OPINION OF ADVOCATE GENERAL

SIR GORDON SLYNN

delivered on 16 October 1984

My Lords,

This is an action brought by a German company, ‘BAT’, for the annulment of Commission Decision No 82/897 of 15 December 1982 (OJ 1982 L 379, p. 19), in which the Commission found that the provisions of an agreement made between BAT and a Dutch firm, ‘Segers’, which is owned and run by a Mr Antonius Segers, and the application of that agreement, constituted an infringement of Article 85 (1) of the EEC Treaty, in so far as (a) it obliged Segers not to market fine cut tobacco under a trade mark owned by Segers (Toltecs Special) save on certain conditions, and (b) it obliged Segers to claim no rights against BAT from the registration and use of the Toltecs mark even if BAT did not use its own trade mark (Dorcet). The Commission required BAT and Segers to put an end to the infringement forthwith and also ordered BAT to ‘refrain from exercising any economic pressure on Mr Segers or on importers aimed at preventing or impeding the import and marketing of Toltecs tobacco in the Federal Republic of Germany ’ (Article 2 of the Decision). By Article 3 of the Decision the Commission imposed on BAT a fine of 50000 ECU (or 115635 DM) because Segers had been obliged to undertake not to rely on his rights under the Toltecs mark even if the Dorcet mark remained unused for more than five years. No fine was imposed in respect of other infringements found by the Commission; no fine was imposed on Segers.

The relevant facts can be shortly summarised and have given rise to little dispute between the parties. BAT is a subsidiary of one of the world's biggest cigarette producers. Its business consists in the manufacture and distribution of tobacco products and it is one of the leading cigarette manufacturers in Germany. BAT applied to enter the name ‘Dorcet’ on the German trade mark register and, on 15 January 1970, it was duly registered in Class 34 for raw tobacco, tobacco products and cigarette paper. Under German law, a trade mark may be removed from the register if it has not been used within five years of registration. This period expired on 15 January 1975. It is common ground that BAT has never at any time used or sought to use the Dorcet trade mark. By a letter dated 27 May 1983, BAT requested the German patent office to remove the mark from the register.

Segers is a relatively small concern, carrying on business in the Netherlands. At all material times it manufactured fine cut tobacco (or shag) which is used for hand-rolled cigarettes and marketed it under the trade mark ‘Toltecs Special’. This trade mark was first registered internationally for the Federal Republic of Germany in 1969, though not at that stage in respect of fine cut tobacco. On 31 January 1973, Segers applied to have this trade mark registered internationally for several countries, in Class 34, for raw tobacco and tobacco products, including fine cut tobacco, among them the Federal Republic of Germany. BAT objected to the registration of the Toltecs mark in Germany, relying on its Dorcet mark. In order to avoid lengthy litigation, the costs of which would have been relatively more burdensome for Segers than for BAT, Segers suggested a compromise: if BAT dropped its objection to the registration of the Toltecs trademark, Segers would agree, on behalf of itself, its successors and its licencees, to limit the products covered by the registration of the Toltecs mark in Germany, to ‘curly cut tobacco (shag)’, to use the mark only for such products, to claim no right as against BAT arising from the registration and use of the Toltecs mark and not to object if BAT registered or used in Germany the Dorcet mark or any similar trade mark (other than ‘Toltecs’) for products identical or analogous to those covered by the Dorcet mark (see Segers' letter dated 25 January 1974).

BAT indicated its agreement to this proposal, subject to two modifications of which the more important was the addition of an undertaking that Segers would not indicate in its advertising that the tobacco sold under the Toltecs mark was suitable or recommended for hand-rolled cigarettes (see BAT's letter of 7 February 1974). An agreement on these lines was drafted and apparently signed by Segers on 20 September 1974. By letter dated 30 October 1974, BAT suggested a further addition to clause 3 of the agreement and Segers confirmed its acceptance of this by letter dated 7 January 1975. BAT signed the final version on 16 January 1975 and informed the German Patent Office that it was withdrawing its objection to the registration of the Toltecs mark.

So far as is relevant, the agreement provided as follows:

‘Article 3

Mr Segers undertakes to restrict the products listed under the ... (Toltecs mark) in the Federal Republic of Germany to “curly cut tobacco (shag)” and after protection is granted in the Federal Republic of Germany, to use the word/device mark “Toltecs Special” for this special product only, to claim no right as against “BAT” arising from registration and use of the mark Toltecs Special, not even if the latter does not use its (Dorcet) mark for more than five years or if it applies again for registration of the mark or a mark other than Toltecs Special that could be confused with it within the meaning of Section 31 of the German trademark law.

Article 4

Mr Segers further undertakes to refrain from publishing in any description of the tobacco sold under the ... (Toltecs mark) that it is suitable or recommended for rolling cigarettes. Mr Segers may use the designation “fine cut tobacco” or “Dutch shag”.

Article 5

BAT undertakes on signature by Mr Segers of the agreement, to withdraw its opposition to the grant of protection for the ... (Toltecs mark) and to raise no objection to use of the ... (Toltecs mark) for “curly cut tobacco” in the Federal Republic of Germany.’

The internal conflicts in this agreement are obvious. ‘Curly cut tobacco’ is pipe tobacco and not shag, which is an alternative name only for fine cut tobacco. On the one hand, Segers could call its product ‘fine cut tobacco’; on the other hand BAT agreed only that it would not object to the use of the Toltecs mark for curly cut tobacco. It seems that this confusion originates in the proposal put forward by Segers' agent, who did not appreciate that the German word used meant curly cut and not fine cut tobacco, a confusion which was not subsequently corrected.

Segers encountered difficulties in selling its tobacco in Germany. On behalf of BAT it has been said that these difficulties were primarily economic, and attributable to Segers' relatively small size. I am not convinced that this is right but in any event it is clear from the evidence submitted to the Court that BAT told Segers' first German distributor (Müller-Broders) that, under the agreement made with Segers, BAT had a right to prohibit the use of the Toltecs mark in Germany but would not exercise this right in so far as Miiller-Broders used the name for fine cut tobacco (BAT's letter of 12 July 1976). This appears to have led Miiller-Broders to conclude that BAT had authorised it, and no one else, to market fine cut Toltecs tobacco in Germany, Miiller-Broders' commercial position thus being based on a concession given by BAT and Segers having no right to sell Toltecs tobacco in Germany; in particular BAT had told Müller-Broders that Segers had given up the right to market and to publicise fine cut tobacco in the Federal Republic of Germany under the Toltecs mark (Muller-Broders' letter of 25 May 1977). Müller-Broders also said that Segers had confirmed this (letter of 6 July 1977). In other letters from Müller-Broders such as those of 11 July and 14 August 1978, Müller-Broders asserted its exclusive rights. This attitude coloured the business relationship between Segers and Müller-Broders.

When Segers attempted to market its tobacco through another German importer (‘Planta’), it was told that it would have to settle its trademark dispute with BAT first (Planta's letter of 14 August 1978). Segers wrote to BAT on 16 August 1978 and, in reply, BAT said that, by the agreement, it had given Segers the right to use the Toltecs mark in Germany for curly cut tobacco and was prepared to transfer the right to another importer as long as it knew the importer's name (BAT's letter of 23 August 1978). So far as fine cut tobacco was concerned, BAT said that it had granted to Müller-Broders a right to use the Toltecs mark for fine cut tobacco and they should continue to be the importers of fine cut tobacco into the Federal Republic. By letter dated 27 September 1978, Segers' patent agent wrote to Segers saying that, in a telephone conversation he had had with a member of BAT's legal staff, the latter had claimed that the agreement covered curly cut tobacco only; BAT had the time and the money to have the point confirmed by the German Supreme Civil Court; it considered that Segers had treated Müller-Broders badly, intended to protect the latter and was not prepared to approve an agreement with a new importer without Müller-Broders' consent. The patent agent considered that BAT's position was indefensible and said that only legal proceedings could resolve the problem but Segers decided to give up and told Planta that it would continue to market Toltecs tobacco through ‘the new enterprise’ Müller-Broders (Segers' letter of 29 September 1978).

In 1979, Segers' then importer (‘Grassmann’), a successor to Müller-Broders, ceased trading and Segers wrote to BAT asking it for written consent to the distribution of Toltecs tobacco by a new importer (Segers' letter of 1 August 1979). BAT continued to maintain that the agreement with Segers covered only curly cut tobacco but was prepared to extend it to fine cut on condition that Segers took over the stocks still held by Grassmann (BAT's letter of 14 August 1979). Segers did not apparently reply to BAT's offer. It wrote to Planta announcing that it had decided to stop selling under the Toltecs mark in Germany (see Segers' letter of 3 September 1979). By letter dated 14 December 1979 BAT told Segers that, in view of its failure to reply, BAT considered that Segers was no longer interested in continuing to market Toltecs tobacco and that BAT was therefore going to prohibit its marketing in Germany. Copies of this letter were apparently sent to a company called ‘August Blase’, which was connected with Müller-Broders and Grassmann, and to Planta. By letter dated 21 May 1980, Segers asked BAT to enter into a new agreement which would make it clear to all interested parties that Segers was released from its obligations under the previous agreement and that BAT would in no way whatsoever oppose the use óf the Toltecs trade mark for raw and manufactured tobacco made by or with the consent of Segers. No agreement could, it seems, be reached and Segers complained to the Commission.

In its Decision, the Commission found that ‘although the wording of the agreement is ambiguous and even, in part, contradictory, since the designations curly cut tobacco and shag are not synonymous, the former only being used for pipe tobacco and the latter only for fine cut tobacco, both in the Federal Republic of Germany and in the Netherlands, the manner in which the parties applied the agreement reveals that Segers was to be prohibited from any marketing of fine cut in the Federal Republic of Germany under the Toltecs mark without BAT's approval’ (I, para 4). The Commission concluded that the object of the agreement was a restriction on competition between BAT and Segers and between BAT and third parties who might wish to sell Toltecs tobacco in Germany. It rejected the argument put forward by BAT that no anticompetitive effects flowed from the agreement because Segers' rights were already restricted by those arising under the Dorcet trade mark and the agreement therefore promoted competition by allowing Segers to use the Toltecs mark in Germany in certain circumstances, despite the existence of the Dorcet mark. The Commission's reasoning was that, in the present case, there was no ‘serious risk of confusion’ between the two trade marks with the result that the restrictions imposed by the agreement on the use of the Toltecs mark restricted competition.

The Commission also took the view that Segers' undertaking in Article 3 of the agreement, not to claim any rights as against BAT arising from the registration and use of the Toltecs mark, infringed Article 85(1) of the Treaty because, even if it did not prevent Segers from having the Dorcet mark cancelled on the ground of nonuse, it did prevent Segers from freely asserting its rights against BAT in the event that the Dorcet mark were cancelled or lost its priority over the Toltecs mark, it made it difficult for Segers to release itself from contractual restrictions on registration and use of the Toltecs mark in Germany and it prevented for all time legitimate extension of the field of application of the Toltecs mark, thereby strengthening BAT's position under trade mark law.

The first argument put forward on behalf of BAT in support of its claim for the annulment of the Decision is that the agreement was no longer in existence when the Commission adopted the Decision on 15 December 1982 because, on 1 April 1982, at the hearing before the Commission, BAT's representative made a declaration which had the effect of an immediate renunciation of the agreement; at all events, BAT had done everything in its power to put an end to the infringement. In consequence, Articles 1 and 2 of the Decision have no foundation in fact because they assume that the agreement was still in existence at the time of the adoption of the Decision.

In this regard BAT relies on a statement to the effect that ‘BAT is no longer interested in maintaining the agreement and is disposed to renounce it by the present declaration’. In so far as termination of a contract depends on the consent of both parties, I would not accept BAT's argument that, because Segers wanted the contract ended (and thus made its complaint to the Commission) and because it was present when the declaration was made by BAT, Segers must be deemed to have agreed to termination. This in the context of the present dispute does not amount to a consensual determination. Segers wanted a ruling that the agreement, which it clearly considered to be in existence was in breach of Article 85. An agreement which violates Article 85 (1) is in any event void ab initio by virtue of Article 85 (2) of the EEC Treaty and, therefore, is of no legal effect. Article 85 is thus not limited to agreements legally binding under their proper law: it covers agreements or arrangements of whatever kind between parties which prevent, restrict or distort competition within the common market. The agreement or arrangement in the present case is that relied on by BAT, not only in relation to Segers, but also in relation to third parties.

The Commission's Decision in Articles 1 and 2 finds that both the agreement and the application of it constituted infringements of Article 85 (1). In my opinion the ipse dixit of BAT, that it was disposed to renounce the agreement and not to rely on it, was not enough to prevent the Commission from making both the finding in Article 1 and the Order in Article 2 in the form in which they were made, subject to other points taken by BAT.

BAT's second contention is that the Commission erred in finding that the agreement prevented Segers from importing and marketing fine cut tobacco in Germany under the Toltecs trade mark without BAT's consent. BAT admits that this is in complete contradiction with its own interpretation of the agreement at the material time but maintains that its former conception of what was agreed cannot modify the objective meaning of the agreement. In brief, its point is that any restriction of competition flowed from its own unilateral acts and not from any form of combination envisaged in Article 85.

It is not, in my opinion, necessary to decide whether, on the true construction of the agreement, Segers had a right to use the Toltecs mark in Germany for curly cut or fine cut tobacco, even though under its proper law it may well be that, if it can be given some meaning, properly interpreted the agreement did permit fine cut tobacco to be sold. In this particular case, the Commission relies not just on provisions of the agreement but on the way it was applied, as I consider that it was entitled to do, under Article 85, in deciding whether there had been an infringement of the competition rules. For the purposes of Article 85, it is sufficient that Segers acquiesced in the interpretation adopted by BAT, which by conduct at times it did. On the basis of the letter of 27 September 1978, it could be said that Segers knew that BAT's position was unfounded and acquiesced only because of oppression, or the threat of oppression from BAT, without any consent in the real sense. Yet it is clear that what BAT was doing was based on the interpretation of an agreement which BAT adopted in practice on several occasions. Segers accepted, at the least, that the agreement was unclear and was deterred from challenging, if necessary by legal proceedings, BAT's interpretation. The fact that Segers acted in this way does not detract from the fact that BAT based its actions on the agreement as it interpreted it.

BAT's third argument is that, contrary to what the Commission said in its Decision, BAT could have used the Dorcet trade mark to prevent the marketing of fine cut tobacco in Germany under the Toltecs mark and the agreement did not, therefore, restrict competition. The German Government intervened in the case in support of BAT on this point, arguing that agreements of the type in question (so-called ‘delimitation agreements’) can be upheld if there are serious and objective grounds for inferring that one party could have brought proceedings to prohibit an infringement of its trade mark rights by the other contracting party. If the agreement gives a trade mark right greater protection than it would otherwise be entitled to, the agreement is still lawful if the protection given remains within the limits of what could objectively be said to give rise to dispute and if both parties have acted in the belief that they have not given the trade mark greater protection than that to which it was entitled on the basis of a fair interpretation of the law. If this is not so, the parties will be deterred from settling disputes by which process, in effect, areas of competition may be increased rather than closed. On the other hand, it is accepted by counsel for the Federal Republic that a delimitation agreement which does not settle a genuine trade mark dispute, but whose object or effect is to restrict competition, is prohibited. In its Decision, the Commission appears to accept that delimitation agreements do not per se infringe Article 85, though they may do so. In my view, this is correct. Whether a delimitation agreement is prohibited under Article 85 depends on the facts of the case. The two key factors are (1) whether there is a genuine dispute between the parties concerning the use of a trade mark and (2) whether, in compromising the dispute, the terms of the agreement impose obligations that are reasonable in the light of the nature of the dispute and the extent to which the trade mark right could reasonably be expected to have been upheld. In considering whether the trade mark right is enforceable against goods from another Member State, account must be taken not only of national trade mark law but also of the relevant provisions of Community law. I agree with the argument of counsel for the Federal Republic that in the first place, at any rate, it is for the parties to make an assessment of what is the proper allocation between them on the basis of commercial or technical factors. It is, however, for the Commission, subject to review by the Court, to decide whether the arrangements made go beyond what the competition rules of the Community permit.

The Commission's view is that the Dorcet trade mark could not have been used against Segers. In any event the lack of a serious risk of confusion between the two marks, ‘Dorcet’ and ‘Toltecs’, despite the consonnance relied on by BAT, makes it quite impossible to justify the present delimitation agreement which not only prevented Segers from importing fine cut tobacco into Germany, other than with BAT's consent, but also prevented Segers from claiming any rights as against BAT arising from the registration and use of the Toltecs mark.

It does not seem to me necessary to go into a number of the broad issues which have been raised both by BAT and by the German Government. The critical factor in this case is that, even if registration of the Dorcet mark prevented other marks capable of being confused with it from being registered, BAT never used the Dorcet mark, and has produced no evidence to suggest that it ever intended to do so. Other considerations may be involved where a mark has been used, or where, even if not used, a company can explain the long delay before using the mark or can show that arrangements for its use are well advanced. The position in those cases will have to be considered when they arise, but where, as here, a mark is not used and it is not shown that it was intended to use it, the Commission is entitled, in my view, to scrutinise critically a delimitation agreement to see whether it is regulating a real dispute in a reasonable way or whether in essence it is restricting competition. If the agreement is essentially to prevent the entry of a competitor on to the market, that is to be considered in the light of the rules on Community competition law, whatever the position may be in terms of national trade mark law. This seems to me to be so, notwithstanding the fact that at any rate in one Member State, Denmark, nonuse does not affect the validity of a mark or make it possible to apply for its removal from the register. Moreover, when determining whether the object of a delimitation agreement is essentially to restrict competition, it is not necessary to know which party suggested the inclusion of a particular clause or whether there was a common intention at the time of the making of the agreement (Joined Cases 29 and 30/83 CRAM and Rheinzink v Commission,29 March 1984, [1984] ECR 1679, para. 26).

This approach seems to me to be consistent with the decision of the Court in Case 119/75 Terrapin v Terranova [1976] ECR 1039, particularly at paragraphs 5 and 6 of the judgment.

Reading the present agreement as contemporaneously interpreted and applied by BAT, and as accepted by conduct by Segers, Segers got no more than the right to sell curly cut tobacco in Germany, which it did not want to do. The fact that BAT was content that Segers should call its product ‘fine cut tobacco’ or Dutch shag gives Segers nothing if it was in truth allowed only to sell curly cut tobacco. Even though Segers could register its mark without BAT's opposition, Segers thus got in this respect little more in commercial terms than if the Dorcet mark had been upheld in litigation and Segers had been found to have infringed it. Fine cut tobacco was treated as only being available for sale in the Federal Republic under the Toltecs mark under licences granted by BAT to importers on such terms as BAT laid down. Moreover, since Segers' tobacco was, so far as relevant, intended for the growing number of smokers who hand-rolled their own cigarettes, the prohibition on advertising to the effect that the tobacco, even if fine cut, was suitable for such use, was clearly intended to restrict Segers' competitiveness in this market.

These restrictions, seen as a whole, were in my view such that the Commission could properly find them excessive and restrictive of competition. Whatever interest BAT may have had in protecting a dormant trade mark, it had no justification for restricting Segers' liberty to choose the importers with whom it wished to deal, for interfering in the business relations between Segers and its importers and for requiring Segers to take back stock held by one of its importers. Such restrictions may be appropriate in the context of a distribution agreement or a licensing agreement in the true sense but, taken as a whole, went beyond a mere compromise of a trademark dispute and amounted to a prevention or restriction of competition.

So far as the so-called ‘no-challenge clause’ is concerned, the Commission took the view in its Decision that the clause reinforced an agreement which restricts competition by preventing Segers from asserting rights under the Toltecs mark in the event that the Dorcet mark were cancelled for nonuse and from asserting the priority of the Toltecs mark if BAT used the Dorcet mark for the first time after the expiry of the five-year period under German law or applied to reregister it. Lastly, it was made difficult for Segers to release itself from contractual restrictions on registration and use of the Toltecs mark.

On behalf of BAT, despite earlier contentions, it has been submitted that, under the agreement, Segers always had the right to claim the cancellation of the Dorcet mark. In any event, Segers could lawfully contract not to use this right. Under German law the removal of the Dorcet mark would cause the agreement to be avoided because the existence of the Dorcet mark was the foundation of the agreement. As a result, no restrictions would continue to be imposed on Segers if the Dorcet mark were cancelled. The fact that the no-challenge clause prevented Segers from obtaining priority for the Toltecs mark was justifiable in view of the fact that BAT agreed not to prevent its registration. Counsel for the German Government said that, in practice, delimitation agreements rarely fail to give the holder of the trademark with priority the right to register new marks which can be confused with the more recent mark. Such a practice is customary and it is justified because it is less restrictive than the outright prohibition which the holder of the mark with priority may otherwise rely on. It is not a restriction on competition to allow the holder of the mark with priority to modify the mark to take account of advertising and any developments in the holder's trading activities. It is accepted that a no-challenge clause may restrict competition where it excludes the possibility of applying to have the prior mark cancelled, though it may be possible to justify an agreement which excludes the right to challenge a mark on the grounds of nonuse.

The no-challenge clause, in its essentials, as I see it, bound Segers to claim no right as against BAT arising from the registration and use of the Toltecs trade mark. BAT has maintained that it did not prevent Segers from requesting the cancellation of the trade mark for nonuse, which would not involve reliance on any right arising from the Toltecs mark. However, the clause states expressly that Segers cannot rely on the Toltecs mark in the event that BAT applied to reregister the Dorcet mark. Hence, the value of any right to cancel the Dorcet mark is marginal. It would turn on whether or not BAT would or could reregister the Dorcet mark. The same can be said in relation to the argument that the agreement would disappear if the Dorcet mark were removed from the register.

If, at the time the agreement was made, there had been a reasonable prospect that the Dorcet mark would have been used by BAT, the no-challenge clause might, in my view, have been justified. As it is, there is no evidence that BAT had any intention of using the trade mark and the no-challenge clause was drafted so as to cover the position permanently should it never be used. In the circumstances, such a wide clause, in my opinion, constitutes an unreasonable restriction on competition.

There is, moreover, force in the Commission's argument that the interests of competition are served by a power to remove from the register marks which were never intended to be used; a contractual restriction on the exercise of the right to call for such power to be exercised may be unduly restrictive on competition. BAT has argued that the agreement had no restrictive effects on competition, largely because of Segers' own inability for economic reasons to market its tobacco in Germany. This should be rejected. The object of the agreement was clearly to restrict competition and it is not therefore necessary to consider its effects (Joined Cases 56 and 58/64 Consten and Grundig v Commission [1966] ECR 299, p. 342). In any event, in a report dated 13 February 1978, Müller-Broders pointed out that the introduction into the market of a new brand requires patience and effort over a period of years. In consequence, even if Segers were operating at a small scale at that time, it cannot be excluded that, under normal conditions of competition, its activities would eventually have developed to a significant extent. The volume of actual sales and of the anticipated or potential increase in the use of fine cut tobacco are a sufficient answer to this attempt to dismiss Segers as a meaningful entrant to the market. The restriction on competition can be considered to have been appreciable in relation to the potential level of competition.

The next point made by BAT is that the Commission wrongly refused to grant an exemption under Article 85 (3). In its Decision, the Commission refused the grant exemption for the following reasons :

(1) the agreement had not been notified;

(2) it did not fall within Article 4 (2) (2) (b) of Regulation No 17, which provides that the need for notification in order to obtain exemption does not apply, inter alia, to agreements to which not more than two undertakings are parties and which ‘impose restrictions on the exercise of the rights of the assignee or user of industrial property rights — in particular patents, utility models, designs or trade marks — or of the persons entitled under a contract to the assignment, or grant, of the right to use a method or manufacture or knowledge relating to the use and to the application of industrial processes’;

(3) there was no indication of how the agreement contributed to improving the production or distribution of goods because its object and effect was that Toltecs tobacco could not be distributed in Germany or could only be distributed under onerous conditions;

(4) the agreement did not benefit the consumer because Segers could not publicize the suitability of Toltecs tobacco for rolling cigarettes;

(5) the agreement imposed restrictions which were not indispensable within the meaning of Article 85 (3).

BAT has submitted that the reasoning given by the Commission in its Decision was insufficient. In my view, the Commission's reasoning is sufficiently detailed to be clear to BAT and to enable the Court to review the Decision made. Article 4 (2) (2) (b) of Regulation No 17 does not, in my opinion, apply to delimitation agreements of the type in question here. Even if BAT's argument that it does apply should be accepted, it does not follow that exemption should have been granted. BAT has not attempted to show that the restrictions imposed on Segers were indipensable to the attainment of the objectives of improving production or distribution, promoting technical or economic progress or allowing consumers a fair share of the resulting benefit.

Lastly, BAT challenges the amount of the fine imposed by the Commission. According to the Decision, the fine was imposed only ‘in respect of the extension of the no challenge clause to the case where the Dorcet mark remains unused for more than five years’. BAT maintains that

(1) both it and Segers should have been fined or no fine at all should have been imposed because it and Segers were equally responsible for the no challenge clause;

(2) the Commission was wrong to allege that an agreement prohibiting the use of a trade mark in Germany is unlawful under German law and that BAT knew that the agreement was signed one day after the expiry of the period of protection under German law;

(3) at the time the agreement was made, there was no indication that it was contrary to German law or Community law;

(4) the infringement is not a positive act but only a failure to act, i.e.a failure by BAT to abrogate the agreement in the light of subsequent Commission Decisions;

(5) the Commission erred in thinking that the limitation period under Council Regulation No 2988/74 of 26 November 1974 (OJ 1974 L 319 p. 1) had not expired.

In the Decision the Commission states that it did not impose a fine on Mr Segers, even though he had infringed Article 85 (1), because he owned a small Dutch firm and, at the beginning of the dispute with BAT, was not adequately informed about the German legal position and Community law.

In view of the fact that the Commission accepts that Segers did infringe the competition rules, it would be right to reduce the fine imposed on BAT if it could be said to be excessive having regard to the fact that no fine was imposed on Segers. BAT has attempted to establish the excessive nature of the fine by comparing Segers' sales of tobacco in the Netherlands in 1981 and BAT's sales in Germany in the same year. In reply, the Commission has pointed out that the minimum fine it can impose under Article 15 (2) of Regulation No 17 is 1000 ECU; if both parties were fined by reference to their turnover on the market for the products in question, the fine on BAT would have to be ten times the existing fine if the minimum fine were to be imposed on Segers.

In my opinion, in addition to the factor of size which the Commission can take into account, it is right to take account of the facts that the agreement worked to the disadvantage of Segers and to the advantage of BAT, that Segers' attempt to end the restriction on competition by making a new agreement was ignored by BAT and that Segers complained to the Commission. In the present circumstances, it has not, in my view, been established that the difference in treatment between the parties is such as to warrant reducing the fine. Although the Commission may have placed too great an emphasis on the date the agreement was signed by BAT and on the assumption that the agreement was contrary to the meaning and purpose of German law, this does not, in my opinion, justify interfering with the amount of the fine. It is true that, at the time the agreement was made, there was no decision of the Court or the Commission establishing the unlawfulness of a nochallenge clause of the type in question. The Commission has, however, relied on Decision No 78/193 of 23 December 1977(Penneys) (OJ 1978 L 60 p.19). That Decision however can only be relevant to the continuation of the agreement after 1978 though the Commission is right in saying that even after the Decision BAT continued to insist on performance of the agreement as interpreted by it. In any event, the unlawfulness of a particular restriction on competition flows from the terms of Articles 85 or 86 and does not have to be spelled out in the case law of the Court or decisions of the Commission (cf. Case 322/81 NBIM v Commission,9 November 1983, [1983] ECR 3461, at para. 107). Moreover, in fixing the fine, the Commission did take account of the fact that its Decision was the first to impose a fine in the field of industrial property rights. BAT was not, contrary to what it contends, fined in respect of a failure to act. The restriction on competition in respect of which the fine was imposed lay in the existence and application of the agreement, which constituted a positive act with continuing effect. Even if the restriction could be said to have arisen from a failure to act, I do not think that BAT's argument, that no fine should have been imposed, should be upheld.

Article 1 of Regulation No 2988/74 provides, so far as is relevant, that the Commission's power to impose fines is subject to a five-year limitation period commencing on the day on which the infringement is committed, ‘In the case of continuing or repeated infringements, time shall begin to run on the day on which the infringement ceases’. In its Decision, the Commission took the view that the earliest date for termination of the infringement could be 1 April 1982, when BAT declared that it attached no further importance to the continuation of the agreement. BAT contends that time started to run out when the agreement was made. In the present case, the infringement came into existence when the agreement was made but its nature was that of an obligation with continuing effect and without an express date of termination. Even if it had never expressly been invoked or relied on by either of the parties, that would not mean that it did not continue in effect throughout the existence of the agreement. As a result, the power of the Commission to impose a fine was not time-barred when the Decision was made.

For these reasons it is my opinion that the claim for annulment should be rejected and the amount of the fine should remain unaltered. In the circumstances of the case, BAT should be ordered to bear its own costs and those of the Commission; the German Government and Segers should bear their own costs.