Opinion of Mr Advocate General Lenz
Mr President,
Members of the Court,
The proceedings in which I must give my opinion today concern a Commission decision in the area of competition law regarding agreements for the exploitation of patents on sailboards or (this is one of the points in issue) sailboard components.
The following relevant facts should first be mentioned.
Two Americans, Hoyle Schweitzer and James Drake, played a leading role in the development of sailboards. The applicant company was founded by Mr Schweitzer as a family firm. It holds (or held) patents in a number of countries. Where Europe is concerned, it held a patent in the United Kingdom for a wind-propelled vehicle. That patent was however revoked by the competent court in April 1982, and the decision was upheld by a judgment of the Court of Appeal in January 1984. In the Federal Republic of Germany a patent was applied for on 21 March 1969. After lengthy proceedings, the details of which I shall deal with later, a patent was issued on 31 March 1978. It refers to a rig (that is, the sail and rigging) for a sailboard. As I have already intimated, it is in issue in this case whether the patent applies only to the rig (the Commission's view) or whether it covers the rig and the board together as a unit (the view of the applicant). I shall come back to that point later.
The Windsurfer sailboard model developed by the applicant was first distributed in Europe by the Netherlands firm Ten Cate Sports BV. By an agreement with the applicant concluded in 1973 and widened in 1976 that firm became the exclusive licensee for Europe of the applicant's know-how for the manufacture and marketing of the sailboards and of the trademark rights existing or applied for. The word marks Windsurfer and Windsurfing and a design mark registered first in the USA and then in France and Germany were also assigned to Ten Cate, with the obligation to use them.
In 1976 and 1977, Ten Cate entered into licensing agreements with two German undertakings (Ostermann and Shark); whether or not it was authorized to do so need not be discussed here. The first of those agreements (I shall discuss them in more detail later) covered the exploitation of the German patent, which was then pending, and of other European patent applications, and the second covered only the exploitation of the German patent application. In 1978 the applicant took over those agreements.
The applicant itself concluded licensing agreements with other German firms: on 1 July 1978 with the firm Akutec, on 1 January 1979 with the firms SAN Warenvertriebsgesellschaft mbH (SAN) and Klepper and on 21 August 1980 with the firm Marker (I shall also discuss the contents of those agreements).
In view of the resulting restrictions on the freedom of action of competitors a number of undertakings made complaints to the Commission, apparently brought with the main purpose of assisting the complainants themselves to acquire licences for the manufacture and distribution of sailboards. As a result of those complaints, on 27 January 1981 discussions were held between the Commission, the complainants, representatives of the applicant and Ten Cate and representatives of the licensees referred to above (with the exception of Marker, against which no complaint had yet been made since it commenced production only in 1981).
In the light of the views expressed by the Commission on the licensing agreements the applicant immediately took steps to amend the agreements. That led to the conclusion of new agreements (which are not the subject of these proceedings), in September 1981 with Akutec, in November 1981 with Klepper, in January 1982 with SAN, in February 1982 with Marker, in September 1982 with Ostermann and in March 1983 with Shark. The applicant's declaration of its willingness to take those steps did not however prevent the Commission from initiating competition proceedings against it, by decision of 7 June 1982, and communicating a statement of objections to it in July 1982. In reply the applicant made a written submission in September 1982; an oral hearing was also held in September 1982, and a further exchange of correspondence ensued (in particular since the Commission, in a letter of 20 October 1982, referred to further documents which were to be taken into account in the proceedings).
On 11 July 1983 the Commission adopted its final decision.
Article 1 of the decision lays out the provisions of the agreements between the applicant and Ostermann, Shark, Akutec, SAN, Klepper and Marker which constituted an infringement of Article 85 (1) of the EEC Treaty. Article 3 (1) imposes a fine on the applicant in the amount of 50000 ECU (DM 113793) in respect of certain of the infringements of Article 85 (1) set out in Article 1 ; the other provisions of the decision are not relevant here.
On 13 September 1983 Windsurfing International Inc. (elsewhere abbreviated to WSI) brought an application before the Court for the annulment of the decision or the annulment or reduction in amount of the fine.
I — I should like to start with a number of preliminary remarks.
Having regard to the extensive written and oral submissions which have been made, my views on that application, which the Commission contends should be dismissed, are as follows.
I — I should like to start with a number of preliminary remarks.
1. The first of these relates to the fact that the licensing agreements now in issue were also the object of an investigation by the German Bundeskartettamt [Federal Restrictive Trade Practices Authority].
2. The second preliminary remark concerns the scope of the German patent, which is referred to along with the British patent (which clearly applies to the whole sailboard unit) in all the licensing agreements (in the agreement with Shark, indeed, only the German patent is mentioned).
3. My final preliminary remark has to do with the market situation existing at the time, to which the licensing agreements in issue relate. It is relevant in a number of respects to the legal assessment of the agreements, and it is therefore not surprising that during the proceedings there was considerable dispute on this point.
II — The assessment of the licensing agreements in the light of Article 85 (1) of the EEC Treaty (excluding the question of interference with trade between Member States)
I now come to the main section of the examination required by the action, the question whether the Commission's assessment, from the point of view of competition law, of various clauses of the licensing agreements (contained in Part A IV 1, 2 and 3 and Part B I 1 (a) to (g) of the decision) is tenable or whether, as the applicant contends, it is to be criticized.
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)
2. Article 1 (1) (2) of the decision (the obligation on the licensees not to supply rigs manufactured under the German patent separately)
3. Article 1 (1) (3) of the decision (the obligation on the licensees to pay royalties for rigs manufactured under the German patent only on the basis of the net selling price of a complete sailboard)
4. Article 1 (1) (4) of the decision (the obligation on the licensees to affix to the boards of sailboards marketed by them a notice stating that they were licensed by Hoyle Schweitzer or licensed by WSI)
5. Article 1 (1) (5) of the decision (the obligation on the licensees to acknowledge the word marks Windsurfer and Windsurfing as well as a design mark (so-called logo) as valid trademarks)
6. Artide 1 (2) of the derision (the provision for termination of the licensing agreements should the licensee start production in a territory not covered by a patent, which only applied to the agreements with Akutec, SAN, Klepper and Marker)
7. Article 1 (3) of the decision (the obligation on Shark and Ostermann not to challenge the licensed patents)
8. At the end of this important part of the discussion the following intermediate conclusions may be drawn:
III — Were the licensing agreements capable of affecting trade between Member States}
The findings contained in Article 1 of the decision cannot in any event be upheld unless it is also established that the clauses they criticize were capable of affecting trade between Member States and in addition, as the Court has held, might do so significantly (meaning that they had some force).
At point B I 1 (h) of the preamble to its decision, the Commission sought to show that this was true of the clauses of the licensing agreements to which it objected. It pointed in particular to the strong position of the licensees and Ten Cate in the German market and argued that the effect of the offending clauses was to render trade in board and rigs between Germany and the other Member States more difficult. The applicant denies that assessment. In the first place, it claims that it is especially significant that the market for components of sailboards was practically nonexistent at the material time and that the separate demand for rigs in Germany could not be regarded as normal and was essentially artificial. In the second place, it relies on the fact that the market share of locally produced sailboards on the principal markets (Federal Republic of Germany, France and the Netherlands) was 70 to 80% and concludes that international trade in that field was of purely marginal significance.
1. In dealing with that point of contention I would dispose of the question of the demand for rigs alone (in the Federal Republic of Germany) by referring to what I have already said, which is that even if the demand is traceable to the special patent situation prevailing in the Federal Republic of Germany, still it certainly cannot be dismissed as artificial. It must also be accepted that although it is difficult to avoid the impression that the market for sailboard components was on a fairly modest scale at the time it cannot be maintained that it was so insignificant that it could be completely ignored for the purposes of the criterion of a significant effect on intra-Community trade, which has not been subjected to any very strict requirements by the Court of Justice. Besides, if the applicant's statements regarding the market shares of locally produced sailboards are in fact true it is clear on that basis also that trade between Member States existed on a scale which is wholly relevant for the purposes of Article 85 (1) if that trade was affected.
2. On the other hand, it appears extremely doubtful whether the criterion at issue is also applicable to the other clauses referred to in Article 1 of the contested decision (here admittedly I leave out of account altogether those referred to at points 4 and 5, in particular because the growth in licensees' turnover is not consistent with a diminution in their freedom of action).
3. The view I therefore come to is that if the Commission's findings in Article 1 of its decision are critically appraised in the light of all the criteria applicable under Article 85 (1), only those contained in Article 1 (1) (1) and (2) (prior approval of the boards by the applicant and the ban on separate sales) can be upheld. For the rest, the applicant's submissions in this regard should be upheld and the findings contained in Article 1 of the contested decision declared void.
IV — Article 85 (3)
The decision also expresses a position on the question — this requires thorough examination pursuant to Article 85 — whether, if the agreements are not compatible with Article 85 (1), they may be exempted from the prohibition it contains by virtue of Article 85 (3). In the Commission's view that was not possible because both the formal requirements of that provision (notification to the Commission) and its substantive requirements were unsatisfied. Because the applicant considers that that assessment is also unfounded, a few remarks are in order on that point as well.
1. Article 4 of Regulation No 17 provides that in the case of agreements concluded after the entry into force of the regulation (such agreements are at issue here), a decision in application of Article 85 (3) may only be taken if they have been notified to the Commission. As the licensing agreements in this case were not notified, it must be considered whether they are covered in this regard by the exception in Article 4 (2), which applies, as we know, to agreements to which not more than two undertakings are party where those agreements, inter alia, impose restrictions on the exercise of the rights of the assignee or user of industrial property rights.
2. In addition it is questionable whether the agreements satisfy the requirements of Article 85 (3), in particular the requirement of an improvement in the production or distribution of goods or the promotion of technical or economic progress and the requirement that the agreements must not impose obligations which are not indispensable to the attainment of those objectives.
V — Article 3 (1) of the decision (imposition of a fine on the applicant in respect of the infringements of Article 85 (1) found in Article 1 (1) (2), (3) and (4), and in Article 1 (2) and (3))
As I said at the outset, the applicant seeks in any event to have this part of the decision declared void or at least to have the amount of the fine reduced (which is possible under Article 172 of the EEC Treaty). The arguments put forward in this connection make it necessary for me to state my views as follows.
1. First it should be borne in mind that Article 15 (2) of Regulation No 17 permits such fines to be imposed (within certain limits which it specifies) where undertakings intentionally or negligently infringe Article 85 (1) of the Treaty. It goes on to state expressly that regard is to be had to the gravity and the duration of the infringement.
2. Further, if the applicant's contentions regarding the subjective requirements of Article 15 and the gravity of the infringement are entertained and the question is raised whether they provide grounds for cancelling the fine altogether, or whether at least further arguments for reducing the fine have become apparent, the answer I suggest is as follows:
3. If, following what I have said, it is concluded that although it would be inappropriate to declare Article 3 (1) of the decision void in its entirety a significant reduction is none the less called for in view of the fact that only one infringement meriting a fine (the ban on the separate sale of rigs) is to be found, then it should also be examined for the sake of completeness whether there would also be grounds for reducing the fine if the Commission's assessment of the other clauses in respect of which it imposed a fine were held to be correct in the light of Article 85 (1).
C — In conclusion, my opinion may be summed up as follows:
It is my conviction that the application brought by Windsurfing International is well founded in part. Accordingly, Article 1 (1) (3) (in so far as it extends to more than the charging of royalties on the boards), Article 1 (1) (4) and (5), and Article 1 (2) and (3) of the Commission decision should be declared void. In addition the fine imposed upon the applicant in Article 3 should be reduced quite substantially, and the sort of figure that occurs to me is 10000 ECU. Finally I consider that such an outcome to the proceedings makes it appropriate to order each party to bear its own costs.
1 Translated from the German.