C-187/80

JUDGMENT OF 14. 7. 1981 — CASE 187/80

Accordingly, the rules of the EEC Treaty Member State where there is no such concerning the free movement of goods, protection, from availing himself of the including the provisions of Article 36, right conferred by the legislation of the must be interpreted as preventing the first Member State to prevent the proprietor of a patent for a medicinal marketing in that State of the said preparation who sells it in one Member preparation imported from the other State where patent protection exists, and Member State. then markets it himself in another

In Case 187/80

REFERENCE to the Court under Article 177 of the EEC Treaty by the President of the Arrondissementsrechtbank [District Court] Rotterdam for a preliminary ruling in the action pending before that Court between

MERCK & Co INC., Rahway, New Jersey, United States of America,

and

gives the following

MERCK ν STEPHAR AND EXLER

JUDGMENT

Facts and Issues

The facts of the case, the course of the 2. Another preparation with diuretic procedure and the observations effects which was already known submitted under Article 20 of the previously, namely hydrochloro­ Protocol on the Statute of the Court of thiazide. Justice of the EEC may be summarized as follows:

Since the product protected by patent No 142413 is part of the preparation I — Facts and written procedure protected by patent No 138819, acts infringing the latter patent automatically infringe the other patent. The plaintiff in the main action, Merck & Co Inc. (hereinafter referred to as "Merck") manufactures and markets in all the Member States a drug known as Merck expressly stated before the court "Moduretic" intended mainly for the making the reference without being treatment of hypertension. It holds contradicted by the defendant in the patents for this drug in all the Member main action that it manufactures States except Luxembourg and Italy and Moduretic in the Netherlands and does for its manufacturing process in all the so in the factory of its wholly-owned Member States except Luxembourg, subsidiary, Merck, Sharp & Dohme BV, Italy, Denmark and the Federal Republic Haarlem. of Germany.

Merck could still not obtain a patent European Communities for a drug because the product no longer fulfilled and the processes for manufacturing the legal condition of novelty which is a it; condition for obtaining a patent. That is no doubt one of the reasons why the drug is cheaper in Italy than in the Netherlands. 2. by or with the consent of that under- taking that drug is marketed in Italy where the undertaking could not by The undertaking Stephar BV, whose law acquire a patent for that drug by business is inter alia the import of phar- virtue of Article 14 (1) of the Italian maceutical products, imports Moduretic Patent Law (Regio Decreto of from Italy and re-sells it on the 29 June 1939 N o 1127), later declared Netherlands market at prices lower than unconstitutional by the Italian those charged by Merck. Constitutional Court in its judgment of 20 March 1978, which prohibited Merck therefore applied to the Presi- the grant of patents for drugs and dent of the Arrondissementsrechtbank processes for manufacturing them; Rotterdam for an interim order against Stephar and its director for infringing the patents of which it is the proprietor. That action was based on Article 30 of 3. a third party imports the drug the Netherlands Law on patents referred to in paragraph 2 above from (Rijksoctrooiwet) pursuant to which the Italy into the Member State referred proprietor of a patent has the exclusive to in paragraph í above and deals in right of manufacturing, using, selling, them there; licensing or putting into circulation the product protected by the patent "save if and in so far as such products have been marketed previously by or with the 4. and the patent legislation in that authority of Merck itself in another country gives the proprietor of the Member State of the Community where patent the right to oppose by legal Merck is the proprietor of the patents" action the marketing there by others corresponding to the Netherlands of the products protected by the patents. patent even if previously they had been lawfully marketed in another country by or with the consent of the In its application Merck relies on all the proprietor of the patent, facts set out above and further on the fact that it has not been able to obtain patents for its products and their manu- facturing process in Italy. It is that latter argument, which is challenged by the do the rules contained in the EEC defendants and which has led the Treaty concerning the free movement of President of the Arrondissements- goods, notwithstanding the provisions of rechtbank Rotterdam to make an order Article 36, then prevent the proprietor of dated 2 July 1980 in which it raises the the patent from availing himself of the following questions: right referred to in paragraph 4 above?"

Pursuant to Article 20 of the Statute of and in particular Article 30 of the the Court of Justice of the European national Law on patents (Rijks- Economic Community written obser­ octrooiwet) and the case-law of the vations were lodged on 21 November Hoge Raad and comes to the conclusion 1980 by the Commission of the "that according to Netherlands European Communities represented by municipal law the proprietor of a patent Rolf Wägenbaur, Legal Adviser, acting has not exhausted his right by marketing as Agent, assisted by Thomas Van Rijn, his product in another country if he has a member of the Commission's Legal a parallel patent there and a fortiori if he Department, on 2 December 1980 by cannot obtain a patent in that other Stephar BV, represented by D. den country because of the legislation on Hertog, Advocate at the Hoge Raad patents in force there". [Supreme Court] of the Netherlands, on 4 December 1980 by the French Government, represented by Thierry Le Roy, acting as Agent, on 11 December 1980 by the Government of the United Kingdom, represented by G. Dagtoglou, Treasury Solicitor's Department, acting as Agent, and on 30 December 1980 by Merck, represented by T. Schaper, Advocate or The Hague. Merck then considers the applicable Italian municipal law on patents. It On hearing the report of the Judge- recalls first of all that at the time when Rapporteur and the views of the applications for patents in respect of the Advocate General the Court decided to two Merck inventions might have been open the oral procedure without any made drugs could not be patented in preparatory inquiry, but it asked the Italy and it was not until after 20 March Commission to forward all the 1978, the date of the judgment given by documents relating to Article 81 (1) of the Italian Constitutional Court which the European Patent Convention and in declared Article 14 (1) of the Italian Law particular the proposal by the Federal on patents unconstitutional, that drugs Republic of Germany and the minutes of and their manufacturing process were no the Luxembourg Conference on the longer excluded from the grant of Community Patent. patents in Italy. According to Merck however it is no longer possible to obtain a patent for the drug Moduretic "because of the absence of apparent novelty". It is true that there are two II — W r i t t e n o b s e r v a t i o n s l o d g - Italian draft laws of a transitional nature ed p u r s u a n t t o A r t i c l e 20 of which might allow Merck to apply for t h e S t a t u t e of t h e C o u r t the grant of a patent for its drug but the possibility of Merck's still obtaining Italian patents "has nevertheless no relevance to the present proceedings A — Observations of the plaintiff in the because any such patents cannot legally main action have retroactive effect" and in any event since Italy has still not introduced the transitional law allowing the Merck The plaintiff in the main action considers inventions to be patented it would in the first of all the Netherlands legislation meantime still be possible for Stephar to

1. (a) The disparity between the Netherlands and Italian laws on patents in relation to the Merck's intention is to show that the patentability of drugs disparity it has referred to between the Italian and Netherlands laws is necessary to satisfy mandatory requirements or to ensure effective protection for industrial Merck relies on paragraph 8 of the and commercial property. As a result that judgment of 20 February 1979 in Case disparity meets the criteria laid down 120/78 Rewe [1979] ECR 649, by the Court of Justice in the paragraph 6 of the judgment of 26 June aforementioned judgments. In reliance 1980 in Case 788/79 Gilli [1980] on the communication from the

MERCK ν STEPHAR AND EXLER

Merck observes in that respect that the incompatibility with the various constitutional principles arises in every 1. (b) The specific object of industrial case from one and the same injustice: property in relation 'to patents "the absence of a return to the inventor to compensate for the costs of research". Finally it deduces a number of principles from the considerations of the Italian On this subject Merck recalls first of all Constitutional Court: that according to the Hoge Raad the

JUDGMENT OF 14. 7. 1981 — CASE 187/80

In by the Hoge Raad as unacceptable, must Merck's view such considerations in fact be accepted on the ground that "would have been quite useless if the the exporting country is a Member State existence or not of parallel patents had and even though the fact that the not been relevant to the decision of the product is not patentable is incompatible Court of Justice". Finally Merck thinks with the constitution of that Member that some importance should also be State. Such an inference may be drawn attached to the fact that the judgment from the wording of paragraph 1 of the was published in the reports of the Court operative part of the judgment of the of Justice under the title "Parallel Court of Justice of 31 October 1974 in patents". Case 15/74 Centra/arm [1974] ECR 1147, but Merck wishes to stress that although the operative part there simply Merck then considers the whole of the mentions "which has been marketed in case-law of the Court in relation to another Member State" without adding industrial and commercial property, the qualification "where the proprietor which it sub-divides into four categories. of the patent has a parallel right", that The first and second categories, relating judgment, relating to the questions put respectively to "national trade-mark by the Hoge Raad, in which there was rights having what is called a common such a qualification, is confined to origin" and "the setting up of industrial parallel patents. and commercial property to obstruct the importation of a product originating in another Member State" where it has been marketed by independent competi- In support of its argument Merck tors, are of no relevance in the present considers the reasoning of the Court's case. Merck simply points out that Mr judgment and in reliance on paragraphs Advocate General Roemer in his opinion 9 to 12 it maintains that "as regards in Case 24/67 Parke Davis said that the

Finally Merck refers to the opinion of Mr Advocate General Warner delivered on 11 November 1980 in Joined Cases 55 and 57/80 GEMA, which had not yet been decided by the Court when the written observations were lodged, to the effect that "there can be no exhaustion On the other hand the judgments which of rights when no rights exist". The the Court of Justice has given in relation fourth category of judgments of the to copyright are of great relevance in the Court relating to proceedings where present case. Thus first of all in the trade-mark rights have been relied on to judgment of 8 June 1971 in Case 78/70 oppose parallel importations and Deutsche Grammophon-Gesellschaft ν especially the judgment of 10 October Metro [1971] ECR 487 the Court held 1978 in Case 3/78 Centrafarm [1978] that the fact that the plaintiff opposed ECR 1823 provides important guide­ the parallel import of gramophone lines for the solution of the present case. records from France into Germany solely In Case 3/78 the Court considered that because such distribution did not occur it might be lawful for the manufacturer within German territory was in conflict of a product to use in different Member with the provisions prescribing the free States different marks for the same movement of products within the product especially if the trade-mark Common Market. Merck opposes the under which the product is already parallel importations by Stephar not marketed in one of the Member States solely because the products are marketed "is not lawfully available in another in Italy but "in addition and above all" Member State when the product is subs­ because Merck cannot obtain patents for equently marketed in that other Member its products in Italy. State." It therefore recognized that the proprietor of a trade-mark was justified pursuant to Article 36 in setting up his Netherlands trade-mark to prevent, parallel importations from a country where the proprietor of the trade-mark was not able lawfully to obtain that mark. In the same way Merck maintains that it ought in principle to be able to rely on its Netherlands patents to prevent the parallel importations by Stephar from a country where Merck has not been It follows indirectly from the judgment able lawfully to obtain patents and of 18 March 1980 in Case 62/79 Coditei Merck concludes that its action is [1980] ECR 881 that it would be justified because it cannot obtain parallel difficult to regard copyright in relation patents in Italy. As a result the sole fact to a book or gramophone record as that the products are marketed in Italy being exhausted by the sale in a country by Merck itself is not sufficient to where protection of copyright is legally exhaust the patent right. prohibited and the work must therefore

Apart from the case-law of the Hoge question put to the Court of Justice must Raad of the Netherlands national patent be in the negative. laws and legal writers, especially British, reject the argument of the exhaustion of rights when the drug is marketed in another Member State where there is no patent protection. Finally although Β — Written observations of the French Article 81 of the Community Patent Government Convention states the principle of the exhaustion of the rights in Member States after the product has been put on the market in any Contracting State by The French Government puts forward a the proprietor of the patent or with his line of argument substantially similar to express consent, it stipulates: "unless that of Merck. It considers that the there are grounds which, under Centrafarm ν Sterling Drug case differs Community law, would justify the from this one; it also cites Case 3/78 as extension to such acts of the rights authority and maintains that there the conferred by the patent". In Merck's Court recognized the existence of view it is not possible to imagine clearer exceptional circumstances and for their justification than where a Member State, appreciation referred to the essential contrary to its own constitution, makes function of the right in question. This the grant of patents legally impossible. case is concerned with an exceptional situation which it is therefore necessary to appreciate in relation to the function of the patent right as it is defined by the Court in paragraph 9 of the judgment in Centrafarm ν Sterling Drug, namely in 2. Arbitrary discrimination or disguised essence to reward the creative effort of restrictions on trade between Member the inventor. The company by which the States invention was made does not receive the reward for its creative effort in Italy because it is subject there to competition from other companies which do not have research costs to cover. Therefore if products put into circulation in Italy in From this aspect it is necessary to such conditions of competition were to consider whether Merck failed to make find their way into the territory of States applications for patents in Italy as part of in which the company has obtained a practice pursued by it with a view to patents it would lose the reward for its artificially partitioning the market. creative effort in those countries too. Merck considers that it may confine Such a result would therefore not be itself here to denying that there was any compatible with the "essential function" question of that: it failed to make of the patent right. applications simply because it knew that drugs and their manufacturing process were not patentable in Italy. Further, because of the temporary disparity between laws, the Court of Justice accepted exceptions to free circu­ lation of goods which were the subject of In conclusion Merck is of the opinion industrial property rights. It is important, that the answer to be given to the in the view of the French Government,

C — Written observations of the United Kingdom

Finally the French Government refers to the work of the Luxembourg Conference on the Community patent when Article 81 (1) and in particular the present type The Government of the United Kingdom of case were discussed at length. The comes to the same conclusion as Merck. present wording of Article 81 (1), in It cites the same case-law set out above particular the last sentence, is the result by the applicant to contend that the of a proposal by the Federal Republic of Court has evolved a Community doctrine Germany which received general appro­ of exhaustion of rights whilst allowing bation and in particular that of the exceptions to the principle of free Commission as is evident from the movement of goods under Article 36 minutes. As a result, in the opinion of solely where they are justified by the the French Government, it was accepted protection of rights which are the that the "situation upon which the Court specific subject-matter of industrial must give a ruling today constitutes an property. The British Government refers

JUDGMENT OF 14. 7. 1981 — CASE 187/80

MERCK ν STEPHAR AND EXLER

others of the products protected by the show that "Merck cannot rely on its patent which have been lawfully patent in the Netherlands to oppose the marketed in another Member State importation of its original product from where no such patent protection exists". Italy". Stephar relies basically on the operative part of the judgment in Sterling Drug which, it is true, leaves a certain doubt as to whether at the time of that judgment the Court of Justice D — Written observations of the contemplated the situation in which a plaintiff who is proprietor of the patent defendant in the main action in the country of importation has no parallel patent in the country of origin, but in Stephar's view that possible doubt is removed in the eleventh paragraph of As regards facts the defendant in the main the decision where the Court held that action maintains that Merck Sharp & the action of the proprietor of the patent Dohme markets Moduretic on the "may be justified against a product different markets of the Member States coming from a Member State where it is at very different prices, namely, if as a not patentable and has been manu­ basis for reference the price in the factured by third parties without the Federal Republic of Germany is taken as consent of the patentee". That co-ordi­ 100, as follows: nating conjunction shows that in 1974 the Court of Justice also contemplated the case which presented itself in Parke — Netherlands: 140, Davis and that it also intended to resolve it. — Denmark: 76, — Belgium: 102, — United Kingdom: 58, Stephar finally stresses that, as regards — France: 51, the case-law of the Court of Justice, the national court itself found that such — Italy: 56. case-law "does not, in law, allow any other conclusion than that" referred to by Stephar above.

court has declared Article 14 of the Member State. There is no direct or national law to be unconstitutional. indirect constraint upon the inventor in Italy and therefore Merck enjoyed complete freedom in deciding to market Moduretic in Italy. In any event Merck had a de facto monopoly as a result of 3. In order to answer that argument by the special know-how to manufacture Merck the defendant in the main action the proprietary product and thus obtains first of all considers the reasons for the a return for its inventive activity Italian national provision which was unimpeded by third parties. declared unconstitutional. In its view it involves a price system laid down by the public authorities intended to ensure that pharmaceutical products are marketed at reasonable prices in the interests of 5. Stephar is also concerned to observe public health. As regards price control, that the fact that Merck prepares the Court expressly declared, in Moduretic itself in the Netherlands has particular in the Sterling Drug case, that no effect upon the wording of the "the existence of factors such as these in question and it is irrelevant whether the a Member State, however, cannot justify Netherlands manufacturer is the same or the maintenance or introduction by whether he must be placed on an equal another Member State of measures footing from the legal point of view which are incompatible with the rules and/or from the economic point of view concerning the free movement of goods, with the Netherlands proprietor of the in particular in the field of industrial and patent, as in this case. commercial property". Thus, in Stephar's view, the intervention of the Italian public authorities in the price mechanism is not decisive in this case especially as in that respect pharmaceutical brand 6. Finally Stephar considers that the products are subject in several Member judgment of the Italian Constitutional States to direct or disguised intervention Court constitutes "a legislative measure". by the public authorities. It often happens that the national legislature fundamentally changes its view especially as regards patent rights. Thus for example in the Netherlands it was not possible to patent a "substance" until 1 July 1978 and only then was it 4. Stephar also stresses that the possible to issue patents for substances. proprietor of the patent has a choice. In Stephar's view "it would be bold to Pursuant thereto he may very well not say that in doing so the Netherlands market the product for which a patent legislature refused the inventor his due has been given to him in another for 68 years and that it thus maintained Member State of the Community. As a an unlawful situation". result if the inventor chooses nevertheless to market the product in such a Member State, he recognizes by so doing that the price of the product gives him a reasonable return for his inventive In conclusion Stephar proposes that the activity. It would be quite different if the question put by the President of the proprietor of the patent were actually Arrondissementsrechtbank Rotterdam forced to exploit his invention in the said should be answered "to the effect that

in the circumstances as described, followed by the Court as regards the notwithstanding the provisions of Article relationship between the rules of the 36, the rules in the EEC Treaty in Treaty on free movement of goods and relation to the free movement of goods national patent law are shown in prevent the proprietor of a patent from paragraphs 4 to 12. It follows that even if setting up his patent rights under the Article 36 contains an exception to the national legislation". prohibition in Article 30 for inter alia industrial property rights the only impediments to free movement of goods allowed are those justified by the protection of the rights which constitute E — Wńtten observations of the the specific subject-matter of that Commission property. An obstacle to the free movement of goods of this kind may be justified only where such protection has been invoked against a product coming from a Member State where it is not The Commission shares on the whole the patentable and has been manufactured by opinion of the defendant in the main third parties without the consent of the action. patentee. On the other hand no dero­ gation from the principle of free movement of goods is justified where the product has been lawfully marketed in a Member State whence it is imported by 1. The Commission recalls first of all the patentee himself or with his consent the case-law on the relationship between especially in the case of a proprietor of national patent law and Articles 30 and parallel patents. 36. Although the situation at the root of the present case has already been the subject of a reference for a preliminary ruling in Case 24/67, the judgment given by the Court in that case does not offer 2. In the Commission's view that "a real guide to the answer to be given case-law contains "certain important to the question put in the present case" guide-lines for the solution of the concerning the situation in which the problem which has been put", the main pharmaceutical product has been put into one being free movement of goods. To circulation in Italy by the proprietor of answer the question put, it is necessary the patent whereas in Case 24/67 the first of all to take note, in the product in question had been manu­ Commission's view, that the territory to factured and marketed in Italy without be taken into account regarding the first the authority of the proprietor of the marketing is not the national territory patent in the other Member States. but the whole Common Market in view Although Case 78/70 involved a similar of the principle of free movement of case it concerned an industrial property goods. In those circumstances "as soon right akin to copyright and not patent as the product protected by a patent is right. put into circulation for the first time in the Community by the proprietor of the patent himself or with his consent the right of the proprietor of the patent is The most important case in the exhausted and it is no longer possible to Commission's view is Case 15/74 prevent the importation and marketing Sterling Drug. The basic principle of the product in question in another

It is true that it may be. contended that such a conclusion is not compatible with The Commission repeats that in its view the view that the protection of rights is to resolve the problem posed in the the specific subject-matter of the patent present case it is irrelevant whether the right but only if those rights are to product in question was put into circu- include the obtaining of profits from lation by the proprietor of the patent or monopolies on the basis of reward for with his consent either in a country the creative effort of the inventor. In its where it is impossible to protect the said opinion of 26 September 1975 on the product by a patent or in a country draft Convention for the European where such protection is possible. Patent for the Common Market (Official Journal L 261 of 9 October 1975, p. 26) the Commission already stated that "it is not however the purpose of the law of As a result it proposes that the question patents to guarantee to the patentee a put should be answered as follows : higher profit than that which can be derived from the market price. A patentee is only granted, for a certain period, the exclusive right to forbid "The exercise by the proprietor of a anybody to make and market the subject patent of the right conferred upon him of his invention." by the legislation of a Member State lawfully to oppose the putting into circu- lation by third parties in the said State of products protected by the patent which According to the Commission that point have been marketed by the proprietor of of view was adopted by the Member the patent or with his consent in another States and written into Article 81 (1) of Member State where they are not the Community Patent Convention patentable is incompatible with the rules which makes no distinction between the of the EEC Treaty on the free movement case where the product has been put into of goods within the common market".

— The company markets the drug in Italy where it has not been able to patent it owing to the fact that at the time when the drug was sold in Italy the Italian Patent Law (Regio Decreto [Royal Decree] No 1127 of 29 June 1939) — which was subsequently declared unconstitutional by a judgment of the Italian Corte Costituzionale [Constitutional Court] delivered on 20 March 1978 — prohibited the grant of patents for drugs and their manufacturing processes.

JUDGMENT OF 14. 7. 1981 — CASE 187/80

— Stephar imports the drug from Italy into the Netherlands and markets it there in competition with Merck.

3 On the basis of those facts the court has asked whether in such circum- stances the general rules of the Treaty concerning the free movement of goods, notwithstanding the provision of Article 36, prohibit the proprietor of a patent who sells a drug protected by that patent in a Member State (The Netherlands) from preventing, as he may under the national legislation of that Member State, the drug which he himself sells freely in another Member State where no patent protection exists (Italy), from being imported from that other Member State and marketed by other persons in the first Member State (The Netherlands).

7 Stephar and the Commission conclude that once the proprietor of the patent has himself placed the product in question on the open market in a Member State in which it is not patentable, the importation of such goods into the Member State in which the product is protected may not be prohibited because the proprietor of the patent has placed it on the market of his own free will.

8 In contrast Merck, supported by the French Government and the Government of the United Kingdom, maintains that the purpose of the patent, which is to reward the inventor, is not safeguarded if owing to the fact that the patent right is not recognized by law in the country in which the proprietor of the patent has marketed his product he is unable to collect the reward for his creative effort because he does not enjoy a monopoly in first placing the product on the market.

9 In the light of that conflict of views, it must be stated that in accordance with the definition of the specific purpose of the patent, which has been described above, the substance of a patent right lies essentially in according the inventor an exclusive right of first placing the product on the market.

10 That right of first placing a product on the market enables the inventor, by allowing him a monopoly in exploiting his product, to obtain the reward for his creative effort without, however, guaranteeing that he will obtain such a reward in all circumstances.

JUDGMENT OF 14. 7. 1981 — CASE 187/80

1 1 It isfor the proprietor of the patent to decide, in the light of all the circum­ stances, under what conditions he will market his product, including the possibility of marketing it in a Member State where the law does not provide patent protection for the product in question. If he decides to do so he must then accept the consequences of his choice as regards the free movement of the product within the Common Market, which is a fundamental principle forming part of the legal and economic circumstances which must be taken into account by the proprietor of the patent in determining the manner in which his exclusive right will be exercised.

On those grounds,

THE COURT,

in answer to the question referred to it by the President of the Arrondissementsrechtbank Rotterdam by an order dated 2 July 1980, hereby rules :

The rules contained in the EEC Treaty concerning the free movement of goods, including the provisions of Article 36, must be interpreted as preventing the proprietor of a patent for a medicinal preparation who sells the preparation in one Member State where patent protection exists, and then markets it himself in another Member State where there is no such protection, from availing himself of the right conferred by the legislation of the first Member State to prevent the marketing in that State of the said preparation imported from the other Member State.

Mertens de Wilmars Pescatore Mackenzie Stuart Koopmans O'Keeffe

Touffait Due Everling Chloros