C-82/76

2. Value for customs purposes — Determination — Association — Concept (Regulation No 803/68, Article 2 (2))

3. Value for customs purposes — Determination — Territorial distribution rights — Transfer in exchange for royalties — Right to manufacture the imported product — Assignment free of charge — Regulation No 1788/69, Article 2 (1) (a) — Application

1. The definition of the concept of territorially defined against payment 'persons associated in business' set out of royalties in the form of a in Article 2 (2) of Regulation No percentage share of the proceeds of 803/68 of the Council is also valid for sales. the purposes of the application of 3. A contract by which, primarily, Article 3 (7) (b) of that regulation. territorial distribution rights are 2. An association such as that referred to transferred in return for royalties and, in Article 2 (2) of Regulation No in addition, the right, assigned free of 803/68 is created by a contract charge, to manufacture the imported whereby the foreign supplier of a product, falls within the provisions of product grants to the Community Article 2 (1) (a) of Regulation No buyer distribution rights which are 1788/69 of the Commission.

In Case 82/76

Reference to the Court pursuant to Article 177 of the EEC Treaty by the Hessisches Finanzgericht for a preliminary ruling in the proceedings pending before that court between:

I — Language of the Case: German.

composed of: H. Kutscher, President, A.M. Donner and P. Pescatore, Presidents of Chambers, J. Mertens de Wilmars, M. Sørensen, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco and A. Touffait, Judges,

Advocate-General: J.-P. Warner Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts

The facts of the case, the procedure and to as La Roche) of Basel, Switzerland, the observations submitted pursuant to dated 9 September 1970 under which it Article 20 of the Protocol on the Statute was given the right to be supplied by La of the Court of Justice of the EEC may Roche with a preparation developed by be summarized as follows: that undertaking composed of two substances, sulfadoxin and trimethoprim, to manufacture, itself or by means of one I — Facts and procedure of its subsidiaries from this preparation, special medicinal products for veterinary Farbwerke Hoechst AG of Frankfurt, the medicine and to market them in all the

From 14 April 1971 to 12 September 'Article 1 1972 the plaintiff in the main proceedings imported ten batches 1. For the purpose of applying the containing altogether 59 939 ampoules, Common Customs Tariff, the value for each of 100 ml, of the special medicinal customs purposes of the goods imported preparation composed of the two above shall be taken to be the normal price, mentioned substances. The product had that is to say, the price which they would been manufactured and supplied by La fetch, at the time referred to in Article 5, Roche. After the goods had been on a sale in the open market between a imported they were re-packed in the buyer and a seller independent of each bonded warehouse into smaller packages other. on which was affixed for the first time the trade-mark 'Borgal' registered in the 2. The normal price of any imported Federal Republic of Germany in the goods shall be determined on the name of the plaintiff in the main action. following assumptions: The Hauptzollamt (Principal Customs (a) that the goods are delivered to the Office) Frankfurt, the defendant in the buyer at the place of introduction main action, fixed the value for customs into the customs territory of the purposes on a provisional basis when the Community; goods were deposited in the bonded (b) that the seller bears all costs, charges warehouse. On the basis of these values, and expenses incidental to the sale between 3 May 1971 and 13 April 1971, and to the delivery of the goods at the plaintiff in the main action the place of introduction, which are submitted the quantities of 'Borgal' in hence included in the normal price; question for release into free circulation (c) that the buyer bears any duties or and on the same basis the defendant in taxes applicable in the customs the main action proceeded to calculate territory of the Community, which the duties; consequently the royalties are hence not included in the normal paid by the plaintiff under the licence price. were not added to the value of these

'1. In so far as the right to use a Article 3 trade-mark treated as a foreign 1. When the goods to be valued trade-mark within the meaning of Article (a) are manufactured in accordance with 3 (7) of Regulation (EEC) No 803/68 any patented invention or are goods does not entail the payment of any to which any protected design has royalty, the value of such right shall not be included in the value for customs been applied; or (b) are imported under a trade-mark; or purposes where one or more of the (c) are imported for sale, other disposal following conditions are satisfied: or use under a foreign trade-mark, (a) the trade-mark is that of a sole agent or sole concessionaire established in a the normal price shall be determined Member State, there is no business on the assumption that it includes the value of the right to use the association between the agent or patent, design or trade-mark in concessionaire and the supplier of the respect of the goods. This provision goods to be valued other than the shall also apply in the case of relationship created by the agency or copyright of any other intellectual or concession and the rights of the industrial property right. agent or concessionaire in the trade-mark are not restricted within

2. Exceptions to the provisions of the meaning of Article 3 (7) (c) of paragraph 1 may be determined in Regulation (EEC) No 803/68; accordance with the procedure laid down (b) the trade-mark is that of a person established in a Member State who is in Article 17, where the rights referred to associated in business with the in that paragraph are held by a person established in a Member State. supplier of the goods to be valued but who also imports for sale, under the 3. ... same trade-mark, identical goods 4. ... obtained in the open market, as 5. ... provided for in Article 1 (1) of 6. ... Regulation (EEC) No 803/68;

value of an imported product has been The defendant in the main action increased by reason of the affixing of the justifies the imposition of the increase on trade-mark. Accordingly if a licensing the ground that the trade-mark 'Borgal' agreement is to be treated as a business was to be treated as a foreign trade-mark association it too must be connected with for the purposes of Article 3 (7) of the imported goods. This is the case for Regulation (EEC) No. 803/68 of the example if the subject-matter of the Council, because by entering into the licence is the assignment of certain rights licensing agreement the plaintiff was (patent, trade-mark, manufacturing and 'associated in business', within the similar rights). The plaintiff in the main meaning of Article 2 (2) of the said action on the other hand argued that it regulation, with the seller of the goods merely re-packed and labelled the goods who is resident outside the customs at issue after they had been imported, territory of the Community and also which is no more than one of the because the inclusion of the value of the functions of a distributor. trade-mark in the value for customs was not precluded by Article 2 of Regulation The trade-mark 'Borgal' did not influence (EEC) No 1788/69 of the Commission. the amount of the invoiced import prices. In the case of chemotherapeutical Following the rejection of its products of a complex nature, marketing administrative complaint against the under a trade-mark only serves the amended notice to pay customs duty the purpose of identifying the product. La plaintiff in the main action brought Roche sells the product at the same proceedings before the Finanzgericht. It price, irrespective of whether at a later relied on the following arguments: The date it is sold under a trade-mark. For business association for the purposes of this reason, considered objectively, the Article 3 (7) of Regulation No 803/68 is trade-mark 'Borgal' did not bring about

question. The average rate used might at meaning of Article 3 (7) (b) of most apply to a trade-mark which is Regulation No 803/68 to be moderately well known; the trade-mark determined? 'Borgal' acquired from a third party as an 3. If Question 1 is answered in the 'unused mark' for the sum of DM 3 000 affirmative, is such a business does not meet this criterion. association established (Article 2 (2) of Regulation No 803/68) by an The defendant in the main action took agreement, the primary object of the view that the concept 'associated in which is the grant to the domestic business' as defined in Article 2 (2) of buyer by the foreign supplier of Regulation No 803/68 must apply to the goods of selling rights in a specific whole of the legislation relating to the territory against payment of royalties valuation of goods for customs purposes. and under which in addition the said By virtue of the 'licensing agreement' the buyer is granted, free of further plaintiff must be regarded as associated charges, the right to manufacture the in business within the meaning of Article imported product under the patented 3 (7) of Regulation No 803/68 with the process from two active substances result that the trade-mark 'Borgal' which patented by and to be procured from it has had registered in the territory of the undertaking supplying the goods? the Community is to be treated as a 4. If the answer is in the affirmative, foreign trade-mark. does it also apply if the purchasing firm does not make use of its The present case does not constitute one manufacturing rights? of the exceptions set out in Regulation 5. If the answer is in the affirmative, are (EEC) No 1788/69. At most, the method the concepts "sole agent" and "sole of calculation applied for the purpose of concessionaire" in Article 2 (1) (a) of fixing the value of the trade-mark to be Regulation (EEC) No 1788/69 of the added to the valuation for customs Commission two expressions having purposes could be the only factor open the same meaning? to doubt. The plaintiff in the main action 6. If the answer is in the negative, does has however not made any other — the expression "sole concessionaire" better — proposal in this respect. also include a person who has been granted the right by the proprietor of By order of 18 June 1976 the Hessisches a patent to manufacture the goods Finanzgericht stayed the proceedings and under the patent? referred the following questions to the 7. If Question 5 is answered in the Court of Justice for a preliminary ruling affirmative, does an agreement under pursuant to Article 177 of the EEC which in the first place selling rights Treaty: within a specific territory are granted '1. Is Article 2 (2) of Regulation (EEC) for consideration and in addition a No 803/68 of the Council on the right to manufacture the imported valuation of goods for customs goods free of charge is granted but purposes under which two persons has not been used fall outside the shall be deemed to be associated in definition of a sole agency business inter alia if either of them relationship? has any interest in the business or 8. If the answer is in the affirmative, property of the other also applicable what are the criteria by which the

Upon hearing the report of the Judge-Rapporteur and the views of the Article 3 (1) (c) was intended to complete Advocate-General the Court decided to customs protection by providing that the open the oral procedure without holding value of the foreign trade-mark should a preparatory enquiry. also be taken into account in the value

for customs purposes where goods are not imported under a trade-mark but are II — Summary of the written nevertheless intended to be sold under a observations submitted to foreign mark subsequently. the Court of Justice Paragraph 7 of that article goes further in Before undertaking an analysis of the order to prevent any possible falsification questions referred for a preliminary of the normal price. In order to prevent a ruling the Commission makes some natural or legal person dependent on a remarks of a general nature on the foreign manufacturer from registering in principles of the legislation relating to his own name his 'own' trade-mark in a valuation of goods for customs purposes. Member State of the Community and In particular it emphasizes the affixing it to foreign products which have importance of the principle of the first been imported without a trade-mark normal price (cf. Article 1 (1) of subparagraph (b) of that provision states Regulation No 803/68) in interpreting that a trade-mark must always be the provisions relating to the value for regarded as a foreign mark if it belongs customs purposes. to a person who is 'associated in business'

JUDGMENT OF 17. 2. 1977 -CASE 82/76

with the foreign manufacturer of the 1. The 'interest' must go beyond the product bearing the trade-mark. obvious interest in the payment of the sale price itself. Article 2 (2) of Regulation No 803/68 2. The 'interest must be capable of specifies in a general manner the taking concrete form. conditions under which two persons 3. At the very least the 'interest must be must be regarded as being 'associated in such as to influence the normal price. business' and sets out an exhaustive definition. It is intended to make the In the light of these considerations the legal consequences attached by the Commission reaches the following regulations to the term 'associated in conclusions:

purposes. real interest in the business of the buyer with the exclusive distributorship Such a limitation is laid down in Article concession since he must use the buyer 3 (7) for the definition of a foreign as an intermediary to sell his products in trade-mark and one is justified in a specified territory. This very specific thinking that a corresponding restriction interest in the business of the buyer would have been provided for Article 2 further consists in a fixed share of the (2) of the regulation if such had been the net proceeds of his sales. It may be intention. Reference must therefore be supposed that without payment of such a made to Article 2 (2) in order to define royalty the plaintiff in the main action the content of the term 'person would not have obtained sole distribution associated in business' within the rights. That such a case goes beyond a meaning of Article 3 (7) (b) of Regulation normal contract of sale is evidenced also No 803/68. by Article 2 (1) (c) of Regulation No This conclusion makes an answer to the 803/68 according to which a sale can no second question superfluous. longer be deemed to have been 'carried out on the open market' where the seller As to the third and fourth questions participates in any form in the proceeds of the resales.

It is apparent from the text of Article 2 (2) of Regulation No 803/68 itself that On the other hand the grant of a that regulation is intended to cover as particular right — protected by a patent completely as possible all types of — to manufacture such goods association in business between two (pharmaceutical products) from sub­ persons. 'Any' interest of either of them stances bought from the seller does not in the business or property of the other constitute, in comparison with the contractual relations referred to above, (or a common interest) is sufficient 'business association' which is whether these interests are direct or merely indirect. independent where the holder of this right has not made use of it. This However certain limits are necessarily contractual relationship which is not put implied in this wide definition: into effect does not affect the criteria to

to Document No 22.440). between the parties. Paragraph 1 (a) is intended to exclude such incorporation As to the fifth and sixth questions where the business association is no more than the relationship of exclusive Within the scheme of the rules relating representation and only where there to the value for customs purposes the exists an additional 'business term 'sole agent' and 'sole concessionaire' association' extending beyond this referred to in Article 2 (1) (a) of relationship should the value of the Regulation No 1788/69 of the trade-mark be incorporated in the value Commission must not be examined as for customs purposes. The intention of independent terms each having an the provision is therefore that the value autonomous meaning and therefore of the trade-mark should only be taken capable of being distinguished from the into account in determining the normal other. They constitute a single concept price for business relationships which which, irrespective of the formal legal have certain 'far-reaching' effects. position, includes an economic entity to which a third party has assigned As it has stated above the Commission exclusive distribution rights for certain believes that the existence of a contract, goods in a particular territory. The wide of which no use has been made, and meaning of this general term appears which concerns the transfer of clearly from Article 9 (2) (b) of manufacturing rights for certain Regulation No 803/68 which includes pharmaceutical products protected by a within this term 'any other person patent is not in itself sufficient to create operating in comparable circumstances'. such an additional business association. It is for the national court to decide on the As to the seventh question question whether other circumstances may nevertheless require the value of the The protective role assigned to the trade-mark to be taken into account. provisions concerning the taking into account of foreign trade-marks (and of trade-marks assimilated to foreign As this last hypothesis cannot be trade-marks) with regard to the value for completely ruled out the Commission customs purposes is fully realized in so further examines the last two questions. far as these provisions prevent a foreign manufacturer of products bearing a First the Commission observes that it is trade-mark from evading application of often impossible to calculate 'to the the principle of the normal price by nearest penny' the value of the resorting to indirect means. Conversely, trade-mark. Nevertheless under general however, the strict application of these legal principles the person concerned provisions could 'where the right to use must be put in a position to be able to the trade-mark belongs to a person know on what considerations the established in a Member State,... lead to evaluation in a particular case is based. a valuation which in certain cases is Furthermore Article VII of GATT difficult to justify' (cf. recitals in the expressly lays down the principle that preamble to Regulation No 1788/69 of the value for customs purposes must be the Commission). capable of being verified.

importance and the purpose of the of any influence of the trade-mark on trade-mark for the categories of goods the value for customs purposes. concerned and also the extent of the 3. The terms 'sole agent and sole renown of the trade-mark. As it is also concessionaire' referred to in Article 2 necessary to base oneself, for the (1) (a) of Regulation No 1788/69 of purposes of determining the value of the the Commission do not refer to trade-mark, on the time referred to in independent concepts but serve Article 5 of Regulation No 803/68 the jointly to delineate a single complete costs of acquiring the trade-mark concept covering all economic entities incurred at a previous date would not which have obtained the concession appear capable of constituting the sole of exclusive distribution rights for criterion for evaluation. certain products in a geographically defined territory. The Commission suggests the following 4. In fixing the value for customs replies to the questions referred: purposes the value of a trade-mark 1. The definition of the term 'persons must always be determined in such a associated in business' referred to in way that it is possible to recognize on Article 2 (2) of Regulation No 803/68 the basis of what considerations (for of the Council also applies to the example the renown of a trade-mark provisions in Article 3 (7) (b) of the or the importance and the role of a same regulation. trade-mark for a certain type of 2. The conclusion of a contract whereby product) the evaluation of the the foreign supplier of a product trade-mark is founded and to what grants to the buyer within the extent the trade-mark was taken into Community the exclusive distribution account in determining the normal rights for a specified territory against price. payment of royalties in the form of a percentage share of the proceeds of sales is sufficient to establish the III — Oral procedure existence of a business association within the meaning of Article 2 (2) of The Commission of the European the abovementioned regulation. If Communities submitted oral argument at there also exists between the parties to the hearing on 20 January 1977. the contract an agreement whereby the buyer is granted the right to The Advocate-General delivered his manufacture under a patented opinion at the hearing on 3 February procedure products identical to the 1977.

3 In the course of 1971 and 1972, having imported ten consignments of the special medicinal preparation made up from the two abovementioned substances and supplied by La Roche, Hoechst re-packed the product in smaller packages on which it subsequently affixed for the first time the trade-mark 'Borgal', registered in its name in the Federal Republic of Germany.

The Customs Office, the defendant in the main action, discovered the existence of a licensing agreement between Hoechst and La Roche and the affixing of the trade-mark 'Borgal' and consequently, by amended notice of assessment, determined the customs value of the special medicinal preparations in question by increasing their price both in respect of the

JUDGMENT OF 17. 2. 1977 -CASE 82/76

royalties paid to La Roche, which increase is no longer at issue, and also in respect of the presumed value of the trade-mark 'Borgal'.

It is the latter increase which is at issue as the Customs Office holds that in

application of Article 3 (7) of Regulation No 803/68 the trade-mark 'Borgal' must be regarded as a foreign mark in view of the fact that Hoechst was 'associated in business' within the meaning of Article 2 (2) of that regulation with La Roche, the vendor of products established outside the customs territory of the Community and that the inclusion of the value of the trade-mark in the value for customs purposes is not excluded by Article 2 of Regulation No 1788/69.

HOECHST v HAUPTZOLLAMT FRANKFURT-AM-MAIN

If the first question is answered in the affirmative the third question subsequently asks whether an association such as that envisaged by Article 2 (2) may result from 'an agreement, the primary object of which is the grant to the domestic buyer by the foreign supplier of goods of selling rights in a specific territory against payment of royalties and under which in addition the said purchaser is granted, free of further charges, the right to manufacture the imported product under the patented process from the two active substances patented process from the two active substances patented by and to be procured from the undertaking supplying the goods'.

7 As Article 3 (7) does not itself define the concept of 'a person in any way associated in business with' a producer or seller outside the customs territory reference should be made for such a definition to the provisions of Article 2 (2).

This subparagraph does not contain any indication such as to suggest that it solely relates to the application of the first paragraph of that article. On the contrary, as this provision is to be found among the first articles which state the basic concepts for the application of the regulation everything suggests that the terms used in Article 3 (7) refer to its definition of 'business association'. Furthermore, such an interpretation corresponds both to the general objectives of the regulation and to those of Article 3, as the provision in Article 3 (7) (b) seeking to include the case in which an importer of foreign products subject to a trade-mark imports products into the Community without a trade-mark in order to affix or have affixed to them the foreign trade-mark which may be registered in a Member State after the importation and subsequently to sell the goods as products subject to a trade-mark.

Questions 5, 6 and 7

10 Pursuant to Article 3 (2) of Regulation No 803/68 the Commission, by means of Regulation No 1788/69 of 10 September 1969, laid down certain exceptions to the rule contained in Article 3 (7) of the former regulation stating that 'where the right to use the trade-mark belongs to a person established in a Member State, the application of Article 3 (1) and (7) ... may lead to a valuation which in certain cases is difficult to justify'.

Article 2 of that regulation provides that 'in so far as the right to use a trade-mark treated as a foreign trade-mark within the meaning of Article 3 (7) of Regulation (EEC) No 803/68 does not entail the payment of any royalty, the value of such right shall not be included in the value for customs purposes where ... the trade-mark is that of a sole agent or sole concessionaire established in a Member State, there is no business association between the agent or concessionaire and the supplier of the goods to be valued other than the relationship created by the agency or concession and the rights of the agent or concessionaire in the trade-mark are not restricted within the meaning of Article 3 (7) (c) of Regulation (EEC) No 803/68'.

11 Believing that this provision might be applicable to the use made by Hoechst of the trade-mark 'Borgal' the national court seeks by means of Questions 5, 6 and 7 clarification for the terms 'sole agent' and 'sole concessionaire'.

HOECHST v HAUPTZOLLAMT FRANKFURT-AM-MAIN

12 Comparison of the versions in the different languages of the Community of the text of Article 2 of Regulation No 1788/69 shows that these terms must not be interpreted in the strict technical sense which the terms 'agent' or 'concessionaire' may have in the law of one or other of the Member States but may be interpreted widely and in a non-technical manner. The terms 'sole agent' and 'sole concessionaire' must not be understood as referring to two quite distinct and mutually exclusive legal constructions but as intended to include the different constructions which in the legal systems of the Member States refer under the one or the other of these designations to contractual relationships belonging to the category thus indicated.

THE COURT

in answer to the questions referred to it by the Hessisches Finanzgericht, by order of 18 June 1976, hereby rules:

1. The definition of the concept of 'persons associated in business' set out in Article 2 (2) of Regulation No 803/68 of the Council is also valid for the purposes of the application of Article 3 (7) (b) of that regulation.

OPINION OF MR WARNER -CASE 82/76

2. An association such as that referred to in Article 2 (2) of Regulation No 803/68 is created by a contract whereby the foreign supplier of a product grants to the Community buyer distribution rights which are territorially defined against payment of royalties in the form of a percentage share of the proceeds of sales.

3. A contract by which, primarily, territorial distribution rights are transferred in return for royalties and, in addition, the right, assigned free of charge, to manufacture the imported product, falls within the provisions of Article 2 (1) (a) of Regulation No 1788/69 of the Commission.

My Lords, The facts are these.

This case comes to the Court by way of a On 9th September 1970 the plaintiff in reference for a preliminary ruling by the the proceedings before the Finanzgericht, Hessisches Finanzgericht. It raises the Firma Farbwerke Hoechst AG, of questions of interpretation of the Frankfurt-am-Main, entered into an Community Regulations on the valuation agreement with a well-known Swiss of goods for customs purposes and, in company, Hoffmann-La Roche (which I particular, questions as to the shall call 'HLR'). Under that agreement interpretation of certain provisions of HLR granted to the plaintiff the those Regulations about the cir­ exclusive right to distribute in the whole cumstances in which, in making such a world except the USA a veterinary valuation, trade-mark rights should be pharmaceutical preparation (which I shall taken into account. call 'the preparation'), which had been