Centrafarm BV and Another v. Sterling Drug Inc. (Case 15/74)

Centrafarm BV and Another v. Winthrop BV (Case 16/74)

Before the Court of Justice of the European

Communities

ECJ ( The President, Judge R. Lecourt; Judges C. O. Dalaigh,

Lord Mackenzie Stuart, A. M. Donner, R. Monaco, J. Mertens de Wilmars, P.

Pescatore, H. Kutscher and M. Sorensen.) Sig. Alberto Trabucchi, Advocate General.

31 October 1974 Reference from the Dutch Supreme Court (Hoge Raad) under Article 177. [FN1] Inter-State trade. Industrial property rights. Interpretation. In so far as Article 36 EEC comprises an exception to one of the fundamental principles of the Common Market, it permits derogation from the free movement of goods only to the extent that such derogations are necessary for the protection of the rights constituting the specific object of the excepted category (in casu, industrial property). [8] Case 15/74, [7] Case 16/74. FN1 [1974] 2 C.M.L.R. 1 and 12. Inter-State trade. Patents. The specific object of industrial property as regards patents is inter alia to ensure to the patentee, in order to recompense the creative effort of the inventor, the exclusive right to utilise an invention with a view to the manufacture and first putting into circulation of industrial products, either directly or by the grant of licences to third parties, and the right to oppose any infringement. [9] Case 15/74. Inter-State trade. Trade marks.

The specific object of industrial property as regards trade marks is inter alia to ensure to the holder the exclusive right to utilise the mark for first putting into circulation of a product and to protect it against competitors who would take advantage of the standing and reputation of the mark by selling products improperly labelled with the mark. [8] Case 16/74. Inter-State trade. Patents. Exhaustion of rights. Territoriality. The existence of national legal rules providing that the right of a patentee is not exhausted by the marketing in another member-State *481 of the patented product, so that the patentee may oppose the import into his own State of the product marketed in another member-State, may constitute an obstacle to the free movement of goods. While such an obstacle may be justifiable when it is applied against a product from another member-State where it is not patentable and has been manufactured without the consent of the patentee or where the original patentees in the two member-States are legally and economically independent of each other, it is not so justified when the product was lawfully put on the market of the exporting member-State by the patentee himself or with his consent, e.g., in the case of a holder of parallel patents. [10-11] Case 15/74. Inter-State trade. Trade marks. Exhaustion of rights. Territoriality. The existence of national legal rules providing that the right of a trade mark holder is not exhausted by the marketing in another member-State of a product bearing his mark, so that the holder may oppose the import into his own State of the product marketed in another member-State, may result in the existence of an obstacle to the free movement of goods. Such an obstacle is not justified where the product was put lawfully on the market of the exporting member-State by the trade mark holder or with his consent in such a way that there can be no question of misuse or infringement of the mark. [9-10] Case 16/74. Inter-State trade. Patents. Parallel patents. In spite of the variations in the national industrial property laws as a result of a lack of unification, the essential element for the judge to decide in the notion of parallel patents is the identity of the protected invention. [14] Case 15/74. Inter-State trade. Patents and trade marks. Territoriality. The exercise by the holder of a patent or trade mark of the right given him by the laws of a member-State to prohibit the marketing in that State of a product protected by the patent or trade mark and put on the market in another member-State by such holder or with his consent would be incompatible with the rules of the EEC Treaty relating to the free movement of goods in the Common Market. [15] Case 15/74, [12] Case 16/74.

Inter-State trade. Patents. Licensees. Territoriality. The grant by a patentee of a sales licence in a member-State has the consequence that the patentee can no longer oppose the marketing of the patented product throughout the Common Market. It makes no difference whether the patentee and licensee belong to the same group of companies or not. [20-21] Case 15/74. Inter-State trade. Patents and trade marks. Prices. The use of *482 industrial property laws in a member-State to prevent the import of protected goods first marketed in another member-State is not made any the more justifiable by the fact that there are between the exporting and importing member-States price differences which result from measures taken by the public authorities in the former to control prices. [24] Case 15/74, [17] Case 16/74. Inter-State trade. Patents and trade marks. Quality control. Pharmaceutical drugs. The holder of a patent or trade mark relating to a pharmaceutical product will not be exempted from the EEC rules on the free movement of goods in order to control the distribution of the product so as to protect the public against defective goods. The specific objects of industrial and commercial property and protection of the public are distinct and not to be combined in the same rules. [28-29] Case 15/74, [21-22] Case 16/74. Inter-State trade. 'Measures having equivalent effect to quantitative restrictions.' New member-States. Article 42 (2) Act of Accession applies only to those measures of equivalent effect to quantitative restrictions which, as between the original six member-States, had to be abolished by the end of a transitional period under Articles 30 and 32-35 EEC. Import prohibitions under national industrial property laws are therefore not affected by Article 42; the time limit of 1 January 1975 therein contained does not apply; and the automatic application of Article 30 EEC as from 1 January 1973 operates in such cases to trade involving the new member-States. [34-36] Case 15/74, [27-29] Case 16/74. Restrictive practices. Patents. Industrial property rights recognised by national laws are not affected in their existence by Article 85 EEC, but their exercise may be so long as such exercise is the object, means or consequence of an agreement. [39-40] Case 15/74. Restrictive practices. Patents and trade marks. Parent and subsidiary.

Article 85 EEC does not apply to agreements or concerted practices between undertakings belonging to the same group in the form of parent company and subsidiary, if the undertakings form an economic unit within which the subsidiary does not have real autonomy in determining its line of conduct on the market and if the agreements or practices have the aim of establishing an internal distribution of tasks between the undertakings. [41] Case 15/74, [32] Case 16/74. The Court interpreted Articles 30, 36 and 85 EEC and Article 42 Act of Accession to the effect that national trade mark and patent *483 rights should not be used as a means of partitioning the national markets and that this rule applies to the new member-States as from the date of accession and not from 1 January 1975. The following cases were referred to by the Advocate General in his submissions: 1. Reyners v. Belgian State (2/74), 21 June 1974: [1974] 2 C.M.L.R. 305. 2. Franz Grad v. Finanzamt Traunstein (9/70), 6 October 1970: [1971] C.M.L.R. 1, 16 Recueil 825. 3. Transports Lesage et Cie v. Hauptzollamt Freiburg (20/70), 21 October 1970: [1971] C.M.L.R. 1, 16 Recueil 861. 4. Erich Haselhorst v. Finanzamt Dusseldorf-Alstadt (23/70), 21 October 1970: [1971] C.M.L.R. 1, 16 Recueil 881. 5. Procureur du Roi v. Dassonville (8/74), 11 July 1974: [1974] 2 C.M.L.R.. 6. SIRENA Srl v. Eda Srl (40/70), 18 February 1971: [1971] C.M.L.R. 260, 17 Recueil 69. 7. Van Zuylen Freres SA v. Hag AG (192/73), 3 July 1974: [1974] 2 C.M.L.R. 127. 8. Deutsche Grammophon Gesellschaft mbH v. Metro-Sbgrossmarkte GmbH & Co. KG (78/70), 8 June 1971: [1971] C.M.L.R. 631, 17 Recueil 487. 9. Re Christiani & Nielsen NV (EEC Commission--69/195/EEC), 18 June 1969: [1969] C.M.L.R. D36, [1969] J.O. L165/12. 10. Beguelin Import Co. v. G. L. Import-Export SA (22/71), 25 November 1971: [1972] C.M.L.R. 81, 17 Recueil 949. 11. I.C.I. Ltd. v. E.C. Commission (48/69), 14 July 1972: [1972] C.M.L.R. 557, 18 Recueil 619. 12. J. R. Geigy AG v. E.C. Commission (52/69), 14 July 1972: [1972] C.M.L.R. 557, 18 Recueil 787. 13. Istituto Chemioterapico Italiano SpA and Commercial Solvents Corp. v. E.C. Commission (6-7/73), 6 March 1974: [1974] 1 C.M.L.R. 309, [1974] E.C.R. 223. The following further cases were referred to in argument: 14. Parke, Davis & Co. v. Probel (24/67), 29 February 1968: C.M.L.R. 47, 14 Recueil 81. 15. Salgoil SpA v. Foreign Trade Ministry of the Italian Republic (13/68), 19 December 1968: [1969] C.M.L.R. 181, 14 Recueil 661 *484 . 16. Albatros Sarl v. Sopeco (20/64), 4 February 1965: [1965] C.M.L.R. 159, 11

Recueil no. 3. 17. ETS. Consten SA & Grundig-Verkaufs-GmbH v. EEC Commission (56/64, 58/64), 13 July 1966; [1966] C.M.L.R. 418, 12 Recueil 429. 18. Hoge Raad, 14 December 1956. Representation Mr. T. Schaper, of the Hoge Raad Bar, and Rechtsanwalt Arved Deringer, of the Bar of the Oberlandesgericht Cologne, for Sterling Drug Inc. Mr. T. Schaper, of the Hoge Raad Bar, for Winthrop BV. Mr. L. D. Pels Rijcken, of the Hoge Raad Bar, and Mr. A. F. de Savornin Lohman, of the Rotterdam Bar, for Centrafarm BV and Adriaan de Peijper. Bastiaan van der Esch, Legal Adviser to the E.C. Commission, for the Commission as amicus curiae. A written amicus brief was submitted by the Danish Government (Herr Ersboll). TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE Facts Sterling Drug Inc., a company formed under the laws of New York, holds national patents in several countries, including Holland (patent no. 125,254) and Great Britain (patent no. 1,000,892), covering the method of preparing a drug called acidum nalidixicum for the treatment of urinary tract infections. The trade mark for this product, 'Negram', belongs in Great Britain to Sterling-Winthrop Group Ltd. and in Holland to the latter's wholly-owned subsidiary Winthrop BV. Centrafarm, of which Mr. de Peijper (the second plaintiff) is the director, imported, without the agreement of Sterling Drug, into Holland (where they were marketed) from England and the Federal Republic of Germany where they had been properly put on the market by subsidiaries of Sterling Drug Inc. drugs manufactured according to the patented method, some of which bore the trade mark Negram. By importing the goods from Great Britain Centrafarm profited from a considerable price difference, the product being sold in Britain more cheaply than in Holland. On 16 June 1971 Sterling Drug Inc. and Winthrop BV each brought actions before the President of the District Court (Arrondisse-mentsrechtbank) of Rotterdam in summary proceedings requesting interim relief against the dealings of Centrafarm and its director and an injunction against any infringement of the patent belonging to Sterling Drug Inc. and against any abusive use, direct or indirect, of Winthrop's Negram mark. The President gave Winthrop BV the relief requested (Case 16/74--on *485 the trade mark). The Court of Appeal (Gerechtshof) of The Hague dismissed the appeal; and Centrafarm and de Peijper appealed against the dismissal to the Hoge Raad (Supreme Court). In Case 15/74 (on the patent) the President refused relief on the basis of an

interpretation of the Dutch Patent Act (Octrooiwet) to the effect that a product is to be regarded as put properly into circulation by the Dutch patentee even when the latter does so abroad. The Court of Appeal of The Hague reversed the lower court; and Centrafarm and de Peijper appealed against the reversal to the Hoge Raad. The Hoge Raad, by judgment of 1 March 1974 [FN2], stayed proceedings in both cases and referred the following questions to the European Court of Justice under Article 177 EEC: In Case 15/74: I. As regards the rules concerning the free movement of goods: FN2 [1974] 2 C.M.L.R. 1 and 12. (a) Assuming that: 1. a patentee has parallel patents in several of the countries belonging to the EEC, 2. the products protected by those patents are lawfully marketed in one or more of those countries by undertakings to whom the patentee had granted licences to manufacture and/or sell, 3. those products are subsequently exported by third parties and are marketed and further dealt with in one of those other countries, 4. the patent legislation in the last-mentioned countries gives the patentee the right to take legal action to prevent products thus protected by patents from being there marketed by others, even where these products were previously lawfully marketed in another country by the patentee or by the patentee's licensee; do the rules in the EEC Treaty concerning the free movement of the goods, notwithstanding what is stated in Article 36, prevent the patentee from using the right under 4 above? (b) If the rules concerning the free movement of goods do not under all circumstances prevent the patentee exercising his rights under 4 above, do they however so prevent him if the exercise of that right arises exclusively, or partially, from an attempt to partition national markets from each other for products protected by the patent, or at any rate has such partitioning as an effect? (c) Does it make any difference to the reply to the questions under (a) and (b) above that the patentee and the licensees do or do not belong to the same concern? (d) Can the patentee, for the purpose of justifying his aforementioned right, successfully rely upon the fact that the price differences in the respective countries, which make it worthwhile for third parties in one country to market products originating in another country, and give the *486 patentee an interest in taking action against such practices, are the consequence of governmental measures that result in the price level of these goods being lower in the exporting country than would have been the case in the absence of those measures? (e) At any rate where the patent relates to pharmaceutical products, can the

patentee for the purpose of justifying the exercise of his patent right successfully rely upon the fact that the circumstances described under (a) above prevent him from controlling the distribution of his products, such control by him being considered essential for the purpose of taking measures to protect the public where defects manifested themselves? (f) Is it a consequence of Article 42 of the Treaty of Accession that if the rules of the EEC Treaty relating to the free movement of goods prevent the exercise of a patent right as before mentioned, it is until 1 January 1975 not possible in Holland to rely upon these rules in relation to such goods originating in the United Kingdom? II. As regards Article 85: (a) Does the fact that a patentee owns parallel patents in different countries belonging to the EEC and that he has in those countries granted to different undertakings associated with the patentee licences to manufacture and sell (assuming that all of the agreements entered into with such licensees are exclusively or in part designed to regulate differently for the different countries the conditions on the market in respect of the goods protected by the patent) mean that this is a case of agreement or concerted practices of the type prohibited by Article 85 of the EEC Treaty, and must an action for breach as referred to under I (a) above--to the extent that this must be regarded as the result of such agreements or concerted practices--for that reason be treated as unlawful? (b) Is Article 85 also applicable if, in connection with agreements or concerted practices as there referred to, it is only undertakings belonging to the same concern that are involved? In Case 16/74: I. In relation to the rules concerning free movement of goods: (a) Assuming that: 1. different undertakings in different countries belonging to the EEC forming part of the same concern are entitled to the use of the same trade mark for a certain product, 2. products bearing that trade mark, after being lawfully marketed in one country by the trade mark owner, are exported by third parties and are marketed and further dealt with in one of the other countries, 3. the trade mark legislation in one last-mentioned country gives the trade mark owner the right to take legal action to prevent goods with the relevant trade mark from being marketed there by other persons *487 even if such goods had previously been marketed lawfully in another country by an undertaking there entitled to that trade mark and belonging to the same concern, do the rules set out in the EEC Treaty concerning the free movement of goods, notwithstanding the provisions of Article 36, prevent the trade mark owner from making use of the right mentioned under 3 above? (b) If the rules concerning the free movement of goods do not in all circumstances preclude the trade mark owner from exercising the right

mentioned under (1) 3, is he precluded from so doing if the exercise of that right arises either exclusively or partially from an effort to partition the markets of the relevant countries from each other in relation to the said goods or at least has the effect of thus partitioning those markets? (c) Can the trade mark owner successfully rely in justification of the exercise of the abovementioned right on the fact that the price differences in the relevant countries, which make it profitable for third parties to market products coming from one country in the other country, and give the trade mark owner in that other country an interest in taking action against such practices, are the result of governmental measures whereby in the exporting country the prices of those products are kept lower than would have been the case in the absence of those measures? (d) Can the trade mark owner, at least if the relevant product is a pharmaceutical product, properly rely in justification of the exercise of his trade mark right in the manner mentioned on the fact that the state of affairs described under (a) limits his opportunities of controlling the distribution of the products, which control by him is considered necessary so that measures for protection of the public can be taken in the event of defects appearing? (e) Does Article 42 of the Treaty of Accession involve that, if the rules of the EEC Treaty relating to the free movement of goods prevent an exercise of a trade mark right as stated above, those rules cannot be involved in Holland until 1 January 1975 in so far as the relevant goods come from the United Kingdom? II. In relation to Article 85: Does the situation described under I (a) involve that practices of the kind forbidden by Article 85 of the EEC Treaty exist, and must an action for infringement as mentioned therein, in so far as it is to be regarded as a consequence of such practices, be held impermissible for this reason?

Submissions of the Advocate General (Sig. Alberto Trabucchi) 1. The joined cases 15 and 16/74 involving the requests for a preliminary ruling made by the Hoge Raad of the Netherlands concern similar questions but ones which relate in the first case to patent law and in the second to trade mark law. *488 The questions of the Dutch court concern the relations between those two areas of law and Community rules, either those which regulate the free circulation of goods between the member-States or those which forbid conduct restrictive of competition, and they do so in connection with a complex situation of which the following are the main elements: (a) an American company, which holds parallel patents in several member-States, has in each of them granted a manufacturing or only a sales licence to its wholly controlled subsidiary company; (b) the product, properly marketed in one State by the patent licensee manufacturer and local holder of the relative mark, is exported by third party purchasers into and resold in another member-State in which the parent company is itself patent holder but does not use it for production, while a local company controlled by it, holder of the same mark as identifies the product in the country of production, is entrusted with the sale of the imported product;

(c) the laws of the importing State recognise in the patent holder and the trade mark holder the right to oppose the bringing into commerce within the national territory of the product in question by third parties. In those circumstances, the national court asks whether the rules of the EEC Treaty on free movement, not forgetting the exceptions allowed by Article 36 to the prohibition of quantitative restrictions and equivalent measures, and the rules which forbid anti-competitive conduct on the part of undertakings allow the exercise of patent rights (case 15/74) and trade mark rights (case 16/74) in such a way that it would have wholly or at least in part the effect of partitioning the Common Market into the national territories. I shall examine the question first with regard to the rules governing the free movement of goods: does the prohibition of parallel imports amount to a measure equivalent to a quantitative restriction contrary to Articles 30 et seq. of the EEC Treaty? 2. To enter into the heart of the problem we have to clear the ground of a preliminary objection, raised in relation to patents but which, if well founded, should logically be applied to trade marks also. The company Sterling Drug Inc. in its written brief maintains that Article 32 (2), which provides that measures having equivalent effect to quotas shall be abolished by the end of the transitional period at the latest, does not constitute a directly applicable norm, given that it imposes on the member-States a positive obligation to act leaving them a certain margin of appreciation. While with regard to measures subsequent to the entry of the Treaty into force there can be no doubts as to the direct applicability *489 of the clear and unconditional prohibition in Article 31, with regard to similar measures prior to that date Article 33 (7) provides that it shall be for the Commission to establish the procedure and timetable for their abolition as between the member-States. Should it be deduced from that that for these measures the general prohibition in Article 30 requires the appropriate directives of the Commission before it can become operative and that as it requires positive intervention by the States it could not be considered to be directly applicable? We are faced thus with the question of whether, even since the end of the transitional period, reference should be made to these provisions in order to determine in what degree the prohibition has become applicable, or whether it should be held that it has become fully applicable through its own force. It should be considered that under Article 8 (7) 'the expiry of the transitional period shall constitute the latest date by which all the rules laid down must enter into force and all the measures required for establishing the Common Market must be implemented'. We have seen recently, in Reyners v. Belgian State (2/74) [FN3] the scope which can be ascribed to other norms of the Treaty which provide for the attainment before the end of the transitional period of other fundamental objectives which also involve the necessity to alter national laws and the value of the abovementioned general provision in Article 8 (7) for recognition of a direct effect to such norms.

FN3 [1974] 2 C.M.L.R. 305. So when, as is the case with the provision which requires the abolition of all quantitative restrictions and measures of equivalent effect, there is implicit in the Community norm an absolute prohibition on applying as from a predetermined date the legislative, administrative and all other national measures which fall within that category (apart from the limited exceptions permitted by Article 36), that norm acquires as from the date laid down by the Treaty a direct effect, in the sense of rendering to that extent inapplicable in intra-Community relations the incompatible internal norms. This interpretation is in conformity with the principle affirmed by this Court in Franz Grad v. Finanzamt Traunstein (9/70) [FN4] and in the other similar cases. [FN5] In those judgments the Court held that a decision of the Council which imposes on the States to which it is addressed a given positive conduct, e.g., the obligation to introduce a given common tax system with which to avoid a cumulation of differing types of tax, the Council then fixing by a directive the date by which the obligation is to be complied with, involves as from that date an absolute prohibition on the States cumulating the common tax system *490 with specified tax systems, and for individuals the right to have such cumulation excluded, if necessary by the courts: and that is so even if the State in question has not done anything to comply with its obligation. FN4 [1971] C.M.L.R. 1, 16 Recueil 825. FN5 Transports Lesage et cie v. Hauptzollamt Freiburg (20/70) and Erich Haselhorst v. Finanzamt Dusseldorf-Altstadt (23/70): Both [1971] C.M.L.R. 1, 16 Recueil 861 and 881 respectively. A similar conclusion also applies in our present case. It is true that this provision leaves expressly unprejudged the exceptions laid down by the Treaty. But in Article 33 (7) as already mentioned none of these exceptions can be seen. That provision aims solely at spreading out during the transitional period the bringing into force of the prohibition there set out, giving full freedom to the Commission to define the procedure and the timetable. The Commission was however obliged to do what was necessary to ensure respect for the general rule in Article 8 (7); and, in fact, after having at various times issued directives to set out the conditions for abolition of the measures in question in relation to given sectors, it then on 27 December 1969 issued a general directive for the overall abolition of all the remaining measures with equivalent effect to quotas. It is true that that directive, issued shortly before the expiry of the transitional period, did not specifically refer to the restrictions connected with the protection of trade marks and patents, nor did it lay down the latest date by which it had to be brought into operation by the States; but that is unimportant as soon as the full and automatic effectiveness of the prohibition, laid down directly by the Treaty, has occurred on expiry of the transitional period. Besides, that principle seems to have already been impliedly adopted in the recent judgment in Procureur du Roi v. Dassonville (8/74). [FN6]

FN6 [1974] 2 C.M.L.R. 436. 3. I shall now examine the question concerning the interpretation of Articles 30 et seq., first in relation to trade marks, given that in this respect the reply to be given presents no serious problem. On the contrary, it can be considered as already provided by our case law. Since the judgments in SIRENA Srl v. Eda Srl (40/70), [FN7] Van Zuylen Freres v. Hag AG (192/73) [FN8] and, for certain aspects, Dassonville (8/74), no doubts can remain on the incompatibility with the principles of the Common Market, and in particular with the principle of free movement of goods, of a prohibition which to protect a given mark is brought against the importation and sale by a third party who has acquired products bearing that mark so long as the products come from the same single supplier of the holder of the mark in the importing State, which supplier is holder of the identical mark under which he has brought them properly onto the market in his State. FN7 [1971] C.M.L.R. 260, 17 Recueil 69. FN8 [1974] 2 C.M.L.R. 127. Really we are not concerned here with similar goods produced by the various holders of the mark in the respective States, as in the cases considered in SIRENA Srl v. Eda Srl and Van Zuylen Freres v. Hag AG, *491 but with one and the same product produced by a single manufacturer. It being a case of authentic products, characterised by the mark which the manufacturer who has put them onto the market uses lawfully in his State and having the same source as the products marketed in the importing State by the local holder of the mark, there can be no deceit as to the origin or the characteristics of the product, there can be no 'counterfeiting', there is no unfair competition on the part of the parallel importer. In view of that, there may be no need to recall the fact (which does however complete the picture) that the undertakings holding the mark in the member-States in question are simply emanations of one and the same parent company which wholly controls them and which is, as has been said, in each of the States holder of the basic patent by which the product is manufactured. There is then here a far from distant common origin of the mark and of the form of manufacture of similar goods! In such a situation, the application of the principles declared by the case law of this Court in relation to Articles 30 et seq. of the Treaty necessarily lead to a denial of the use of the mark for the purpose of preventing parallel imports: such a closing of a national market to parallel imports of an authentic product legitimately put on the market in another member-State by the local holder of the mark would not clearly be permitted by Article 36 of the Treaty, since it would serve not to avoid passing off (contraffazione) or at least ambiguities as to the origin or characteristics of the product put on sale in the State under that mark,

nor to guarantee respect for a right which is the specific object of the mark, but to permit an abusive use of the mark itself, directed exclusively at preventing parallel imports of the same product itself and thereby to maintain an unjustified privileged situation. 4. Can the substantial differences between the two commercial and industrial property rights under consideration justify, in relation to the norms of the Treaty on free movement of goods and competition, a substantially more favourable treatment for the holder of a patent than that which is regarded as acceptable for trade marks? The essential content of the protection conferred on the patent holder, consisting in the exclusive right of manufacture and first marketing of the patented product conferred on the holder to recompense the author of an invention, permitting him a remuneration for the efforts made and the economic risk borne, is granted solely on a temporary basis, while for the trade mark either there are no limits in time or the right can be easily renewed. Let us recall that in the cases before us the factual situation as regards the ownership of the patent differs from that relating to the mark since, while the mark belongs in the two countries in question to subsidiaries (in the country of origin of the goods to the producer *492 company, and in the importing State to the company responsible there for sales), the patent holder in the two countries is the same parent company. It is a typical case of the existence of parallel patents in various member-States, already examined with varying results by writers in relation to the Community rules on competition and free movement of goods. The differences which there may be in certain respects, deriving from the differing internal laws, with regard to the two rights (e.g., in the conditions for their grant, duration etc.) could not justify, on a close consideration of the phenomenon, the exclusion of this parallel character of the patents, once they have as their subject an identical product or manufacturing process and belong to a single owner. The parent company, holder of the patent in various member-States, can have an interest in opposing the parallel imports into a member-State of the product manufactured in another member-State by one of its subsidiaries in order to allow a monopoly of importation of that product to another subsidiary which has the function of selling in the first member-State. The Dutch court seems in substance to be trying to refer to this intention when, in its second question, it considers the exercise of the right as intended especially to effect a partitioning of the national markets. On the level of Community rules, such a concern is clearly in conflict with the fundamental principles of the system, as expressed particularly in Article 3 (a) and (f) of the EEC Treaty: the freedom of movement of goods within the Common Market and the institution of a system of healthy competition. 5. Given then that a prohibition of parallel imports, linked on the basis of national law with the protection enjoyed by the patent holder, is contrary to Articles 30 and 32 (2), we should now examine whether, in the circumstances posed by the Dutch supreme court, it is admissible under Article 36. An act carried out on the commercial plane by an undertaking which belongs wholly to a parent company cannot be considered foreign to the latter. The

company Sterling Winthrop, subsidiary of Sterling Drug Inc., sold in Great Britain a given product manufactured by it under licence from that same parent company which is holder of the patent in both Great Britain and Holland. It is reasonable to suppose that such putting on sale, in a member-State, which is in accordance with a normal commercial practice of that manufacturer, occurred with the consent of Sterling Drug, given that a parent company normally determines the commercial policy of the subsidiaries which are wholly controlled by it. Besides, one of the counsel for the company Sterling Drug has stated in so many words, during the hearing, that that company, with its English and Dutch subsidiaries here under consideration, constitute one single undertaking. In any case, it is certain that on the level of economic reality such act of the subsidiary is not without effect for the parent company. *493 A product lawfully put on the market within the Community should be able to circulate freely in it, so long as that is not opposed by the need to protect a private right or a public interest recognised as having precedence over the Community order. In accordance with your case law, the derogations permitted in exceptional cases by Article 36 for the protection of rights of industrial property should be those necessary to protect those rights which constitute the specific purpose of such property. Although this notion does not yet appear clearly defined as regards patents, it undoubtedly implies that limitations can follow directly from the Community order even on the prerogatives which the national laws recognise the holder of a patent as having. Each time that a conflict appears between a given form of protection granted by national law to the beneficiary of a patent and the requirements of the working of the Community system, it is necessary to determine, through a considered evaluation of the conflicting interests and account being taken of the need to respect the fundamentals of an institution governed exclusively by internal law, whether the national rules can have the benefit of the derogation in Article 36. In such a context I shall now seek to see what concrete significance is to be attributed to the abovementioned limiting criterion of 'specific purpose' in relation to the particular situation before us. An essential feature of the patent right is the exclusivity as to both the manufacture and the first marketing of the products manufactured. Such statutory monopoly, laid down in favour of an individual, necessarily implies the right to oppose the sale of the patented product if it has been manufactured by third parties or has been marketed without the consent of the patentee. For that reason the national laws can lawfully permit the patentee to oppose the importation of products manufactured or marketed without his agreement. But it would not be possible to justify the prohibition of importation into one State to protect the single holder of parallel patents in various member-States on the basis of the territorial limitation within the Common Market of the consent given by him to the sale. Such a limitation, which in the circumstances under consideration would have the sole function of permitting the patent holder to control the outlets of the product in the Community, cannot be considered part of

the specific purpose of the patent right; and it is certainly not compatible with the fundamental principles of the Community system relating to the circulation of goods that a company, holder of parallel patents in the Community, which company has taken part through a company wholly controlled by it in the marketing of a given product in a member-State, should oppose its importation by third parties who have acquired it into another member-State, and thereby guarantee a commercial monopoly for another of its subsidiary companies. The situation under consideration is not otherwise substantially *494 different from that which was considered in the Deutsche Grammophon case [FN9] which, as you know, concerned a property right similar to the copyright on phonographic reproductions. In fact, although in the present case the product was manufactured in a member-State other than that in which the opposition to import occurred, and it was furthermore marketed by a person legally distinct from the person who opposed the importation, it can be noted that as regards the first marketing, even in the case of the Deutsche Grammophon Gesellschaft, it took place in a State other than that in which the holder of the right which opposed the import of the product had its seat; and that furthermore the marketing, although carried out in the present case by a person legally distinct from the patent holder cannot be considered an act foreign to it. The principle laid down for a right similar to a copyright like that relied on by the Deutsche Grammophon Gesellschaft is also applicable to patents since, as the Commission observed, in both cases the specific purpose of the two property rights is the exclusive right to manufacture, to reproduce and to put initially on the market a given intellectual product or industrial product. FN9 Deutsche Grammophon Gesellschaft mbH v. Metro-SB-Grossmarkte GmbH & Co. KG (78/70): [1971] C.M.L.R. 631, 17 Recueil 487. In a case such as that under consideration here, as in the circumstances to which the Court was referring in the Deutsche Grammophon case, the aim of the opposition made by the holder of the right to the introduction into its State of a given product falls outside the specific purpose of the protection of the right in question: if, in the case of Deutsche Grammophon, the opposition of the holder of the property right to the reimport of its own product which had been first sold by it and with its consent in another member-State, went outside the limit of protection granted, so in the present case, given the links between the first seller in another member-State and the holder of the patent and between the latter and the commercial company to which they have granted a sales licence in the importing State, the opposition of the patent holder to the free circulation of the product cannot be judged differently. 6. In some member-States, irrespective of the application of Community law, a compromise has been sought between the interest of the patent holder in drawing from it the maximum commercial profit and the public interest in the freedom of commerce, through the doctrine of 'exhaustion' of the exclusive right of first marketing following the sale by the holder and with his consent of the patented product even if this occurred outside the territory for which the relevant

patent was granted. It seems appropriate to state that, as it concerns national patents, such a doctrine does not directly concern the Community system. It can be of importance only on the level of the basic order on which the patent right rests and which governs its content and its vicissitudes. *495 In the case before us, for the recognition of the incompatibility with Community law of the prohibition of importing and marketing in a member-State products already put on the market in another member-State by the single patent holder in the two States or with its consent (all the more so if it is a company controlled by it), it is sufficient to take as a basis the consideration that, in such circumstances, in the absence of any independent production activity in the importing country, the exclusive right of marketing would not serve to protect the essential content of the patent which, relating to an industrial product, cannot be split off from a production activity, but would have the sole function of restricting the trade between the member-States. In such a case, therefore, the derogation in Article 36 of the Treaty would turn out to be inapplicable. Similarly to what I have already had occasion to say in my submissions in Dassonville (8/74) , there would be lacking in such a case the substantial interest, included in the sphere of respect of the importing State, on the basis of which protection that provision permits derogations from the fundamental principle of free movement of goods in the Community. Naturally nothing stops the lawyer, considering internal law, with a view to placing the phenomenon rationally in context in the system of industrial property law, having recourse to the theory of exhaustion of rights. But that is outside the application of the Community prohibition and the refusal of the derogation laid down by Article 36 in relation to industrial property. Such derogation is permitted solely to protect claims which constitute the specific purpose of the property right. Where the patent is used to protect a local producer who is legally and economically dependent on the manufacturer in another member-State of the same goods as are the subject of the patent and the importation of which is in question, and foreign in every respect to the marketing of such goods in another State, the question would present somewhat delicate features; but in the present case the patent is being used simply to protect a commercial monopoly of the group forming an economic unit, to which belong both the single patent holder in the various member-States under consideration and the manufacturer and first marketer of the product in question. In such circumstances the function which the patent is intended to perform is not substantially different from that which has already been held to be inadmissible for trade marks. For that reason, the differences even though important which exist on the level of principle between the two rights cannot here be relevant to justify a protection of the patent differing from that applicable to trade marks, and to justify a use of that right which would lead to the closing of the national markets to the free circulation of a product lawfully put on the market in a member-State. The legal position is not substantially altered by the argument that it is not the conduct of Sterling Drug but the laws of a member-State relied on by it which if anything is incompatible with the rules on free *496 movement of goods. It is incontrovertible that the national courts cannot support a claim which is unlawful

with regard to the Community system, whether the unlawfulness takes the form of the abuse by an individual in the exercise of the right which the internal legal system recognises in him or, in the light of the prohibition of measures of equivalent effect to quotas, it can be ascribed to an objective incompatibility with the Community system of the internal rule which permits it. Here it need only be stated that in the circumstances before us the member-States are not authorised by Article 36 of the Treaty to allow the holder of a patent validly to oppose parallel imports made by third parties. 7. The company Sterling Drug has observed during the present proceedings that if the holder of a patent could no longer prevent the import into a member-State of products put into circulation in another member-State on the basis of a parallel patent, his industrial property right in the importing member-State would be repudiated in its very essence; and that therefore the suppression of the national rules permitting the patent holder to oppose parallel imports could not be carried out without a harmonisation of the national laws on the subject, or the institution of a uniform patent for the whole Community area. The objection cannot stand: there still remains for the beneficiary of a patent the exclusive right both to manufacture the product in question in the country which has granted the patent and to put it onto the market for the first time as his product. Certainly the content of the property rights is defined by the national law which creates them and guarantees them. But the law in force in the individual member-States cannot ignore the existence of the Community system and what such a phenomenon implies. The creation of the Common Market places economic rights and relations in a new dimension; and the Community system constitutes also a new legal formula to govern such relations, at least in the sense of placing limits on the freedom of the States and individuals to regulate them and make use of them. A complete and organic harmonisation of the national industrial and commercial property laws in the light of the functional requirements of the Common Market would certainly be the best solution. But in its absence we should not give up those forms of adaptation which already follow directly from the Treaty. The fact that the draft convention on the institution of a European patent for the Common Market provides for the application of the principle of international exhaustion of patent rights within the Community only after the expiry of a transitional period has no effect on the spirit and content of the Community system and therefore cannot alter the interpretation of the texts in force, the meaning of which is in any case expressly left undefined by the text of the draft itself. On the other hand, in the present state of affairs, the draft can *497 be regarded at the most as the expression of a tendency in its authors and not yet of a common will of the States. I do not deny that sometimes, especially when the patent covers one of the possible manufacturing processes, certain difficulties alleged by Sterling Drug in its defence can be established: for example, concerning the proof of a real identity of the so-called parallel patents or of the source of the products. But for every difficulty relating to the proof of facts there is always a solution, account being also taken of the rules on burden of proof. Besides, it can be regarded as

certain that the national courts, which even in relation to the same national patents are not unaware of the usefulness of recourse to experts, will find the widest co-operation from the party interested in affirming or denying the identity of the patents in question or in proving or excluding a given source of the product. Even certain special situations to which the existence of unharmonised national laws could give rise (e.g., because of the shorter duration of the patent in the licensee's country than in other States), will not raise insoluble problems. And, above all, the parties can take these problems into account in defining their future relations. The possibility of relying on parallel patents in each State of the Community to partition the Common Market, whereby some regions would be reserved for production and others for an exclusive exploitation of a purely commercial character, through the elimination of all possibility of parallel imports, certainly is of great interest for the undertakings, as Sterling Drug Inc. said in its intervention: they would thus have inter alia greater possibilities of manoeuvre with regard to prices. But the interest of the Common Market is diametrically opposed. Besides it is not possible to wait to eliminate a situation incompatible with the Treaty until there has been a harmonisation of the national laws on patents merely to avoid difficulties arising for the undertakings faced with unharmonised national laws. The imperative character of the prohibition in Article 30 and the limited character of the derogations in Article 36 do not permit temporising. If from the application of the prohibition laid down by the Treaty there could follow drawbacks which can only satisfactorily be eliminated by means of harmonisation of the national laws under Articles 100 et seq. of the EEC Treaty, that will be a stimulus to a rapid putting into effect of the desired remedy. 8. We can now consider, running both trade marks and patents together, the other requests drafted in substantially identical terms in the two cases, in relation to the rules of the Treaty which govern the freedom of movement of goods in the Community. The Dutch court asks whether considerable differences in price between the countries concerned, which are due to the intervention of the public authorities in the exporting State to keep the prices low, could justify the prohibition of parallel imports on the basis of *498 the industrial and commercial property rights under consideration here. Let us first recall that in the circumstances in issue in the Deutsche Grammophon case the fact that the level of sales prices of the producer in Germany was threatened by the freeing of imports of its products marketed in France where the prices were rather lower, at least on the wholesale level, certainly did not constitute a hindrance to the opening of the German market. A mere negative effect on the remuneration for the work of art obtainable by the holder of the relevant property right certainly did not compromise the essence of the right itself. The existence of notably lower prices in the State of production as compared with the importing State, even when that is due predominantly to the intervention of the public authorities who are aiming at keeping the prices lower than they would

be without such intervention, could not in any way justify the closure of the national markets so as to permit the economic group forming one with the holder of the patent to re-establish equilibrium in its balance sheet at the cost of the consumers of other member-States in which, by the artificial maintenance of the exclusive right of sale of the manufactured product, notably higher prices could be realised than those in the producing State. If the company Sterling Drug found it inconvenient to continue to market the product patented by it in the State in which the prices are maintained artificially too low, nothing stops it moving that activity to other States of the Community in which more remunerative prices could be charged. On the other hand, the artificial division of the Community area which hinders the free movement of goods lawfully marketed in a member-State conflicts with the very essence of the process of merging the national markets into a single market which is aimed at by the Treaty setting it up. The protection of patents allowed in the Community cannot be kept outside the correct functioning of the laws of the economy and therefore the effects of demand in the area of the Common Market. Finally, and apart from these points, it would not be in conformity with the requirements of the system and with the certainty of law in particular to make the definition of the scope of the exclusiveness allowed, on the Common Market level, to the holders of national trade marks and patents, depend on contingent and very volatile factors such as the intervention of national authorities on prices. 9. The supreme court of the Netherlands also asks whether, in the matter of pharmaceutical products, it is possible to justify the protection of these rights in the sense of excluding parallel imports when the holder in question alleges that, without such protection, he would not be able to control the distribution of the product so as to be able to adopt the measures necessary for the protection of the public safety in case of manufacturing faults. Let us observe first that the requirements connected with the *499 protection of public safety could in no way be validly adopted to justify in a situation such as that proposed the protection of the exclusive right of the trade mark holder against parallel importers. The mark fixes a link between the first seller of the goods and the customers, a link which has a pre-eminent commercial value. The protection of the mark has as its sole object the safeguarding of that constituent element of the sending on its commercial way. The protection of the public safety has nothing to do with the private protection of such a property right. The protection of the public safety, which is a permanent need, is likewise outside the proper function of the property right in patents, which besides is protected solely for a limited period. It does not constitute at all a specific purpose of the exclusive right recognised to patent holders. If a given parallel importer does not comply with the internal rules governing the sale of pharmaceutical products or engages in conduct such as to prejudice or endanger the protection of public safety, that could be a reason justifying on the basis of such rules the intervention of the competent authorities to eliminate the danger, And in that sense even restrictive measures could be justified if they were suitable for such an aim. But that would be so independently of the private law protection of an exclusive rights situation linked to patents or trade marks,

and could in no case justify the use of such rights, in such a situation as that before us, to prevent any imports by third parties. 10. Still in connection with the rules on free movement of goods, the Dutch court asks whether Article 42 [FN10] of the Act concerning the Conditions of Accession of Great Britain to the Community implies that in so far as it is a matter of goods originating in the United Kingdom those rules could not be invoked in Holland until 1 January 1975. Where the national rules which, considered on their own, would permit the holder of a trade mark or patent to oppose importations are prior to the entry into force of the Treaty of Accession, it will not be possible, in the relations with a new member-State, to avoid consenting to their application up to 1 January 1975, since the measure of equivalent effect is the national law itself which, while remaining transitionally applicable on the basis of the express provision of Community law, cannot be rendered in fact unusable, considering in isolation--as a measure of equivalent effect prohibited because subsequent to the Act of Accession--a simple act of application of it. FN10 Article 42 provides: (1) Quantitative restrictions on imports and exports shall, from the date of accession, be abolished between the Community as originally constituted and the new member-States and between the new member-States themselves. (2) Measures having equivalent effect to such restrictions shall be abolished by 1 January 1975 at the latest. That is why the argument put forward to that effect by the Commission is unacceptable as it would lead to preventing the States *500 exercising a power expressly recognised in them, for a transitional period, by the Act of Accession. 11. Let us now look at the request, mentioned briefly at the beginning, relating to Article 85 of the Treaty. The national court in case 15/74 refers to a situation in which the grant by the holder of parallel patents of manufacturing or sales licences in one member-State and of sales licences in another member-State in which the patent is not used for manufacture has in aggregate the aim of governing in different ways, according to the State in question, the conditions of marketing a patented product. The Dutch court asks whether such agreements, considered in the light of the opposition brought by means of court actions against the parallel imports, fall under the prohibition of Article 85 and do so even when they have been concluded exclusively between undertakings belonging to the same group. An essentially similar request, albeit differently formulated, was made in case 16/74 too in relation to the existence of a trade mark identical in various member-States, used by undertakings of the same group to indicate an identical product, and to the use of the attached right in order to prevent parallel imports of the products thus marked. Contracts having as their object the grant of manufacturing or sales licences for a patented product are not in themselves necessarily incompatible with the competition rules of the Treaty. If however, in view of the overall conduct of the parties and the economic and legal context in which the agreements are intended to operate, it can be concluded that these contracts are serving as a basis for a

practice aimed at partitioning national markets, without it being possible to justify it by reference to the protection of rights which are the specific purpose of the patent in question, that can be reflected in the evaluation of the lawfulness of the contracts themselves which make possible or at least facilitate such practices. In that context, even conduct of the type considered above on the part of the holder of the mark in the importing State can assume importance for judging the totality of the legal relations and the conduct in which it is placed. In such a complex of behaviour grafted on to exclusive property rights suitably divided, including geographically, between the members of the same group of companies, it could be possible to recognise the expression of an anti-competitive plan aimed at excluding the competition of third parties from the market in certain member-States. The legal acts and the conduct within which such a plan takes form would therefore be subject to the prohibition laid down by Article 85, naturally where all the other conditions for its application are also present. It is then asked whether these considerations, relating to the applicability of Article 85, apply also when the abovementioned agreements are exclusively between undertakings forming part of a single group of companies controlled by a parent company; or whether in such a case, in view of the lack of autonomy of the subsidiary companies *501 as regards the determination of the conduct on the market, the applicability of Article 85 should be excluded entirely and the sole possibility of control over the behaviour of the group, considered as an entity acting as a single whole on the market, would remain Article 86, which forbids the abuse of a dominant position? In declaring inapplicable the prohibition of Article 85 to agreements which govern the relations between the members of a group, the Commission had right from the beginning placed the emphasis on the fact that between such undertakings, even apart from an agreement, there can be no competition: and it was on the basis of such a fundamental consideration that the Commission has grounded its doctrine, initiated in the negative clearance decision of 18 June 1969 in Re Christiani & Nielsen NV [FN11] in which the agreements made between undertakings of a group subject to actual control by a parent company, which were limited to dividing the tasks within the ambit of a single economic entity, escape the prohibition in Article 85, precisely because in that case those acts did not have an object or effect which restricted competition-- because, by definition, there was none within the group. FN11 [1969] C.M.L.R. D36, [1969] J.O. L165/12. In that context, it would be admissible to consider the applicability of the prohibition laid down by Article 85 when the agreements between the undertakings of the group, far from being limited to regulating the internal relations, aimed at introducing restrictions for third parties, handicapping them in their ability to trade and compete. One difficulty could follow from the case law of this Court which, in relation to groups of undertakings controlled by a parent company, in admitting the inapplicability of the prohibition in Article 85 to contracts between such

undertakings, has placed the emphasis on their lack of economic autonomy and the unitary character of the group making up an economic entity. [FN12] FN12 See Beguelin Import Co. v. G. L. Import-Export SA (22/71), [1972] C.M.L.R. 81, 17 Recueil 949 (1971) para. [8]; I.C.I. Ltd. v. E.C. Commission (48/69), [1972] C.M.L.R. 557, 18 Recueil 619 (1972) paras. [132- 140]; J. R. Geigy AG v. E.C. Commission (52/69), [1972] C.M.L.R. 557, 18 Recueil 787 (1972) paras. [43-45]; Istituto Chemioterapico Italiano SpA and Commercial Solvents Corp. v. E.C. Commission (6-7/73), [1974] 1 C.M.L.R. 309, [1974] E.C.R. 223, paras. [36-41]. But let us remember that this case law did not aim at excluding as a general principle the applicability of Article 85 to agreements and practices in which only undertakings belonging to a group take part. In Beguelin (22/71) [FN13] it was a question of the grant of an exclusive sales agency by a parent company to one of its subsidiaries established in another member-State with regard to the products of an undertaking of a non-member State. For the competitors and consumers of the Community there was no difference in the fact that it was the parent company which had the exclusive sales agency in two *502 States or that one of its subsidiaries was substituted for it in one of those States. FN13 [1972] C.M.L.R. 81, 17 Recueil 949 (1971). The Court, taking account of the purpose of the agreement, considered that the precondition of a restriction of competition was lacking. In the other cases cited, it was a matter of determining whether anti-competitive conduct of a subsidiary company established in the Common Market could be imputed to the parent company which controlled it and which was established in a non-member country. The specific function of the notion of the economic unit which a group constitutes can be thus understood in such a perspective. And it can thus be excluded that this case law, aimed at meeting very precise requirements, can prejudice the applicability of Article 85 when confronted with agreements and concerted practices between the members of a single group when such acts and conduct have the object or effect of restricting the freedom of competition of third parties. And with this I think I shall bring to an end the submissions which I propose to the Court in answer to the questions put by the Hoge Raad. JUDGMENT (Case 15/74--drafting judge, Sorensen J.) [1] By an interlocutory judgment of 1 March 1974, which reached this Court on 4 March, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) put, under Article 177 of the EEC Treaty, certain questions relating to patent rights in relation to the provisions of the Treaty and of the Act of Accession of the three new member-States. [2] The Hoge Raad, in the referring judgment, set out as follows the facts and national law it had in mind for the purpose of the reply to the questions it put:

-- a patentee holds parallel patents in several States belonging to the EEC; -- the products protected by such patents are lawfully marketed in one or more of such member-States by undertakings to which the patentee has granted manufacture and sales licences or merely sales licences; -- these products are subsequently exported by third parties, put on the market in one of the other member-States and resold; -- the patent law applicable in the latter member-State gives to the patentee the right to use legal proceedings to oppose the marketing of the products protected by his patent in that country by other persons, even though the products have previously been lawfully marketed in another country by the patentee or a licensee from him. [3] It appears from the hearing that the action concerns the *503 rights of a holder of parallel patents in several member-States who, in one of such States, grants an exclusive marketing concession for the patented product, which does not cover its manufacture, while the patentee refrains from manufacturing the patented product in that same member-State. As to question I (a) [4] In this question the Court is asked to say whether, in the circumstances given, the rules of the Treaty on free movement of goods prevent a patentee opposing the marketing by other persons of a product protected by the patent. [5] The effect of the provisions of the Treaty on the free movement of goods, particularly Article 30, is to prohibit between member-States measures restricting imports and all measures of equivalent effect. [6] By Article 36 these provisions do not, however, prevent prohibitions or restrictions on imports justified on grounds of protection of industrial and commercial property. [7] But it appears from that same Article, particularly from its second sentence, as well as from the context, that while the Treaty does not affect the existence of the rights in industrial and commercial property recognised by the law of a member-State, the exercise of such rights may nonetheless, according to circumstances, be affected by the prohibitions in the Treaty. [8] In so far as it makes an exception to one of the fundamental principles of the Common Market, Article 36 allows derogations to the free movement of goods only to the extent that such derogations are justified for the protection of the rights which constitute the specific object of such property. [9] As regards patents, the specific object of industrial property is inter alia to ensure to the holder, so as to recompense the creative effort of the inventor, the exclusive right to utilise an invention with a view to the manufacture and first putting into circulation of industrial products, either directly or by the grant of licences to third parties, as well as the right to oppose any infringement. [10] The existence, in national laws on industrial and commercial property, of provisions that the right of a patentee is not exhausted by the marketing in another member-State of the patented product, so that the patentee may oppose the import into his own State of the product marketed in another State, may

constitute an obstacle to the free movement of goods. [11] While such an obstacle to free movement may be justifiable for reasons of protection of industrial property when the protection is invoked against a product coming from a member-State in which it is not patentable and has been manufactured by third parties without the consent of the patentee or where the original patentees are legally and economically independent of each other, the derogation *504 to the principle of free movement of goods is not justified when the product has been lawfully put by the patentee himself or with his consent, on the market of the member-State from which it is being imported e.g., in the case of a holder of parallel patents. [12] If a patentee could forbid the import of protected products which had been marketed in another member-State by him or with his consent he would be enabled to partition the national markets and thus to maintain a restriction on the trade between the member-States without such a restriction being necessary for him to enjoy the substance of the exclusive rights deriving from the parallel patents. [13] The plaintiff has argued along these lines that because of the variations between the national laws and practices there are no truly identical or parallel patents. [14] On that it should be noted that in spite of the variations in the national rules on industrial property resulting from lack of unification, the essential element for the judge to decide in the notion of parallel patents is the identity of the protected invention. [15] The question should therefore be answered to the effect that the exercise by a patentee of the right given him by the laws of a member-State to prohibit the marketing in that State of a product protected by the patent and put on the market in another member-State by such patentee or with his consent would be incompatible with the rules of the EEC Treaty relating to the free movement of goods in the Common Market. As to question I (b) [16] This question was put should the Community rules not in all circumstances oppose the patentee exercising the right conferred on him by the national law to prohibit the import of the protected product. [17] Question I (b) has become without substance following the reply given to question I (a) above. As to question I (c) [18] By this question the Court is asked to say whether the reply to question I (a) varies according to whether the patentee and his licensees do or do not belong to the same group. [19] It follows from the reply given to question I (a) that the essential factor constituting a restriction in the trade between member-States is the territorial protection given in a member-State to a patentee against the import of the

product which has been marketed in another member-State by the patentee himself or with his consent. [20] Thus the grant of a sales licence in a member-State has the result that the patentee can no longer oppose the marketing of the protected product throughout the Common Market. *505 [21] It therefore makes no difference whether the patentee and the licensees belong to the same group or not. As to question I (d) [22] By this question the Court is asked to say, in substance, whether the patentee may, notwithstanding the reply given to the first question, oppose the import of the protected products when there are price differences resulting from measures taken by the public authorities in the exporting country to control the prices of the goods. [23] The Community authorities have among their tasks that of eliminating factors which could be likely to distort competition between member-States, e.g., by the harmonisation of national measures for the control of prices and by the prohibition of aids incompatible with the Common Market, as well as by the exercise of their powers in competition matters. [24] The existence of such factors in a member-State, however, could not justify the maintenance or the introduction by another member-State of measures incompatible with the rules on the free movement of goods, inter alia relating to industrial and commercial property. [25] A negative reply should thus be given to this question. As to question I (e) [26] By this question the Court is asked to say whether a patentee, in order to be able to control the distribution of a pharmaceutical product with a view to the protection of the public against risks from defective products, is authorised to exercise the rights conferred on him by the patent notwithstanding the Community rules on the free movement of goods. [27] The protection of the public against the risks from defective pharmaceutical products is a legitimate concern, and therefore Article 36 of the Treaty authorises the member-States to derogate from the rules on the free movement of goods for reasons of protection of health and life of humans and animals. [28] However, the measures necessary to that end should be taken as part of the field of public health control and not by way of a misuse of the rules on industrial and commercial property. [29] Besides, the specific object of the protection of industrial and commercial property is distinct from the object of the protection of the public and any responsibilities that can imply. [30] A negative reply should therefore be given to this question. As to question I (f)

[31] By this question the Court is asked to say whether Article 42 of the Act of Accession of the three new member-States implies *506 that the rules of the Treaty on the free movement of goods cannot be invoked in Holland before 1 January 1975 in so far as the goods in question come from the United Kingdom. [32] Article 42 of the Act of Accession provides in paragraph 1 that quantitative restrictions on imports and exports between the Community as originally constituted and the new member-States shall be abolished from the date of accession. [33] Under paragraph 2 of the same Article, which is more particularly in mind in the question, 'measures having equivalent effect to such restrictions shall be abolished by 1 January 1975 at the latest'. [34] In its context this provision can apply only to those measures of equivalent effect to quantitative restrictions which, as between the original six member-States, had to be abolished by the end of a transitional period under Articles 30 and 32 to 35 of the EEC Treaty. [35] It follows therefore that Article 42 of the Act of Accession has no effect on the import prohibitions resulting from national law on industrial and commercial property. [36] Such matter is therefore subject to the principle embedded in the Treaty and in the Act of Accession that the provisions of the Treaties instituting the European Communities regarding free movement of goods, particularly Article 30, are applicable to the new member-States as from the date of accession unless expressly provided otherwise. [37] It follows that Article 42 of the Act of Accession could not be invoked to hinder the import into Holland, even before 1 January 1975, of goods put on the United Kingdom market by the patentee or with his consent in the circumstances set out above. As to questions I (a) and (b) [38] By these questions the Court is asked to say whether Article 85 of the Treaty is applicable to agreements and concerted practices between the holder of parallel patents in different member-States and his licensees, if the totality of the agreements and concerted practices has the aim of regulating differently according to country the market conditions for goods protected by the patents. [39] While the industrial property rights recognised by the law of a member-State are not affected in their existence by Article 85 of the Treaty, the way in which they are exercised may be covered by the prohibitions set out in that Article. [40] That may be so whenever the exercise of such a right appears as the object, means or consequence of an agreement. [41] Article 85, however, does not apply to agreements or concerted practices between undertakings belonging to the same group in the form of parent company and subsidiary, if the undertakings *507 form an economic unit within which the subsidiary does not have real autonomy in determining its line of conduct on the market and if the agreements or practices have the aim of

establishing an internal distribution of tasks between the undertakings. As to costs [42] The costs incurred by the Government of Denmark and the E.C.Commission, which submitted observations to the Court, may not be the subject of an order. [43] Since these proceedings, as regards the parties to the action, are in the nature of interlocutory proceedings in the action before the Hoge Raad der Nederlanden, it is for that court to make any order as to costs. THE COURT, for these reasons, giving a ruling on the questions put to it by the Hoge Raad der Nederlanden in its interlocutory judgment of 1 March 1974, HEREBY RULES: 1. The exercise by a patentee of the right given him by the laws of a member-State to prohibit the marketing in that State of a product protected by the patent and put on the market in another member-State by such patentee or with his consent would be incompatible with the rules of the EEC Treaty relating to the free movement of goods in the Common Market. 2. In that connection, it makes no difference whether the patentee and the undertakings to which he has granted licences do or do not belong to the same group. 3. It also makes no difference whether there exist between the exporting member-State and the importing member-State price differences resulting from measures taken by the public authorities in the exporting State with a view to controlling the price of the product. 4. The holder of a patent for a pharmaceutical product could not evade the Community rules on the free movement of goods in order to control the distribution of the product for the protection of the public against defective products. 5. Article 42 of the Act concerning the Conditions of Accession and the Adjustments to the Treaties could not be invoked to prevent the import into Holland, even before 1 January 1975, of goods put on the market in the United Kingdom by the patentee or with his consent. 6. Article 85 of the Treaty does not apply to agreements or concerted practices between undertakings belonging to *508 the same group in the form of parent company and subsidiary, if the undertakings form an economic unit within which the subsidiary does not have real autonomy in determining its line of conduct on the market and if the agreements or practices have the aim of establishing an internal distribution of tasks between the undertakings. JUDGMENT (Case 16/74--drafting judge, Sorensen J.) [1] By an interlocutory judgment of 1 March 1974, which reached this Court on 4 March, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) put, under Article 177 of the EEC Treaty, certain questions relating to trade mark rights in relation to the provisions of the Treaty and of the Act of Accession of the three new member-States.

[2] The Hoge Raad, in the referring judgment, set out as follows the facts and national law it had in mind for the purpose of the reply to the questions it put: -- several undertakings belonging to the same group have the right to use the same mark to designate a given product in various States of the EEC; -- the products bearing that mark, lawfully marketed in one of the member-States by the holder of the mark, are subsequently acquired and exported by third parties to one of the other States where they are put on the market and resold; -- the trade mark law applicable in the latter member-State gives to the holder of the trade mark the right to use legal proceedings to oppose the marketing of the products bearing the mark in that country by other persons, even though the products have previously been lawfully put on the market in that other country by an undertaking belonging to the same group and holder of the mark in the other country. As to question I (a) [3] By this question the Court is asked to say whether, in the circumstances posited, the rules of the Treaty on free movement of goods prevent the holder of the mark opposing the marketing by other persons of a product protected by the mark. [Paras. [4]-[7] are identical to paras. [5]-[8] of Case 15/74.] [8] As regards trade marks, the specific object of commercial property is inter alia to ensure to the holder the exclusive right to utilise the mark for the first putting into circulation of a product, and to protect him thus against competitors who would take advantage of the position and reputation of the mark by selling goods improperly bearing the mark. [9] The existence, in nationals laws on industrial and commercial *509 property, of provisions that the right of the trade mark holder is not exhausted by the marketing in another member-State of the product protected by the mark, so that the holder may oppose the import into his own State of the product marketed in another State, may constitute an obstacle to the free movement of goods. [10] Such an obstacle is not justified when the product has been lawfully put, by the holder himself or with his consent, on the market of the member-State from which it is imported in such a way that there can be no question of abuse or infringement of the mark. [11] If the holder of a trade mark could forbid the import of protected products, which had been marketed in another member-State by him or with his consent, he would be enabled to partition the national markets and thus to maintain a restriction on the trade between the member-States without such a restriction being necessary for him to enjoy the substance of the exclusive right deriving from the mark. [12] The question should therefore be answered to the effect that the exercise by the holder of a mark of the right given him by the laws of a member-State to prohibit the marketing in that State of a product bearing the mark put on the market in another member-State by such holder or with his consent would be incompatible with the rules of the EEC Treaty relating to the free movement of

goods in the Common Market. As to question I (b) [Paras. [13]-[14] are identical to paras. [16]-[17] of Case 15/74, with the replacement of patentee by trade mark holder.] As to question I (c) Paras. [15]-[18] are identical to para. [22]-[25] of Case 15/74, with the replacement of patentee by trade mark holder and consequential changes in para. [15].] As to question I (d) [Paras. [19]-[23] are identical to paras. [26]-[30] of Case 15/74, with the replacement in para. [19] of references to patents by references to trade marks.] As to question I (e) [Paras. [24]-[30] are identical to paras. [31]-[37] of Case 15/74, with the replacement in para. [30] of references to patents by references to trade marks.] As to question (II) [31] By this question the Court is asked to say whether there is a concerted practice prohibited by Article 85 of the Treaty when an *510 undertaking belonging to a group utilises its trade mark rights to oppose the marketing by a third party of a product which has previously been put in circulation in another country by an undertaking which belongs to the same group and is the holder of the mark in that other country. [32] Article 85 does not apply to agreements or concerted practices between undertakings belonging to the same group in the form of parent company and subsidiary, if the undertakings form an economic unit within which the subsidiary does not have real autonomy in determining its line of conduct on the market and if the agreements or practices have the aim of establishing an internal distribution of tasks between the undertakings. As to costs [33] The costs incurred by the E.C. Commission, which submitted observations to the Court, may not be the subject of an order. [34] Since these proceedings, as regards the parties to the action, are in the nature of interlocutory proceedings in the action before the Hoge Raad der Nederlanden, it is for that court to make any order as to costs. THE COURT, for these reasons, giving a ruling on the questions put to it by the

Hoge Raad der Nederlanden in its interlocutory judgment of 1 March 1974, HEREBY RULES: 1. The exercise by the holder of a trade mark of the right given him by the laws of a member-State to prohibit the marketing in that State of a product bearing the mark and put on the market in another member-State by such holder or with his consent would be incompatible with the rules of the EEC Treaty relating to the free movement of of goods in the Common Market. 2. In that connection, it makes no difference whether there exist between the exporting member-State and the importing member-State price differences resulting from measures taken by the public authorities in the exporting State with a view to controlling the price of the product. 3. The holder of a trade mark for a pharmaceutical product could not evade the Community rules on the free movement of goods in order to control the distribution of the product for the protection of the public against defective products. 4. Article 42 of the Act concerning the Conditions of Accession and the Adjustments to the Treaties could not be invoked to prevent the import into Holland, even before *511 1 January 1975, of goods put on the market in the United Kingdom by the patentee or with his consent. 5. Article 85 of the Treaty does not apply to agreements or concerted practices between undertakings belonging to the same group in the form of parent company and subsidiary, if the undertakings form an economic unit within which the subsidiary does not have real autonomy in determining its line of conduct on the market and if the agreements or practices have the aim of establishing an internal distribution of tasks between the undertakings.

(c) Sweet & Maxwell Limited [1974] 2 C.M.L.R. 480 END OF DOCUMENT