JUDGMENT OF 15. 6. 1976 - CASE 96/75 EMI RECORDS v CBS SCHALLPLATTEN

In Case 96/75 Reference to the Court under Article 177 of the EEC Treaty by the Landgericht Köln for a preliminary ruling in the action pending before that court between

THE COURT composed of: R. Lecourt, President, H. Kutscher and A. O'Keeffe, Presidents of Chambers, A. M. Donner, J. Mertens de Wilmars, M. Sørensen and F. Capotorti, Judges, Advocate-General: J.P. Warner Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts

I — Facts and written procedure

II — Written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice

A — Written observations submitted by EMI Records Limited

1. On the rules of the Treaty relating to the free movement of goods

2. On the rules on competition

(i) On Article 85 of the Treaty

(ii) On Article 86 of the Treaty

B — Written observations submitted by CBS United Kingdom Limited, CBS Grammofon A/S and CBS Schallplatten GmbH

1. On the provisions of the Treaty relating to the free movement of goods

2. On the rules on competition

(i) On Article 85 of the Treaty

(ii) On Article 86 of the Treaty

C — Written observations submitted by the Belgian Government (Case 96/75)

D — Written observations submitted by the Danish Government

E — Written observations submitted by the Government of the Federal Republic of Germany

F — Written observations submitted by the French Government

G — Written observations submitted by the Irish Government

H — Written observations submitted by the Netherlands Government

I — Written observations submitted by the Government of the United Kingdom

(a) On the rules on competition:

J — Written observations submitted by the Commission of the European Communities

III — Oral procedure

Law

1. With regard to the free movement of goods

2. With regard to competition

Costs

I —. Facts and written procedure

1. In May 1887 the American Graphophone Company was formed in the United States operating in the sphere of the production and use of graphophones. In 1894 this company purchased the Columbia Phonograph Company General which at the time was the subsidiary of another American company. In the course of the period prior to the First World War that company registered a certain number of trade-marks comprising (not exclusively) the word Columbia in the United States of America, in the United Kingdom and other countries, inter alia with regard to gramophone records. In 1913 the Columbia Phonograph Company General changed its name to the Columbia Graphophone Company.

2. In December 1917 the Columbia Graphophone Manufacturing Company was formed in the United States. A transfer of shares was effected between this undertaking and the American Graphophone Company. The shares transferred are said to have included the holding of the American Graphophone Company in the Columbia Graphophone Company Limited. It is probable that the Columbia Graphophone Company also became a subsidiary of the new undertaking. In 1920 the American Graphophone Company was wound up.

3. In 1932 the holding of the Columbia Graphophone Manufacturing Company in the Columbia Graphophone Company Limited was assigned to the English company, Constructive Finance Company Limited, through a tripartite agreement concluded between the three companies on 16 November 1922. Pursuant to this agreement, which was supplemented by an agreement of 12 April 1923, the ownership of the American and European Columbia trade-marks was separated since there no longer existed any connexion between the two Columbia undertakings.

4. In 1931 a new company, named Electric and Musical Industries Limited, was formed in England. In the course of 1931 this undertaking, today known as EMI Limited acquired the shares of the Columbia Graphophone Company Limited and the shares of another English company called the Gramophone Company Limited.

5. In 1934 Grigsby-Grunow, the American undertaking which had in 1931 purchased the holding of Columbia Graphophone Limited in Columbia Phonograph Company Incorporated, sold by auction this holding which was first of all purchased by Sacro Enterprises Inc. and subsequently by the American Record Corporation. In 1938 Columbia Broadcasting System Inc. purchased the shares in the latter undertaking including its holding in the Columbia Phonograph Company Incorporated. Through a series of assignments effected over a number of years the Columbia Phonograph Company Incorporated divested itself of the American Columbia marks: in 1954 those marks became the property of Columbia Broadcasting System Inc. which has been known since 1974 as CBS Inc.

6. The proprietor of the Columbia marks in the United States, CBS Inc., also owns the Columbia marks in the countries of North and South America and in a number of other countries. Most records manufactured in the United States and elsewhere bear the Columbia mark. Furthermore CBS sells in the Community records manufactured in factories which it owns in certain Member States. Those records are sold in the Community under a mark other than Columbia, in most cases the CBS mark.

7. It is in fact the importation and sale of the abovementioned records on which the Columbia mark was visible which has given rise to the present proceedings.

8. A copy of the order for reference was received at the Court of Justice on 5 September 1975.

II —. Written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice

A —. Written observations submitted by EMI Records Limited

1. On the rules of the Treaty relating to the free movement of goods

(a). The provisions of the Treaty on the free movement of goods have as their objective the abolition of quantitative restrictions and measures having equivalent effect but only with regard to trade between Member States. This interpretation is corroborated not only by the very wording of these rules and by the Preamble and by the Principles of the Treaty but also by the case-law of the Court.

(b). In those circumstances only the provisions of the common commercial policy could possibly call for consideration. However, those provisions do not contain any prohibition against the establishment by the Community of barriers to trade with third countries. In any case Article 18.of the Treaty provides that barriers to trade with third countries shall be lowered by entering into international agreements on a basis of reciprocity.

(c). Finally, CBS is not justified in invoking Article 10 of the Treaty in order to provide a basis for its claim. Article 10 of the Treaty relates solely to discerning the conditions under which products coming from a third country may be considered, with regard to customs, to be in free circulation in the Community and may obtain the same treatment as that of products coming from the Community. This provision in no way concerns the private rights of third parties. If this were not so any undertaking whatsoever, having no right to the Columbia mark in any country, could infringe the trade-mark right of EMI by obtaining customs clearance in the Community for records imported under this mark.

2. On the rules on competition

(i). On Article 85 of the Treaty

(a). For its application this provision requires the existence of agreements or concerted practices between undertakings. If no agreement or concerted practice presently exists Article 85 is inapplicable. The English court is correct in its statement on this point in Case 51/75 as to the absence of connexions between CBS and EMI in so far as the word connexion indicates relations other than normal commercial relations. If this word must be understood as indicating any contractual relation whatsoever, apart from an isolated sale, there were certain contractual connexions between the relevant undertakings until 1970 at the latest At all events whatever interpretation is adopted there is at present no connexion in the widest sense of the word between the two undertakings.

(b). Moreover the assignment of a mark does not itself constitute an agreement in restraint of competition and prohibited by the Treaty. In accordance with the case-law of the Court and with various decisions of the Commission Article 85 is only applicable if such an assignment forms part of or constitutes the implementation or the confirmation of an agreement to share markets within the common market. In the present case:

(c). Moreover, even supposing that the assignment of the mark had originally formed part of a much wider agreement, Article 85 is not to this extent applicable to the exercise of the exclusive right since the contract of assignment and the agreements whereby the assignment was effected were implemented in the meantime and have no further legal effect.

(d). In addition there are no grounds in ■ this case for invoking the principle of the exhaustion of the right recognized by the Court in certain judgments. The application of this principle in fact supposes:

(e). Nor may the objection be made regarding EMI's right that since the products in dispute were legally covered by the same mark in the country of origin they might, in accordance with the case-law of the Court, move freely in the common market First of all the judgments from which such a principle is deduced relate solely to cases regarding the preservation of the unity of the common market, whereas in this case the disputed exercise of the trade-mark right scarcely jeopardizes the freedom of trade between Member States. Secondly the principle stated by the Court cannot be recognized as an absolute and general rule that what is lawful in any country is also lawful within the Community. The general application of this rule would in fact have very serious consequences for the undertakings of the common market: it would jeopardize the protection afforded by the trade-mark right, it would render them liable to considerable financial expense in order to develop and protect their marks and would at the same time pave the way for the uncontrolled supply of spurious products. In addition it would imply an infringement of the obligations undertaken by the Member States within the framework of the Paris Convention on the protection of industrial property.

(f). Likewise it is impossible to transpose to the present case the principle laid down by the Court in the Hag judgment ([1974] ECR 731) and derived from the concept of the common origin of various identical marks. The expression common origin which the Court employed on this occasion is only meaningful if it relates to an instance where parallel rights are created following the distribution of goods, after a certain period, within the same market by the same economic entity under one and the same mark: in other words two identical marks are of a common origin for the purposes of the Treaty only if the markets for the products bearing the mark also have a common origin.

(g). Finally, in all the cases where the Court has prohibited the proprietor of the mark from preventing the importation of goods bearing the same mark, it has not only restricted this prohibition to the case where the imports came from another Member State but also applied the principle of reciprocity for the benefit of the two proprietors of the mark. This principle is nowhere to be found in the present case since CBS prevents EMI from using the Columbia mark in the United States.

(ii). On Article 86 of the Treaty

B —. Written observations submitted by CBS United Kingdom Limited, CBS Grammofon A/S and CBS Schallplatten GmbH

1. On the provisions of the Treaty relating to the free movement of goods

(a). Although the provisions of the Treaty on the free movement of goods refer directly to trade between Member States this does not, however, preclude the principles relating to the exercise of the trade-mark right from also applying by analogy to imports from third countries. In fact Articles 30 and 36 of the Treaty pursue the same objective as that referred to by Article 85: the unity of the common market and the abolition of obstacles to trade between Member States. The judgments of the Court and several decisions of the Commission in this sphere have recognized that trade may also be affected within the meaning of Article 85 of the Treaty by measures impeding imports from third countries. Since this article runs parallel to the said provisions it may thus be conceded that impediments placed in the way of such imports may also be constituted by obstacles to trade between Member States with which the second sentence of Article 36 of the Treaty is concerned.

(b). Furthermore, once products coming from a third country have been imported into the Community and all relevant charges paid they must be regarded as being in free circulation in the Community within the meaning of Article 10 of the Treaty and are thereby subject to the provisions on the free movement of goods on the same basis as products originating in Member States.

(c). Nor is there anything to preclude the application by analogy of the principle laid down by the Court in the Hag judgment ([1974] ECR 731) according to which reliance on a mark to prohibit the importation. of products to which an identical mark, having the same origin, has been legally applied in another Member State cannot be justified for the purpose of safeguarding rights constituting the specific subject-matter of the trade-mark. It is of little importance that the mark is invoked against imports from third countries and not from another Member State. Whilst the provisions on the free movement of goods reflect the basic interest of the Community in free trade between Member States it is by no means in the interest of the Community that barriers to trade with third countries should be created by private persons in so far as it cannot be claimed that they are necessary for the protection of lawful private interests.

(d). It is also not disputed that interests protected by other industrial and commercial property rights very often have a higher status than those protected by a trade-mark and the use of the latter is particularly liable to contribute to the partitioning of the market and to affect adversely the free movement of goods. If there is a conflict between the absolute protection of a trade-mark right and the free movement of goods the trade-mark right must thus give way before the requirements of the common market.

2. On the rules on competition

(i). On Article 85 of the Treaty

(a). According to the case-law of the Court and the practice of the Commission an agreement which only provides for an assignment of a trade-mark may have restrictive effects on competition and thus fall under Article 85 of the Treaty so that the mark assigned cannot be invoked in order to impede the import into a Member State of products to which that mark has been applied. Every assignment of a mark results in a partitioning of markets and thereby constitutes a restriction of competition if the exclusive right is exercised to impede the import of goods originating either from the original proprietor of the mark or from a third party who has purchased the mark from the said proprietor.

(b). Furthermore, the transfer of the mark referred to in the present case forms part of a vast system of contracts set up by the American and English Columbia companies in order to divide the markets and restrict competition between these companies on partitioned markets: this constitutes one of the principal factors in this division which EMI Records endeavours to perpetuate through its trade-mark.

(c). It is furthermore of little importance whether the agreements to share the markets concluded between CBS and EMI or their predecessors were terminated in 1956 or 1968. The application of Article 85 does not necessarily require that at the time when the trade-mark right is asserted its proprietor should still maintain contractual relationships. When the mark was assigned as part of an agreement the aim of which was to share markets the fact that the mark is later relied on to prevent imports such as those in dispute must be considered as a permanent effect of the agreement and prohibited by Article 85 of the Treaty.

(d). It is true that the agreements of 1917 were concluded between a parent company and its subsidiary. However, when the Court and the Commission held that Article 85 of the Treaty is not applicable to cases of this nature, they stated that such agreements do not escape the said article unless the subsidiary has no real independence from the parent company and so that all that is involved is the internal allocation of tasks within the group. On the other hand it thus follows that once the links between the parent company and its subsidiary are severed Article 85 is applicable. This is precisely the situation in the present case. The agreement concerning the assignment of the European marks concluded in 1917 between the American parent company and its English subsidiary formed part of an agreement on the territorial partitioning of .markets. Since the group connexions between the two companies have ceased to exist — initially in the course of the years 1922 to 1925 and subsequently and definitively from 1931 — there is no longer any question of an internal allocation of tasks between companies on the division of markets and in this connexion the exclusive right to use the Columbia mark in each area covered by the contract played an important role.

(e). Furthermore the fact that in the present case the mark in dispute is invoked to impede imports from a third country is not sufficient to prevent the application of Article 85 (1) of the Treaty. Agreements having as their object or effect the prevention of imports from third countries may also involve a restriction on competition within the common market and affect trade between Member States. Consequently the creation of hindrances to these imports may likewise result in obstacles to the trade between Member States with which the second sentence of Article 36 of the Treaty is concerned.

(f). Finally the fact that under American law CBS can prohibit EMI from importing its Columbia records into the United States is irrelevant in this case. The application on Article 85 of the Treaty is not subject to a condition of reciprocity. The competition policy intended by the Treaty does not depend as regards its objectives and its basis on whether the same policy is pursued in countries outside the Community.

(ii). On Article 86 of the Treaty

1. where a trade-mark is invoked in a Member State in relation to imports from a third country of products to which the same mark has been legally applied in that country, Article 85 is inapplicable, provided that the proprietors of the trade-marks for the two countries have acquired the marks, or the right to use them, through agreements between each other or through agreements which can be traced to the same original proprietor of both marks.

2. Where agreements referred to under Paragraph 1 above have been concluded before the entry into force of the EEC Treaty it is necessary but also sufficient for their effects to continue thereafter.

3. Agreements restricting competition — including agreements of the type mentioned under Paragraph 1 above — entered into between connected undertakings and as such falling outside the prohibition of Article 85, none the less come within the scope of Article 85 if they are maintained after the connexion between the original parties to the agreement has been terminated.

4. If the proprietor of a trade-mark in one Member State invokes the mark with regard to the importation by other undertakings of products to which the same mark has been lawfully applied in another country, including a third country, it may constitute an abuse within the meaning of Article 86 if the proprietor of the trade-mark or its subsidiary itself distributes the goods of the other producer under the same mark without deleting it.

C —. Written observations submitted by the Belgian Government (Case 96/75)

D —. Written observations submitted by the Danish Government

E —. Written observations submitted by the Government of the Federal Republic of Germany

F —. Written observations submitted by the French Government

G —. Written observations submitted by the Irish Government

(a). The Irish Government considers that since the provisions on the free movement of goods refer exclusively to trade between Member States in this case they cannot restrict B's exercise of its exclusive right. Furthermore, when A prohibits B from using the mark in dispute within the Community it is merely exercising its right normally without effecting any arbitrary discrimination or disguised restriction on trade between Member States within the meaning of Article 36 of the Treaty.

(b). With regard to the rules on competition the Irish Government considers that the conditions for the application of Article 85 of the Treaty are likewise absent in the present case. The only undertaking which is entitled to use the mark in dispute in the Community has neither concluded an agreement nor participated in any conceited practice regarding this mark with another undertaking within the Community. Furthermore there does not presently exist and never has existed any legal, finanical, technical or economic links between the proprietor of the mark in the Community and the proprietor of the mark in a third country; nor is there any indication of concerted action between those two undertakings. The only agreements which can have any importance, those dated 27 April 1917, do not come within the category prohibited by Article 85 (cf. the abovementioned Centrafarm judgment). Consideration of the provisions of those agreements, as reproduced in the order making the reference, leads to the conclusion that they do not have as their object or effect the prevention, restriction or distortion of competition within the common market. Furthermore they do not affect trade between Member States.

H —. Written observations submitted by the Netherlands Government

I —. Written observations submitted by the Government of the United Kingdom

(a). On the rules on competition:

(b). The provisions of Articles 30 to 36, which make it possible to terminate the restrictions on imports created by means other than those prohibited by Articles 85 and 86 of the Treaty, also apply solely to trade between Member States. The fact that in the present case undertaking B owns a subsidiary within the Community is irrelevant since Article 30 of the Treaty relates exclusively to the fact of importation and does not take into consideration connexions which may exist between the importer and his supplier who is established in a third country. Moreover the principle of the exhaustion of the right, which the Court has already recognized, is inapplicable to the present case since the relevant products were not marketed for the first time in a Member State of the Community either by the proprietor of the exclusive right in that State or with his consent.

J —. Written observations submitted by the Commission of the European Communities

1. It considers first of all the rules on the free movement of goods and makes in particular the following observations;

2. The Commission next considers the rules on competition. It states that at the time when it lodged its written observations in Case 51/75 it was only aware of the facts indicated by the court making the reference, that is to say, of the agreements of 1917. When it lodged its written observations in Case 86/75 it expressly declared that with regard to the applicability of Article 85 of the Treaty it was then unable to draw final conclusions from the documents produced in the meantime. Only after examining these documents in greater depth did the Commission find that the observations formulated in the two abovementioned cases required to be supplemented and where necessary corrected.

III —. Oral procedure

1. By an order of 16 July 1975 which was received at the Court Registry on 5 September 1975 the Landgericht Köln submitted, pursuant to Article 177 of the EEC Treaty, the following question for a preliminary ruling:

2. It is clear from the information supplied by the national court that the trade-mark in question originally belonged to an American company which in 1917 transferred to its English subsidiary its interests and goodwill in various countries including the States which presently make up the Community.

3. It is clear from the information supplied by the Landgericht Köln the proprietor of the mark in the United States sells in the Community through its subsidiaries established there products bearing this mark and manufactured in the United States.

4. The essential purpose of the question submitted is to ascertain whether the proprietor of a mark in a Member State of the Community may exercise his exclusive right to prevent the importation or marketing in that Member State of products bearing the same mark coming from a third country.

1. With regard to the free movement of goods

5. Within the framework of the provisions of the Treaty relating to the free movement of goods and in accordance with Article 3 (a), Article 30 et seq. on the elimination of quantitative restrictions and of measures having equivalent effect expressly provide that such restrictions and measures shall be prohibited between Member States.

6. Furthermore if the same proprietor holds the trade-mark right in respect of the same product in all the Member States there are no grounds for examining whether those marks have a common origin with an identical mark recognized in a third country, since that question is relevant only in relation to considering whether within the Community there are opportunities for partitioning the market.

7. It is impossible to avoid these conclusions by relying on Articles 9 and 10 of the Treaty.

8. According to Article 10 (1) of the Treaty products coming from a third country shall be considered to be in free circulation in a Member State if the import formalities have been complied with and any customs duties or charges having equivalent effect which are payable have been levied in the importing Member State.

9. Since those provisions only refer to the effects of compliance with customs formalities and paying customs duties and charges having equivalent effect, they cannot be interpreted as meaning that it would be sufficient for products bearing a mark applied in a third country and imported into the Community to comply with the customs formalities in the first Member State where they were imported in order to be able then to be marketed in the common market as a whole in contravention of the rules relating to the protection of the mark.

10. Furthermore the provisions of the Treaty on commercial policy do not, in Article 110 et seq., lay down any obligation on the part of the Member States to extend to trade with third countries the binding principles governing the free movement of goods between Member States and in particular the prohibition of measures having an effect equivalent to quantitative restrictions.

11. The arrangements concluded by the Community in certain international agreements such as the ACP-EEC Convention of Lome of 28 February 1975 or the agreements with Sweden and Switzerland of 22 July 1972 form part of such a policy and do not constitute the performance of a duty incumbent on the Member States under the Treaty.

12. Furthermore with regard to the provisions of Regulation No 1439/74 of 4 June 1974 (OJ 1974, L 159, p. 1) introducing common rules for imports, these provisions relate only to quantitative restrictions to the exclusion of measures having equivalent effect.

13. It follows that neither the rules of the Treaty on the free movement of goods nor those on the putting into free circulation of products coming from third countries nor, finally, the principles governing the common commercial policy, prohibit the proprietor of a mark in all the Member States of the Community from exercising his right in order to prevent the importation of similar products bearing the same mark and coming from a third country.

2. With regard to competition

14. Under Article 85 (1) of the Treaty there shall be prohibited as incompatible with the common market all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect to affect adversely competition within the common market.

15. For Article 85 to apply to a case, such as the present one, of agreements which are no longer in force it is sufficient that such agreements continue to produce their effects after they have formally ceased to be in force.

16. Furthermore it is clear from the file that the foreign trader can obtain access to the common market without availing himself of the mark in dispute.

17. In those circumstances the requirement that the proprietor of the identical mark in a third country must, for the purposes of his exports to the protected market, obliterate this mark on the products concerned and perhaps apply a different mark forms part of the permissible consequences flowing from the protection of the mark.

18. Furthermore under Article 86 of the Treaty any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between the Member States.

19. Although the trade-mark right confers upon its proprietor a special position within the protected territory this, however, does not imply the existence of a dominant position within the meaning of the abovementioned article, in particular where, as in the present case, several undertakings whose economic strength is comparable to that of the proprietor of the mark operate in the market for the products in question and are in a position to compete with the said proprietor.

20. Furthermore in so far as the exercise of a trade-mark right is intended to prevent the importation into the protected territory of products bearing an identical mark, it does not constitute an abuse of a dominant position within the meaning of Article 86 of the Treaty.

21. For those reasons it must be concluded that the principles of Community law and the provisions on the free movement of goods and on competition do not prohibit the proprietor of the same mark in all the Member States of the Community from exercising his trade-mark rights, recognized by the national laws of each Member State, in order to prevent the sale by a third party in the Community of products bearing the same mark, which is owned in a third country, provided that the exercise of the said rights does not manifest itself as the result of an agreement or of concerted practices which have as their object or effect the isolation or partitioning of the common market.

22. The costs incurred by the Belgian Government, the Danish Government, the Government of the Federal Republic of Germany, the French Government, the Irish Government, the Netherlands Government, the Government of the United Kingdom and the Commission of the European Communities, which submitted observations to the Court, are not recoverable.

On those grounds, THE COURT in answer to the question referred by the Landgericht Köln by order of 16 July 1975, hereby rules:

1 The principles of Community law and the provisions on the free movement of goods and on competition do not prohibit the proprietor of the same mark in all the Member States of the Community from exercising his trade-mark rights, recognized by the national laws of each Member State, in order to prevent the sale in the Community by a third party of products bearing the same mark, which is owned in a third country, provided that the exercise of the said rights does not manifest itself as the result of an agreement or of concerted practices which have as their object or effect the isolation or partitioning of the common market.

2 In so far as that condition is fulfilled the requirement that such third party must, for the purposes of his exports to the Community, obliterate the mark on the products concerned and perhaps apply a different mark forms part of the permissible consequences of the protection which the national laws of each Member State afford to the proprietor of the mark against the importation of products from third countries bearing a similar or identical mark.