3.

Let us consider the arguments which have been advanced in support of those views. Pharmon points out in the first place that the procedure for granting the compulsory licence under the Patents Act entitles the proprietor of the patent to intervene directly in the process of fixing the conditions to which the licence is subject, in particular in relation to the amount of royalties which the licensee must pay to him. As regards Community law, Pharmon then cites the Hag case. In that case too a third party exploited an industrial property right by virtue of an administrative measure (the sequestration of the entire capital of an undertaking) although the original proprietor had not given his consent. The Court considered that the rules relating to the free movement of goods overrode the patent proprietor's rights (judgment of 3 July 1974 in Case 192/73, Van Zuylen v Hag AG [1974] ECR 731). In Pharmon's view, the same principle should be applied in this case. It applies, a fortiori, since in this instance the original proprietor has been divested not of all his rights, as in Hag, but only a part thereof, for which, he received ‘reasonable’ royalties. But Pharmon goes further. In its judgment of 14 July 1981 (Case 187/80, Merck v Stephar & Exler [1981] ECR 2063), the Court held that ‘it is for the proprietor of the patent to decide, in the light of all the circumstances, under what conditions he will market his product .... (When he has done so, he) must... accept the consequences of his choice, as regards the free movement of the product within the common market... ’. In other words the Court accepted the principle of constructive consent. It follows — according to Pharmon — that a person who submits an application in the United Kingdom for a patent under the Patents Act cannot object to the disadvantages which the application of that law may reserve for him, including the grant of compulsory licences to third parties. As regards the opposing view, it must be stated immediately that there are certain differences between the way in which it is put forward by the Commission, on the one hand, and Hoechst and the six Member States, on the other. The Commission's position is moderate and more flexible, whilst the German undertaking and the Member States are more extreme and more rigid since they ask the Court to lay down a general rule and thereby make it impossible always and in every case for a compulsory licence to exhaust a patent right. In summarizing their arguments I will follow the line adopted by the Commission and will refer to the opinions expressed in the other observations only when they differ from the Commission's. In the first place, the Commission analyses the logic behind the rules which in various national legal systems govern compulsory licences. It draws attention to their diversity and notes that in recent years such measures have been adopted infrequently. It does not deny that in certain situations compulsory licences may play an important rôle. Community law cannot therefore ignore them, and for that reason, under the 1975 Luxembourg Convention, provisions were adopted regulating them; those provisions were, however, not comprehensive. As regards the specific case of the United Kingdom, the Commission stresses the special nature of the provision laid down in the Patents Act 1949 (which is no longer in force). Section 41 concerned solely patents in respect of food or medicine and its purpose was to ensure that such products were sold at the lowest price possible. In addition, the provision guaranteed the patent proprietor fair compensation. Having set the case in that context, the Commission divides its argument into two separate parts. In the first it considers the Hoge Raad's question with regard to the usual situation, in which the proprietor has contracted the licence to exploit the patent to a party operating in a different country. It concludes that in that situation ‘the proprietor cannot rely on his exclusive rights in order to obstruct the free movement of goods by preventing his licensee from selling directly in the Member State in which the patent is registered’ (p. 12, No 32). Hoechst and certain of the Member States which have submitted observations do not accept that proposition. I, on the other hand, consider that it finds support in the Court's decisions and indeed that it is more far- reaching than the Commission thinks. The Commission's argument deals with contractual consent. However, a contract is only one of the forms in which a party can express his consent. It follows that, if the decisive factor which prevents the operation of the derogation from the rules on the freedom of movement is the patent proprietor's consent, then in a case such as this nothing is gained by seeking to establish where and now the holder of the compulsory licence put into circulation for the first time the product manufactured by him. On the other hand, it is important to ascertain on what basis he did so. In other words it must be established whether, when the product was first put into circulation, he had obtained the express or implied consent of the holder of the exclusive rights or whether he acted against the latter's wishes. I will come back to that crucial aspect of this problem later. In the second part of its argument, the Commission asks whether what applies to contractual licences (namely that the licensee is entitled to sell in the country in which the product is covered by an exclusive commercial protection) also applies to compulsory licences. The Commission's reply is that in principle it does not. In that respect it refers to the judgment in Merck which, in its view, Pharmon has misinterpreted. It is true that, according to the Court, ‘it is for the proprietor of the patent to decide, in the light of all the circumstances, under what conditions he will market his product’. However, it is also true that the proprietor may be said to decide only where it is his own decision to grant the licence and not when that decision is imposed on him. In any event another argument is decisive. There is much more than a merely formal distinction between a compulsory licence and a contractual licence. In the case of a compulsory licence the decision whether to grant a licence is not taken by the proprietor of the patent after he has assessed the situation of the market in which the product can be put into circulation, but by the State. Since the State takes account of national interest, it is clear that the effects of the licence granted by it cannot operate outside its territory. In other words, the condition imposed by Community law for the non-operation of the derogation from the free movement of goods — namely that the product must be marketed in another Member State by the proprietor of the patent or with his consent — is not satisfied. In addition to those arguments, Hoechst and the Member States note that acts adopted by the public administration of a Member State are subject to the principle of territoriality. That principle means that Community law cannot confer on the holder of a compulsory licence rights which may also be relied on in the territory of other States. A compulsory licence is an exceptional measure which for the patent proprietor often resembles a penalty. If that is the case, the limits of its effectiveness are determined by the purpose — which usually coincides with the interests of the State — for which it was adopted. In Hoechst's view, to attribute extraterritorial effects to a compulsory licence would quite simply amount to exceeding the limits of the powers laid down in the EEC Treaty. The Commission does not give an express opinion on that point. However, it cites the judgment of the Court of 20 January 1981 (Joined Cases 55 and 57/80, Musik-Vertrieb membran v GEMA [1981] ECR 147) and extracts from that judgment a proposition which appears to militate in favour of Pharmon's position. The cases concerned compulsory licences in the United Kingdom to reproduce and market in the United Kingdom musical works covered by copyright, in another State. The Court held that in a common market to which the principle of the free movement of goods applies ‘an author... is free to choose a place, in any of the Member States, in which to put his work into circulation ... (and) may make that choice according to his best interest’. The Court concluded therefore that the Community rules on the movement of goods overrode national provisions concerning the exploitation of copyright which had not been harmonized. Does it follow that the Commission's position lies between that of Pharmon and Hoechst and that the Commission is, at least to some extent, unable to make up its mind? I do not think so. As I have stated, its approach is objective and pragmatic. I think that it reasoned as follows: there are valid arguments on both sides. It is therefore necessary to consider those arguments up from the point of view of the law on the one hand and the Community interest on the other. It may be concluded that: (a) there are considerable differences between the national rules concerning compulsory licences; (b) the compatibility of the objectives of such rules with the freedom of movement is at least doubtful; (c) in any event it does not seem possible, at least in the present state of affairs, to declare such rules contrary to the provisions of the EEC Treaty; and that therefore ‘... it is preferable for the time being not to uphold the rights of a holder of a compulsory licence to sell directly products manufactured under (such a) licence in a territory in which a parallel patent exists’ (p. 16 n. 44). It is clear that in that passage the stress is laid on the expression ‘for the time being’. The Commission is then convinced that a definitive solution to the problem of compulsory licences will be achieved only through the harmonization of the 10 systems. Until then, since those systems pursue purely national interests, it would be unfair to favour one or other Member State by allowing the free movment of goods produced under a compulsory licence granted by the State authorities; unfair — and the Commission warns — dangerous. If the Court were to accept Pharmon's view, the States which have not yet ratified the Convention on the Community Patent would have a fresh reason for putting off that step. In addition, certain States would make more frequent use of compulsory licences to make it possible for their less technically advanced industries to capture large shares of domestic and common markets by exploiting patents in respect of inventions made in other States. The six Member States and Hoechst base their arguments on entirely different grounds. In their view it is vitally important to ensure that the economic value of patents and the financing of research into new technology, which at present are protected and promoted by national law, are not prejudiced or indeed negated by Community law. They therefore propose to reject clearly and without exception any possible equivalence between the effects which, at the Community level, flow from the patent proprietor's consent and the situation which arises as a result of the grant of a compulsory licence by the national authorities.