C-1/77

2. Common Customs Tariff — Value for customs purposes — Determination thereof — Normal price of goods — Value of a patented process — Inclusion — Conditions

(Regulation No 803/68 of the Council, Article 3)

1. The Common Customs Tariff con­ objectives of the basic provision laid cerns only the importation of goods, down by Article 1 of the regulation is that is, tangible property, and does not that a patented process, the carrying apply to the importation of out of which constitutes the only incorporeal property such as economically viable use of the goods processes, services or know-how. and which is only put into effect by Therefore, for the purpose of the the use of those goods, is regarded as determination of the value for embodied in the imported goods. customs purposes, it is in principle Article 3 (1) (a) of Regulation No necessary to concentrate only on the 803/68 of the Council is to be intrinsic value of the article and to interpreted as meaning that the disregard the value of processes, which normal price of goods includes the may be patented, in which it may be value of a patented process where the used. protected process is inseparably 2. The result of an interpretation of embodied in and constitutes the only Article 3 in accordance with the economically viable use of the goods.

In Case 1/77

Reference to the Court under Article 177 of the EEC Treaty by the Finanzgericht Hamburg for a preliminary ruling in the action pending before that court between:

1 — Language of the Case: German.

composed of: A. M. Donner, President, J. Mertens de Wilmars and G. Bosco, Judges,

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

gives the following

JUDGMENT

Facts and issues

The facts of the case, the procedure and valuation for customs purposes. The COS the observations submitted under Article process, which is protected by a patent, is 20 of the Protocol on the Statute of the a process for the manufacture of electric Court of Justice of the EEC may be storage battery cell components wherein summarized as follows: assemblies of cell plates and spacers are in assembled relationship; parts thereof are fluxed and cleaned: molten metal is

(hereinafter referred to as 'G-UO'), an the sixth year of the Licence Agreement associated company of the manufacturer under Article V thereof royalties were which is competent to dispose of the only payable on those licensed batteries COS patents, a licence agreement (the in the manufacture or design of which 'COS Licence Agreement, hereinafter one or more of the patents under Article referred to as 'the Licence Agreement') I of the Licence Agreement were used. which was amended by an agreement Moreover the scale of the royalties was dated 12 December 1968. Under the reduced to one half of the scale Licence Agreement, the plaintiff in the mentioned in Article V 5.2. The main action was granted the right to obligation to pay a minimum royalty did manufacture, acquire and operate the not apply (Article V 5.3). COS machines and also to exploit the COS process, certain technical On 4 June 1974, the plaintiff in the information and patent rights main action imported into Germany a commercially. The information and the COS machine from Globe. According to aid to be given to G-UO comprised in the provisional customs assessment of 5 particular: June 1974, the customs duties amounted (a) advice concerning the introduction of to DM 20 333. An additional charge of the COS process and also the DM 42 631 for royalties had been construction of the batteries manu­ included in the valuation for customs factured under the COS process, purposes (DM 271 107-27) which served (b) discussions of problems during visits as the basis of the calculation for this by experts from Globe and the amount.

JUDGMENT OF 14. 7. 1977 - CASE 1/77

acquisition and use of the machine. the normal price.' According to the preamble to the Licence Agreement the plaintiff was to Article 3 (1) of that regulation provides have been enabled, for the purpose of that:

manufacturing lead-acid batteries, to 1. When the goods to be valued manufacture or acquire COS equipment (a) are manufactured in accordance and to acquire the right to use the COS with any patented invention or process commercially and to use the are goods to which any protected necessary technical information and design has been applied; or patent rights. The purchase and the (b) are imported under a trade-mark; unfettered right to dispose of the COS or

equipment (the machine and the (c) are imported for sale, other appliances) was conditional on the disposal or use under a foreign conclusion of the Licence Agreement. trade-mark,

BOSCH v HAUPTZOLLAMT HILDESHEIM

2. As under (1) above; the patented The order for reference was entered in process may however also be carried the Court Register on 3 January 1977. out in another way, for example by hand or by using other machines. In accordance with Article 20 of the 3. As under (1) or (2) above; however Protocol on the Statute of the Court of only part of the patented process may Justice of the EEC, written observations be carried out by the machine and the were submitted by the plaintiff in the other part must be carried out by main action, represented by Mr Uhl, and hand or by using other machines. by the Commission of the European 4. the patented machine is made in Communities, represented by its Legal such a way that the patented process Adviser Jean Amphoux, acting as Agent, may only be carried out with the aid assisted by Manfred Beschel, Member of of that machine if the special features the Legal Service. of the patented process are known and applied. 5. As under (2) to (4) above; the machine The Court, having heard the report of may however also be used for the Judge-Rapporteur and the views of purposes which have no connexion the Advocate General, decided to open with the patented process. the oral procedure without a preparatory 6. As under (1) to (5) above; the machine inquiry. is however not (or is no longer) patented. By order of 27 April 1977 the Court, in As to (1) application of Article 95 (1) of the Rules of Procedure, decided to assign the case Article 3 (1) of Regulation No 803/68 to the First Chamber. justifies the inclusion in the valuation for

The observations made under (1) and (2) The Commission considers that it is above apply by analogy to the part of the royalties paid for the patented process necessary to understand the question which concerns the operations which which has been referred for a preliminary may be carried out and are in fact carried ruling as asking under what conditions out with the aid of the patented machine. the 'embodiment' of a patented process However it is extremely difficult to in an article must be accepted in ascertain that part of the royalties. On Community law. For the purpose of the the other hand, the liability to pay solution of this problem it is necessary to take into consideration Article 1 of royalties for the licence for the process only arises if the licensee performs all Regulation No 803/68, in addition to the the operations involved in the patented provision quoted by the national court. process and only at the date on which the last operation has been carried out. It 1. Under Article 3 (1) (a) of Regulation therefore seems justified in this case not No 803/68 the value of the right to use to include in the value for customs the patent must be included in the value purposes royalties paid in respect of the of the goods for customs purposes patented process. when the goods are manufactured in accordance with any patented invention. This is the case where the goods as such As to (4) are the object of a patent called a product patent so that, whatever method is used, The patented process is not 'embodied' this product may only be manufactured in the machine in such a way that a by the patentee. Goods are also person who uses the machine (or more 'manufactured in accordance with any exactly, who tries to use it) following the patented invention' when they are the instructions can therefore also apply the direct result of a patented process. In this patented process. In this case, the respect it is possible to state that Article inclusion (in whole or in part) of the 3 (1) (a) also concerns patents for royalties paid for the patented process is processes. However this provision not justified. It would mean that in indicates clearly that it only applies to the last analysis intangible industrial patented processes used for the property which was not 'embodied' in manufacture of the imported goods. On the machine would be subject to customs the other hand, it does not authorize the clearance on importation. inclusion in the value for customs

purposes of patents for processes which purpose that royalty forms part of the are used after the importation within the normal price. context of the user of the goods. This restriction of the field of application Conversely, special know-how which is which already follows from the clear independent of the goods and protected wording of Article 3 (1) (a) seems where appropriate by a patent must not appropriate. In fact, for the purposes of be evaluated from the point of view of determining the value of the goods for the value for customs purposes even if customs purposes it is important to the goods are used within the context of calculate the economic value of the such a process. In this case the special imported goods, that is, the value of the process does not form part of the goods foods in the state in which they have themselves but constitutes at most an been imported. additional condition for the economic use of the goods. Any royalty paid for Although it is impossible to base the such a process must not therefore be inclusion in the value for customs included in the value for customs purposes of patents for processes used purposes. within the context of the user of the imported goods on Article 3 (1) (a) of However, in the case of an appliance Regulation No 803/68, the problem of whose function, determined by its design, the 'embodiment' of such patents in the is to carry out a process protected by a goods is not finally resolved for all that. patent, it is possible to accept that the If there are cases in which the possibility process is inherent (embodied) in the of or the necessity for using a patented design of the article. If the process is process is inherent in the goods embodied in the appliance it seems themselves, it would be necessary to logical to include in the value for examine whether it is not already customs purposes of the appliance the necessary to include the value of that consideration paid for the use of the process in the value for customs purposes process. The Commission considers under the basic rule laid down in Article however that this argument can only be 1 of Regulation No 803/68. accepted under stricter conditions than those laid down by the Bundesfinanzhof The Commission therefore examines the (see the judgment quoted in the question concept of 'imported goods' within the referred to the Court for a preliminary meaning of the latter provision. ruling). In order to accept physical incorporation it is not sufficient for the

necessary to accept that their purchaser has in addition acquired at the same time The position is different when it is the right to use them freely in a certain impossible to use the machine profitably way. If, in addition to the purchase price without at the same time using a 'properly so-called' of goods, a royalty is patented process because it is necessary paid for the use of these goods for their to accept in principle that the purchase

JUDGMENT OF 14. 7. 1977 - CASE 1/77

determined. It is therefore for the national court to examine and settle the question whether In conclusion, in order to be able to and to what extent the use of the include the value of the process in the machine necessarily involves the use of a value for customs purposes, it is patent for a process. necessary for the use of the appliance always and necessarily to involve the The Commission suggests that the implementation of the patented process. question referred for a preliminary ruling But even that is not sufficient to accept should be answered as follows. that this is a process which is embodied (1) Article 3 (1) (a) of Regulation No

customs purposes. The Commission however considers that it is unlikely, at customs purposes of the imported least in German patent law, that such a machine if the imported machine case would arise when the machine itself may only be used by carrying out that is protected by a product patent. process and the patent for the process relates exclusively to the operations In cases in which, on account of its carried out by the machine itself. content, the patent for the process is not restricted to the description of the operating method of the patented III — Oral procedure appliance but also relates to other The plaintiff in the main action, additional operations it is necessary to represented by Messrs Schneider and make a distinction between the part Uhl, and the Commission of the of the protected process which is European Communities, represented by necessarily identified with the method of its Legal Adviser, Jean Amphoux, operation of the machine and that which assisted by Manfred Beschel, presented concerns independent know-how in oral argument at the hearing on 26 May connexion with the invention which

BOSCH v HAUPTZOLLAMT HILDESHEIM

Decision

1 By order of 5 November 1976, which was received at the Court Registry on 3 January 1977, the Finanzgericht Hamburg referred to the Court of Justice under Article 177 of the EEC Treaty a preliminary question on the interpretation of Regulation No 803/68 of the Council of 27 June 1968 on the valuation of goods for customs purposes (OJ English Special Edition 1968 (I), p. 170) and in particular Article 3 thereof. The question has arisen in the context of a dispute concerning the valuation for customs purposes of a COS (cast-on strap) machine protected by an invention patent called a product patent (Sachpatent) while, on the other hand, the process enabling the machine to be used for the manufacture of terminal bridges for lead-acid batteries is also protected by another invention patent called a process patent (Verfahrenspatent). The question concerns whether, in the determination of the 'normal price', that is, of the value for customs purposes of the machine, it is necessary to take into account the patent for the process relating to its use, or more particularly: 'Is Article 3 (1) of Regulation (EEC) No 803/68 of the Council (a regulation on valuation for customs purposes) to be interpreted as meaning that the normal price also includes the value of a patented process embodied in an appliance within the meaning of the judgment of 7 August 1962 of the Bundesfinanzhof (Federal Finance Court), File No VII 89/60 U, Bundessteuerblatt (Federal Tax Journal) III 1962, p. 549'?

2 The abovementioned judgment of the Bundesfinanzhof was given in application of national rules and case-law relevant at that time which have meanwhile been replaced by Community rules and it is therefore necessary to examine the problem solely in the light of the rules of Community law which are applicable.

4 The Common Customs Tariff by its nature concerns only the importation of goods, that is, tangible property, and does not apply to the importation of incorporeal property such as processes, services or know-how, which are, owing to their nature, already difficult for the customs mechanisms to cover. Therefore, for the purpose of the determination of the value for customs purposes, it is in principle necessary to concentrate only on the intrinsic value of the article and to disregard the value of processes, which may be patented, in which it may be used. If this were not so there would be a risk of extending the application of the Common Customs Tariff, by too wide an interpretation of the concepts of value and price, to the introduction into the Community of ideas underlying inventions as such, which are not embodied in tangible property. Such application would necessarily be arbitrary because it would not be capable of covering the more or less uncertain connexion between the idea underlying the invention and the articles concerned.

5 By only mentioning patented inventions in accordance with which goods are manufactured, Article 3 seems to exclude patented inventions which relate to the process of use of the article. However, this distinction loses its meaning in cases in which the manufactured article and the process of use thereof are so closely linked that the manufactured article and the process of use are embodied in one and the same article. In fact the result of an interpretation of Article 3 in accordance with the objectives of the basic provision laid down by Article 1 of the regulation is that a patented process, the carrying out of which constitutes the only economically viable use of the goods and which is only put into effect by the use of those goods, is regarded as embodied in the imported goods.

THE COURT (First Chamber)

in answer to the question referred to it by the Finanzgericht Hamburg by order of 5 November 1976 hereby rules.

Article 3 (1) (a) of Regulation No 803/68 of the Council is to be interpreted as meaning that the normal price of goods includes the value of a patented process where the protected process is inseparably embodied in and constitutes the only economically viable use of the goods.

Donner Mertens de Wilmars Bosco

Delivered in open court in Luxembourg on 14 July 1977.

A. Van Houtte A. M. Donner