1.

Article 1 (1) (1) of the decision (‘the obligation on the licensees to exploit the licensed patents only for the manufacture of sailboards using boards which had been given WSI's prior approval’) (a) In this respect it must be recalled that according to its agreement with Ten Cate (which relates only to the German patent application) Shark was obliged to manufacture and distribute rigs only for and in connection with sailboards consisting of several parts. When that agreement was taken over by WSI in 1978 a clause was added to it to the effect that a licence for one-piece boards would not be refused if they met the quality standard and could be clearly distinguished from existing licensed products. In a letter of 20 October 1980 WSI accordingly gave its approval for a one-piece sailboard having the same appearance as one previously produced by Shark in three pieces. The agreement with Ostermann (which covered industrial property rights existing and applied for in a number of countries) gave authorization for the manufacture and distribution of Ostermann's existing specified sailboard types, and required the approval of the licensor (originally Ten Cate, later WSI) for subsequent alterations. The agreement with Akutec (which related to the British patent and the German patent application) authorized the manufacture and distribution of a sailboard precisely described in the annex and made alterations subject to the approval of the licensor (in that regard paragraph 13 of the agreement stated that approval would not be ‘unreasonably withheld’ if the alterations did not ‘deteriorate the quality of the product or infringe upon the rights of Ten Cate’). Similar provisions were contained in the agreements with SAN and Klepper (in which the conditions for approval, along with quality requirements, speak generally of ‘the rights of any other licensee’) and with Marker (in which reference is made to the German patent for a ‘wind-propelled apparatus’, as well as to the British patent). (b) It is thus clear that the freedom of action of the licensees was restricted: they could not, without more, exploit the inventive thought in the context of its technical field of application, which concerns only one and not several separate markets. It is also clear, having regard to my remarks on the scope of the German patent, that the restriction of their freedom of action with regard to the boards themselves was certainly not covered by the specific subject-matter of the patent and could therefore be caught by Article 85 (1) of the Treaty. (c) It must however be examined whether the logical conclusion, that the licensing agreements are inconsistent with Article 85 (1), is affected by the applicant's attempts at justification. As we know, the applicant points out that the agreements apply equally to the German and British patents, and that the latter covers the entire sailboard unit. If it could therefore exert influence on the arrangement of the whole sailboard unit under the British patent, that must apply to the licensing agreements, since manufacturing and marketing were carried on in a uniform manner by all licensees and since at that time, moreover, in general only complete units were sold. Quite apart from the scope of the British patent, it is important to bear in mind that rigs can only be used together with boards. If the board is of insufficient quality the safety and efficiency of the whole unit is impaired. Seen from that point of view, it must be accepted that the licensor had an interest in ensuring an adequate level of quality for the whole sailboard unit. If the quality level is low, not only does the reputation of the licensor suffer but its royalties decline. It should also be borne in mind that under Californian law the licensor is responsible to a large extent for the safety of the whole sailboard unit. The applicant contends, moreover, that if the approval requirement also serves to ensure fair competition between the licensees, it cannot be regarded as restrictive of competition within the meaning of Article 85, any more than the endeavour to ensure by that means that a wide range of products is offered, which is necessary in order to develop the market and combat patent infringers (who nevertheless had a market share in Germany of 30%, according to the Commission's own information). It should also be taken into account that in practice new models were often manufactured without prior approval, that the applicant never refused approval for model alterations on the basis of quality requirements, and that in spite of the clause in question all licensees had brought on to the market a series of different units which did not, moreover, differ from each other more than did models produced by non-licensed undertakings. (d) Like the Commission, however, I have the impression that these attempts to remove the clause in question from the field of application of Article 85 (1) cannot succeed. (i) First, it may be considered that in so far as patent protection exists, agreements regarding the exploitation of an invention are excluded from Article 85 (1) only where it is permitted, according to objective criteria, to implement technical ideas (the technically faultless exploitation of the invention, as it is referred to in the 1962 Commission communication regarding patent licensing agreements (Official Journal 1962, p. 2922)), while restrictions based on quality requirements must in any event be evaluated under Article 85 (3). In the long run that question does not however have to be dealt with definitively here. That is, even if it is assumed that quality controls regarding the whole sailboard unit (without regard to the scope of the patent and irrespective of the fact that even the British patent clearly does not contain particular features with regard to the board) were justified in principle (since the interest of a patent holder in the proper implementation of the inventive thought and the optimal exploitation of the patent, having regard to the fact that the board and the rig form a functional unit and the fact that at that time marketing was mainly carried out jointly, also justifies it in ensuring that the boards themselves are free of defects which would affect the use of the invention), in view of what the Commission has shown to be the practice it remains doubtful in this case whether the restriction of the licensees' freedom of action was really a matter of such controls. Nor does it seem acceptable that such a concern should be pursued by means of a vague approval clause which brings with it the danger that its use by the licensor (who is also a competitor of the licensees) may result in a division of areas of competition; objective criteria defined in advance are preferable for such a purpose. In so far as the applicant goes on to justify its quality controls by reference to California tort law, there is no evidence that liability for patent licensors is in fact as extensive as the applicant asserts. It may also be observed in that regard that the fact that Community competition law prohibits clauses of the type in question must surely have some effect on liability under American law where claims by buyers of the licensed object in the common market are concerned. (ii) In so far as the approval clause to which objection is made also refers to the rights of other licensees and their protection (according to the applicant it is a matter of preventing slavish imitation within the meaning of the Gezetz gegen den unlauteren Wettbewerb [Law on unfair competition] and of guaranteeing other industrial property rights (licensees' patents and registered designs)), in my view the Commission was correct to point out that the observation of legal limits of this nature is a matter solely for the licensees, and it is not up to the licensor to take on a protective function on the basis of its patent right. If such action is nevertheless provided for (the argument that it is intended to avoid claims for damages by other licensees does not seem to me to be convincing), in a clause such as that referred to, the wide discretion given to the licensor creates a serious danger that it may be used to ensure an adequate degree of difference between the products of the various licensees, that is, to regulate the market in a way inconsistent with competition. Evidence that that took place in this case may be found in a number of documents which make clear the practice of the applicant. I refer in that regard to the applicant's letter of 17 July 1978 to Shark, in which it was emphasized that new products (in particular boards or hulls) would only be approved if they ‘differ substantially from other licensed products’ (a requirement which had already been emphasized when the applicant took over the Shark agreement). Reference may also be made to another letter of the applicant of 13 July 1978, in which it was stated that the board under consideration was too similar to the Windsurfer and that that was contrary to the applicant's licence policy. It should also be recalled that in November 1979 the applicant, apparently in reply to a complaint from Klepper, brought Akutec's attention to the fact that its model was too similar to a Klepper model (it asked Akutec to enter into contact with Klepper, so that Klepper could state its position to the applicant). Finally, I refer to a complaint made to the Commission on 20 January 1981 by an undertaking which had sought to obtain a licence, according to which the negotiations failed because the applicant required, as a condition of any agreement, that that undertaking's board should be different from the Windsurfer. (iii) Finally, in so far as the applicant attempts to justify such differentiation by appealing to considerations of market development and the combating of patent infringements, the reply must be that since a restriction of the freedom of action of licensees is involved the first ground could at most have some relevance under Article 85 (3), and that with regard to the second concern other measures compatible with competition law must be preferred. (e) With regard to the first clause considered in the Commission decision it must therefore be concluded that since they are not covered by the actual subject-matter of the patent (not even that of the Britfth patent) the restriction of licensees to a specific board type and the requirement of the licensor's prior approval for any alteration must be regarded as impermissible restriction of the freedom of action of the licensees and thus as limitation of competition, material to the application of Article 85 (1) of the EEC Treaty. That finding is all that is necessary for the moment; the applicant's arguments regarding the actual effect of the restrictions may at most be relevant to the question of the seriousness of the infringement, which I shall deal with later.