C-16/74

EEC Treaty concerning the free movement of goods within the 5. Article 85 of the Treaty is not Common Market. In this connexion, concerned with agreements or concerted practices between under­ it is a matter of no significance that there exist, as between the exporting takings belonging to the same and importing Member States, price concern and having the status of differences resulting from governmen­ parent company and subsidiary, if the tal measures adopted in the exporting undertakings form an economic unit State with a view to controlling the within which the subsidiary has no real freedom to determine its price of the product. course of action on the market, and if 3. The owner of the trade mark relating the agreements or practices are to a pharmaceutical product cannot concerned merely with the internal avoid the incidence of Community allocation of tasks as between the rules concerning the free movement undertakings.

In Case 16/74

Reference to the Court under Article 177 of the EEC Treaty by the Hoge Raad of the Netherlands for a preliminary ruling in the action pending before that court between

CENTRAFARM BV, with registered office in Rotterdam, with Adriaan De Peijper , resident at Nieuwerkerk aan de IJssel,

and

WINTHROP BV, with registered office in Haarlem,

gives the following

JUDGMENT

Facts

The decision making the reference and By importing the goods from Great the written observations submitted Britain Centrafarm took advantage of a pursuant to Article 20 of the Protocol on considerable price differential. It appears the Statute of the Court of Justice of the that in Great Britain the product is sold EEC may be summarized as follows: for half the price at which it sells in the Netherlands.

2. On 16 June 1971 Winthrop submitted to the president of the I — Facts and procedure Arrondissements-Rechtbank of Rotter­

to Article 177 of the EEC Treaty, to give (c) Can the trade mark owner a preliminary ruling on the following successfully rely in justification of Questions: the exercise of the abovementioned right on the fact that the price I. As regards the rules concerning the differences in the relevant countries, free movement of goods: which make it profitable for third parties to market in one country (a) Assuming that: products coming from another 1. different undertakings in different country, and give the trade mark countries belonging to the EEC owner in that other country an forming part of the same concern interest in taking action against such are entitled to the use of the same practices, are the consequence of trade mark for a certain product; governmental measures whereby in the exporting country the prices of 2. products bearing that trade mark, those products are kept lower than after being lawfully marketed in would have been the case in the one country by the trade mark absence of those measures? owner, are exported by third parties and are marketed and (d), At any rate where the relevant further dealt in in one of the product is a pharmaceutical product, other countries; can the trade mark owner successfully rely in justification of 3. the trade mark legislation in the lastmentioned country gives the the exercise of his trade mark right in the manner mentioned on the fact trade mark owner the right to that the state of affairs described take legal action to prevent goods with the relevant trade mark under (a) prevents him from controlling the distribution of the from being marketed there by product, which control is considered other persons, even if such goods had previously been marketed by him necessary so that measures lawfully in another country by an for the protection of the public can be taken in the event of defects undertaking there entitled to that appearing? trade mark and belonging to the same concern, (e) Is it a consequence of Article 42 of do the rules set out in the EEC the Treaty of Accession that, if the Treaty concerning the free move­ rules of the EEC Treaty relating to the free movement of goods prevent ment of goods, notwithstanding the the exercise of a trade mark right as provisions of Article 36, prevent the stated above, those rules cannot be trade mark owner from exercising invoked in the Netherlands until 1 the right mentioned under 3 above? January 1975 insofar as the relevant (b) If the rules concerning the free goods come from the United movement of goods do not in all Kingdom? circumstances preclude the trade mark owner from exercising the II. As regards Article 85: right mentioned under (a) 3, is he precluded from so doing if the Can it be stated that the situation exercise of that right arises described under I (a) involves practices exclusively or partially from an of the kind forbidden by Article 85 of attempt to partition the markets of the EEC Treaty, and must an action for the relevant countries from each infringement as mentioned therein, other in relation to the said goods or insofar as it is to be regarded as a at least has the effect of thus consequence of such practices, be held partitioning those markets? impermissible for this reason?'

BV by T. Schaper, of The Hague, abuse of that right. Advocate with the Hoge Raad, on behalf In relation to this concept it must be of Centrafarm BV and Adriaan de borne in mind that: Peijper by L. D. Pels Rijcken, of The — on the one hand, attitudes have Hague, Advocate with the Hoge Raad, changed regarding both the and by A. F. de Savornin Lohman, imposition of prices by means of a Advocate at Rotterdam, and on behalf of trade mark and the limited the Commission by its Legal Adviser, significance to be given to the fact Bastiaan van der Esch, acting as agent. that two undertakings belonging to Having heard the report of the the same concern have different legal Judge-Rapporteur and the opinion of the personality; Advocate-General the Court decided to — on the other hand, Winthrop BV has open the oral procedure without any brought its action above all because preparatory inquiry. the behaviour of Centrafarm has made it impossible for it to control the distribution of the product, such II — Written observations control being necessary, in its view, submitted to the Court to enable measures to be taken to protect the public in the event of Observations submitted by Winthrop BV defects appearing in that product. The company first considers the four With regard to the answer to be given to judgments given by the Hoge Raad on the questions referred by the Hoge Raad, the subject-matter of the present case, Winthrop BV confines its remarks to an where the Hoge Raad decided that: examination of question I (d) in relation — the rights appertaining to a trade to the problem of the 'health and life of humans'. mark cannot be exercised to prevent parallel imports of products which The company recalls that the fact that have been put into circulation in the products were not put into another country by the trade mark circulation in the Netherlands by the owner himself; company or in its name is not the only — parallel imports of products put into fact that it has adduced in support of its circulation abroad by other legal action. One of the overriding reasons persons may be prohibited; this state which prompted it to bring an action of affairs does not amount to an was that the behaviour of Centrafarm is abuse of the trade mark, even if the preventing it from controlling the other legal person belongs to the distribution of its products. same concern and has been Such control is necessary first and constituted and exercises rights in the foremost to enable the company to trade mark solely for the purpose of undertake measures for the protection of preventing parallel imports by means the public in the event of a consignment of that trade-mark. of medicinal preparations proving Winthrop BV is opposed to any radical defective. Such measures generally change in this case law. It claims that amount to locating and withdrawing a modification, leading to a more from the market as rapidly as possible

It claims, furthermore, that Article 85 of As regards Dutch law on the free the EEC Treaty is not applicable in the movement of goods, the company refers present case, and refers to the line of to Article 33 of the Uniform Benelux argument developed in the statement Law on trade marks and mentions a submitted by Sterling Drug Inc. in Case judgment of the Hoge Raad of 14 15/74. In its opinion, the only other December 1956. justification for the idea that its action It is clear from the case-law cited that constitutes an abuse of a right may the supreme courts of these countries are be found in a directly applicable opposed, on the ground of their own prohibition of behaviour such as to national law, to the exercise of trade impede trade between Member States. mark rights for the purpose of However, according to Article 36 of the partitioning off national markets. The EEC Treaty, the 'health and life of decisions cited are founded upon the humans' is one justification for such limited function of a trade mark right, behaviour. The loss of all control over the objective of which cannot be to the distribution of medicinal prepara­ ensure that the owner of the right is the tions adduced by Winthrop concerns the exclusive seller of products bearing the 'specific subject matter' of the protection trade mark, its sole legal function being of 'health' as mentioned at Article 36. to protect the owner and the public from Accordingly, the reply to question I (d) confusion as to the origin of the goods. should be affirmative. In order to reply to the first question referred by the Hoge Raad, reference Observations submitted by Centrafarm should be made to an important Centrafarm first examines the premises precedent, namely the Judgment in the upon which the questions of the Hoge Deutsche Grammophon case.' The Raad are based. The questions referred recitals of that Judgment relating to the speak only of a single trade mark in interpretation of Article 36 of the EEC which the various undertakings have a Treaty are of the highest importance for right. But the claims for interim the present case. measures made by Winthrop also Although it is true that the goods which concern imports effected by Centrafarm were put into circulation in the

Netherlands by means of a parallel In relation to the questions concerning import did not originate from Winthrop Article 85 of the EEC Treaty Centrafarm BV itself but from its parent company, it notes that the situation described clearly is nevertheless true that the medicinal shows that national markets within the preparation Negram imported into the Community are partitioned off. In view Netherlands by Winthrop BV also of the state of dependency existing orginates from its parent company. between a parent company and a There is therefore no question of wholly-owned subsidiary, it is inconceiv­ creating public confusion as to the origin able that Winthrop BV should have been of the goods. Since it is the function of able to exercise its trade mark right to a trade mark right to protect the owner prevent parallel imports of products against confusion as to the origin of the manufactured and put into circulation product, Winthrop BV has in fact by its parent company in the absence of exercised its right for an objective other agreement from the latter. Furthermore, than that for which it was intended. Winthrop BV acquired its right to the Question I (a) and question I (b) must trade mark 'Negram' on the basis of one therefore be answered in the affirmative. or more agreements concluded with the The exercise of a trade mark right in the parent company, as required under the situation described in question I (a) old Dutch legislation on trade marks, since Winthrop BV would otherwise not must, it seems, inevitably result in a have been able to exercise on its own partitioning of national markets for the product covered by the trade mark in account and register under its own name question. the trade mark 'Negram', which had been affixed to the product by the As regards question I (c), Centrafarm manufacturer, Sterling-Winthrop Group claims that the owner of the trade mark Ltd. cannot invoke measures adopted by the public authorities whereby prices in the According to the judgment of 18 exporting country are kept lower than February 1971 (Case 40/70, Sirena, Rec. would have been the case in the absence 1971, p. 69) the exercise of a trade mark of those measures. The maintenance of right is prohibited by the Treaty when it such price differentials does not form is the 'object, means or consequence' of part of the essential function of the trade an agreement between undertakings as mark right, nor can it be considered to intended by Article 85 of the Treaty. be the 'specific subject matter' of that Centrafarm refers in particular to recital right, which might accordingly be 11 of that Judgment and claims that the covered by the exception contained in latter can be applied word for word to Article 36, first sentence, of the Treaty. the present situation.

in order to maintain different prices on trade mark and to safeguard the image those markets for the product in which the public has of that trade mark. question. Notwithstanding the fact that When the owner of a trade mark the undertakings belong to the same transfers the latter he ceases to be alone concern, the exercise of the trade mark in having the right to use that trade right in this case is covered by Article 85 mark. Products manufactured by the of the Treaty. This is made clear by the assignee of the trade mark or by a Judgment of 25 November 1971 (Case licencee are not fraudulent imitations of 22/71, Béguelin, Rec. 1971, p. 949) and the original product.

A court of one of the Member States before which a trade-mark right was 2. The Commission refers in general to pleaded in justification and which its observations with regard to questions reached a decision involving the I (b), (d), (e) and (f) referred by the prohibition of imports of products Hoge Raad in Case 15/74. Nevertheless, coming from other Member States it recalls certain points, this time in would be in violation of the prohibition relation to trade-mark rights. contained in Article 30 of the EEC

'Negram'. The answer must be negative. The Question 1(c) existence of a trade mark necessarily implies the exclusive right to be the first The considerable price differential with to put products bearing that trade mark regard to the same product as between into circulation. The specific subject two countries is not a ground for matter of that right is to protect the impeding the importation of products economic situation of the owner of the from that country where the level of

However, if the Community authorities The application of Article 85 (1) to fail in their duty the national courts are agreements by which trade-marks are nevertheless not entitled to bring transferred for the purpose of judgments which conflict with the partitioning off markets has already been provisions of Article 30 by invoking a clearly confirmed by various judgments trade mark right. of the Court. However, Article 85 should not be applied to agreements concluded between undertakings belonging to the Question I (d) same concern, the sole objective of which is the allocation of tasks within The production and marketing of one and the same economic unit. But if medicinal preparations give rise to the problem of the control of medicinal the agreements concluded within the preparations which display certain context of a single concern have a wider defects. Various measures have already ambit and, for example, restrict the been adopted with a view to solving this possibility open to undertakings outside problem. As concerns the Netherlands, that concern of penetrating a given the legal basis for these measures is market, such agreements must be held to Article 18 (2) of the Decree concerning be covered by the provisions of Article proprietary medicinal products. It is not 85 (1). necessary, for the application of these In view of its remarks with regard to measures, that a medicinal preparation Article 30 et seq. the Commission confines should be marketed by a single itself to these theoretical observations. undertaking; control may also be The question whether Article 85 (1) is exercised where several parallel applicable must be answered in relation importers are involved. to each case as it arises; in the Commis­ These circumstances do not permit sion's opinion, on the basis of the docu­ Article 36 to be invoked and the ments in the file, it appears that the prohibition contained in Article 30 is question should be answered in the affir­ mative. therefore still applicable to the situation in question. Finally, in reply to the second part of the question, the Commission claims that the action for declaration of an Question I(e) infringement on the basis of a trade Article 42 of the Act of Accession lays mark right gives a licencing agreement, down a period within which measures which otherwise contains no clauses

limiting competition, a more marked whereas the British system merely allows effect on the partitioning of the various current research costs to be covered. markets, which is therefore contrary to The company Centrafarm claims, firstly, the provisions of Article 85 (1) of the that the booklet mentioned by Winthrop Treaty. In these circumstances, Article 85 BV appears to have been compiled as a (1) is wholly applicable. defence of the British pharmaceutical Following the conclusion of the written industry. For its part, the company refers procedure the oral procedure was to three official reports, in particular openend on 3 July 1974. The company the 1973 Report of the Monopolies Winthrop BV was represented by T. Commission with regard to Roche Schaper, the company Centrafarm and products. The company gives a brief Adriaan De Peijper by Advocates Pels survey of the voluntary price regulation Rijcken and de Savornin Lohman and scheme as practised in Great Britain and the Commission by its Legal Adviser, Mr concludes that, with the exception of a van der Esch. single case, the British Government has During the course of the oral procedure, never imposed any sale price, either in reply to a question put by the Court, upon manufacturers, on importers or on the two companies and the Commission wholesalers, and that prices are gave their explanations with regard to established by the industry in the substantial differences existing consultation with the Health Ministry. between prices in Great Britain and those in the Netherlands. The company further remarks that The company Winthrop BV points out although Negram is not a unique that the product 'Negram' was put into medicinal preparation, it can be said the European market in 1963. The that, over a limited field, it occupies a company claims that the price difference central position, not to say a dominant can be imputed to the following factors: position. The company also claims that there is a very powerful system of 1. changes in exchange rates (accounting agreements in the Dutch pharmaceutical for about 60 % of the difference), trade to which 95 % of the manufac turers and dealers are associated. 2. freight, import duties, importer's profit margin (accounting for about Finally, Centrafarm sets out the 15 % of the difference) and difficulties which would face national courts in the event of an affirmative 3. the fact that prices of pharmaceutical answer to the questions referred.

products in Great Britain is, in general, also claims that since price formation is 30 % lower than that in countries of a far from free in most countries an comparable size, due to the current affirmative answer to the question put system of regulation of prices. In this by the Hoge Raad would leave the report, produced by a semi-official body, present situation within the Community it is stated that international companies unchanged. It is to be expected that, in pursuing research projects are dependent most cases, trade mark owners could upon profit margins which are claim that price differentials are the sufficiently high to enable them to consequence of measures adopted by the absorb the rise in the cost of research, public authorities.

— products bearing that trade mark, after being lawfully marketed in one of the Member States by the trade mark owner, are subsequently acquired and exported by third parties to one of the other States, where they are marketed and further dealt in,

— the trade mark legislation in the last-mentioned State gives the trade mark owner the right to take legal action to prevent goods from being marketed there under the relevant trade mark by other persons, even if such goods had previously been marketed lawfully in another country by an undertaking there entitled to use that trade mark and forming part of the same concern.

As regards question I (a)

3 This question requires the Court to state whether, under the conditions postulated, the rules in the EEC Treaty concerning the free movement of

JUDGMENT OF 31. 10. 1974 — CASE 16/74

goods prevent the trade mark owner from ensuring that a product protected by the trade mark is not marketed by others.

9 An obstacle to the free movement of goods may arise out of the existence, within a national legislation concerning industrial and commercial property, of provisions laying down that a trade mark owner's right is not exhausted when the product protected by the trade mark is marketed in another Member State, with the result that the trade mark owner can prevent importation of the product into his own Member State when it has been marketed in another Member State.

CENTRAFARM v WINTHROP

10 Such an obstacle is not justified when the product has been put onto the market in a legal manner in the Member State from which it has been imported, by the trade mark owner himself or with his consent, so that there can be no question of abuse or infringement of the trade mark.

11 In fact, if a trade mark owner could prevent the import of protected products marketed by him or with his consent in another Member State, he would be able to partition off national markets and thereby restrict trade between Member States, in a situation where no such restriction was necessary to guarantee the essence of the exclusive right flowing from the trade mark.

12 The question referred should therefore be answered to the effect that the exercise, by the owner of a trade mark, of the right which he enjoys under the legislation of a Member State to prohibit the sale, in that State, of a product which has been marketed under the trade mark in another Member State by the trade mark owner or with his consent is incompatible with the rules of the EEC Treaty concerning the free movement of goods within the Common Market.

16 It is part of the Community authorities' task to eliminate factors likely to distort competition between Member States, in particular by the harmonization of national measures for the control of prices and by the prohibition of aids which are incompatible with the Common Market, in addition to the exercise of their powers in the field of competition.

17 The existence of factors such as these in a Member State, however, cannot justify the maintenance or introduction by another Member State of measures which are incompatible with the rules concerning the free movement of goods, in particular in the field of industrial and commercial property.

18 The question referred should therefore be answered in the negative.

As regards question I (d)

19 This question requires the Court to state whether the trade mark owner is authorized to exercise the rights conferred on him by the trade mark, notwithstanding Community rules concerning the free movement of goods, for the purpose of controlling the distribution of a pharmaceutical product with a view to protecting the public against the risks arising from defects therein.

20 The protection of the public against risks arising from defective pharmaceutical products is a matter of legitimate concern, and Article 36 of the Treaty authorizes the Member States to derogate from the rules concerning the free movement of goods on grounds of the protection of health and life of humans and animals.

25 Paragraph 1 of Article 42 of the Act of Accession provides that quantitative restrictions on imports and exports shall, from the date of accesssion, be abolished between the Community as originally constituted and the new Member States.

26 Under paragraph 2 of the same Article, which is more directly relevant to the question, 'measures having equivalent effect to such restrictions shall be abolished by 1 January 1975 at the latest'.

27 In the context, this provision can refer only to those measures having an effect equivalent to quantitative restrictions which, as between the original Member States, had to be abolished at the end of the transitional period, pursuant to Articles 30 and 32 to 35 of the EEC Treaty.

28 It therefore appears that Article 42 of the Act of Accession has no effect upon prohibitions on importation arising from national legislation concerning industrial and commercial property.

29 The case under consideration is therefore subject to the principle enshrined in the Treaty and in the Act of Accesssion, according to which the provisions of the Treaties establishing the European Communities concerning the free movement of goods and, in particular, Article 30. are applicable, from the date of accession, to the new. Member States, save where the contrary is expressly stated.

30 It follows that Article 42 of the Act of Accession cannot be invoked to prevent importation into the Netherlands, even before 1 January 1975, of goods put onto the market in the United Kingdom under the conditions set out above by the trade mark owner or with his consent.

34 As these proceedings are, insofar as the parties to the main action are concerned, a step in the action pending before the Hoge Raad der Nederlanden, costs are a matter for that court.

On those grounds,

THE COURT

in answer to the question referred to it by the Hoge Raad der Nederlanden, by interim decision of 1 March 1974, hereby rules:

1. The exercise, by the owner of a. trade mark, of the right which he enjoys under the legislation of a Member State to prohibit the sale, in

CENTRAFARM v WINTHROP

Mertens de Wilmars Pescatore Kutscher Sørensen

Delivered in open court in Luxembourg on 31 October 1974.

A. Van Houtte R. Lecourt

Registrar President