Intellectual Property Law

Freedom to Provide Services in the European Community

By Martha L. Arias

Article 49 of the treaty establishing the European Community (TEC), guarantees the freedom to provide services; yet, the wording of article 49 caused confusion as to whether it applied exclusively at a domestic level, or whether this freedom was extended to a trans-border context. Additional, confusion arose as to the subjects of this freedom -whether it only extended to European nationals or whether it covered foreign nationals rending services in the European territory.  The European Court of Justice (ECJ) has clarified these issues in several cases that required interpretation of article 49 of the TEC.  

Article 49 of the TEC says that there cannot be restrictions on the freedom to provide services ''in respect of nationals of Member States of the Community other than that of the person for whom the services are intended.''  The ECJ gives a broad interpretation of TEC article 49 in its several cases on this issue.  The ECJ has clearly stated that article 49 of TEC applies to cross-border movement of services. This interpretation is particularly significant for e-commerce transactions involving services across the European Community. 

There may be many scenarios involving cross-border movement of services to which article 49 applies; e.i., when the services are hired in a member state, to be rendered in another member state.  This was the case of  Guiot (Case C-272/94, Guiot, [1996] ECR I-1905).  This case related to a construction worker hired by a domestic company to render services in the territory of another member state.  In this case, the ECJ held that the freedom of article 49 of the TEC was applicable to the services rendered by the worker, and the worker was entitled to labor remuneration according to the rules of the member states where the service was actually rendered. Thus, can an IT (information technology) professional hired in the United Kingdom by a United Kingdom company freely render his or her services in Germany? According to Guiot ruling, the answer is yes, and German labor benefits might apply.  Alpine Investment is another ICJ case interpreting article 49 of the TEC (Case C-384/93, Alpine Investment, [1995] ECR I-1141).  In Alpine, the ECJ held that the freedom of article 49 applies even when the service does not involve cross-movement but the provider of the service and the recipient were established in different member states.  The Alpine case may have tremendous impact on B2B (Business-to-Business) services provided over the Internet when companies are located in different member states.

Regarding the subjects to which article 49 of the TEC applies, case law interpretation from the ECJ generally states that article 49 applies to nationals of the member states.   Legal entities are considered nationals of the member states where they are registered and article 49 is similarly applicable to them.  The scope of article 49's protection only applies when the provider and the recipient of the service are both located in a state of the Community.  Thus, freedom of cross-movement of services does not apply to nationals of a non-Community country.  That is, the freedom of article 49 does not apply even to residents of a Community state. In the ECJ case of Auer (Case 136/78, Auer, [1979] ECR 437), the court held that nationality rights are considered according to each country's domestic laws.  Therefore, the nationality issue is a matter of domestic legislation and the freedom of service applies to any Community member national, considered as such by his or her respective state.    

Hence, ECJ interpretations of article 49 of the TEC hold that only individuals or legal entities, providers and recipients, nationals of a Community member are the subjects of the freedom of movement of services.  Foreign nationals, therefore, can only access this freedom by registering a European company in any of the Community states.  

Full post as published by IBLS Internet Law Blog on January 21, 2009 (boomark / email).