EUROPEAN COMMISSION Brussels, 28.11.2022 SWD(2022) 368 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the documents to the Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL



amending COUNCIL REGULATION (EC) No 6/2002

on Community designs and repealing Commission Regulation (EC) No 2246/2002 and the























Proposal for a











DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL























on the legal protection of designs (recast) {COM(2022) 666 final} - {COM(2022) 667 final} - {SEC(2022) 422 final} - {SWD(2022) 367 final} - {SWD(2022) 369 final}



Table of contents 1.Introduction 1.1.Importance of industrial designs and available systems of design protection 1.2.Political context 2.Problem definition 2.1.What are the problems? 2.1.1.Disruption of trade and competition in the spare parts area 2.1.2.Regulatory burdens 2.2.How will the problems evolve? 2.2.1.Single market and competition in spare parts market 2.2.2.Regulatory burdens 3.Why should the EU act? 3.1.Legal basis 3.2.Subsidiarity: Necessity of EU action 3.3.Subsidiarity: Added value of EU action 4.Objectives: What is to be achieved? 4.1.General objectives 4.2.Specific objective 5.What are the available policy options?

5.1.What is the baseline from which options are assessed? 5.2.Description of the policy options 5.2.1.Options to tackle Objective 1 on spare parts protection 5.2.2.Options to tackle Objective 2 on complex procedures and sub-optimal fees 5.2.3.Options to tackle Objective 3 on divergent procedural rules 5.3.Options discarded at an early stage 5.3.1.Spare parts protection 5.3.2.Further harmonisation of national rules 6.What are the impacts of the policy options? 6.1.Spare parts protection 6.1.1.Full liberalisation for all designs (Option 1.1) 6.1.2.Instant full liberalisation for new designs followed by full liberalisation for old designs after transitional ten-year period (Option 1.2) 6.1.3.Full liberalisation for new designs (Option 1.3) 6.2.Simplification and streamlining of RCD procedures (Option 2) 6.3 RCD fees 6.4 Options for further harmonisation 7.How do the options compare? 8.Preferred option 8.1 Conclusion on impacts and coherence 8.2 Compatibility with International Obligations

8.3 REFIT (simplification and improved efficiency) 9. How will actual impacts be monitored and evaluated? Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 2a: Stakeholders views on Spare parts liberalisation Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: Proposals to be covered by the revision of the regulatory framework Annex 6: Spare parts protection in Member States Annex 7: Evolution of EUIPO budget Annex 8: Member State fees Annex 9: Impact of fee changes and other simplifications 9.1 Proposed changes and summary of impacts 9.2 Changes in basic registration fee 9.3 Changes in renewal fees 9.4 Annual EU-wide impacts of fee changes 9.5 Impacts of fee changes on number of designs applications 9.6 Impact of elimination of transfer fee 9.7 Impact of limiting multiple submissions to 50 designs per application 9.8 Comparison to national registration fees

9.9 Impact of abolition of unity of class requirement (Option 2) 9.10 Impact of simplification in requirements for the representation of designs (Option 2) 9.11 Summary of impacts Options 2 and 3 Annex 10: Definition of Subject matter of protection Annex 11: Relationship to copyright protection Annex 12: Awareness raising activities Annex 13: Coexistence of national and EU design protection systems Annex 14: Dictionary



Glossary Term or acronym Meaning or definition CDR Community Design Regulation (EC) 6/2002 CJEU Court of Justice of the European Union DDir Design Directive 98/71/EC EUIPN European Union Intellectual Property Network EUIPO European Union Intellectual Property Office EUTM / EUTMR / TMD EU Trade Mark /EU Trade Mark Regulation / Trade Mark Directive IAM Independent Aftermarket Suppliers IP Intellectual property OEM Original Equipment Manufacturer OES Original Equipment Supplier MVBER Motor Vehicle Block Exemption Regulation RCD Registered Community Design SME Small and Medium-Sized Enterprise TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UCD Unregistered Community Design VM Vehicle Manufacturer WIPO World Intellectual Property Organisation See also Annex 12 for definitions.



1.Introduction 1.1.Importance of industrial designs and available systems of design protection Design is what makes a product appealing. Visual appeal is one of the key factors that influences consumers’ choices and leads them to prefer one product over another. Well-designed products create an important competitive advantage for producers. Companies that invest in design tend to be more profitable and grow faster. Industrial design rights cover the appearance of a product or part of a product. To encourage innovation and the creation of new product design also in the digital age, there is an increasing need for accessible, modern, effective and consistent legal protection of those rights. The laws of the Member States providing for design protection at domestic level were partially harmonised by the Design Directive 98/71/EC ('the DDir'). As a complement alongside national systems, Community Design Regulation (EC) 6/2002 ('the CDR') established autonomous unitary protection for designs in 2003 in the form of the ‘unregistered Community design’ and, in particular, the ‘registered Community design’. Rules implementing the CDR are contained in the Implementing Regulation (EC) No 2245/2002, and in the Fees Regulation (EC) No 2246/2002. Corresponding to the territorial nature of industrial designs (guaranteeing protection to their owners only in the territory of the country or countries concerned), different (not mutually exclusive) protection titles are available for designers wishing to protect their designs in the EU.

(a) National designs are registered by the intellectual property (IP) offices of Member States. Currently, there are 24 national offices, and one regional office – the Benelux Office for IP (BOIP). National designs generally serve users seeking registration in one, or a limited number of countries, as well as users that want to obtain much broader protection in geographical terms but are not able or willing to opt for a Community design. (b) Community designs, available in registered (RCD) and unregistered form (UCD), grant their proprietors a unitary IP right with an equal effect throughout the entire EU. While the UCD right simply arises by virtue of first disclosure without registration, the RCD is registered and administered by the European Union Intellectual Property Office (EUIPO). The RCD does not replace national design systems, but provides an additional legal framework for obtaining a single design registration valid in the territory of all 27 EU Member States. (c) International design registrations are administered by the World Intellectual Property Organisation (WIPO), and allow their proprietors to secure worldwide protection through the Hague System for the International Registration of Industrial Designs (‘Hague System’) by designating several countries or regions (e.g. the EU) with a single application. The national and Community (and international) design systems coexist and are complementary to each other. According to individual business needs which will depend on the territorial scale of economic activity, the design proprietor can therefore either opt for a national or Community-wide (or international) registered design right, or apply for and maintain parallel protection within the same territory through both the national and Community registration systems (as well as the international system). 1.2.Political context The design protection system in Europe has undergone a significant development over the last 20 years. This process started with the partial harmonisation of national design laws in 1998 by the DDir extending to key aspects of substantive design law without covering procedures. It aimed at promoting the internal market and preventing Union-wide competition being distorted by ensuring that the conditions for obtaining registered design rights are identical and that those rights confer upon right holders equivalent protection in all Member States. The largest sticking point in the negotiations on the DDir was the issue of design protection for spare parts (see further Section 2.1.1). As no agreement could be reached on this point, the DDir includes a so-called freeze-plus clause in Article 14, pursuant to which Member States may retain their existing laws on whether spare parts should benefit from protection until amendments to the DDir are adopted on a proposal from the Commission. They are however permitted to introduce chances to those laws only if the purpose is to liberalise the spare parts market. The partial harmonisation of national design law was followed by the creation of the Community design in 2001 by the CDR. Since then, the CDR has been amended once in 2006 to give effect to the accession of the Union to the Geneva Act of the Hague System. A proposal presented by the Commission in 2004 to harmonise design protection of visible spare parts through the introduction of a ‘repair clause’ into the DDir (as already contained in the transitional Article 110(1) CDR, see further on that in Section 2.1.1) did not receive sufficient support in the Council, despite overwhelming support by the European Parliament, and was withdrawn in 2014. The introduction of the RCD as complement to national design rights has led to a clear and substantial (steady upward trend) net increase in design applications in the EU overall, taking the numbers of RCD filings and national design filings together. While total volumes of national design filings balanced around 120,000 annually in the past ten years, RCD filings grew on average by 3.5% between 2010 and 2019 (with an overall growth rate of 36.2% when comparing the 2019 and 2020 filing volumes), leading to 988,200 individual RCD filings, which nevertheless translates only into filing by 13,400 owners in 2020 (1/3 of which are natural persons). In October 2021 there were a total of around 157,000 RCD owners (including 50,700 natural persons). As shown also by the responses to the two open public consultations “Evaluation of design legislation on design protection” (“First Public Consultation”) and “Review of EU rules on industrial design” (“Second Public Consultation”), businesses increasingly demand more tailored and streamlined design registration systems, which are more consistent, publicly accessible and technologically up-to-date. In addition, the business environment has changed significantly over the past two decades, notably with the expansion of the internet and other electronic business tools. The significance of new technological designs such as graphical user interfaces (GUIs) and icon designs has been growing substantially. Therefore, in line with the Commission’s Better Regulation agenda to review EU policies regularly, in 2014 the Commission launched an evaluation of the functioning of the design protection systems in the EU, involving a comprehensive economic and legal assessment, supported by a series of studies. The Council of the European Union adopted on 11 November 2020 conclusions on intellectual property policy and the revision of the industrial designs system in the Union. The Council called on the Commission to present proposals for the revision of, respectively, the CDR, and the DDir, to modernise the EU design protection systems and to make design protection more attractive for individual designers and businesses, especially SMEs. Based on the final results of the evaluation, the Commission announced in its communication of 25 November 2020 entitled ‘Making the most of the EU’s innovative potential – An intellectual property action plan to support the EU’s recovery and resilience’ that it will revise the EU legislation on design protection, following the successful reform of the EU trade mark legislation. The Council adopted on 25 June 2021 further conclusions on intellectual property policy, urging the Commission to prioritise the timely presentation of a proposal as soon as possible on the revision and modernisation of the legislation on industrial designs. Furthermore, in its supportive Opinion on the IP Action Plan, the European Parliament stressed the need for revision of the design protection system after having been established 20 years ago. 2.Problem definition 2.1.What are the problems? Two main problems were identified in the context of this impact assessment. The first and most important one relates to the disruption in intra EU trade and barriers to competition in some Member States with respect to repair spare parts. The second relates to the discouragement of businesses, in particular, SMEs and individual designers from seeking for registered design protection at EU or national level due to the high costs, burdens and delays in obtaining protection and the limited predictability. The evaluation addressed a few other shortcomings of the legislation on industrial designs such as in relation to the clarity of the current definition of the eligible subject matter of protection or of the specific provisions on the relationship of design protection to copyright. These other shortcomings are intertwined with part of the second main problem, notably the limited predictability. However, given the rather minor impact as confirmed also by the replies to the Second Public Consultation and the legalistic nature of the questions involved, these shortcomings are covered in the Annexes part to the extent appropriate (see Annex 10 on subject-matter of protection and Annex 11 on the relationship to copyright). In accordance with the principle of proportional analysis, the present impact assessment does not expressly scrutinise a number of envisaged (technical) amendments either which aim at minor adaptations of existing provisions with little, or no practical impact, or that are straightforward and uncontentious such as in relation to the required alignment to the recent trade mark reform. Nevertheless, an overview of the proposals for amending the existing legislation is provided in Annex 5. As far as the evaluation revealed indications of a possible underuse of design rights due to lack of awareness of the specific design protection regime and its benefits, this has remained out of scope of the impact assessment as a very wide range of different awareness raising activities, campaigns and trainings (targeting particularly SMEs) are already carried out or planned by the EUIPO, including the EUIPO’s Academy and the European Observatory on Infringements of Intellectual Property Rights. In addition, the EU IP Helpdesk offers multiple trainings and materials to help European creators and innovators to make the most out of their IP assets, including designs. To the extent necessary and appropriate, the Commission shall build on existing other initiatives, in particular related to SME support, to further promote the use of design protection and raise awareness about is benefits. 2.1.1.Disruption of trade and competition in the spare parts area

As harmonisation of substantive design law under the DDir does not cover the area of repair spare parts, important national differences remain regarding the eligibility of design protection for visible component parts used for the purpose of repair so as to restore the original appearance of a complex product. A complex product refers to a product made up of multiple components, which can be replaced permitting disassembly and re-assembly of the product. On one hand, at EU level, the CDR excludes in a ‘repair clause’ such component parts from protection. On the other, as mentioned in Section 1.2, the issue remains not harmonised under the DDir and Member States can choose whether to retain provisions extending protection to those component parts or to exempt them therefrom by means of a repair clause. As of September 2021, twelve (BE, DE, EL, ES, HU, IE, IT, LV, LT, LU, NL, PL) out of 27 Member States provide for a repair clause exemption and hence have liberalised the spare parts market (see Annex 6 for detailed overview). Most recently, a repair clause was inserted into the German Design Act, which entered into force on 2 December 2020 and affects designs applied for registration after that date. In France, a partial and sectorial repair clause was promulgated on 24 August 2021 as part of a new law on combating climate change and strengthening resilience against its effects. As from 1 January 2023, the sale of visible spare parts will be partially opened to competition there. As in Germany, this is going to affect new designs only. Design protection for repair spare parts conflicts with the essential role and function of design law. The purpose of design law is to protect the appearance, the visible form of a product, not the product itself (granting an exclusive right to a particular shape but no product monopoly). The objective is to foster innovation in product design while maintaining competition of products. Competitors are therefore encouraged to create new, sufficiently distinguishable designs for their competing products which consumers find appealing. This is achieved without interfering with the competition of products as such. The protection of the design of a watch, for instance, does not hamper competition in the watch market. The huge variety of watch designs can be taken as striking example of how design protection stimulates product competition. Successful designs are those picked by the consumer who prefers for instance the smartly designed car or watch, and exclusive rights allow the designer to be rewarded for that design (i.e. “design premium” is awarded by the market based on consumer preferences). However, in the case of ‘must-match’ spare parts that need to exactly match the original parts to be replaced, the aftermarket leaves no room for consumers to exercise a choice and to prefer one design to the other. In such a case, the effect of design exclusivity corresponds to that of a product monopoly and is thus an unintended – from the ratio of the design acquis - excessive rent to the manufacturers of the original parts. In other words, the design law awards primary market ‘exclusivity’ rooted in the look of a vehicle, which is relative – after all, inter-brand competition with other vehicles remains. It is, however, an arguable IPR protection over-reach to extend this into an absolute exclusivity over spare parts. Design protection for repair spare parts may result in foreclosure of competition and “lock-in” effect. In markets with repair clause independent manufacturers are free to provide competing parts. This is different in markets where no repair clause exemption exists currently (AT, BG, CY, CZ, DK, EE, FI, FR, HR, MT, PT, RO, SE, SI, and SK). The holder of the design right may prevent manufacturing, importing, or selling of similar visible spare parts by potential competitors. This is problematic when the appearance of such parts is dependent on the appearance of the complex product to be repaired so that the exact reproduction is necessary for restoring the complex product’s original appearance (so-called “must-match parts”). As the spare part at issue must exactly match the specifications of the original part to be replaced in the context of repair, substitutability by alternative designs is not possible. In the case of cars, a fender, for example, that differs in shape from the original one is useless for the repair of the original vehicle and therefore unmarketable. Any competitor wishing to enter such market needs therefore to be able to imitate the original part. However, that imitation would constitute an infringement of design rights where no repair clause exemption exists. Therefore, right holders are granted a genuine monopoly on the spare parts aftermarket in the Member States concerned. That means that right holders can exclude entry and that repair shops and customers may be “locked” into purchasing such repair parts exclusively from them as original manufacturers or their suppliers. For example, in protected markets, a vehicle owner may not be able to buy the spare parts needed from a source of choice (“freedom to repair”) and at prices kept in check by competition but may become a captive consumer. This is all the more valid as existing competition in the primary car market might not outweigh uncompetitive prices in the aftermarket. This would require consumers being able to take an informed decision at the time of purchase of the car as to the need for spare parts over its whole life-cycle. However, this is not the case, as such need does not only depend on the individual intensity of use but in particular on the probability of suffering an accident. Such perfect foresight is impossible for the user. The DDir applies to any sector where the replacement and repair of visible components of complex products is at stake and which therefore would be affected by an eventual harmonisation at European level. While component parts can be found in virtually all modern products and devices, the largest aftermarket affected is that of the automotive industry. This is also the largest group that responded to the two open public consultations. There are 319 million vehicles in circulation on EU roads, and given also the low cost of repair compared to the price of a new car, the demand for damage repair is significant. According to Wolk After Sales, in 2019, the market value of automotive visible spare parts in the EU was equal to EUR 16.3 billion and represented 17% of the total market value for all automotive spare parts in the EU. Almost 51% of sales (EUR 8.3 billion) took place in countries without a repair clause. This figure covers three segments: body parts (with the market value of EUR 9.7 billion), auto glass (EUR 4.4 billion) and lighting (2.2 billion EUR). These parts, also called crash parts, are typically replaced because of collision and can benefit from design protection in the markets without repair clause. With 69% of total sales, vehicle manufacturers (VM) cover a large segment in the EU visible spare part market. Such market power may be used in Member States without repair clause to the detriment of consumers. Mejer and Herz (2020) estimate economic impact of design protection on the prices of visible spare parts in automotive aftermarket. They rely on information published by Insurance Europe in Spare Parts Price Survey(s) that contains the pre-tax prices of 12 types of spare parts (including lighting, auto glass and body parts) for 60 car models from 2001 to 2016 in 16 EU Member States plus Norway and Switzerland. The fact that spare part prices are listed by car model allows them to make cross-country price comparisons between exactly the same parts; for example, they are able to compare the price of a windscreen for a BMW 5 Series 530d 2993 cc 2011 between Germany and France in 2016. In order to estimate the impact of design protection on prices, Herz and Mejer (2020) use a statistical technique called difference-in-differences that allows to measure the differential effect between prices of identical parts in countries with and without repair clause. Results show that in the absence of a repair clause (competition) prices of identical parts are by 5–8% higher on average. Availability of alternatives would bring considerable benefits to consumers in terms of price. If there was an EU-wide repair clause exemption, EU consumers in Member States currently without a repair clause would save between EUR 415 and 664 million annually on the purchase of visible automotive spare parts alone (see Annex 4 for details on methodology). These savings would realise if a new repair clause was binding for both old (already registered) and new designs. Design protection may prevent the antitrust regime from achieving its full benefits for enterprises and consumers. The issue of extending design protection to spare parts has an impact on the "Motor Vehicle Block Exemption Regulation" (MVBER). The MVBER provides for an exemption whereby Article 101(1) TFEU shall not apply to vertical agreements relating to purchase, sale or resale of spare parts and/or repair and maintenance services provided that some conditions are met. One of these conditions is that the agreement does not restrict the ability of spare parts suppliers to directly serve the aftermarket. The recent Evaluation of the MVBER points to two rigidities in the aftermarkets. First, Original Equipment Suppliers (OES) contractual arrangements with VM may prevent or hamper the former from supplying the aftermarket directly, in competition with parts sold to the VMs and then resold as spare parts. Secondly, agreements between VM and authorised repairers may oblige or incite the latter to purchase most of their supplied parts directly from the VM network. Design protection for the spare parts in the aftermarket may render such behaviour legitimate. The existing market fragmentation in the EU remains a problem for a majority of respondents, as highlighted by the First Public Consultation. For SMEs, divergent approaches of the Member States are problematic for cross-border operations as they create legal uncertainty and unpredictability. For right holders, difficulties in efficiently protecting spare parts and enforcing their rights across the EU remain an issue. For other respondents, including design users and independent producers, the current patchwork approach leads to difficulties with and high cost of ensuring compliance, agreeing on licences, setting out distribution networks and managing imports. Box 1: Legal uncertainty – practical example Legal uncertainty caused by current fragmentation can be best illustrated with the e-commerce case. Currently, in order to protect itself against infringement claims, an independent European manufacturer of body parts includes on its distribution website (in German) a note stating that: no original spare parts are offered in this catalogue; numbers of original spare parts are given for reference; parts of French cars that are produced by PRASCO Spa (located in Italy where no protection is offered) cannot be sold or offered for sale in France and/or in other countries where parts of French cars are protected by intellectual property law. Fragmentation is optimal neither for independent producers and distributors (offering for sale into a Member State without repair clause would constitute infringement by vendor) nor for right holders. Also customers are insecure whether or not and in which Member States the purchase of certain spare parts is lawful and they are deprived in parts of the Union of choosing between competing spare parts. In its supportive Opinion on the IP Action Plan, the European Parliament acknowledged that the patchwork of conflicting national laws created fragmentation in the internal market and legal uncertainty and therefore called on the Commission to include a repair clause in its future proposal for the purpose of avoiding distortions of competition. Beyond the automotive aftermarket, experts and stakeholders point to domestic electrical appliances (e.g. vacuum cleaners), electronic devices (e.g. smartphones), sanitary appliances, motorbikes, electric bikes, watches as markets where the availability/affordability of spare parts in the aftermarket could be limited due to existence of design protection. Due to lower availability of reliable sectoral data predictions about price effects are less reliable. By definition, however, one could assume that the car spare parts savings constitute a lower bound of overall savings across all aftermarkets impacted by this design review. With the sustainable product policy and eco-design policy aiming to make products easier to repair, it is therefore important to assure that the scope of design protection leaves consumers with the choice of repair and does not constitute an obstacle for the repair markets to flourish. 2.1.2.Regulatory burdens Due to partly outdated procedures and suboptimal fees to be paid for the RCD as well as divergent rules at national level which are not yet aligned with those of the RCD system, businesses in the EU, and, in particular, SMEs and individual designers, are faced with unnecessary hurdles and thus extra costs when using the system and, therefore, to a certain extent discouraged from applying for registered design protection at EU or national level. In addition, the recent EU trade mark reform has increased significantly the level of incoherence with the existing rules applicable to the RCD and its procedures. The resulting inconsistencies are causing friction in the EUIPO’s smooth running of its proceedings, in particular its workflows and back-office IT-landscape. As also raised by major IP associations, the created differences of rules are also detrimental for businesses active in both systems (EUTM and RCD), who rightly expect to encounter corresponding procedural provisions (including in relation to payable fees) when not justified by the specificities of the IP right at hand.

Outdated registration requirements of the RCD The evaluation highlighted certain elements of the RCD system, which create unnecessary administrative restrictions for its users and therefore discourage the uptake of registered design protection. These elements concern in particular the outdated requirements for the representation of designs. They do not allow designers to represent their designs in the best possible fashion, in accordance with best available technologies, for instance by means of dynamic representations showing a design from all possible angles. Furthermore, they are not suitable to appropriately reproduce new types of designs such as animated graphical user interfaces and protected other new emerging designs. This adds to the legal uncertainty on the subject-matter of protection as noted above. Another illustration is the restriction in the CDR permitting to combine a number of designs in one application (‘multiple application’) only if the products belong all to the same class of the Locarno Classification (‘unity of class requirement’). It was originally deemed necessary to limit the filing of multiple applications to designs belonging to the same class so as to prevent the diminishing of registration costs by filing in one application designs intended for all sorts of products. As shown by the evaluation, the unity of class requirement however unnecessarily involves administrative burdens for both the EUIPO and the users of the RCD system without much benefit. Box 2: Filing of multiple RCD applications – practical example An applicant would not be able to file in the same multiple application ‘hairdryers’ and ‘parts of hair dryers’, since these parts belong to another class of the Locarno Classification. In order to seek protection for the design of these parts, the applicant would have to file a separate RCD design application. This limitation therefore does not only increase the applicant’s costs and administrative burden, but it also prevents the applicant from appropriately benefitting from the bulk discounts offered when seeking to register the designs. The evaluation further showed that the recent trade mark reform increased the number of inconsistencies between EU Trade Mark (EUTM) proceedings and RCD proceedings. For example, design applicants cannot rely on continuation of proceedings (in case a user missed certain types of time-limits) or revocation of decisions (in case of obvious mistakes made by the EUIPO) which are available in trade mark proceedings. As a consequence, users may mistakenly rely on certain safety nets which they are used to when dealing with EUTM proceedings which are not available when it comes to RCDs. It is detrimental for businesses active in both systems, who expect to encounter corresponding procedural provisions when not justified by the specificities of the IP right concerned. In addition, this is causing friction in the EUIPO’s smooth running of its proceedings, especially in terms of its workflows and back-office IT landscape. Sub-optimal fee structure and levels The amounts of fees payable to the EUIPO in respect of the registration of RCDs are laid down in the Fees Regulation (EC) No 2246/2002. An adjustment of those fee amounts can only be effected by amending that Fees Regulation. The fees for RCDs have not been revised since the introduction of the Community design system. This means that in real terms they are now 26% lower than in 2002. On the other hand, the fees for EU trade marks have been adjusted downwards several times, with very substantial cumulative decrease. In the context of the recent trade mark reform, the co-legislators deemed it appropriate to set the amounts of EU trade mark fees directly in the basic EU Trade Mark Regulation (EU) 2017/1001 (‘EUTMR’), given their essential importance, so that the original Regulation on EU trade mark fees was repealed. Apart from adjustments to the fee levels, changes were made to the fee structure such as by abolishing the separate registration fee (in addition to that for the application) and the fee for the transfer of a EUTM. It is a fundamental objective of the CDR that the procedure for obtaining a RCD should present the minimum cost and difficulty to applicants, so as to make it readily accessible to SMEs as well as to individual designers. However, in terms of the fee structure, given the short time (in case of so-called fast track registration in fact only 2-3 days) from filing to registration and publication of an RCD with no deficiencies, the current distinction between registration (EUR 230) and publication (EUR 120) fee causes unwarranted burdens in the fee administration for the users of the RCD system and the EUIPO. Furthermore, as regards the levels of fees to be paid to the EUIPO, larger entities currently tend to benefit from a less costly access to RCD protection, compared to SMEs and individual designers. Where larger companies tend to protect more designs than smaller companies and individual designers, they can benefit more from the bulk discount offered to multiple applications. That is due to the amount of fees to be paid for the registration of a RCD being lower from 50% up to 80% the more RCDs are filed at the same time in a multiple application. The option to combine a number of designs in one multiple design application and to benefit from a bulk discount was introduced with the particular aim of facilitating the filing of applications for those industry sectors which develop large numbers of possibly short-lived designs over short periods of time of which only some may be eventually commercialised. According to EUIPO statistics, in 2019, for natural persons as filers the average number of designs per application was 2.34, for legal persons 3.63, corresponding to an average fee paid per design registration and publication of respectively EUR 250 and EUR 223 (12% higher for natural persons). This disadvantage is not only considerable when comparing the costs of a single application with that of the fees to be paid for additional designs, but due to the progressive structure of the bulk discounts the difference in filing fees become even more striking when more than ten designs are included in a multiple application. All this ultimately also means that single design filers (that is those that file an application for the registration of only one RCD) are actually cross-subsidising multiple RCD filers. Moreover, the distinction of the available (bulk) discounts in two different brackets (second to the tenth design, and eleventh design forward), which also applies for the payable fees in case of requesting deferment of publication of the registration, contributes to making the fee structure non-transparent and complex to the disadvantage especially of SMEs that are not usually supported by adequate legal expertise, and entailing administrative burdens in particular also for additional payments and reimbursements when individual designs of a multiple application do not proceed to registration. As regards renewal fees, the Fees Regulation for the RCD provides an escalating fee for each renewal. In contrast to the bulk discount provided at the moment of application, there is no such discount on renewal. Some respondents in particular to the First Public Consultation were of the view that the renewal fee amounts are too high, especially for SMEs and individual designers, and that they should not increase each time a registered design is renewed. In addition, they criticised that the renewal fee applies to every single design contained in a multiple application without the bulk discount being available after registration. However, that latter view does not take account of the above-mentioned special rationale for bulk discounts being granted at filing stage (to facilitate the testing of designs in the market). Furthermore, higher renewal than registration fees appear to be perfectly justified by the need of encouraging the non-renewal of not utilised designs. It is mainly also for that reason that most respondents to the Second Public Consultation (41%) were supportive of lowering the basic fee for the initial five years’ registration of a Community design rather than reducing renewal fees (24%) in order to facilitate access to design protection for SMEs and individual designers. Diverging procedural rules at national level The evaluation revealed that the legal environment in the field of industrial designs remains very heterogeneous in spite of the partial harmonisation of national laws dating back to late 1990s. Harmonisation imposed by the DDir only focused on a restricted number of substantive rules that were then considered to most immediately affect the functioning of the internal market (excluding in particular the controversial issue of spare parts protection as addressed in Section 2.1.1). Formal requirements and procedures were not covered at all. Moreover, the CDR was enacted three years after the DDir, which means that at the time the DDir came into being there was no 'common benchmark' against which the efficiency of national proceedings could be measured. By now, however, the procedures followed by the EUIPO have been in place for almost 20 years. They are generally regarded as meeting business needs and expectations, in particular in terms of timeliness and user-friendliness. As a result, the current landscape of EU design law is still characterised by a wide divergence between national rules and procedures, both among themselves and in relation to the rules and procedures applied by the EUIPO. Although the EUIPO in cooperation with national IP offices has established converged practices within the framework of the European Trade Mark and Design Network (EUIPN), certain issues were out of scope and not harmonised, as they would require changes to the national laws. As shown by the First Public Consultation, there is a broad agreement among users of the design protection systems in Europe that the present level of approximation between national design laws, as well as with the RCD system, has not been sufficient. IP user organisations unanimously stated that further harmonisation of national design law, in particular with regard to procedural issues is needed. In response to the Second Public Consultation, the (outstanding) harmonisation of registration procedures also ranked high in terms of suitable measures to raise the usage of design protection. At a political level, the Council called for the revision of the industrial designs system in the Union to address and consider measures aimed at supporting the complementary relationship between the Community, national and regional design protection systems, as well as efforts to reduce areas of divergence within the design protection system in the Union. In addition, the European Parliament called for further harmonisation of the design application and invalidity procedures in the Member States and suggested that the Commission also thinks about aligning the DDir and CDR with a view to creating greater legal certainty. As assessed in detail and supported by evidence in the evaluation, the existing gaps in harmonisation affect a variety of procedural areas. The following important examples illustrate practical problems caused by the non-harmonisation of rules and practices. (a) Means and requirements of design representation The requirements of national IP offices concerning representations of a design in an application for registration are (like in the case of the RCD) not yet aligned to the digital age, and differ in addition significantly. The First Public Consultation showed that among the aspects not covered by the DDir, those requirements were considered most in need of common modernisation and harmonisation. This is confirmed by a benchmarking study conducted in the EUIPN as part of the convergence programme on graphic representations of designs. The representation requirements relate, among others, to the number and types of viewings, the use of appropriate disclaimers, the neutral background and the acceptance of computer-animated representations and 3D digital representations. While the EUIPN has so far managed to converge practices on the use of disclaimers, types of views and the representation of designs in a neutral background, further convergence of practices has not been possible partly due to (divergent) legal constraints in the Member States. These legal constraints and divergences prevent applicants from both using best available technology for representing their designs and claiming convention priority by using the same material for subsequent applications across jurisdictions. This creates additional costs for them and may lead to national rights of different scope for the same design.

Priority can only be claimed for the same previous application. Different national formal representation requirements result in diverging design applications, which in turn puts in doubt whether they represent the same design and priority can be claimed. Box 3: Means and requirements of design presentation – practical example If designer X applies for a design right in France, it would be allowed to submit an unlimited number of design views. If X wants to subsequently claim priority on the basis of that right when applying for an RCD, X can merely file a maximum of 7 design views. On the other side, while national IP Offices usually allow applicants to represent their designs by static graphic or photographic reproduction only, at the EUIPO at least 3D digital representations are admitted, even though merely as an additional technical means of viewing the design. Should however it become possible to represent a design by a video file at one of the national IP Offices for example without that this is also made possible at the EUIPO, the applicant would again not be able to use the same material for subsequent applications at national and EU level based on priority. (b) Option and conditions for filing a multiple application The option of combining a number of designs in one (multiple) application is available in most but not all Member States. To the extent this is the case, the conditions are the more not the same. Like the RCD regime, most national laws still require that the designs applied for belong to the same class of the Locarno Classification. Exceptions are Germany and the Benelux countries. The maximum number of designs that can be included in a multiple application also varies across the EU. Most interviewees from IP offices considered the unity of class requirement not helpful or no longer necessary. Different rules make multiple applications burdensome and costly for businesses in the context of multi-jurisdictional filings. 88% of all respondents to the First Public Consultation thus saw need of harmonisation. Box 4: Filing of multiple applications – practical example Where designer X can apply for a multiple application in Germany for designs belonging to different classes, X would not be able to reuse the same materials in most other member states and at the EUIPO that only allow multiple applications for designs belonging to the same class, but would have to file more than one application to seek protection for the same designs. This many not only lead to extra filing fees, but as mentioned above, not filing exactly the same material may also lead to priority issues. (c) Option and length of deferment of publication Many but not all Member States have provisions on deferred publication of a design registration. Such a deferral helps prevent copycats while a product is launched. The available period of publication deferral varies significantly from 6 to 30 months. Most respondents to the public consultation (76%) are in favour of harmonisation of the rules on deferment of publication, and some respondents suggest making the option to request a deferral mandatory at national level. Different national rules create legal uncertainty, extra costs in managing design portfolios, and an uneven level playing field for businesses. Due to the different deferment periods, a design applicant wanting to make use of this option in several Member States can only benefit of the minimum deferment period available if these countries offer this possibility at all. Box 5: Deferment of publication – practical example If company X wants to prevent competitors in Slovenia and the Czech Republic from knowing which product X is about to launch on the market, X can ask for deferment of publication in both countries. However, X will have to bear in mind that the period for deferral in Slovenia is 18 months shorter than in the Czech Republic. Therefore, after the shortest period, i.e. 12 months in the case of Slovenia, application of X will get published and the competitor in the Czech Republic may become aware of X’s Slovenian design application. But also for competing undertakings that are merely active in one territory this lack of harmonisation may be detrimental, for instance in the case that company X does not have the possibility to request for deferment of publication, while company Y can avail of this option for 30 months and thus has an advantage over the competitor. (d) Extent of substantive examination In contrast to the EUIPO and the large majority in other Member States, five national IP Offices still examine ex officio whether a design applied for meets the requirements of novelty and individual character. These are the offices in the Czech Republic, Finland, Hungary, Romania and Slovakia. While the benefit of that examination is quite limited for design applicants, given that it only extends to prior registered designs (without coverage of non-registered designs), it negatively affects the overall duration of registration proceedings in the offices concerned, causes extra burdens and costs for both IP offices and businesses seeking design protection at national level, and prevents them from enjoying a level playing field compared to the Community design. On average time to register design in those five Member States was 2.1 times longer in 2019 than in the remaining countries. Around 750 to 1000 applications annually are affected. Box 6: Extent of substantive examination – practical examples While company X would be able to get a registration in Spain within a few days, company Y in Hungary would need to wait at least three months before being able to enforce its design right. This puts competitors in these countries in an unequal position. If company X needs to enforce its design right urgently and has no time to wait, it may decide to apply for an RCD as this would cover the whole EU and be registered within a few days. Not only does this lead to extra filing costs, X also runs the risk that priority may not be successfully claimed due to different formal requirement as to the maximum number of views, being 7 for RCDs and 100 in Hungary for electronic filings. As a consequence, the RCD may be invalidated due to lack of novelty and individual character vis-à-vis the previous Hungarian filing and the extra costs for the filing of the RCD were thus made in vain. (e) Administrative invalidity procedures While at Union level and in part of the Member States proceedings to invalidate a registered design can be brought directly before the EUIPO and national IP offices respectively, in other Member States proceedings to invalidate a registered national design may only be brought before a judicial body. Applications to court for injunctions or declarations of invalidity can add to the overall transaction costs involved in obtaining and maintaining a registered design in the EU. The results from both the First and the Second Public Consultation clearly show that harmonisation of the approach is desired. The absence of administrative invalidity procedures in some Member States also hinders a further harmonisation of practices and tools as developed in the EUIPN. Moreover, litigation costs for pursuing infringement cases/invalidity cases is considered as one of the top three costs of having a design. Also the clear majority of respondents to the Second Public Consultation stressed the importance of introducing quick and inexpensive invalidity proceedings in all the national IP offices and see no reason why the situation for designs should differ from that of trade marks. The non-availability of office-based proceedings in a part of the Union makes the design system in the EU particularly burdensome and expensive for SMEs and individual designers to go against registered designs not meriting protection in these countries.

In particular, the costs for the required legal representation by lawyers, including procurators, which normally exceed those involved by the representation through trade mark and design attorneys admitted to act before national IP offices (not least due to the greater legal complexity involved in court proceedings), is a reason for SMEs or individual designers not to go to court. In addition, the court fees are usually higher than the fees for invalidity proceedings requested by national offices being on average 285 EUR. Backlogs at courts may also additionally delay the rendering of final decisions. The result is that in countries with administrative invalid proceedings the hurdle to start such proceedings is lower and the register is more likely to be cleaned of invalid designs. It also means that in countries where competitors can get a registered design declared invalid only through complex and costly court proceedings, the economic costs of registering invalid designs are “passed on” to them. Box 7: Invalidity proceedings – practical example Company X intends to put a new design product into the whole EU market. However, X is concerned that the product could infringe both a registered trade mark and design in Finland. If X is of the view that neither of these registrations merit protection and wants to have them cancelled by the competent authorities, it would have to proceed differently. While for cancelling the registered trade mark X could file an application for a declaration of invalidity before the Finnish Patent and Registration Office, paying an official fee of EUR400 if done electronically, X would have to initiate judicial invalidity proceedings before the competent Market Court in Finland to get the registered design declared invalid, paying a much higher official fee of EUR2050 as legal entity. Conclusion The non-harmonisation of procedures, including the resulting limited convergence of practices, have a series of significant adverse consequences for all businesses and individual designers. This applies both to applicants active in different markets in Europe and users of a single national system. Indeed, the differences between the existing regimes, for example, the availability of certain procedures and tools, legal uncertainty as well as speed of registration, lead to an uneven level playing field which is to the detriment of all users of the European design system, regardless of the geographical scope of design protection they seek to obtain. As a result, a company, planning its design strategy, already faces a multitude of unevenly regulated regimes, which present applicants with different degrees of accessibility, difficulty, predictability and speed in obtaining design protection leading to: higher costs and delays; underuse of (part of) the design systems and distortion of competition. First, there is a direct increase in costs for cross-border filers. Due to divergent procedures applicants cannot use the same material across jurisdictions, have to manage portfolios of rights of different scope and be aware of the specificities of the different protection systems. As a consequence, they are obliged to: (a) increase in-house expertise so as to be in a position to internalise the knowledge necessary for effectively dealing with the various aspects of the system in all Member States, (b) seek expensive professional advice, often in the form of an international network of external consultants, especially when the issues involved require local legal expertise, and (c) develop and maintain overcomplicated data management tools in order to manage its designs portfolio efficiently, taking due account of the divergent rules applicable. Second, the different standards applicable in different jurisdictions lead to an increased danger of forum shopping, since companies are often tempted to use one system instead of another, not on the basis of their marketing needs, but rather on the basis of convenience criteria like the ease or speed with which design registration can be obtained in a particular territory. For example, it may be known among design users that the examination practice is more rigorous in one Member State than in another (as e.g. not including the assessment of prior art), and, consequently, decide to obtain design protection at the latter IP office (or, alternatively, at the EUIPO, which for example does not examine prior art ex officio either). As a possible consequence thereof, the situations of some national IP offices might become unsustainable which would be to the detriment of individual designers and SMEs that apply in one or two member states only or first obtain design protection at national level before deciding to apply elsewhere on the basis of convention priority. Moreover, it would endanger the fundamental principle of coexistence (including harmonious complementarity and free choice) between RCD and national design systems, which is so much supported by stakeholders (as in the trade mark field), could be put at risk. Third, the above mentioned deficiencies also distort the level playing field for companies, with further negative consequences on the competitiveness of EU companies and the competiveness of the EU as a whole. It should also be noted that the above effects are more acute for SMEs and individual applicants, even if active in only one or two markets and thus are more impacted by less efficient national protection systems. To the extent that they are active on several markets, they have less resources to hire expensive teams of international professional consultants to cater for their different filing needs. This leads to discrimination and artificial barriers, since small companies find it increasingly difficult to compete with big multinationals. 2.2.How will the problems evolve? 2.2.1.Single market and competition in spare parts market Figure 2.1 illustrates the structure of the automotive aftermarket. Competition in the European aftermarket of auto parts would continue to occur across two channels: authorised and independent. The former includes vehicle manufacturers (VM) and their affiliated repair shops. Spare parts distributed in this channel are manufactured either by the VM themselves or by original equipment suppliers (OESs) that supply the parts for the vehicle assembly. The independent aftermarket includes OES that supply spare parts under their own brands and independent suppliers that do not supply parts for vehicle assembly i.e. have no formal contractual arrangements with vehicle manufacturers (hereafter “non-OES”). Suppliers in this independent market rely on wholesale distributors to deliver parts to repair shops. Figure 2.1. Aftermarket separated into authorised and independent channels Source: Exhibit 1 in BCG, CLEPA and Wolk After Sales (March, 2021) At the crossroads: The European Aftermarket 2030. Producers In Member States without a repair clause, VM would continue prohibiting the production, putting on the market and offering for sale of identical parts by independent manufacturers on the basis of their national design rights. Location of production: Non-OES continue foregoing production in these markets. The evidence point that this is indeed the case as fewer production sites are owned by the non-OES parts producers in markets without a repair clause. OES, on the contrary, would keep production sites often located in the protected markets. This is because of geographical proximity of OES and VM car assembly sites. Putting on the market: OES’ contractual arrangements with VM may continue to prevent or hamper the former from supplying the aftermarket directly. Figure 2.2 shows that this is indeed the case for the segment of body parts where there is very limited presence of OES brands but not for lighting and auto glass segments where competition from OES brands is much stronger as reflected in higher market shares. Still, OES would continue to be barred by VM from directly supplying lighting and glass segments in MS without a repair clause; the distribution of their spare parts production shifts exclusively to the VM resulting in undiversified customer portfolio. Finally, even if the OES are allowed to market spare parts in the EU aftermarkets, they might remain prohibited to produce on EU territory parts supposed to be exported to third countries (e.g. Australia) where no design protection of spare parts exists. Figure 2.2. Market shares by segment and origin of the brand (whole EU, 2019) Note(s): (*) Total value reflect three market segments: body, lighting and auto glass. The production of body panels was traditionally a core activity of VM. Metal body panels are still mostly produced by the OEM whereas plastic panels, such as bumpers, are fully sourced to OES on the basis of exclusivity contracts. Still, OES do not supply parts with their own logo to the aftermarket in parallel. The only competition in this segment comes from non-OES who hold 22% of the market. Source: VVA et al. (2021) Tables 16-18. In Member States with a repair clause, the aftermarket would be sustained but as these markets would not comprise the entire internal market, it will continue to suffer from the lack of economies of scale. Limited access to EU-wide market with the growing technological complexity of spare part production will make it harder for independent producers to cover increasing fixed cost of bringing visible spare parts to the market. In Member States with a repair clause, independent producers (non-OES) will continue to compete equally with OES. They would be still, however, at disadvantage as they cannot benefit from the economies of scale offered by a single market. They would not be allowed to place their products in 16 Member States that represent 49% of the visible spare part market in the EU. Since they do not have supply contracts with VMs they would keep struggling for higher market volumes to recuperate fixed costs of investments i.e. investments into product development and production lines. The cost of reverse engineering is expected to increase in the future. This is driven by the increased use of composite materials in the production of vehicles. Composite materials reduce weight of the car increasing their performance and generating savings on the use. On one hand, the production of composites is becoming increasingly cheaper and is being done by an increasing number of manufacturers. On the other, processing higher-quality composites requires high temperatures, an extremely clean work environment, and labour-intensive processes. Finally, in contrast to, parts made of rubber, plastic, tool steel, stainless steel, and aluminium alloys composites cannot be 3D printed. This growing technological complexity favours VMs and their affiliates.

Wholesale distributors Sourcing from a single supplier will continue as an important factor in repairer purchasing decisions. It is linked to the process convenience by ordering, delivery and generating price discounts. Independent parts distributors will remain at disadvantage as they are no longer in the position to offer their customers a full range of spare parts, i.e. including visible spare parts. The same is true for OES with regard to car makers or models where they have no supply contracts with but would nevertheless prefer to offer a full range of spare parts. There are additional knock-on effects resulting from design protection. The elimination of competition in the submarket of visible spare parts necessarily affects the whole EUR 50.7 billion market of automotive spare parts (as of 2019) by shifting the balance of power, fragile as it is there anyway, in favour of the VMs. More specifically, distribution channels in the European automotive market would remain below efficiency frontier. In 2017, the three leading aftermarket players together control just 15 percent of the market. By contrast, the consolidation process in the US is already well advanced with the top three players boosting a combined market share of almost 50 percent. The financial pressure that companies experienced due to reduced sales during the covid-19 pandemic will likely accelerate industry consolidation across the value chain in the EU. Current divergent rules on design protection may constrain this healthy consolidation process, in particular when it comes to independent players, leading to suboptimal outcomes. Economies of scale are needed to generate savings in parts procurement, to optimize logistics and warehousing costs. Repairers Independent (body) repairers would continue to be forced to buy design protected visible spare parts from their competitors, the authorised car dealers, necessarily at considerable margins. At the same time, authorised car dealers may keep discounts from VMs. Accordingly, rivalry in the aftermarkets remains weakened. In the future, competition between the repairers will be shaped with the secularly stagnating demand for collision repairs on one hand and increased connectivity on the other. Fewer miles driven every year and improved security technology (Advanced Driver Assistance Systems – ADAS) will reduce collision rates by ~15% until 2030 leading to fewer repairs. Furthermore, competition between VM affiliated and independent repairers will be impacted by fleet connectivity. By 2030, around 50% of the fleet will have connectivity that includes direct data streaming, processing, and communication with external parties. The VMs have an advantage over the independent channel because of their direct data access. Consumers In Member States without a repair clause, consumers would continue to be forced to buy visible spare parts exclusively from the VM and their distribution channel as supplying from another source would constitute an IP infringement. Since visible spare parts are not interchangeable between VM competition may only work indirectly through the primary automotive market, mainly through brand reputation effects and the proportion of buyers who make their choice taking into account the lifetime costs of a car. However, as suggested in the Evaluation of the MVBER, at least for passenger cars, links would remain weak between the primary automotive markets and the aftermarkets. As explained above (see Section 2.1.1), the vehicle owner remains a captive consumer, subject to a tied pricing system and the inherent risk to be overcharged for spare parts. Online sales are restricted by the fragmented IP and represents an average share of 2.3% of total purchasing value. Buying via the internet in the MS with a repair clause, a consumer in a Member States without repair clause has to demonstrate that such order is done privately and for non-commercial purposes, otherwise such purchase would constitute an IP infringement. The risk of being sued for IP infringement discourages repair service providers to buy cross-border. Furthermore, to benefit from discounts workshops have an incentive to stick to the specific distributor (supplier) rather than looking for ad-hoc more competitive offers. Therefore, online (cross-border) sales are expected to have limited impact on increasing competition on the spare parts market. The degree to which car manufactures exploit design protection in their pricing strategies varies substantially. Until recently, the usual approach of carmakers to price spare parts was rather simple: in most cases, carmakers simply set the prices of spare parts equal to a fixed multiplier of the respective manufacturing costs. The innovation was brought in 2008 by algorithmic pricing (Partneo). According to publically available information, five major carmakers used an algorithmic pricing software (Partneo) to identify the maximum price consumers would be willing to pay for automotive spare parts. Thanks to this software, between 2008 and 2013 these major carmakers increased prices of visible spare parts by 15% on average, boosting their total revenues by around EUR 1.5 billion over nearly ten years. In consequence, without the design reform, one could expect OEM to extract even more spare parts rent than currently, thanks to sophisticated price differentiation techniques. 2.2.2.Regulatory burdens Outdated procedures Without update and simplification of RCD procedures, the RCD system would continue not meeting modern business needs and unnecessarily impose burdens on businesses, SMEs and individual designers to make effective and efficient use of the system. RCD fees Without changes, the real cost of fees would continue to decline together with inflation. Already in 2020 the fees were 26% lower in real terms than in 2002. Taking into account ECB inflation forecast, in 2023 they are expected to be 30% lower than in 2002. However, without streamlining of the RCD fee structure and in particular an adjustment of the amount of fees to be paid for the registration of RCDs, the Community design system would not meet its objective of presenting the minimum cost and difficulty to applicants, so as to make it readily accessible to SMEs as well as to individual designers, stifling innovation and the development of new products. Specifically, without creating a more balanced, less complex and more transparent RCD fee system benefiting small and large entities equally, SMEs and individual designers would continue to be discouraged from seeking Union-wide design protection in registered form. Larger entities filing numerous designs would continue to be privileged and smaller ones continue cross-subsidising the former. In addition, applicants of all types would continue facing unnecessary administrative burdens when having to pay a separate publication fee shortly after the application fee. Also, certain fees would continue to be charged in relation to the design registry that do not apply for EUTMs, such differences unnecessarily complicating the work of both applicants and the EUIPO, and increasing costs to maintain different (operations) management tools. Divergent national rules Without appropriate changes, the current sub-optimal conditions for European businesses and the under-developed complementarity between the various design systems are not likely to improve. It is true that there could be some promising further convergence on design law aspects achieved through the EUIPN based on the cooperation framework established in the context of the trade mark reform. However, such collaboration among IP Offices in the EU also clearly revealed that the existing legal differences in the laws of the Member States are a hindrance to further alignment of practices in the EU. National IP offices, which due to existing legal differences are prevented from participating in cooperation projects with the EUIPO and other IP offices, run the risk of falling behind in terms of automation, timeliness, reliability, predictability and user-friendliness. The less attractive they become, compared to the RCD system, the greater is the risk that design owners cease to use them altogether, opting for RCD protection instead. In the long run, this may threaten the viability of certain national systems and the harmonious and complementary coexistence of the two systems which ensures the principle of free choice. This applies all the more so as there is no harmonisation achieved at international level either (i.e. EU action remains necessary). The long-pending Draft Design Law Treaty (similar to the Singapore Treaty on the Law of Trademarks), aiming at simplifying and harmonising administrative procedures in respect of national design applications, is still far from being adopted. 3.Why should the EU act?

3.1.Legal basis In the context of the establishment and functioning of the internal market, Article 118(1) TFEU empowers the European Parliament and the Council to establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the EU, including the setting up of centralised Union-wide authorisation, coordination and supervision arrangements. Furthermore, Article 114(1) TFEU empowers the European Parliament and the Council to adopt measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States, which have as their object the establishment and functioning of the internal market. 3.2.Subsidiarity: Necessity of EU action The Community design (in registered and unregistered form) is a self-standing EU intellectual property title which has been created by an EU Regulation. In as much as the analysis carried out as part of this impact assessment proved that the modification of certain provisions of the Regulation is necessary in order to improve and streamline in particular the RCD system, only the EU legislator is entitled to make the necessary amendments. The same goes for (simultaneously) necessary amendments of corresponding provisions, which form already part of the DDir. Moreover, taking into account that the identified problems related to the significant divergences of the regulatory framework either do not allow, or notably distort, a level playing field for EU companies with further negative consequences on their competitiveness and that of the EU as a whole (e.g. spare parts), it is advisable to adopt measures that can improve the relevant conditions for the functioning of the internal market. Such measures aiming to extend the current level of approximation through the DDir can only be taken at EU level, all the more so given the need to ensure coherence with the RCD system. It has to be considered in this context that the RCD system is embedded in the European design system which is built on the principle of coexistence and complementarity between national and Union-wide design protection. While the CD Regulation provides a complete system where all issues of substantive and procedural law are provided for, the current level of legislative approximation reflected in the DDir is only limited to selected provisions of substantive law. In order to be able to ensure effective and sustainable coexistence and complementarity between the components involved, it is necessary to create an overall harmonious system of design protection in Europe with similar substantive rules and at least principal procedural provisions which are compatible. As regards the issue of design protection for spare parts specifically, it is to be added that the completion of the internal market for spare parts can only be achieved at EU level. The more than 20 years of experience with the provisions of Article 14 DDir has shown no strong trend towards harmonisation among Member States on a voluntary basis (despite the introduction of a repair clause in a few more Member States) or through self-regulation by the industry. In terms of proportionality, action at EU level does not cause any immediate costs. Aftermarket liberalisation only requires legal acts in those Member States that currently protect spare parts to lift this protection and hence causes the lowest administrative costs of all options considered. 3.3.Subsidiarity: Added value of EU action Action at EU level would ensure that the design protection system in Europe as a whole gets substantially more accessible and efficient for businesses, in particular SMEs and individual designers. It would further ensure the outstanding completion of the single market for repair spare parts to the substantial benefit of consumers being able to choose between competing parts at lower prices. 4.Objectives: What is to be achieved? 4.1.General objectives The general aim of the reform initiative on the legislation on industrial designs is to promote contribution to design excellence, innovation and competitiveness in the EU by ensuring that the design protection system is fit for purpose in the digital age and becomes more accessible and efficient for individual designers, SMEs and design intensive industries. Furthermore, it aims at completing the single market for repair spare parts. 4.2.Specific objective This initiative has three specific objectives linked to the respective problems identified: ·Opening up the spare parts aftermarket for competition (Objective 1); ·Improving the accessibility, efficiency and affordability of registered Community design protection (Objective 2); ·Enhancing complementarity and interoperability between the Community and national design systems, in particular through harmonisation of procedural rules (Objective 3). 5.What are the available policy options? 5.1.What is the baseline from which options are assessed?

The respective baselines from which options are assessed are already described above in Section 2.2. 5.2.Description of the policy options 5.2.1.Options to tackle Objective 1 on spare parts protection The decision to open up the aftermarket for competition was already taken at the moment of adoption of the DDir. The latter does not require any harmonisation with respect to the protection of spare parts by a design right. Article 14 stipulates that Member States shall maintain their existing laws in this regard. They may, however, change those provisions only in a way that liberalises the spare parts market (the “freeze plus” solution). A Member State that, at the time of adoption of the DDir, did not grant design protection of spare parts could thus not reintroduce such protection. Against that background, the options for consideration are the following: Baseline: The current status quo, as provided for by Article 14 DDir and Article 110(1) CDR, would continue on a permanent basis, i.e. Member States remain free to retain national rules extending design protection to the reproduction of spare parts for the purpose of repair, while no such protection should continue to exist at Union level. Option 1.1: Full liberalisation for all designs, i.e. the market of ‘must-match’ spare parts would be opened for competition in the entire EU, extending it to both existing and new designs. This option would involve inserting into the DDir a ‘repair clause’, as contained in Article 110(1) CDR, and allowing the identical reproduction of protected parts of complex products for the purpose of repair. The inserted repair clause would have legal effect for both the future and the past (i.e. be applicable to designs granted before and after its entry into force). Both the CDR and DDir would be explicit in that the repair clause only extends to parts of complex products whose shape is dictated by the product’s overall appearance (so-called ‘must-match’ parts). As it is already the case in liberalised national aftermarkets, parts manufacturers would have to inform consumers about the origin of the parts so that they can make an informed choice between competing spare parts. Option 1.2: Instant full liberalisation for new designs followed by full liberalisation for old designs after transitional ten-year period: Same changes as previous option, except that the repair clause to be inserted into the DDir would have instant legal effect only for the future (i.e. be applicable only to designs applied for after entry into force). Designs already granted before entry into force would continue to be protected for a transitional period of ten years. Option 1.3: Full liberalisation for new designs: As in the previous option, the repair clause to be inserted into the DDir would have legal effect only for the future. Designs already granted before entry into force would not be touched and thus be allowed to be protected for the maximum term of 25 years. 5.2.2.Options to tackle Objective 2 on complex procedures and sub-optimal fees 5.2.2.1 Update and simplification of rules Baseline: Current procedures are maintained. Sole Option 2: Simplification and streamlining of RCD procedures (including through alignment with trade mark reform). ·Update of requirements for the representation of designs (e.g. inclusion of dynamic 3D-representation and video filing) ·Deletion of “unity of class” requirement for multiple applications ·Alignment of RCD proceedings with EU trade mark proceedings. 5.2.2.2 Fees payable for RCD Baseline: Current fee structure and levels are maintained. Option 3: Lower RCD registration fee and easier multiple applications: This option would require the removal of the unity of class requirement in the CDR for multiple applications and the amendment of the Fees Regulation for the adjustment of fee amounts. In order to ensure equal treatment of applicants with smaller and larger filing volumes, the latter would also involve the introduction of a flat fee per additional design and thus the abolition of bulk discounts being granted at different levels dependent on the number of designs contained in a multiple application. To counterbalance these benefits at filing stage, the above would be coupled with an increase of subsequent renewal fees. This model would allow easier access to RCD protection, in particular for SMEs (cheaper acquisition of the right and first renewal), while at the same time it would safeguard that only those RCDs utilised in the market place remain on the register by increasing subsequent renewals fees for second to fourth renewal. Sub-option 3.1: According to the first sub-option, the headline fee to obtain a single RCD would be reduced from EUR 350 to EUR 250. For each additional design forming part of a multiple application, the fee would be EUR 125 leading to savings of EUR 125 vis-à-vis a single design application per design. The fee for renewals under this option would be as follows: first renewal – EUR 70; second renewal – EUR 140; third renewal – EUR 280; fourth renewal EUR 560. For this option, the sum of fees for the first two renewals would be equivalent to those under the current fee level, that is EUR 210 in total.

Sub-option 3.2: Under the second sub-option, the headline fee would be also EUR 250 but each additional design of a multiple application further discounted to EUR 100 instead of the proposed EUR 125 under sub-option 3.1. This would further promote easy access to RCD protection. However, unlike sub-option 3.1 all renewal fees would be higher than under the current system in order to counterbalance the likely increase of design applications at filing stage. The fees for renewals under this option would be as follows: first renewal – EUR 80; second renewal – EUR 160; third renewal – EUR 320; fourth renewal EUR 640. This option would effectively allow applicants to register two RCDs for the same fee as currently required for a single RCD. In both cases adjustment of fees would be coupled with a simplification of the fee structure by abolishing the separate publication fee and adding this fee to the registration fee (so that in the above sub-options the reduced headline fee would include the publication fee amount). In order to align RCD rules with those for the EUTM, the transfer fee for RCDs is proposed to be abolished as well. Additionally a cap of 50 designs per application would be introduced to keep expected loss of revenues limited and prevent potential abuses of multiple applications due to abolition of the transfer fee. 5.2.3.Options to tackle Objective 3 on divergent procedural rules When it comes to consideration of available policy options, the necessary level and focus of approximation of national laws should be assessed. The options under consideration are the following: Baseline: No further approximation of national design laws and procedures. Option 4.1: Partial further approximation of national laws and their coherence with the RCD system. This option would involve the addition of provisions to the DDir on selected design law aspects not yet addressed therein and identified by stakeholders in greatest need of harmonisation, in particular, concerning procedures, in alignment with relevant provisions contained in the CDR. In terms of procedures, this would allow, inter alia, users of all national design protection systems also to a) represent their designs by other means that merely static graphic or photographic reproduction when applying for registration, b) file multiple applications at domestic level by combining several designs in one application, and without being restricted to products belonging to the same Locarno Class, c) request deferment of the publication of a design application for a period of 30 months from the date of filing, d) rapidly obtain a design registration without being subject to prior art examination, and, e) seek for the invalidation of a registered design before the IP office. The addition of principal procedural rules to the DDir would be combined with the further alignment of a few selected substantive law aspects (apart from the spare parts issue) in accordance with the provisions of the CDR. These few additional substantive law aspects concern the legal relevance of the product indication for the scope of design protection, the right to prior use, and the presumptions of ownership and validity. Option 4.2: Full approximation of national design laws and procedures. This approach would be based on Option 4.1, encompassing its above components, but include all remaining aspects of substantive design law and procedures which are part of the CDR but not of the DDir, such as specific rules on unregistered design protection, designs as objects of property, surrender of a registered design, appeal procedures, general procedures before the IP Office (e.g. oral proceedings, taking of evidence, or notification), or apportionment of costs. When it comes to options 4.1 and 4.2 it should be furthermore assessed how such an approximation could be pursued. Even though this question touches upon the choice of legal instrument, it is considered that this issue is of crucial importance to addressing the effectiveness and efficiency of both policy options and should be tackled here. – It could be envisaged that the approximation would be carried out on a voluntary basis (sub-options 4.1a and 4.2a, respectively). In such a case, there would be no further approximation in formal terms, i.e. no changes to the DDir. National offices would be encouraged, by non-legislative means, to align their design laws and procedures. To this end, the Commission would issue a Communication (Recommendation) and/or Member States would agree to approximate their national laws on a voluntary basis. In this context the possibility of converging selected issues within the EUIPN based on the specific cooperation framework to promote convergence of practices, as established under Article 152 of the EUTMR, should be considered. This course of action could be suitable in particular for very technical issues such as the formal requirements for representation of a design. – Alternatively, the approximation could be mandatory, i.e. driven by an EU legislative measure which would oblige Member States to align their design laws (sub-options 4.1b and 4.2b, respectively). 5.3.Options discarded at an early stage 5.3.1.Spare parts protection Option 1.4: A system seeking a short term of design protection: Under this alternative, design protection for spare parts would be effective for only a limited period of time (such as five years). After this period, the spare parts could no longer be covered by design protection and any third party would be free to produce and/or market them. Option 1.5: A remuneration system for the use of protected designs, including the appropriate level for remuneration. In the context of this option, independent producers could produce spare parts in exchange for a reasonable remuneration to be paid to the holder of the design right. As already pointed out above, the decision to open up the spare parts aftermarket for competition was already taken at the moment of adoption of the DDir, obliging Member States to “freeze” the legal status quo and permitting them to amend their existing laws only in a way that liberalises the spare parts market. Given that both Options 1.4 and 1.5 would imply the re-introduction of design protection for repair spare parts (at least) to certain extent in Member States that already fully liberalised their aftermarkets (either in form of time-restricted protection when opting for a shorter term of protection or in form of a license fee to be paid to right holders on terms to be agreed), it is deemed appropriate to discard these options at an early stage as clearly going against the “freeze plus” agreement reflected in Article 14 of the DDir. It appears also politically unrealistic to contemplate the implementation of these options any further in view of the strong opposition to be expected from the Member States that have already opened up their aftermarkets by means of a repair clause. Furthermore, these options were already tested in the context of past initiatives in vain. The introduction of a remuneration system proved in addition to be too complicated and thus unfeasible in practice as the Greek example has shown. The responses to the two public consultations, and, in particular, to the Second Public Consultation in the context of which potential options for solving the problem were consulted with stakeholders also confirmed that there is actually no real support for them. 5.3.2.Further harmonisation of national rules Option 4.3: A single design rulebook which would entirely replace Member States' design laws by setting uniform rules across the EU. As a result, all national IP offices would apply identical provisions when it comes to their national designs. This option would be clearly disproportionate in view of the demonstrated needs. It would not take into account at all the historical development of laws in Member States and would unduly deprive them from any kind of flexibility at national level. Accordingly, this option will not be considered any further. 6.What are the impacts of the policy options? 6.1.Spare parts protection

The different options would have varying impacts on single market performance. 6.1.1.Full liberalisation for all designs (Option 1.1) Abolition of design protection in the aftermarket would lead to increased competition in across the value chain. This option would assure maximum allocative efficiency. Impact on prices The impact on car manufacturers will most probably be limited to downstream price competition and will be heterogeneous across VMs. Herz & Mejer (2020) show that there are differences in the degree to which car manufacturers exploit design protection in their pricing strategies. VMs that exploit design protection in their pricing strategies today to a significant degree, will need to adjust their strategies and set lower prices as otherwise the final customers would switch to alternatives. Still, despite full liberalisation, OEM and OES producers will be able to charge higher prices than that of independent suppliers. According to Wolk After Sales survey, the perceived quality of the product is a very important factor, along with fitting accuracy, that both repairers and customers take into account in their purchasing decisions. Furthermore, the same survey shows that in the perception of the repairers, OEM and OES parts are of higher quality compared to parts produced by independent suppliers. There will be potential savings to customers in markets where currently no repair clause is in place ranging between EUR 415 and 664 million annually due to price competition (for details see Annex 4). According to Insurance Europe, around 12 million motor third-party liability claims are made annually. Assuming that 60% of those claims, i.e. 7.2 million, are made in Member States without a repair clause (including DE and FR), one arrives at a saving per insurance claim in Member States without a repair clause between EUR 58 and 92. VMs may try to compensate for their loss of profits drawn from their market power in the spare parts market by increasing their prices for new cars. However, the possibility of passing on higher costs to the primary market will be limited by competition in that primary market. If so, with around 12 million new cars registered annually in pre-Covid years, the potential annual loss of revenues per car sold is between EUR 34 and 55. Impact on competition Both OES and independent suppliers (non-OES) will benefit from greater operational freedom that will allow them to strengthen their market position and to consolidate. First, OES parts producers in their capacity as VM-suppliers enjoy direct access to the aftermarket. In their capacity as “independent” producers they should be able to offer a full range of spare parts. Second, independent parts producers will be able to sell their parts in the entire EU market. This may lead to more investments in the EU. Third, independent distributors can offer complete lines of spare parts in the entire EU market and benefit from the economies of scale. Finally, independent repairers retain their chance to compete, with prospect of success, against the networks of authorised car dealers/repairers. In contrast to the situation in 2004, the introduction of a repair clause today may help the independent aftermarket channel remain competitive in the world characterised by reduced profit margins due to declining demand for collision repairs (see Section 2.2.1). Economies of scale that will result from market liberalisation as well as efficiency gains due to possible consolidation may help the independent sector maintain their competitiveness, allowing for investments needed to keep up with digital transformation of the industry. In case the independent channel becomes more competitive, the impact on VMs will go beyond price competition in the downstream market. First, certain amount of turnover will shift from the VMs to the independent sector. This will presumably happen relatively less in the lighting and glass markets where the market share of VMs brands is the smallest. It may, above all, occur in the market which is of key interest to the car industry: the body panel. Among three visible spare parts segments, body parts is the largest one with the value of EUR 9.7 billion (60% of total) in 2019. The VMs have a very strong position in this market. 75% of sales are OEM parts out of which 73.33% is sold via authorised networks of car manufacturers. Today, in this segment, the main competition comes from independent players (as shown in Section 2.2.1) who have manufacturing sites located both in the EU (16 sites) and outside the EU (14 sites in Turkey, China, and Taiwan). Assuming that market liberalisation will bring the current VM market share (75%) down to the levels of lighting (67%) or glass (57%) segments, between 8% (EUR 0.78 billion) and 18% (EUR 1.75 billion) of the overall body part segment is at stake. Yet the impact will differ between plastic (bumper) and metal body parts (wings, bonnets, doors). Today production of plastic body parts for the first assembly and for aftermarket is fully outsourced to OES who do not engage themselves in the aftermarket. Metal body parts, on the contrary, are produced for the most part by VMs which implies that OES will need to make a necessary investment for setting up production lines if they wish to market metal body parts under their own brand. Still, how much of the body market independent producers will be able to capture depends on how close substitute parts produced by independent parts are. Under a full liberalisation scenario, VMs will be able to rely on the strength of their trade marks and their dealer networks; independent body parts producers, on the other hand, face a severe handicap in amortizing the expensive production tools compared to the VM and their OES. Looking beyond the body part segment, there will be little impact on lighting and glass segments where there is already a strong presence of OES brands (see Figure 2 in Section 2.2.1). Against this background, VMs would rather favour a reform that foresees the direct opening for lighting and glass and delays opening for body parts. This is precisely what the partial repair clause recently adopted in France provides for. Second, full liberalisation may facilitate the process of consolidation of distribution networks (a trend explained in Section 2.2). In such situation, car manufacturers may face stronger bargaining power from wholesales who buying larger volumes will be able to negotiate lower prices. Economies of scale can reach considerable dimensions in the automotive aftermarket. According to Roland Berger, savings of between 10 and 20% are possible in the procurement of original parts and the cost of private label parts can be cut by 5–10%. Olivier Wyman finds that in 2014 total after sales (incl. services by branded repair shops, OEM import activities and sales of OEM parts) accounted for a modest share of revenues (11%) but for a significant share (38%) of profits of automakers. Third, it is to be further expected that full market liberalisation may intensify competition between independent and authorised repairers. On one hand, independent repairers are now in a better competitive position as they are free to choose spare parts and not be obliged to use OEM parts (in line with the objectives of the MVBER). On the other, authorised repairers remain the main distributors of the OEM parts. In order to attract customers, repairers will compete not only by prices but also via other instruments like service (density of networks, availability over time) and product quality (quality of material, warranties). This opening up of the market will also require that consumers pay more attention to the products they purchase. Results of a survey conveyed by Wolk After Sales show that customers actually exert high influence on the repairers’ purchasing decisions. Impact on legal uncertainty Full harmonisation of rules and their application to all designs would bring legal certainty and predictability to the aftermarket (see further also in relation to administrative and compliance cost). Impact on investment and innovation It is inherently difficult to precisely assess the impact of IPR protection on car market innovation. IPRs do not guarantee that the right holder can amortize its investment. They only give it a zone of exclusivity, but the “reward” is exclusively fixed by the market as a result of consumer preference. This preference is exercised at the primary market (new cars) when the car is sold but not on the spare parts market. VMs will certainly continue to use design as a marketing instrument for their core business irrespective of whether or not there is protection in the aftermarket. Secondly, available evidence at the time of the 2004 impact assessment suggests that the investment in the design of the outer skin of a car is relatively modest. It is at best 0.7 % of a vehicle maker’s turnover. This can be compared with profit margins expected by car manufacturers, forecasted for 2021 at 10-12% for Daimler, 10% for PSA, 7-9% for BMW, 6-7.5% for VW, 2.8% for Renault. Related to the number of cars sold the cost of the body design on average is EUR 50 – 60 per car in the upper segment and significantly less for mass produced cars. These figures suggest that the impact of introducing a repair clause would be most significant for independent producers that will benefit from a potentially bigger market share. It is also likely that these independent producers, benefiting from the scale of the internal market, will step up their investment and innovation efforts.

Impact on employment Table 6.1 shows that visible parts for vehicle assembly in the EU are produced at 1,388 unique manufacturing sites worldwide. Out of these, 268 are OEM (VM sites) locations, 1,066 are OES locations. Only about 7% of the sites are located outside the EU and their import accounts for 11% of the EU27 total production. One would expect that OES and independent sites are located in Member States with a repair clause. Yet, the opposite is true as almost 70% of OES sites are located in Member States without a repair clause (Table 6.1). That can be explained by the presence of automotive assembly plants in these Member States. Unfortunately, the available data, does not allow to distinguish how many of the OES manufacturing sites are producing for the first assembly and which for aftermarket. Accordingly, reliable forecasts on what is the impact of extended design protection to spare parts on the location of production sites are not viable. Table 6.1. Geographical location of visible parts manufacturing sites (2019) EU27 With repair clause Without Repair clause Non-EU27 Total OEM1,2 215 69 146 53 268 OES1,3 1025 308 717 41 1066 Non-OES 28 18 10 27 55 Total 1265 394 871 121 1388 Source: (1) Reflect location of sites that supplies for first assembly in the EU; (2) Sites producing “metal” body parts. (3) Including sites producing “plastic” body parts. Table 19 Wolk After Sale Report. Analysis based on MarkLines database. Looking at production and trade statistics, Wolk After Sales Experts evaluated what is a share of visible parts production that is put on aftermarket in the total production of visible parts. Results of their analysis shows that in 2019, in the EU-27, total domestic consumption of visible parts (both first assembly and aftermarket) was EUR 50.7 billion. Out of this, EUR 6.8 billion, which reflects value of aftermarket at manufacturing level, is put on the aftermarket. The value of non-OES aftermarket at this level totals EUR 1.3 billion. The share of aftermarket in domestic consumption of visible parts is therefore rather small and amount to 13.4%. Against this backgr