and critical functions and to put in place an appropriate governance structure and sourcing framework for the management of external contractors. |
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14.

At the end of 2010 the Office launched an IT audit in order to better balance and adjust the policy related to the outsourcing policy in general.

As a result of its Strategic Plan, issued in May 2011 and endorsed in a joint session by the Administrative Board and Budget Committee, the Office is further reviewing its sourcing strategy taking into account cost/benefit analysis and principles of efficiency and effectiveness. The Office is taking steps in order to internalise specialised and critical functions and to put in place an appropriate governance structure and sourcing framework for the management of external contractors.

| 15. | The cash of the Office as at 31 December 2010 includes 67 million euro of advanced payments from its clients and carried over appropriations from 2010 to 2011, thus this amount cannot be considered as a surplus of the Office. (The equivalent amount in 2009 amounted to 72 million euro).
  As a consequence of the treasury management policy adopted by the Budget Committee (in accordance with recommendations of the Court of Auditors) the funds of the Office are being placed in Central Banks, triple A Banks and other very highly ranked international banks. Additionally a yearly reporting to the Budget Committee was established.
  When it comes to the accumulated budgetary surplus at year end, the Office lowered its fees in 2005 and in 2009, with a negative impact on revenue from Community Trade Mark fees of 24 % and 30 % respectively (based on budgeted figures).
  The following elements will significantly reduce the accumulated budgetary surplus:
  Firstly, the investments to implement the strategic plan endorsed by the governing board and budget authority of the Office in May 2011 aiming at organisational excellence and international cooperation, amounting to 129 million euro. The strategic plan includes investments in buildings amounting to 69 million euro, the cooperation fund 40 million euro, 4 million euro on further simplification and modernisation of IT and other important concepts that will contribute to the accomplishment of the referred to goals.
  Secondly, the new forthcoming legislative proposals that are currently being prepared by the Commission aiming to revise the EU trademark legislation as well as the political agreement to distribute 50 % of the renewal fee to the national offices of trademarks as a basis for cooperation in order to enhance the harmonisation of practices and tools in the field of trademarks and designs for the benefit of users (see Council conclusion of 25 May 2010 on the future revision of the Trade Mark system in the EU), will also contribute to a more balanced budget.
  Thirdly, the Commission is considering introducing a biennial review mechanism of the financial situation of the Office.
  Fourthly, the Office is ready to become an agency of intellectual property of the EU, promoting the interests of the whole EU, and to create an European network with the national offices in the interest of the end-users.
  In line with the above, the Commission and the Office have recently signed a memorandum of understanding that will entrust the Office with a number of activities that relate to the European Observatory on Counterfeiting and Piracy. The Commission has launched a legislative proposal (COM(2011) 288)) to fully transfer the EU Observatory to the Office, avoiding the duplication of EU agencies. The initial impact assessment of the running cost of this Observatory is between 3,3 and 5,5 million euro per year.
  The financial and administrative autonomy established in the founding regulation of the Office, also reflected in its financial framework, have permitted the Office to put in place tools to improve performance parameters significantly in a demanding and changing user environment and to improve its sound financial management. |
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15.

The cash of the Office as at 31 December 2010 includes 67 million euro of advanced payments from its clients and carried over appropriations from 2010 to 2011, thus this amount cannot be considered as a surplus of the Office. (The equivalent amount in 2009 amounted to 72 million euro).

As a consequence of the treasury management policy adopted by the Budget Committee (in accordance with recommendations of the Court of Auditors) the funds of the Office are being placed in Central Banks, triple A Banks and other very highly ranked international banks. Additionally a yearly reporting to the Budget Committee was established.

When it comes to the accumulated budgetary surplus at year end, the Office lowered its fees in 2005 and in 2009, with a negative impact on revenue from Community Trade Mark fees of 24 % and 30 % respectively (based on budgeted figures).

The following elements will significantly reduce the accumulated budgetary surplus:

Firstly, the investments to implement the strategic plan endorsed by the governing board and budget authority of the Office in May 2011 aiming at organisational excellence and international cooperation, amounting to 129 million euro. The strategic plan includes investments in buildings amounting to 69 million euro, the cooperation fund 40 million euro, 4 million euro on further simplification and modernisation of IT and other important concepts that will contribute to the accomplishment of the referred to goals.

Secondly, the new forthcoming legislative proposals that are currently being prepared by the Commission aiming to revise the EU trademark legislation as well as the political agreement to distribute 50 % of the renewal fee to the national offices of trademarks as a basis for cooperation in order to enhance the harmonisation of practices and tools in the field of trademarks and designs for the benefit of users (see Council conclusion of 25 May 2010 on the future revision of the Trade Mark system in the EU), will also contribute to a more balanced budget.

Thirdly, the Commission is considering introducing a biennial review mechanism of the financial situation of the Office.

Fourthly, the Office is ready to become an agency of intellectual property of the EU, promoting the interests of the whole EU, and to create an European network with the national offices in the interest of the end-users.

In line with the above, the Commission and the Office have recently signed a memorandum of understanding that will entrust the Office with a number of activities that relate to the European Observatory on Counterfeiting and Piracy. The Commission has launched a legislative proposal (COM(2011) 288)) to fully transfer the EU Observatory to the Office, avoiding the duplication of EU agencies. The initial impact assessment of the running cost of this Observatory is between 3,3 and 5,5 million euro per year.

The financial and administrative autonomy established in the founding regulation of the Office, also reflected in its financial framework, have permitted the Office to put in place tools to improve performance parameters significantly in a demanding and changing user environment and to improve its sound financial management.

| 16. | It is only partially true that lowering the fees will automatically result in lowering the surplus of the Office. Experience has shown that the volume of incoming applications has increased considerably when implementing this measure. In fact, in the same period the growth of applications to trademarks has compensated significantly the fee reduction in terms of income.
  Furthermore, implementing the strategic plan endorsed by the Office’s governing bodies and the other elements referred to in observation 15 will progressively bring the Office to a balanced budget and absorb a significant part of the accumulated surplus for purposes solely related to the Intellectual Property system.
  Finally, the Office wishes to underline that the Council Regulation (EC) No 207/2009 on the Community trade mark, clearly enshrines the principle of coexistence between National and Community Trademark and the Design system.
  In abidance to the will of the legislator, OHIM is implementing a strategic plan that develops concrete measures to further develop this model for the benefit of users and industry.
  The Office believes that indiscriminate fee reductions will not necessarily achieve a reduction of the surplus, and may put at risk the survival of the National Offices. |
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16.

It is only partially true that lowering the fees will automatically result in lowering the surplus of the Office. Experience has shown that the volume of incoming applications has increased considerably when implementing this measure. In fact, in the same period the growth of applications to trademarks has compensated significantly the fee reduction in terms of income.

Furthermore, implementing the strategic plan endorsed by the Office’s governing bodies and the other elements referred to in observation 15 will progressively bring the Office to a balanced budget and absorb a significant part of the accumulated surplus for purposes solely related to the Intellectual Property system.

Finally, the Office wishes to underline that the Council Regulation (EC) No 207/2009 on the Community trade mark, clearly enshrines the principle of coexistence between National and Community Trademark and the Design system.

In abidance to the will of the legislator, OHIM is implementing a strategic plan that develops concrete measures to further develop this model for the benefit of users and industry.

The Office believes that indiscriminate fee reductions will not necessarily achieve a reduction of the surplus, and may put at risk the survival of the National Offices.

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