C-22/78

Commission of the European Communities, represented by its Legal Adviser, John Temple Lang, acting as Agent, with an address for service in Luxem­ bourg at the office of its Legal Adviser, Mario Cervino, Jean Monnet Building, Kirchberg, defendant,

APPLICATION for the annulment of Commission Decision No 78/68/EEC of 8 December 1977 relating to a proceeding under Article 86 of the EEC Treaty (PV729.132 Hugin/Liptons) (Official Journal, L 22 of 27 January 1978, p. 23),

HUGIN v COMMISSION

THE COURT

composed of: J. Mertens de Wilmars, President of Chamber Acting President, and Lord Mackenzie Stuart, President of Chamber, P. Pescatore, M. Sørensen, A. O'Keeffe, G. Bosco and A. Touffait, Judges,

Advocate General: G. Reischl Registrar: J. A. Pompe, Assistant Registrar

In respect of the obligations set out in (2) Liptons Article 3, a periodic penalty payment of 1 000 units of account per day is to be Liptons services, repairs, reconditions, payable by Hugin UK, in respect of each sells and rents out cash registers of day of delay (Article 4). numerous makes both new and reconditioned. To this end it employs technical staff. The application seeks primarly the annulment of the decision in its entirety Liptons' total turnover in 1968/1969 was or, alternatively, a reduction in the fine. £65 523, in 1970/1971 £285 000 and in 1974/1975 £48 207; since then Liptons has, according to the Commission, recovered from this downward trend due

B — Factual and legal considerations in to the expansion of its business outside the decision the field of Hugin products.

(3) Other producers 1. Facts

The approximate market shares (a) The undertakings expressed as a percentage held by the major suppliers of cash registers in the Community market are as follows: the (1) The Hugin group National Cash Register Company of the United States 36%; the German under­ Hugin AB is a major manufacturer of taking Anka 15%; the American cash registers which is wholly owned by company Sweda 13%; Hugin 12%; the Federation of Swedish Consumers, Japanese producers 13%, and all other Köoperativa Forbundet. producers 11%. In the United Kingdom National Cash Register has appro­ ximately 40% of the market, Sweda In the countries of the Community 18%, Gross 16%, and Hugin 13%. Hugin has either established subsidiaries Anka has about 4% of that market and or appointed distributors. all other producers together have about 9%.

It is essential that cash registers are agreement. Like Hugin GB, Cash reliable and that, if there is a breakdown, Machines Ltd was a wholly owned sub­ rapid and effective repair or replacement sidiary of the Co-operative Wholesale is available. Each producer, therefore, Society. lays great stress on the after-sales service available in respect of its cash registers and regards it as a significant factor in One of the main reasons for that the competitiveness of the machine itself. appointment was the necessity to convert all the cash registers in the United Kingdom to the decimal system before 15 February 1971, which led to a boom Hugin provides for all its products a full on that market in 1969, 1970 and 1971. guarantee for 12 months which includes During the period covered by the agency free maintenance, repair and replacement agreement Liptons maintained its of faulty parts. All other producers offer previous activities, albeit to a lesser virtually the same form of guarantee. In extent, and it continued to purchase addition, Hugin companies offer a main­ Hugin cash registers and spare parts for tenance service contract, which is its separate business from Hugin GB. available after the period of guarantee expires, under which Hugin provides all necessary inspection, service and repair In 1970 Liptons entered the business of for a fixed sum per year (according to renting out cash registers. Since the termi­ Hugin approximately £25). Hugin claims nation of the distribution agreement, the that in order to remain competitive it rental business has become the major runs this service at a loss. For users who part of Liptons' business, accounting for do not enter into such contracts, Hugin nearly 80% of its turnover. offers to maintain and repair all Hugin machines on a day-work basis. It refuses however to supply spare parts outside its In January 1972 Hugin AB founded a organization. subsidiary in the United Kingdom called Hugin Cash Registers Ltd (Hugin UK), which took over some of the assets and liabilities of Hugin GB, but not the rights (d) The collaboration between Liptons and obligations of Hugin GB relating to and Hugin the agreement with Liptons. In April 1972, when Hugin UK offered Liptons a new distributorship agreement, the latter company refused the offer in view of the Towards the end of the fifties Liptons fact that the terms of the new agreement began to purchase Hugin spare parts were less wide in scope than those of the from the importer of Hugin cash previous agreement. In May 1972 Hugin registers, Cash Machines Ltd. When in GB repudiated its agreement with 1969 the latter company changed its Liptons. Hugin GB thereafter changed trading name to Hugin (Great Britain) its name to Century Cash Registers Ltd Ltd (hereinafter referred to as "Hugin and has become a non-trading company. GB"), Liptons was appointed, in the same year, as "main agent" to sell Hugin cash registers in Great Britain, with the Hugin UK, however, continued to right, during the initial period of such supply Liptons with the cash registers

Following the refusal by Hugin UK to supply Liptons with spare parts, Liptons endeavoured between February 1973 and Liptons' rental income for all makes July 1975 to obtain these parts in other increased from £3 500 in 1970 to countries. Not only did Hugin AB itself £43 776 in 1975, but the percentage of refuse to supply the parts but so also did this income attributable to the renting its subsidiaries and a distributor to which out of Hugin machines fell from 62°/o at Liptons applied. the outset to under 6% in 1975 due to the refusal to supply spare parts. This business exists only because Liptons The distribution agreements concluded dismantled Hugin cash registers to the by Hugin prohibit distributors from value of £9 000 in order to use parts of selling the products outside their those cash registers as spare parts for territory or to anybody within their other machines. territory, if they have reason to believe that the purchaser intends to bring the products outside that territory. Similar prohibitions are imposed on subsidiaries. 2. Legal assessment

Hugin AB and its subsidiaries abused The fact that Liptons has ceased to be a that dominant position. distributor of Hugin cash registers does not in the circumstances amount to a valid objective reason for refusing to supply spare parts as the business created The result of the refusal to supply by the "main agency" agreement is persons outside the Hugin organization separate from the other business which is to make the users of Hugin cash Liptons undertook on its own initiative. registers totally dependent on Hugin AB for the supply or spare parts and, in effect, for the maintenance and repair of those machines. Similarly, Hugin AB abused its dominant position by prohibiting its subsidiaries and distributors from supplying outside Liptons alleges that the maintenance and the Hugin organization. Such conduct repair of those cash registers is within shelters Hugin AB from all effective the competence of anyone having the competition in the matter of service, skill to maintain and repair competing maintenance and repair of Hugin cash cash registers and provided that they registers and from competition from have experience and training in the reconditioned and rented Hugin cash repair of such machines. No other justi­ registers throughout the common fication has been offered for the refusal market.

registers in a substantial part of the continued since October 1972, the common market and Liptons is unable to obligation on Hugin UK to ensure that it purchase spare parts from other Member complied with the EEC rules on States. Due to the size of Hugin AB's competition in so far as Liptons was share of the overall market for cash concerned did not commence until 1 registers, the distribution system January 1973. Such a consideration does practised by Hugin AB prevents the not, however, apply to the export operation -of independent servicing prohibition which has been in force companies anywhere in the common •within the common market since at least market and has an appreciable effect on February 1972. the structure of competition within the common market. With regard to the gravity of the infringement, the Commission took account of the effect of the refusal on (d) The order to supply spare parts Liptons' various activities.

According to the Commission, the price It further took into account the sudden for the spare parts to be supplied by and unforeseen nature of the withdrawal Hugin UK should be an appropriate market price between that which is of supplies, particularly in view of the fact that supplies of such spare parts currently charged by Hugin AB to continued after the termination of the Hugin UK and that which is currently agency agreement. charged by Hugin UK to end users in the United Kingdom and which allows to Hugin UK an adequate margin of With regard to the prohibitions imposed profit and to Liptons a reasonable trade by Hugin on its subsidiaries and distri­ discount. butors the Commission took account of the fact that the prohibitions were imposed by means or a general export (e) The fine prohibition. In addition, Hugin AB has so far failed to inform the Commission

B — The Commission contends that the Court should: Hugin further states that since the supply of spare parts and of maintenance service — Reject the application; is one of the essential parameters of — Order Hugin to pay the costs. competition in the market for cash registers as a whole and since such market is intensely competitive, Hugin is III — Submissions and argu­ subject to the pressure of competition ments of the parties with respect to the supply of such parts and services. It adds that if Hugin's per­ formance with respect to supply of spare A — The alleged dominant position parts and maintenance service ever 1. Hugin's application became uncompetitive customers would buy their cash registers from other manu­ Hugin argues that the supply of spare facturers rather than from Hugin. The parts for Hugin cash registers and the relationship between the purchase cost of supply of maintenance and repair a new cash register and the cost of main­ services for those machines cannot tenance is such that such conduct by properly be described as a separate customers would not be uneconomical. market. In its view they are but one of In addition, account must be taken of the parameters of competition in the the fact that the prices offered by the market for cash registers as a whole and manufacturers for trading-in cash form part of the criteria taken into registers are often relatively high. account by the customer in making his purchases in the same way as the price and quality of the cash register itself. Hugin further observes that it does not Hugin alleges that manufacturers of cash behave like a monopolist, exploiting its registers compete not only in terms of alleged dominant position to the price and quality of the products sold, detriment of consumers. In this respect it but as much in terms of quality and price refers to the guarantee offered by it, to of after-sales service, including the the maintenance contracts which it offers supply of spare parts. Cost and quality of at competitive prices and to the fact that maintenance, repairs and spare parts are the hourly rates charged by it for repair therefore in its view an essential element carried out on machines which are not in determining the buyer's choice, which covered by a maintenance service is stressed by the manufacturers of cash contract are generally in line with those registers in their marketing policy. This charged by its competitors. It concludes is particularly true with regard to Hugin that the cost of the supply of main­ whose commercial policy is based on top- tenance services and spare parts quality service at low prices. Hugin compared with the revenue from such

— the production and sale of Hugin spare pans by Hugin, and by no In holding that Hugin has a dominant other cash register manufacturer, position the Commission is extending Article 86 far beyond its natural scope of application and ignoring the existence of constitute the essential elements of a effective competition in the relevant market as defined by it and is relying market in Hugin spare parts distinct solely on the fact that Liptons is from the general market for cash dependent upon Hugin for its supplies of registers. The fact that independent main­ tenance companies also need spare parts spare parts for Hugin cash registers. The further differentiates the market for mere fact that an operator is dependent spare parts from the market for the upon another for the supply of a given machines themselves. In this connexion product or service does not automatically the Commission recalls that if a machine have the effect of bestowing on the latter breaks down before the end of its useful a dominant position within the meaning of Article 86; the Court of Justice has life it is generally more economical for a clearlv rejected that view in its judgment user to maintain and repair it rather than of 25'October 1977 in Case 26/76 Metro to replace it. v Commission (hereinafter referred to as "the Metro-Saba case"), the sixth sub paragraph of the 17th paragraph of the The Commission further states that users decision ([1977] ECR 1875). of Hugin cash registers in the long term can replace their machines with other cash registers. Undertakings such as Liptons do not have this choice if they 2. The Commission's defence are to continue to service, lease out and maintain cash registers. In the view of the Commission this point is corrob­ (a) General comments orated by the judgment of the Court of 26 November 1975 in Case 26/75 General Motors v Commission [1975] II The Commission recalls that the essential ECR 1367, in particular by paragraphs 7 elements of a market are one or more to 9 of the decision.

remedy was available when Hugin cut operators with the spare parts they off supplies to Liptons: it was not require and that there is therefore a possible for Liptons to manufacture spare market for spare parts for cash registers parts for Hugin machines, or for any and a market for the services of other undertaking to do so and the only independent companies which maintain possibility open to a user who thought and service cash registers. Hugin's maintenance unsatisfactory would be to sell its Hugin machines prematurely and buy other cash registers; According to the Commission the fact but this solution would be much too that spare parts and maintenance are expensive and unsatisfactory for most provided free of charge during the users, and would not be enough to period of the guarantee and within the discourage Hugin from cutting off framework of maintenance contracts supplies to Liptons. The fact that nobody does not affect the existence of a could take advantage of Hugin's refusal separate market for spare parts and main­ to supply Liptons is conclusive proof, in tenance: many industries give guarantees the Commission's view, not only that with durable products, which are later Liptons was in a market separate from serviced and maintained, and for which the cash register market, but also that spare parts are later provided, by Hugin had a dominant position on the independent companies; the policy of market for its spare parts. In the one supplier of cash registers with regard Commission's view Hugin's argument to service contracts cannot cause a that each time a user replaces its cash market to vanish. registers there is competition is not relevant; such competition could not have prevented Hugin from, for In the Commission's view the argument example, charging Liptons excessive that it would not be uneconomical to prices for Hugin spare parts, and it did switch to a different make should the not in fact prevent Hugin from cutting quality of maintenance services off supplies to Liptons. deteriorate or the price increase unduly is not correct: the average minimum price of a cash register is approximately 18 times the annual charge made by The Commission further argues that the Hugin for maintenance, while the cost of effect of Hugin's behaviour is similar to spare parts for cash registers is small in that of "tying-in" clauses which are relation to the cost of maintenance, with prohibited by Article 85 (1) (e) and the result that even if the manufacturer

registers, although the Commission reconditioned cash registers are entirely considers that it has provided such proof. dependent upon Hugin for the supply of Hugin spare parts: Hugin does not control the supply of spare parts As to Hugin's argument that it cannot contained in trade-in machines, and the have a dominant position in the supply dismantling of trade-in machines to of spare parts because of the guarantee secure a stock of spare parts is indeed a which it provides and the reasonable common practice among firms dealing in prices which it charges for its main­ reconditioned machines. tenance, the Commission comments that the fact that an undertaking has not taken advantage of its dominant position in any particular way does not prove that Hugin recalls that the supply of spare parts and maintenance service generally it does not occupy a dominant position. Nor, in the Commission's view, does the is an essential parameter of competition fact that an undertaking has not abused in the market for cash registers. In its view that factor constitutes an essential its market power in one way mean that it could not have abused it in another way. difference between the present case and the General Motors case (Case 26/75), The question whether Hugin provides its where the price and other terms of maintenance services or its spare parts at a loss does not seem relevant to the issuance of certificates of conformity for Opel cars imported into Belgium were Commission, in view of the problem not an element with respect to which arising in the present case; Liptons was in any event able to make a reasonable Opel and other car manufacturers profit and, moreover, Hugin includes in competed. . its calculation of its losses on main­ tenance the entire cost of guarantees. Hugin further observes that in computing the relative onerousness of In answer to Hugin's argument that the purchasing a new cash register, the Commission is improperly extending Commission has omitted to take account Article 86, the Commission replies that of the practice of trading-in. For a one the fact that Liptons was dependent on year old machine, the trade-in value can Hugin for its supplies of cash registers be as high as 90% of the purchase price; for its rental business does not prove that as a rule, the trade-in price is close to the Hugin has a dominant position on the purchase value discounted by the value cash register market. The Commission of depreciation; contrary to the stresses that it has stated in this respect Commission's assertion, replacement of a that Hugin used its monopoly on the machine during its working life is thus narrow market for the supply of its own not at all an "uneconomical" spare parts to eliminate Liptons as a proposition. competitor in the maintenance, renting out, repairing and reconditioning of Hugin machines. Hugin then challenges the Commission's argument that Liptons is dependent to a substantial extent upon Hugin for its 3. Hugin's reply supplies of spare parts. In this context Hugin notes that the order for Hugin spare parts filed by Liptons after the Hugin replies that it is erroneous to state issuance of the challenged decision only that firms selling or leasing amounts to £68, which it finds all the

In Hugin's view, therefore, the Commission has erred in applying Article To the Commission, Case 26/75 (the 86 in the present case since Hugin does General Motors case) means that a not have the power to act independently monopoly supplier of spare parts with respect to maintenance services, effectively has a dominant position for including the supply of spare parts. In those parts, at least if the price of the car fact, what this case raises is basically a is so much greater than any price which problem of selective distribution which is could be charged for spare parts that the normally dealt with under Article 85, as monopoly supplier could not be the Court of Justice recognized in Case effectively prevented from charging 26/76 the Metro-Saba case. excessive prices or otherwise taking unfair advantage of its monopoly.

4. The Commission's rejoinder The Commission observes that in the case of Hugin cash registers the With regard to Hugin's argument that economic value of spare parts is very low the market for cash registers influences in relation to the cost of a cash register.

JUDGMENT OF 31. 5. 1979 — CASE 22/78

HUGIN v COMMISSION

JUDGMENT OF 31. 5. 1979 — CASE 22/78

The Commission has only been able to Liptons was particularly badly affected reach its conclusion that competition in by Hugin's behaviour. the supply of Hugin cash registers for rent and in the reconditioning and In the Commission's view the fact that a repairing of Hugin registers will victim of a refusal to supply is able to eventually disappear as a result of the survive by dealing in other brands does refusal to supply Liptons, Hugin alleges, not prevent the refusal from being an by limiting its focus to an environment in abuse; the United Brands decision which there is competition only among concerning Olesen proves this. Hugin-manufactured cash registers.

effect to increase competition on the cash register market as a whole. As to Hugin's letter of 14 September 1972 the Commission states that Liptons did reply through its legal representatives (b) The Commission replies, first, that a but that, by letter of 28 July 1975, Hugin policy which eliminates all enterprises replied that it would itself recondition the machines held by Liptons. independent of the Hugin group which were able to maintain and repair Hugin cash registers, and which eliminated the The Commission argues that an only such enterprise in the whole of the enterprise in a dominant position cannot United Kingdom, affects the competitive deny its customers freedom of choice structure on the markets for main­ and defend itself merely by showing that tenance, repair and leasing. it offers a satisfactory service; its competitors might offer a better one, or it might take advantage of the absence of Secondly, the Commission states that competition to charge a higher price. Liptons' turnover in 1974 is hardly Anyway the customers are entitled to relevant, as 1974 was a year in which choose.

HUGIN v COMMISSION

Commission's decision makes it clear that Liptons has continued selling, In the Commission's contention the fact renting out and repairing Hugin that no independent company has ever machines, and as far as the renting out manufactured Hugin spare parts business is concerned it even appears contributes to Hugin's dominant position from the figures mentioned that Liptons' and is due to the fact that the relatively income attributable to the renting out of small numbers of each component, and Hugin machines increased from £2 170 the large number of components, would in 1970 to £2 626 in 1975. make it economic to produce components only for the most popular brands of cash registers.

The Commission then refers to another annex to the rejoinder which contains a list of larger maintenance Hugin also disputes the assertion that companies in the United Kingdom. Liptons can be regarded as a competitor of Hugin: Liptons, which deals primarily in reconditioned machines, sells to local In circumstances such as those in this retail shops, pubs and coffee shops while case, the extent of the effect on Hugin, on the other hand, concentrates competition resulting from a policy of

(2) The extent of the restriction on competition resulting from Hugin's 2. The refusal to supply was objectively refusal to supply independent main­ justified tenance companies with Hugin spare parts. That refusal forces such companies either to cease to (a) Hugin recalls that Hugin cash maintain Hugin cash registers or to registers are built and adapted in order depend for their supplies of spare to meet the requirements of individual parts on buying second-hand customers and that as a result there machines; generally exist no more than five or six identical units of each model, other than (3) The importance of the competition one particular example. The specialized previously offered by the companies character of its cash registers and the excluded. No other independent significance of adequate and rapid main­ maintenance company anywhere in tenance constitute, in Hugin's view, the Community which services objective justification for Hugin's Hugin machines is more important insistence on having its cash registers than Liptons, and Hugin refuses to serviced only by qualified technicians supply to any maintenance company working in close co-operation with it. In outside its network. Furthermore, the its view consumers would attribute the

United Kingdom is one of Hugin's deficient operation of a cash register most important markets in the resulting from inadequate maintenance Community. to the quality of the cash register itself. Hugin would then find it difficult to face its competitors which are powerful and The Commission then observes that the have a well-established position on the fall in the proportion of Liptons' business market. involving Hugin machines referred to in the Commission's decision was entirely due to Hugin's refusal to supply spare Hugin further argues that the extreme parts. diversification of Hugin cash register

components and the necessity to make between poor maintenance and a these components readily and rapidly defective machine. available to the customer make the keeping of an inventory very costly. It is As regards stocks of spare parts, the therefore comprehensible that it is Commission points out that there is no Hugin's policy, in order to reduce costs, reason for supposing that Liptons would to stock only such items as are necessary be unable to predict its needs or that it to satisfy the needs of subsidiaries and would not carry stocks of its own. dealers within its network as calculated by them. To Hugin's argument that its policy is justified by its wish to prevent main­ Hugin adds that correct service of cash tenance being carried out by unqualified registers as complex as the Hugin models personnel, the Commission replies that further requires continuous training to Liptons does have qualified employees. which Liptons does not have access as it is no longer part of the Hugin organi­ zation. Furthermore, Hugin cannot take advantage of the fact that Liptons' technicians are not abreast of innovations Finally, Hugin points out that the refusal to deliver commenced on a date when or improvements made to Hugin machines, as Hugin has denied them that Article 86 of the Treaty was not chance for five years. applicable to the United Kingdom. Finally, with regard to the claim that the (b) In answer to those arguments the refusal to supply Liptons began just Commission states that Liptons' before the United Kingdom joined the technicians were adequately trained by EEC, the Commission states that the Hugin to service and maintain all kinds argument is hardly relevant as Hugin has of Hugin machines, that Hugin's refusal refused to supply Liptons ever since in to supply was not based on any spite of repeated requests. deficiency in the service provided by Liptons, that the complexity and diversi­ fication of Hugin's registers is at about (c) Hugin replies that it stopped the same level as those of its major supplies of spare parts to Liptons because competitors, that the importance of Liptons could not maintain the level of proper maintenance and servicing is excellence which Hugin required from its shared by Hugin cash registers with service network, which employs specialist technicians who work full time on the other makes and that other cash register manufacturers do not object to their servicing of Hugin cash registers and machines being maintained by who receive continuous training with independent companies. respect to servicing.

The mere fact that Liptons is unable to Moreover, the fact that Liptons could purchase spare parts from other Member service a different make of cash register States cannot, in the opinion of Hugin, does not necessarily mean that it can turn what is a purely local matter into properly service a Hugin cash register. one which affects trade between Member Hugin service technicians themselves are States. If that were the case any incident, unable properly to service the whole no matter how small the firm involved range of Hugin models. might be, would fall under Articles 85 or 86 of the Treaty. Hugin finally stresses that the termi­ nation of supplies to Liptons was not unfair as when Liptons was appointed as Hugin recalls that when Liptons had the an agent in 1969 it was expressly notified opportunity to order spare parts from that its participation in the maintenance Hugin it filed an order to a value of only and servicing of Hugin machines would £68. only be temporary.

HUGIN v COMMISSION

JUDGMENT OF 31. 5. 1979 — CASE 22/78

— Hugin is not willing to supply spare Saba's distribution network. parts to anyone who fulfils objective qualitative criteria, or to allow any The fact that the BMW decision ensured such person to enter its network; that spare parts be made available to independent maintenance companies is — For the supply of spare parts Hugin explainable, according to Hugin, by the has a complete monopoly, and no specific characteristics of the car market, competition exists; where there exists a large number of independent maintenance firms. Such a — There is no intra-brand competition system is not necessarily suitable to the if undertakings like Liptons are cash register market. Similarly, a policy forced out of the market, and there which might be suitable to a large firm can be no inter-brand competition in may be entirely inappropriate to a firm relation to Hugin spare parts and such as Hugin. maintenance markets;

— The criteria for the selection of distri­ C — The order to supply spare parts butors of cash registers are not necessarily the criteria appropriate for selecting qualified undertakings 1. Hugin states that it has informed the to service cash registers; Commission that although it disputes the Commission's finding of dominance and — Users have no choice as to where abuse, it will sell to Liptons available they will obtain Hugin maintenance spare parts. Furthermore, supplies of services: there is only one source in spare parts by Hugin UK have resumed each Member State; following the receipt of an order from Liptons. In this connexion Hugin — Hugin never notified its distribution reserves all its rights in connexion with system to the Commission; the adverse consequences of the Commission's order.

different situations, thus putting the turer's selective distribution and main­ dealers at a competitive disadvantage as tenance organization the decision compared with Liptons. extends the scope of the "abuse" concept. Hugin states that at the time when the supplies to Liptons were In Hugin's view Liptons cannot claim to terminated, no case under Article 86 had benefit from the same price for spare been ruled upon by the Court of Justice. parts as that charged to the end users of Accordingly, the imposition of a fine in Hugin spare parts, that is the final such a case violates the principle "nulla customers, because Liptons is not part of poena sine lege". That principle bars the Hugin's selective maintenance or distri­ imposition of sanctions for the violation bution system. of a rule which is laid down by the very decision imposing the sanction, since undertakings could not know that rule at 2. The Commission argues that Hugin the time they adopted their course of is not compelled to give Liptons the same behaviour; Hugin refers in this respect to discount as it gives Hugin dealers; in so the Vegetable Parchment decision far as the circumstances, and in (Official Journal, L 70 of 13 March particular the obligations Liptons is 1978, p. 54). willing to undertake, are different from those of Hugin dealers, a different level of discount could be justified. Secondly, the termination of supplies occurred prior to the United Kingdom's accession to the Community so that Finally, the Commission states that it Hugin can only be accused of having would not be compatible with the omitted to take steps to correct a Commission's decision for Hugin to treat situation resulting from a decision taken Liptons as an end user, that is an owner by it at a time when such a decision was or lessee of Hugin cash registers, as such perfectly legal, which is an infringement treatment would make it impossible for of a less serious nature than taking an Liptons to make any profit on the resale unlawful decision. of Hugin parts to end users.

Secondly, it is incorrect to state that the against being punished for behaviour withdrawal of supplies from Liptons was which he could not have known was sudden and unforeseen, for the following illegal, and those circumstances did not reasons: there has only been an exist in the present case. agreement between Liptons and Hugin GB, a company which, in spite of its name, did not belong to the Hugin The Commission argues that the refusal group; Liptons was informed by said to supply is no less unlawful because it Hugin GB of the negotiations with began in 1972; Hugin continued to Hugin AB and in particular of the fact refuse supplies to Liptons from January that Hugin UK would not take over the 1973 until January 1978 and its rights and obligations relating to the restrictive policy inside the common agreement; the arrangement whereby market began before 1973. Hugin UK supplied products to Liptons for a few months after the termination of the latter's agency agreement was only a temporary arrangement pending the To Hugin's argument that its behaviour answer from Liptons to Hugin UK's was not intentional or negligent the proposal to execute a new agreement Commission replies that a dominant with it. undertaking is considered as having intended or negligently disregarded the natural, reasonable and probable Thirdly, Hugin argues that the losses consequences of its behaviour. The which the Commission alleges that Commission argues that it is not Liptons suffered are not quantified. The necessary for it to prove that a dominant decision itself shows that Liptons has undertaking was explicitly aware of the increased its income attributable to the fact that it was violating the Treaty; only rental of Hugin machines. The fact that if a dominant undertaking is completely, Liptons has allegedly had to dismantle and not culpably, unaware that what it is machines worth £9 000 in order to doing is open to criticism and if it fully obtain spare parts proves nothing, as corrects its behaviour and the Hugin itself has not derived any benefit consequences of its behaviour, is it deemed not to have committed an abuse. from the termination of supplies to Liptons which operates in a different The Commission finally observes that sector of the market. Hugin must certainly have known that it was forcing Liptons to stop maintaining Hugin machines, as this was its purpose. In this respect the present case is 2. In the Commission's view its obser­ distinguished from the Vegetable vations in the present case show that the Parchment case. decision has not created new law, but it adds that even if this were so, a fine could be imposed: Joined Cases 6 and 7/73 Commercial Solvents v Commission As to the aggravating circumstances, the and Case 27/76 United Brands v Commission states that if Liptons had Commission. rights under Community law, they could not be ended by any contract between Hugin GB and Hugin UK. In the The Commission agrees that "nulla Commission's view Liptons could not poena sine lege" is a principle of have foreseen that Hugin would treat it Community law, but it states that the as qualified to maintain Hugin machines principle is designed to protect the at one time and unqualified shortly citizen against retroactive legislation and afterwards.

A — 1. The Court asked Hugin what evidence there was for its claim that 4. In reply to a further question by the from September 1971 Liptons was kept Court the Commission supplemented the informed by Hugin GB of the information contained in its decision discussions with Hugin AB and the relating to Lipton's turnover stating in consequences to which those particular, for 1972 and subsequent negotiations might lead for Liptons. years, its revenue from the sale and repair of cash registers divided up according to the makes of the machines. Hugin replied that on two occasions after the stated date Mr D. Pope, Managing Director of Hugin GB, drew 5. The Court also asked the the attention of Mr Lipton to the Commission whether Liptons has ever possible consequences. Hugin further experienced difficulties in obtaining spare replied that a draft distributorship parts for the repair — as contrasted with agreement was presented to Mr Lipton the reconditioning — of apparatus of on 14 April 1972. NCR, Sweda or Chubb Electronics manufacture and what quantities were purchased, if any. 2. The Court asked the Commission to give a more detailed explanation than The Commission replied that Liptons has that in its decision on the' question why never had any such trouble for NCR and Liptons did not accept the offer of Sweda cash registers, but that Liptons

JUDGMENT OF 31. 5. 1979 — CASE 22/78

Hugin contends that the amount of loss C — The Advocate General delivered which Liptons alleges that it suffered as a his opinion at the hearing on 2 May result of scrapping second-hand 1979.

Decision

1 By an application lodged on 24 February 1978 the Swedish company Hugin Kassaregister AB and its British subsidiary Hugin Cash Registers Ltd., herein­ after referred to jointly as "Hugin", seek primarily, the annulment of the Commission Decision of 8 December 1977 relating to a proceeding under Article 86 of the EEC Treaty (Official Journal, L 22 of 27 January 1978, pp. 23 to 35). In the alternative they seek the cancellation or reduction of the fine imposed on the two companies jointly by that decision.

HUGIN v COMMISSION

2 Article 1 of that decision states that Hugin has infringed Article 86 by refusing to supply spare parts for Hugin cash. registers to Liptons Cash Registers and Business Equipment Ltd, which has its registered office in London, as from 1 January 1973. It further states that Hugin Kassaregister AB has also infringed Article 86 by prohibiting its subsidiaries and distri­ butors within the common. market from selling such spare parts outside its distribution network. In the grounds for its decision the Commission states that Hugin occupies a dominant position within the meaning of Article 86, that it has abused that position and that trade between the Member States may be affected thereby.

Hugin's position on the market

JUDGMENT OF 31. 5. 1979 — CASE 22/78

generally, to any independent undertaking outside its distribution network. The question is, therefore, whether the supply of spare parts constitutes a specific market or whether it forms part of a wider market. To answer that question it is necessary to determine the category of clients who require such parts.

6 In this respect it is established, on the one hand, that cash registers are of such a technical nature that the user cannot fit the spare parts into the machine but requires the services of a specialized technician and, on the other, that the value of the spare parts is of little significance in relation to the cost of maintenance and repairs. That being the case, users of cash registers do not operate on the market as purchasers of spare parts, however they have their machines maintained and repaired. Whether they avail themselves of Hugin's after-sales service or whether they rely on independent undertakings engaged in maintenance and repair work, their spare pan requirements are not manifested directly and independently on the market. While there certainly exists amongst users a market for maintenance and repairs which is distinct from the market in new cash registers, it is essentially a market for the provision of services and not for the sale of a product such as spare parts, the refusal to supply which forms the subject- matter of the Commission's decision.

9 It is necessary to examine next whether Hugin occupies a dominant position on that market. In this respect Hugin admits that it has a monopoly in new spare parts. For commercial reasons any competing production of spare parts which could be used in Hugin cash registers is not conceivable in practice. Hugin argues nevertheless that another source of supply does exist, namely the purchase and dismantling of used machines. The value of that source of supply is disputed by the parties. Although the file appears to show that the practice of dismantling used machines is current in the cash register sector it cannot be regarded as constituting a sufficient alternative source of supply. Indeed the figures relating to Liptons' turnover during the years when Hugin refused to sell spare parts to it show that Liptons' business in the selling, renting out and repairing of Hugin machines diminished considerably, not only when expressed in absolute terms but even more so in real terms, taking inflation into account.

10 On the market for its own spare parts, therefore, Hugin is in a position which enables it to determine its conduct without taking account of competing sources of supply. There is therefore nothing to invalidate the conclusion that it occupies, on that market, a dominant position within the meaning of Article 86.

Hugin's conduct on the market

11 The Comm ission takes the view that Hugin abused its dominant position by refusing to supply spare parts to Liptons and, generally, to any independent undertaking outside its own distribution network. That practice, which results from Hugin's policy of restricting the maintenance and repair of Hugin cash registers to its own technical departments, is said to constitute an abuse in that its effect is to prevent users of Hugin machines from choosing freely the undertaking which is to service and repair those machines and in that it has the effect of excluding any competition, and in particular a sub­ stantial competitor, in the sector of the servicing, maintenance, repair, renting out and reconditioning of Hugin machines.

The effects on trade between the Member States

15 In its decision the Commission stated that "Liptons has been prevented from continuing to expand its business within a substantial part of the common market and is unable to purchase spare parts from other Member" States". According to the Commission the distribution system practised by Hugin "has an appreciable effect on the structure of competition within the common market".

16 Hugin contests the validity of those statements. According to Hugin Liptons' activities do not extend beyond a single Member State and there does not really exist a market for spare parts extending beyond the territory of each Member State.

HUGIN v COMMISSION

17 The interpretation and application of the condition relating to effects on trade between Member States contained in Articles 85 and 86 of the Treaty must be based on the purpose of that condition which is to define, in the context of the law governing competition, the boundary between the areas respectively covered by Community law and the law of the Member States. Thus Community law covers any agreement or any practice which is capable of constituting a threat to freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market between the Member States, in particular by partitioning the national markets or by affecting the structure of competition within the common market. On the other hand conduct the effects of which are confined to the territory of a single Member State is governed by the national legal order.

JUDGMENT OF 31. 5. 1979 — CASE 22/78

21 As regards the distribution of Hugin spare parts as a distinct commercial activity it is established that Liptons has tried in vain to obtain such parts from Hugin distributors in certain other Member States. Moreover, Hugin does not deny that its policy of not supplying spare parts outside its own network, whilst it does not involve a prohibition on exports, necessarily implies that the refusal to supply independent undertakings applies whatever the geographical location of the undertaking.

22 The question is, therefore, whether it may be assumed that trade between Member States in Hugin spare parts would exist if the market conditions were entirely free and not subject to restrictive practices such as those applied by Hugin in this instance.

25 In those circumstances Hugin's conduct cannot be regarded as having the effect of diverting the movement of goods from its normal channels, taking account of the economic and technical factors peculiar to the sector in question.

26 It must therefore be concluded that Hugin's conduct is not capable of affecting trade between Member States. Consequently the Commission's decision does not satisfy all the conditions laid down by Article 86 of the Treaty. It must therefore be annulled.

Costs

27 Article 69 (2) of the Rules of Procedure provides that the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party's pleading. Since the Commission has failed in its submissions it should be ordered to pay the costs.

On those grounds,

THE COURT

Delivered in open court in Luxembourg on 31 May 1979.

A. Van Houtte J. Mertens de Wilmars Registrar President of the First Chamber Acting as President

OPINION OF MR ADVOCATE GENERAL REISCHL DELIVERED ON 2 MAY 1979 <apnote>1</apnote>

Mr President, cash registers and similar equipment. In Members of the Court the common market the undertaking has a market share of 12% and in the United The proceedings in which I am today Kingdom, which is of particular delivering my opinion concern a decision relevance in the present case, it has a adopted by the Commission on 8 Dec­ market share of 13% whilst the market ember 1977 in application of Article 86 shares of other manufacturers are 36, 15 of the EEC Treaty against Hugin and 13% in the common market and 34, Kassaregister AB (hereinafter referred to 18 and 16% in the United Kingdom. as "Hugin AB") and its British subsidiary The machines are marketed in some company Hugin Cash Registers Ltd. parts of the Community, namely in the (hereinafter referred to as "Hugin UK") United Kingdom, Belgium, Denmark, concerning the abuse of a dominant France and the Federal Republic of position on the market. Germany, by subsidiary companies of Hugin AB and for the rest, in Ireland, Hugin AB, an undertaking founded in Italy and the Netherlands, by general Stockholm in 1928 and wholly owned by agents or main distributors with whom the Federation of Swedish Consumers, corresponding agreements were Kooperativa Forbundet, manufactures concluded for the years 1971 to 1976. 1 —Translated from the German.