JUDGMENT OF 12.7.1984 — CASE 170/83 HYDROTHERM v COMPACT

In Case 170/83 REFERENCE to the Court under Article 177 of the EEC Treaty by the Bundesgerichtshof [Federal Court of Justice] for a preliminary ruling in the action pending before that court between

THE COURT (Fourth Chamber) composed of: T. Koopmans, President of Chamber, K. Bahlmann, P. Pescatore, A. O'Keeffe and G. Bosco, Judges, Advocate General: C. O. Lenz Registrar: H. A. Rühi, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

II — Written observations submitted to the Court

III — Oral procedure

Decision

The first question (the term undertaking)

The second question (territorial scope of the agreement)

The third, fourth and fifth questions (use of the trademark right)

Costs

I —. Facts and written procedure

1. (a) Must Regulation No 67/67/EEC(on block exemption) be applied even if several legally independent undertakings participate on one side of the contract? (b) Is it important that the undertakings participating on one side of the contract are bound inter se at the personal level and form a single economic entity for the purposes of the contract?

2. Must Regulation No 67/67 be applied even if the obligations entered into cover not only a defined area of the Common Market but also countries outside the European Community?

3. In order for Article 3 (b) (1) of Regulation No 67/67 to apply, must the parties have adopted terms on the exercise of an industrial property right (in this instance a trademark) which suggest that it may be used to prevent or hinder goods to which the contract relates and which are properly marked or placed on the market from being obtained or sold, or is it sufficient for the purposes of that provision that the use of the trademark to prevent or hinder parallel imports is not dealt with in the contract?

4. Is Article 3 (b) (1) of Regulation No 67/67 applicable even if the parties to the contract do not legally have the power, by exercising the trademark rights, to prevent goods to which the contract relates, and which are properly marked or placed on the market, from being obtained or sold?

5. If the fourth question must be answered in the affirmative, is it also necessary in order for Article 3 (b) (1) to apply that the parties to the contract must actually use the trademark to prevent or hinder goods covered by the contract from being obtained?

II —. Written observations submitted to the Court

(a). The principle is clearly laid down in the case-law of the Court that the unity of the conduct on the market of the parent company and its subsidiaries outweighs the formal separation between those companies resulting from their separate legal personality. That principle also applies where one of the parties to the contract is composed of three entities bound inter se by a natural person who runs the other two undertakings and where the same natural person is both the majority shareholder and sole fully liable partner in two limited partnerships. The three entities form one economic unit and must be treated as a single undertaking. A contract concluded by such an undertaking with an exclusive dealer should be treated as an agreement between two undertakings for the purposes of Article 1 of Regulation No 67/67.

(b). Regulation No 67/67 is applicable to an exclusive dealing agreement covering territory situated outside the Community. Its purpose is to recognize the validity of exclusive dealing agreements covered by the regulation on account of their positive effect on intra-Community trade and their contribution to the development of competition between different brands. The fact that such an agreement covers nonmember countries as well does not ipso facto diminish the positive function of the agreement or require a different assessment. Since the regulation's aim is to enable parallel sales to take place, only agreements which exclude that possibility are prohibited.

(c). It is clear from the grounds of the order for reference that the third issue is of primary importance for resolving the first two issues. The Bundesgerichtshof placed great emphasis on the principle of interpretation which requires a provision to be given its fullest effect and maximum practical value. Since the Court has ruled out the possibility of using industrial property rights to prevent parallel supplies, the question must be asked whether it is right for Article 3 (b) (1) of Regulation No 67/67 to be robbed of all its practical value in assuming that its aim is to prevent the application of the block exemption only where an industrial property right is actually used to impede parallel supplies and not also where the mere possibility exists of being able to attempt to do so.

(a). Article 3 (b) (1) of Regulation No 67/67 excludes an agreement from exemption if the contracting parties make parallel imports difficult, in particular where they exercise industrial property rights in order to do so. Such restrictions or such an exercise of rights must be clear from the contract. The eventual application of Article 3 (b) (1) to an agreement presupposes that certain terms of the agreement are intended to erect, or in practice inevitably produce, obstacles to parallel imports of products that have been properly marked and placed on the market. To assert that the absence from an agreement of terms whereby the parties undertake not to exercise their industrial property rights to prevent parallel imports leads then to erect obstacles to such imports amounts to charging them with unlawful intention. Those considerations do not exclude the possibility of examining the parties' conduct with reference to Article 85 of the Treaty.

(b). Exemption is not dependent on the effectiveness of the means of resisting parallel imports. It is not excluded merely because the contracting parties possess property rights with which they could prevent such imports. Conversely, the existence of terms envisaging such action would preclude exemption.

(c). If the terms of the agreement are covered by Article 3 (b) (1) or actually lead to the erection of obstacles to parallel imports through the exercise of the trademark rights, the agreement does not escape application of that provision. On the other hand, actual use of the trademark to hinder parallel imports that does not arise from the agreement is not sufficient to render Article 3 (b) (1) applicable.

(d). Article 3 (b) (1) of Regulation No 67/67 should be construed as meaning that it can be invoked only where the existence of obstacles arising from the use of a trademark is due to the terms of the agreement, irrespective of the parties' legal power and irrespective of their conduct not legally based on the actual terms of the agreement.

(a). It is clear from the wording of Article 1 of Regulation No 67/67 of the Commission and Article 1 of Regulation No 19/65/EEC of the Council of 2 March 1965 on the application of Article 85 (3) of the Treaty to certain categories of agreements and concerted practices (Official Journal, English Special Edition 1965-1966, p. 35) that the exemption applies only to agreements to which only two undertakings are party to the exclusion of those where one contracting party is composed of several legally independent undertakings.

(b). The fact that the territory covered by the agreement includes nonmember countries does not preclude the application of the block exemption. For this concerns only restrictions on competition arising in the Common Market and capable of offering the general advantages referred to in Article 85 (3). In principle those positive effects are not diminished by the fact that the licensed territory also includes nonmember countries. The reference to the Common. Market in Article 1 (1) (a) of Regulation No 67/67 must not be construed restrictively.

(c). The purpose of Article 3 (b) (1) is to ensure that parallel supplies can take place. In view of that aim, referred to in the ninth recital of the preamble to the regulation, the actual exercise of an industrial property right with the view to impeding parallel supplies is sufficient to exclude block exemption. An agreement to that effect is not necessary. However, the mere fact that the possibility is open to a dealer to use a specific property right, even if this may lead to an abuse, is hot sufficient to render the exemtion inapplicable, for the benefits of an exclusive dealing agreement are often dependent on the grant of appropriate licences.

(d). Article 3 (b) (1) of Regulation No 67/67 is applicable even if it is legally impossible for parallel supplies to be prevented by the exercise of industrial property rights. On 30 March 1982 the Commission informed the parties to the main action that under present Community law it is no longer possible by reliance upon a trademark to oppose parallel imports of products lawfully put on the market in another Member State. However, in view of the aim of ensuring that parallel supplies can take place in every case, the determining factor is not the lawfulness of the restrictions on such supplies but only the actual use of industrial property rights to prevent them.

(e). The mere theoretical possibility that industrial property rights may be exercised in the way described in Article 3 (b) (1) of Regulation No 67/67 is not sufficient to exclude the block exemption. That approach would certainly reduce the legal uncertainty which may exist where the validity of a contract depends on the actual conduct of the parties but would mean that exclusive dealing agreements coupled with the grant of licences would on the whole no longer be exempted. The regulation would lose much of its value. The provision excluding the application of the block exemption on the ground of the actual conduct of the parties can certainly cause practical difficulties; without it, however, there would be no guarantee that the conditions for the grant of an exemption are actually fulfilled. The Court of Justice has not raised any objection to the corresponding provision of Article 3 (b) (2) of Regulation No 67/67.

(f). The questions submitted by the Bundesgerichtshof require the following answers :

III —. Oral procedure

(a). Regulation No 67/67 does not apply to an agreement to which several legally independent undertakings are party. This is quite clear from the actual wording of Article 1 (1) of the regulation, which refers to agreements to which only two undertakings are party. No other interpretation is possible.

(b). Regulation No 67/67 is not applicable to agreements covering countries outside the Community. The wording of Article 1 (a) precludes the application of the regulation to agreements covering the entire Common Market. Such agreements must be considered case by case; they might restrict competition more than agreements which affect only a defined area of the Community.

(c). In order for Article 3 (b) (1) of Regulation No 67/67 to apply, the parties need not adopt specific terms on the exercise of an industrial property right for the purpose of impeding parallel imports.

(d). Article 3 (b) (1) of Regulation No 67/67 is applicable even if under Community law the parties to the agreement may not use the industrial property rights in order to prevent parallel imports.

(e). In order for Article 3 (b) (1) of Regulation No 67/67 to apply, the parties to the agreement need not actually use the trademark or other industrial property rights.

1. By an order dated 28 June 1983, which was received at the Court on 3 August 1983, the Bundesgerichtshof [Federal Court of Justice] referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty five questions on the interpretation of Articles 1 (1) (a) and 3 (b) (1) of Regulation No 67/67 of th Commission of 22 March 1967 on the application of Article 85 (3) of the Treaty to certain categories of exclusive dealing agreements (Official Journal, English Special Edition 1967, p. 10).

2. As is clear from the order for reference and the documents before the Court, Mr Andreou, an engineer from Bologna and the personally liable member of the limited partnership Compact, is a manufacturer of a type of light-metal radiator bearing the trademark Ghibli. Compact entered into two successive agreements with the Germany company Hydrotherm, a subsidiary of an American corporation, granting Hydrotherm the exclusive right to sell the radiator. Under the first agreement Hydrotherm had the right to register the trademark Ghibli in its own name and did so in various States, including the Federal Republic of Germany.

3. The second agreement, which was concluded after difficulties arose in the performance of the first agreement, granted Hydrotherm the exclusive right to sell Ghibli radiators in Western Europe excluding Italy, Greece and Turkey. In the case of a special type of radiator, the licensed territory was defined as Western Europe excluding France, the Benelux countries and Austria. Under that agreement Hydrotherm undertook that in the licensed territory it would not directly or indirectly represent other manufacturers, retailers or makers of radiators, hotplates or convectors made from aluminium or aluminium alloy, or do business with them. Hydrotherm also undertook to buy radiators from Compact for a specific amount. It should be noted that the other parties to the second agreement were Mr Andreoli, Compact and another firm belonging to Mr Andreoli, Officine Sant'Andrea, Rastignano, Italy.

4. Difficulties also arose in the performance of the second agreement. At one point Hydrotherm refused to accept further goods from Compact whereupon Compact terminated the contract and claimed damages.

5. The court which tried the case at first instance, the Landgericht [Regional Court] Frankfurt am Main, decided in its judgment of 13 September 1979 that the agreement between the parties was void because it was contrary to Article 85 of the EEC Treaty. According to the Landgericht, the block exemption provided for by Regulation No 67/67 was not applicable, since Article 3 of the regulation precluded such exemption where trade in the products covered by the agreement might be hindered by the exercise of industrial property rights.

6. After appealing to the Oberlandesgericht [Higher Regional Court], Frankfurt am Main, Compact notified the agreement to the Commission, which, in a letter dated 31 March 1982, confirmed that it fell within the block exemption provided for by Regulation No 67/67.

7. By judgment of 13 May 1982 the Oberlandesgericht Frankfurt am Main held that in principle Hydrotherm was liable to pay damages and remitted the case to the Landgericht. In the grounds of its judgment the Oberlandesgericht considered the question whether the agreement between the parties was compatible with Community rules on competition. It acknowledged that the agreement had the effect of restricting competition in the Common Market; however, since the parties had not specifically agreed that there should be absolute territorial protection, the agreement was not to be regarded as contrary to Article 85 (1) by reason of such prohibition. The Oberlandesgericht did, however, raise the question whether even an open exclusive distribution right might possibly infringe the competition rules in view of the position held by the parties on the relevant market. If the relevant market were the general market in radiators, the proportion of turnover affected by the contract would be so trifling that the possibility of its having an appreciable effect on intra-Communtiy trade would be ruled out. The situation might be different if the relevant market were the market in radiators made of aluminium or aluminium alloy. The Oberlandesgericht considered it unnecessary to clarify that question, since the agreement in question was in any case covered by the block exemption provided for in Regulation No 67/67 because it fulfilled the requirements of both Article 1 (1) (a) and (b) and Article 2 (1) of that regulation.

8. According to the Oberlandesgericht, the fact that the licensed territory included some countries which were not members of the Community was irrelevant to the question whether Regulation No 67/67 was applicable since that regulation concerned only intra-Community trade. Nor did the agreement in question cease to qualify for block exemption as a result of Article 3 of Regulation No 67/67, which excluded such exemption where the contracting parties exercised industrial property rights to prevent dealers or consumers from obtaining from other parts of the Common Market goods to which the contract related which were properly marked or otherwise properly placed on the market. The fact that Hydrotherm had registered the trademark Ghibli did not enable it to prevent parallel import by using that trademark. In any event, that would not have been permissible in view of the decision of the Court of 18 February 1971 in Case 40/70, Sirena v Eda, [1971] ECR 69. Moreover, there was no evidence suggesting that Hydrotherm had used the trademark Ghibli to prevent or obstruct parallel imports. The negative clearance granted by the Commission on 30 March 1982 led to the same conclusion. Although the findings and assessments of the Commission were not binding on the national court (judgment of the Court of 10.7.1980 in Case 99/79, Lancôme v Etos, [1980] ECR 2511), it could nonetheless take account of the facts found in the clearance.

9. Hydrotherm appealed on a point of law against that judgment to the Bundesgerichtshof. After examining the issues raised regarding the Community rules on competition, the Bundesgerichtshof decided that the application of Regulation No 67/67 to the agreements at issue raised various questions concerning the interpretation of that regulation. The Bundesgerichtshof, being a court against whose decisions there is no judicial remedy under national law and thus required by the third paragraph of Article 177 to request the Court of Justice for a preliminary ruling on any questions of interpretation which may arise, therefore submitted the following questions to the Court:

10. In Article 1 (1) of Regulation No 67/67 Article 85 (1) of the Treaty is declared inapplicable to agreements to which only two undertakings are party. There is doubt about the applicability of that provision because the agreement at issue was concluded between Hydrotherm on the one hand and three different persons — Mr Andreoli, a natural person, and the undertakings Compact and Officine Sant'Andrea — on the other. It is an undisputed fact that Mr Andreoli has complete control of both those undertakings.

11. In competition law, the term undertaking must be understood as designating an economic unit for the purpose of the subject-matter of the agreement in question even if in law that economic unit consists of several persons, natural or legal. The requirement of Article 1 (1) of Regulation No 67/67 is therefore fulfilled if one of the parties to the agreement is made up of undertakings having identical interests and controlled by the same natural person, who also participates in the agreement. For in those circumstances competition between the persons participating together, as a single party, in the agreement in question is impossible.

12. The answer to the first question must therefore be that Regulation No 67/67 must be applied even if several legally independent undertakings participate in the agreement as one contracting party provided that those undertakings constitute an economic unit for the purposes of the agreement.

13. Under Article 1 (1) (a) of Regulation No 67/67, block exemption is applicable to agreements in which one party agrees with the other to supply only to that other certain goods for resale within a defined area of the Common Market. The agreement in question defines the licensed territory as Western Europe excluding certain States, which, in one case, are Italy, Greece and Turkey and, in the other, France, the Benelux countries and Austria.

14. The Bundesgerichtshof wishes to know whether the regulation may be applied where the obligations entered into thus cover not only a defined area of the Common Market but also countries outside the Community.

15. Regulation No 67/67 is designed to regulate an aspect of competition in the general context of the area to which the EEC Treaty, and more particularly Article 85, which refers to competition within the Common Market, applies. The requirements of the regulation are therefore satisfied when the object of the agreement is to establish the territorial scope of the exclusive dealership right within the framework of a defined area of the Common Market, provided always that such territorial delimitation as expressed in such a way that there remains a real possibility of competition — and thus of parallel imports — between the territory for which the exclusive dealership is granted and the remainder of the Community, which is not disputed in this case. The fact that nonmember countries are included in the territory covered by the exclusive dealership does not therefore alter the requirements for the application of the regulation.

16. The answer to the second question must therefore be that the regulation on block exemption is applicable where the obligations entered into cover not only a defined area of the Common Market but also countries outside the Community.

17. The exclusive dealing agreement at issue is characterized by the fact that one party granted to the other the right to use a trademark for the precise purpose of carrying out the agreement. In this regard the Bundesgerichtshof raises the question whether, and in what circumstances, the exercise of an industrial property right may bring such an agreement within the terms of Article 3 (b) (1) of Regulation No 67/67 which excludes block exemption. In substance, it asks whether it is sufficient for the purposes of that provision that an industrial property right may be used under an exclusive dealing agreement in such a way as to prevent the relevant goods from being obtained in the Common Market, or if the provision applies only if such use of the industrial property right arises from the terms of the agreement itself or the actual conduct of the parties.

18. According to Article 3, the block exemption provided for by Article 1 of Regulation No 67/67 does not apply where (b) the contracting parties make it difficult for intermediaries or consumers to obtain the goods to which the contract relates from other dealers within the Common Market, in particular where the contracting parties ... exercise industrial property rights to prevent dealers or consumers from obtaining from other parts of the Common Market or from selling in the territory covered by the contract goods to which the contract relates which are properly marked or otherwise properly placed on the market ....

19. The reason for that provision is explained in the ninth recital in the preamble in which it is stated that ... it is in particular advisable to ensure through the possibility of parallel imports that consumers obtain a proper share of the advantages resulting from exclusive dealing ... it is therefore not possible to allow industrial property rights and other rights to be exercised in an abusive manner in order to create absolute territorial protection.

20. It follows from those considerations that the regulation is not intended to exclude an agreement from block exemption simply because an industrial property right is granted under the agreement in the circumstances stated in Article 1 in order to allow an exclusive dealership to operate normally. The restriction laid down in Article 3 is therefore not applicable where the right to use an industrial property right is assigned in terms which raise no doubt that the exclusive dealership right granted is an open right.

21. The prohibition laid down in Article 3 can therefore apply only if either the terms of the agreement itself or the actual conduct of the parties suggest that an industrial property right is being exercised abusively in order to create absolute territorial protection. The mere possibility of such use, arising from the fact that the parties have not adopted any express provisions in their agreement, is therefore not a sufficient reason for excluding an agreement form block exemption.

22. The answer to the third, fourth and fifth questions must therefore be that Article 3 (b) (1) of Regulation No 67/67 must be interpreted as excluding an agreement from block exemption only if it is clear from the actual terms of the agreement or from the conduct of the parties that they intend to use, or are in fact using, an industrial property right in such a way as to prevent or impede, with the aid of that right, parallel imports into the territory covered by the exclusive dealership. The fact that an agreement does not contain any provision to prevent abuse of an industrial property right is not in itself a sufficient reason for excluding that agreement from the application of Regulation No 67/67.

23. The costs incurred by the Government of the French Republic and by the Commission' of the European Communities, which have submitted observations to the Court, are not recoverable.

24. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the proceedings before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT (Fourth Chamber) in answer to the questions submitted to it by the Bundesgerichtshof by order of 28 June 1983, hereby rules:

1 Regulation No 67/67 of the Commission of 22 March 1967 on the application of Article 85 (3) of the Treaty to categories of exclusive dealing agreements must be applied even if several legally independent undertakings participate in the agreement as one contracting party provided that those undertakings constitute an economic unit for the purposes of the agreement.

2 Regulation No 67/67 is applicable where the obligations entered into cover not only a defined area of the Common Market but also countries outside the Community.

3 Article 3 (b) (1) of Regulation No 67/67 must be interpreted as excluding an agreement from block exemption only if it is clear from the actual terms of the agreement or from the conduct of the parties that they intend to use, or are in fact using, an industrial property right in such a way as to prevent or impede, with the aid of that right, parallel imports into the territory covered by the exclusive dealership. The fact that an agreement does not contain any provision to prevent abuse of an industrial property right is not in itself a sufficient reason for excluding that agreement from the application of Regulation No 67/67.