61977C0028
OPINION OF MR ADVOCATE GENERAL CAPOTORTI
DELIVERED ON 10 MAY 1978 (
1
)
Mr President,
Members of the Court,
1.
The present dispute originated in an application by Tepea, a Netherlands undertaking, against the Commission for the annulment of the decision of the Commission against it following a proceeding under Article 85 of the EEC Treaty.
I consider it essential first of all to summarize the facts which form the basis of the dispute.
In 1954 Mr Cecil E. Watts began manufacturing and marketing in the United Kingdom a product which he had invented for cleaning gramophone records. More precisely the product is an automatic record cleaner named a ‘Dust Bug’. Other similar products were produced some years later: the ‘Parostatik Disc Preener’, used for the maintenance of records; the ‘Manual Parastat’, which is used chiefly for restoring the quality of old records; and the ‘Hi-fi Parastat Kit’ for high quality record-playing equipment.
In September 1956 Mr Watts granted to the undertaking Theal NV of Amsterdam (which in 1976 changed its name to Tepea BV) the exclusive right of sale of his products in the Netherlands. At that time Watts manufactured only the device known as the ‘Dust Bug’.
On 24 January 1963 Theal notified the exclusive dealing agreement to the Commission and described the objectives of that agreement as follows: an ‘exclusive dealing agreement whereby the factory undertakes to supply only Theal NV in Netherlands territory and to pass on all orders originating in that territory to NV’.
In support of its view that the agreement did not fall under the prohibition in Article 85 (1) of the EEC Treaty Theal stated that ‘the agreement in question does not exclude free competition within the Member State concerned or between Member States but its sole object is to make available to the consumer the best possible service’.
In 1969 the Commission, giving its views on the basis of the said notification, stated that on a preliminary examination the notification seemed to come within that class of agreements permitted by Regulation No 67/67 of the Commission of 22 March 1967 (on the application of Article 85 (3) of the Treaty to certain categories of exclusive dealing agreements), whilst pointing out to Theal that the exemption from the prohibition imposed by that regulation did not apply when parties sought to achieve absolute territorial protection. If that were the case it would be necessary to amend the agreement. Theal did not reply to the invitation of the Commission to inform it of any comments arising from the preliminary examination of the agreement.
In 1972 one of Theal's customers, Mr Wilkes of Leeuwarden, the proprietor of a firm which sells record-playing equipment and similar goods (including Watts's products), who had observed that Theal's prices were appreciably higher than the prices charged by wholesalers in the United Kingdom, managed to obtain through Audiogram, a Netherlands wholesale importer, a consignment of Watts products purchased by Audiogram from a wholesaler in London who in his turn appears to have received them directly from the manufacturer.
In the course of the same year, 1972, Theal, in reliance upon its right in the Netherlands to the marks ‘Dust Bug’, ‘Disc Preener’, ‘Parastat’ and ‘Watts’ (which, as I have stated, cover the various Watts products distributed by Theal) obtained through summary proceedings an order from the President of the Arrondissementsrechtbank (District Court), Leeuwarden, that Wilkes must cease within 24 hours all trade in the products bearing the trade-marks referred to.
Since Wilkes did not concur in this decision, in 1973 he summoned both Watts and Theal before the Arrondissementsrechtbank, Amsterdam. Subsequently he also notified the Commission of the behaviour of his opponents.
The Commission then instituted proceedings against Theal and Watts which terminated in a decision adopted on 21 December 1976 which was unfavourable to both of those undertakings. This is the decision against which Theal, which is now known as Tepea, instituted on 21 February 1977 this application for annulment in which Watts has not participated. In the course of the proceedings the undertakings Wilkes and All Wave have intervened; the Court of Justice allowed the intervention by an order of 21 September 1977.
2.
The Commission's decision was based on two points. First: that the agreement between Watts and Theal had as its object and effect the isolation of the Netherlands market in respect of trade in Watts products thereby preventing third panics from competing effectively in the marketing thereof: Article 85 (1) of the EEC Treaty was thereby infringed. Secondly the notification of the agreement by Theal on 24 January 1963 contained ‘incorrect and misleading’ information and in particular failed to point out the part of the agreement covering the use by Theal of trade-marks owned by Watts: Article 15 (1) (a) of Regulation No 17 of the Council of 6 February 1962 was thereby infringed. On this finding the Commission imposed on Theal and Watts fines of 10000 u.a. each for the infringement of Article 85 (1); furthermore pursuant to the said Article 15 of Regulation No 17 it imposed on Theal a fine of 5000 u.a. for failing in its duty to provide information relating to the notification required under Articles 4 and 5 of that regulation.
In the statement of the facts and of the reasons which form the basis for its decision the Commission accepted that Watts, in addition to granting the Theal undertaking the sole right to distribute in the Netherlands the ‘Dust Bug’, and subsequently its other products for the cleaning and maintenance of gramophone records, had also granted it the sole right to use in the Netherlands the trade-marks pertaining to the products in question. In this way Theal obtained in the Netherlands absolute territorial protection for the importation and marketing of Watts products, a protection which was subsequently increased, at any rate from 1972, when Watts prohibited wholesalers in the United Kingdom from exporting the products to the Netherlands.
Tepea on the other hand has denied that it concluded an agreement with Watts concerning the marks which it used in the sale of the products in question.
According to the applicant the marks ‘Disc Preener’ and ‘Parastat’ belonged to it from the outset in that it had itself established and registered them in the Netherlands after the conclusion of the exclusive dealing agreement. With regard to the ‘Dust Bug’, trade-mark Tepea maintains that it began to use it in the Netherlands before Watts used it in the United Kingdom.
There is thus a clear divergence between the Commission's findings and Tepea's statements. However, before I investigate the discrepancy between the two points of view and thereby indicate which of them appears persuasive in the light of the file and of the oral procedure I should like to clarify the legal criteria on which the solution of the present procedure must be based.
3.
As the Court is aware agreements between undertakings fall under the prohibition laid down in Article 85 (1) of the EEC Treaty if they may ‘affect trade between Member States’ and have ‘as their object or effect’ a negative influence on competition within the Common Market.
It is thus sufficient for the prohibition to apply that the agreement should have as its result the ‘prevention, restriction or distortion of competition within the Common Market’ if it ‘is capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between Member States’ (cf. the judgment of the Court of Justice of 13 July 1966 in Joined Cases 56 and 58/64 Consten and Grundig [1966] ECR 299, in particular at p. 341). I should like to emphasize that a potential effect on patterns of trade between Member States is sufficient: the Court of Justice had already stated this in its judgment of 30 June 1966 in Case 56/65 Société Technique Minière ([1966] ECR 235). On the other hand if the agreement is operative on the territory of the Common Market, the fact that one of the undertakings which are parties to it is at the time of entering into the contract in a non-member country does not prevent the application of Article 85: cf. in this connexion the judgment of 25 November 1971 in Case 22/71 Béguelin ([1971] ECR 949).
With specific regard to exclusive dealing agreements reference should be made first of all to the said judgment in the Consten and Grundig case which shows that an exclusive dealing agreement between a manufacturer in one Member State and a distributor established in another comes under the prohibition in Article 85 if that producer, by becoming the proprietor of the trade-mark applied by the manufacturer to the product and by relying on prohibitions on exports imposed by the manufacturer on wholesalers in his own country enjoys absolute territorial protection against parallel imports of the same product into his State.
Subsequently it was stated in the judgment of 25 November 1971 in the Béguelin case that an exclusive dealing agreement is liable to affect trade between Member States, and may have the effect of impeding competition if, owing to the combined effects of the agreement and of national legislation regarding unfair competition, the dealer is able to prevent parallel imports from other Member States from entering the territory covered by the agreement.
These judgments thus show that the conditions for the application of Article 85 (1) of the Treaty are satisfied when under an exclusive dealing agreement the dealer has the power to prevent parallel imports from other States and that it is unnecessary to establish whether such power has in fact been exercised.
With regard to trade-marks it has been clearly established in the decisions of the Court of Justice that under Community law such marks cannot be used to prevent parallel imports of a genuine product coming from the same foreign manufacturer who also supplies the local owner of the mark, especially if there are legal or commercial links between that owner and the manufacturer (cf. judgment of 31 October 1974 in Case 16/74 Centrafarm [1974] ECR 1183).
A case of this nature does not constitute the exception mentioned in the judgment of 22 June 1976 in Case 119/75 Terrain ([1976] ECR 1039) concerning possible confusion between similar products originating in different Member States, bearing similar marks belonging to persons legally and economically independent. Likewise it is impossible to rely upon the power of the proprietor of a mark in the Community to use that mark to prevent the importation of similar products originating in third countries and bearing the same mark; that power was recognized in a situation in which the proprietor of a mark in the Community himself manufactured the product bearing the mark (cf. the judgment of 15 June 1976 in Case 51/75 EMI Records [1976] ECR 811).
With these decisions in view let us now proceed to consider the questions of fact which arise in the present case.
4.
Let us consider first of all the circumstances before and during the conclusion of the exclusive dealing agreement between Theal and Watts in order to establish whether the two parties, before, during or indeed after that agreement but at any rate before the notification to the Commission came to an understanding on the use in the Netherlands by Theal-Tepea of marks identical to those employed in the United Kingdom by Watts.
Both parties and the interveners concurred in replying to the questions submitted by the Court of Justice that, before the conclusion of the exclusive dealing agreement between Watts and Theal, none of the marks in question had been registered in any of the States which were then members of the Community or in the United Kingdom. Furthermore from 1954 to 1956, as I have stated, Watts manufactured only the product known as the ‘Dust Bug’. The devices termed ‘Disc Preener’ and ‘Parastat’ invented in subsequent years were distributed by Theal in the Netherlands from 1958 and 1962 respectively and were then registered by Theal in its own name in the Benelux register in the years 1971 and 1972; on the other hand since Theal only began to use the ‘Watts’ mark from 1964 (that is, after the date of the notification in question) this factor falls outside the scope of my considerations.
It appears certain that when the exclusive dealing agreement was concluded it was possible both in the United Kingdom and in the Netherlands to acquire a right to a trade-mark on the basis of use. It is likewise certain that the name ‘Dust Bug’ was used for the first time by Mr Watts, the inventor of the device bearing that name, in 1955 both in the United Kingdom and the Netherlands. This is established first of all by the article published by Mr Watts in the January 1955 number of the magazine ‘Wireless World’; secondly, with particular regard to the use of that mark in the Netherlands, by extracts from Mr Watts's financial records. Indeed these records show that in 1955 Watts had sold directly in the Netherlands consignments of the ‘Dust Bug’ to Netherlands undertakings amongst which Theal did not feature. It was subsequently explained at the hearing that the ‘Dust Bug’ alone was concerned. It is impossible to believe that Watts at that time sold the device in the Netherlands which he himself had advertised under the name of ‘Dust Bug’ (that is clear from the advertisement appearing in the said number of the above-mentioned magazine) whilst omitting to apply that name to it. Furthermore in English this name is not a common noun; there seems, then, no reason for Watts to apply it to his product other than for use as a mark. It is very probable that Watts himself devised this unusual name since it has been recognized that it originates from Mr Watts's experiences as a photographer of the insect world. It thus appears that Theal is not well founded in its claim that it used the name before the inventor of the product and of the name.
Accordingly if account is taken of the fact that Watts used the ‘Dust Bug’ mark first (it was indeed used by him both in the United Kingdom and in the Netherlands for a year before the conclusions of the agreement with Tepea) and of the fact that in both States the use of the mark at that time established the right to it, Watts's consent, in the initial stages of their business relations, that Theal should use the ‘Dust Bug’ mark in the Netherlands cannot constitute, as Tepea claims, a mere expression of indifference concerning the proposal put forward by Theal; in fact such agreement constituted an actual authorization to exercise one of Watts's rights. It was in brief an agreement with regard to the mark which, since it had the effect of restricting competition and by its nature formed part of the exclusive dealing agreement, was in breach of Article 85 of the EEC Treaty and in any case should have been notified by Theal together with the principal agreement.
With regard to the other marks to which reference is made in the contested decision the circumstance that such marks were used at the same time by their inventor in the United Kingdom and by his sole distributor in its own name in the Netherlands and that they were employed by Watts from the outset to designate his products establishes by itself a presumption, apart from other evidence, that the two undertakings were also in agreement on this point. The existence of such an undertaking is furthermore confirmed by the subsequent behaviour of the two undertakings concerning trade in the relevant products in the Netherlands.
Finally it should not be forgotten that in 1971, after the entry into force of the Benelux law on trade-marks, Watts lodged an application to register these marks in its own name in the Netherlands. This confirms that Watts considered that it was the proprietor of the marks despite the fact that it had permitted Theal to use them. Shortly afterwards the application was withdrawn, as I shall explain a little later, as the result of an agreement between the two undertakings which preserved Watts's prior right to the marks.
In conclusion, then, these factors, even apart from the point whether Watts or Theal was the first to use one or other of the marks in question in the Netherlands, provide grounds for considering that the two undertakings concluded an agreement on the sole use by Theal of these marks which Watts had applied to the products invented by him.
5.
It appears to me appropriate at this point to try to clarify the reasons for Watts withdrawal of its own application to register the marks in question in the Netherlands. It could with good reason be claimed that the grounds were of a tactical nature in relation to the cases then pending before the Netherlands courts: this is clear from the documents on the file in those cases.
The Commission in its contested decision has stated that on 10 October 1973 Theal wrote to Watts acknowledging the latter's ownership of the marks ‘Parastat’, ‘Disc Preener’, ‘Dust Bug’ and ‘Watts’ but requesting Watts to withdraw its application for registration in the Netherlands; it was understood that Theal undertook to transfer the rights back to Watts at its request. As a result of that letter, the Commission maintains, on 25 October 1973 Watts withdrew its application.
Although the applicant concedes that it wrote to Watts in the terms indicated above it states in the writ instituting the proceedings that it subsequently annulled the letter of 10 October by another letter of 19 October 1973 since the first letter entirely disregarded the facts and the legal relations existing between itself and Watts. In the reply the applicant has however put forward a different ground, namely the wish to avoid a situation which could be considered at variance with Article 85 of the Treaty.
The summary of the discussions held at The Hague on 10 October 1973 between the representatives of the two undertakings, drawn up by an English agent of Watts and dated 18 October 1973, instead confirms the Commission's arguments to the effect that Theal's letter of 10 October represented the intended result of these discussions. In that summary it will be recalled inter alia that Theal's legal adviser suggested that none of Watts's marks should appear in the Benelux register in order that Theal should be able to succeed in its defence to the proceedings instituted by Wilkes before the Arrondissementsrechtsbank, Amsterdam. According to the author of the summary this meant that ‘for a certain time Theal will have been the sole proprietor of the marks in the Netherlands’. Nevertheless Theal's representative stated that his undertaking was prepared to bind itself to transfer to Watts on request the rights to the trademarks.
The letter of 25 October 1973 addressed by Theal's agent to Watts's agent further shows that this step was taken in view of court proceedings alone. It is stated that the removal of Watts's marks from the Benelux register was necessary to avoid jeopardizing the credibility of the arguments advanced by Theal in the proceedings instituted against it by Wilkes.
Other documents, then, confirm the existence of an agreement between Theal and Watts concerning the marks.
The Commission in its statement of defence cites the declaration made on 11 July 1975 by Mr Meijling, Theal's director, in connexion with a meeting held in London with two officials of the Commission; according to that declaration Mr Meijling notified Watts for the first time in the business relations between Theal and Watts that Theal intended itself to use the name ‘Dust Bug’ in the Netherlands and Watts agreed to this. It further emerges from that declaration that Mr Watts's widow had admitted that her husband authorized Theal to use the marks in question but never recognized that Theal had used them before Watts.
The minutes of the meeting of 11 July 1975 with the officials of the Commission were approved by Watts by a letter of 3 November 1975. The declaration concerning Mrs Watts's above-mentioned admission was repeated at the meeting of 23 March 1976 between Theal's representatives and the officials of the Commission and embodied in the minutes (‘Mrs Watts admitted that Mr Watts authorized Theal to use the marks in question’) which were then approved both by Theal (letter of 5 July 1976) and by Watts (letter of 7 July 1976).
However, regardless of the existence of these documents and in view of the links between the two undertakings in question the mere fact of Watts's previous toleration of the use by Theal in its own name in the Netherlands of marks belonging to Watts both in the United Kingdom and in the Netherlands is sufficient to establish that there was a tacit agreement on this point. As I have already stated, the agreement was intended to obtain for Theal absolute territorial protection on the Netherlands market which would also cover any importations of Watts products which might be effected through other Member States. The prohibition on exports subsequently imposed by Watts on its wholesalers in Britain must have contributed to that result; it is probable that Watts took this step at the express request of Theal as may be easily divined from the tenor of the reply of 8 September 1956 whereby Watts confirmed the exclusive dealing agreement which had just been concluded with Theal.
6.
I consider that the foregoing considerations convincingly establish that Theal and Watts were bound by an agreement which had its object the use by Theal, the exclusive distributor, of the marks for Watts products in order to obtain for the latter absolute territorial protection in the Netherlands in respect of the trade in Watts products. It follows logically from this finding that both infringements at issue between the Commission and Tepea-Theal (the infringement of the prohibition contained in Article 85 (1) of the EEC Treaty and of the duty to provide accurate information laid down in Regulation No 17), were in fact committed. Let us however suppose for the time being that proof of the existence of the above-described agreement had not been obtained or were held to be insufficient. Even in that case I think that the first and principal infringement which Tepea-Theal is alleged to have committed, that of the said Article 85 (1), must be regarded as proved.
In fact, even if it were accepted that the marks registered by the applicant in its own name in the Netherlands belonged to it as the original proprietor and had not formed the subject-matter of an agreement to that end with Watts, this would not rule out the unduly restrictive effect on competition produced by the exclusive dealing agreement between Watts and Tepea to the prejudice both of competing undertakings, which were seriously hindered in marketing Watts products in the Netherlands, and of consumers, who were unable to enjoy to the fullest extent the lower prices charged by Watts in the United Kingdom.
The restrictive effect emerges objectively from the combined effect of the exclusive dealing agreement and the following parallel and complementary circumstances:
(a)
the acquisition by Watts's sole distributor of the right in the Netherlands to marks identical with those applied by the manufacturer to designate the products in question (at least with regard to ‘Dust Bug’, ‘Disc Preener’ and ‘Watts’;
(b)
the employment of these Netherlands marks by Watts's exclusive distributor in order to prevent parallel imports into the Netherlands of products originating from Watts through distributors other than the exclusive distributor;
(c)
the imposition by Watts on British wholesalers of the prohibition on the exportation of its products from the United Kingdom; and for that purpose,
(d)
the affixing by Watts to its own products of vignettes from which it was possible to identify any wholesaler who might supply the products by way of parallel importations.
The above-mentioned use by Theal-Tepea of the mark is established beyond doubt by the documents on the file. I refer in particular to the letter of 5 September 1972 from Theal to Audiogram, to the letter of 25 October 1972 from Theal to the editor of the newspaper RTH and to the documents in the court proceedings in the Netherlands from 1972 to 1976 between Theal and Wilkes. In the course of those proceedings Theal claimed that it was itself entitled ‘to prevent Wilkes from using Watts's marks for the sale of Watts products’ (paragraph 11 of Theal's statement of 21 November 1973 before the Arrondissementsrechtbank, Amsterdam).
It is clear in particular from these documents that Theal, in seeking to prevent other persons from importing Watts products into the Netherlands, merely relied upon the fact that the products had not been supplied by it but had been obtained through other channels. On the basis of this fact alone Theal, in reliance on its trade-mark, contested the marketing of the products in the Netherlands which it considered an infringement of its mark. It was only after 1976, that is, after the Commission had begun the proceeding to establish the infringement of Article 85 that Theal, appreciating the weakness of its position in Community law, raised the point of the authenticity of the products marketed by Wilkes in the Netherlands as products manufactured by Watts.
All this indicates that the argument in question is a pretext. Theal had in its possession examples of the ‘Dust Bug’ article marketed in the Netherlands by Wilkes and bearing on the container, in addition to the name ‘Dust Bug’, the Watts mark; however, instead of proving that the product in question was not in fact genuine, that is, that it was not manufactured by Watts, Theal relied on reversal of the burden of proof, requiring the parallel importer to discharge the burden of proving that the product in question was genuine.
Without prejudice to the national rules of procedure in this matter I should like to observe that, from the point of view of Community law, such behaviour by Theal is not only capable of having effects at variance with the general principle of the free movement of goods between Member States but appears in itself contrary to the spirit of that basic principle of the Common Market, which implies that all limitations which a person claims to apply to that principle must be justified by that person.
The specific intention of Theal and of Watts to prevent parallel imports into the Netherlands is furthermore confirmed, as I have said, by the prohibition imposed by Watts on British wholesalers against exporting its products. The existence of this prohibition, at any rate from 1972, that is, from the time when an appreciable divergence between the prices of Watts products in the two States in question began to develop, was admitted by Watts itself in the course of the administrative procedure before the Commission. In addition it was already clear from the reply supplied by Watts to the request from Netherlands undertakings to obtain direct supplies of its products (cf. the letter of 28 November 1973 from Watts to Fortissimo).
If therefore the exclusive dealing agreement between Watts and Tepea is considered in the context of the subsequent behaviour of both parties in the United Kingdom and in the Netherlands its detrimental effect on competition is clearly perceptible. In fact through the effects of the abovementioned factors, in particular the effect of identical marks — Watts's in the United Kingdom and Tepea's in the Netherlands — and the prohibition on exports imposed by Watts on its wholesalers in the United Kingdom, that agreement meant that parallel imports could not be effected on the Netherlands market; that is, it brought about a situation which, even if the existence of a specific agreement concerning the marks is disregarded, nevertheless still appears similar to the situation considered by the Court of Justice in the Consten and Grundig case.
It is on this view that I consider it would be possible to hold that Article 85 (1) of the EEC Treaty has been infringed even if there were no agreement between Watts and Theal having as its object the grant to the latter of the exclusive right to use as marks in the Netherlands the names given by Watts itself to its own products. However, there was in fact an agreement of this nature, as I have endeavoured to demonstrate above, so that the duty under Community law to supply complete and accurate information in making the notification required under Regulation No 17 has also been infringed in the present case.
7.
In terms of Article 15 (1) of Regulation No 17/62 of the Council the Commission has a discretion to impose fines on undertakings which, intentionally or negligently, supply incorrect information in a notification pursuant to Articles 4 and 5 of the regulation.
Pursuant to Article 15 (2) the Commission enjoys a similar power to impose fines on undertakings which, intentionally or negligently, have infringed Article 85 (1) of the EEC Treaty.
In the present case the applicant could not be unaware of the fact that the agreements between Theal and Watts were in the nature of a restriction on competition (both the principal exclusive dealing agreement and the subsidiary agreements concerning the use of certain marks of Watts). As we have seen, the applicant in fact intentionally made provision for conditions which would permit it effectively to prevent the parallel imports of Watts's products into the Netherlands; further, as we have seen with regard to Wilkes, it has persevered up to the present time in pursuing that objective.
The conditions required by the said Article 15 for the imposition of fines for both the above-mentioned infringements have thus been fulfilled.
On all these grounds the application may be seen to be unfounded. I therefore conclude by suggesting that the application should be dismissed and that the applicant should be ordered to bear the costs of the case, including those relating to the intervention.
(
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