C-181/82

JUDGMENT OF 29. 11. 1983 — CASE 181/82

orices are fixed at a level such that the domestic production is based solely ľsale of imported products becomes on a freeze of the level of prices at a either impossible or more difficult given reference date. than that of domestic products. A situation of that kind can have the 3. Article 30 of the EEC Treaty effect of placing the sale of imported precludes a Member State from intro­ products at a disadvantage by ducing in respect of pharmaceutical rendering such sale more difficult, products imported from other impossible or, in any event, less pro­ Member States specific legislation fitable than the sale of domestic which refers to the manufacturer's products whenever the level of prices basic prices usually charged for to which, as regards products from products intended for consumption other Member States, the legislation . within the territory of the Member of the Member State of importation State in which they are produced, refers, is lower than that applicable to where the legislation applicable to products from that State.

In C a s e 181/82

R E F E R E N C E t o t h e C o u r t of Justice u n d e r Article 177 of the E E C T r e a t y b y t h e P r e s i d e n t of t h e A r r o n d i s s e m e n t s r e c h t b a n k [District C o u r t ] , T h e H a g u e , for a p r e l i m i n a r y ruling in t h e p r o c e e d i n g s p e n d i n g before t h a t c o u r t between

composed of: J. M e r t e n s de Wilmars, President, T . K o o p m a n s , K. Bahlmann and Y. G a l m o t (Presidents of C h a m b e r s ) , P. Pescatore, Lord M a c k e n z i e Stuart, A. O'Keeffe, G. Bosco and U . Everling, J u d g e s ,

Advocate G e n e r a l : S. R o z è s Registrar: P . H e i m

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the procedure and Article 2 (1) of that Law also authorizes the written observations submitted under the competent ministers, inter alia, to fix Article 20 of the Protocol on the Statute maximum prices if they consider that the of the Court of Justice of the EEC may public interest, both social and economic, be summarized as follows: so requires.

2. Since the beginning of the 1970s, the However, the latter decree still applies to Netherlands Government has adopted a medicines produced in the Netherlands. general decree on prices every year under Article 2 (1) of the Prijzenwet. The decree for 1982 — the Prijzen- beschikking Goederen en Diensten 1982 The Prices of Registered Medicines [Prices of Goods and Services Decree Decree prohibits any person from selling 1982] of 29 December 1981 (Staats- on the Netherlands domestic market a courant N o 250 of 29 December 1981, p. registered medicine imported by him to 6) — prohibited producers from selling any person other than a private any goods on the domestic market at a individual at a price higher than the price exceeding 100.9% of the reference manufacturer's basic price last applicable price, namely the price, exclusive of in the country of origin before 15 May turnover tax, charged for a product 1982 in a similar case for an identical supplied before 28 November 1981, plus medicine in the same package size, plus or minus an amount corresponding to or minus the amount by which the manu- the fluctuations in the purchase price of facturer's basic price has risen or fallen the raw materials and subsidiary since 15 May 1982, further increased by materials and in transport costs as well as the direct costs, exclusive of turnover in excise duties and turnover tax. A tax, by the profit margin which he or his comparable provision required traders to predecessor in title last applied before 15 adhere to the purchase price of the May 1982 in a similar case for an goods, increased by 105% of the profit identical medicine or by the maximum margin which they or their predecessors profit margin which he or his pre- in title had applied before 28 November decessor in title was permitted to apply 1981 for identical goods, increased by under the Prijzènbeschikking Goederen the turnover tax payable. en Diensten, and by the turnover tax due. If the medicine is offered for sale in the country of origin in a different package size, the manufacturer's basic price is calculated on a proportionate basis. The effect of Article 3 of the Before June 1982, the rules of the Prices of Registered Medicines Decree is Prijzènbeschikking Goederen en that a wholesaler retains his profit Diensten applied to domestic and margin in absolute terms although he is imported medicines alike. obliged to adhere to the purchase price of the medicine before 15 May 1982.

without its being possible to explain aration of legislation. The Netherlands, the disparities by variations between on the other hand, contends in particular countries in the profit margins, exchange that trade between States is not restricted rates, transport costs or direct costs by a national measure if its effect is to of importation. The importation of counter an artificial partitioning of the medicines is predominantly in the hands common market by a dual pricing of multinational undertakings and the system. import price fixed by such undertakings for a given medicine is often determined by the internal pricing policy of the group to which they belong. The By interlocutory judgment of 14 July Prijzenbeschikking Goederen en 1982, the President of the Arron- Diensten permits the import price to be dissementsrechtbank, The Hague, passed on subsequently. That is the result declared the application of Nefarma of insufficient price competition in the inadmissible and the complaint based on sector concerned since the final a breach of Article 2 (1) of the consumer has scarcely any influence on Prijzenwet unfounded on the ground the type, quality, quantity and price of that the contested decree was one of the the medicine, the choice of which is measures for combating inflation covered determined primarily by the prescribing by that provision. As regards the alleged doctor, and since, moreover, as a result incompatibility of the decree with of the insurance system, his financial Community law, the President of the interest in the medicines which he uses is Arrondissementsrechtbank, by the same limited to the consideration that they judgment, stayed the proceedings and should be as cheap as possible. requested the Court under Article 177 of the EEC Treaty to give a preliminary ruling on the following questions:

3. If Question 2 is answered in the II — W r i t t e n o b s e r v a t i o n s affirmative, has the Netherlands by adopting the Prices of Registered Medicines Decree 1982 infringed The contested legislation in general those articles? The plaintiffs in the main action observe that approximately 80% of the medicines 4. Do the principles of equality, pro- used in the Netherlands are imported, portionality, legal certainty and largely from other Member States of the proper and exact preparation have Community. Similarly, approximately direct effect in a case such as this? 80% of the medicines manufactured in the Netherlands are exported, by and large to other Member States. 5. If Question 4 is answered in the affirmative, has the Netherlands by Although there is no common organ- adopting the Prices of Registered ization of the market in medicines Medicines Decree 1982 contravened involving a common pricing system, a one or more of those principles?" common market in medicines has none the less come into existence as a result of the Council Directives on the approx- imation of provisions laid down by law, 4. The interlocutory judgment was regulation or administrative action lodged at the Court Registry on 20 July relating to proprietary medicinal prod- ucts (No 65/65/EEC of 26. 1. 1965, 1982. Official Journal, English Special Edition, 1965-1966 p. 20; No 75/318/EEC of 20. 5. 1975, Official Journal, L 147, p. 1; No In accordance with Article 20 of the 75/319/EEC of 20. 5. 1975, Official Protocol on the Statute of the Court of Journal, L 147, p. 13). That system Justice of the EEC, written observations precludes the adoption by the Member were lodged by: the plaintiffs in the States of any measure which is capable main action, represented by B. H . ter of hindering the development of the Kuile, Advocate at The Hague; the pharmaceutical industry and trade in Netherlands Government, represented by pharmaceutical products within the F. Italianer, Secretary-General at the Community. Ministry for Foreign Affairs; and the Commission of the European Communi- Domestic price levels for medicines vary ties, represented by Rolf Wägenbaur, appreciably within the Community from Legal Adviser to the Commission, and one Member State to another. As the Thomas van Rijn, a member of its Legal Commission stated in its answer to a Department, acting as Agents. parliamentary question (Answer of 16. 3. 1978 to Written Question No 916/77 by Mr Cointat, Official Journal 1978, C 98, On hearing the report of the Judge- p. 9), such prices may vary for a number Rapporteur and the views of the of reasons, such as price controls in force Advocate General, the Court decided in some Member States but not in others, to open the oral . procedure without price reductions imposed by certain any preparatory inquiry. However, it public authorities, obstacles to the free requested the Commission to reply in movement of medicines, the VAT rates writing to certain questions. applied to medicines, exchange rate fluc-

tuations and company pricing policies conformity with the decree, the importer and the variations often reflect will probably not purchase the medicine differences in the economic, monetary, in question since his profit margin financial and social policies of the would, following the artificial reduction Member States. Accordingly, such price of the resale price and in view of the variations are not the result of subjective unchanged purchase price, be so small manipulations by the suppliers of the that he would no longer be able to carry medicines concerned. out the transactions in question prof-

That conformity with the criteria established national pricing policy led the by the contested decree, the importer Commission to initiate a procedure, will not be affected because the new which is still in progress, in order to prices enable him to retain his initial determine whether the policy of those profit margin. The loss occasioned by the States is permissible. reduced price is borne almost entirely by the foreign supplier who might in consequence draw the conclusion that in the long term he will export medicines to the Netherlands in smaller quantities The effect of that policy is that the level because the position of his product, as of prices for a large number of wholly far as the price charged for it is comparable medicines is considerably concerned, has deteriorated artificially.

The Netherlands Government emphasizes that before the Prices of Registered Medicine Decree entered into force, The Prices of Registered Medicines there was a substantial difference in the Decree is intended to operate in the exercise of control over the formation of following manner: if the foreign supplier, prices of medicines manufactured in the who is not affected by the contested Netherlands and of imported medicines. decree, refuses to lower his selling price Whilst in the case of domestic products, to the Netherlands importer in only that proportion of production costs

which was constituted by the cost of increase its intervention in the formation imported raw materials and subsidiary of prices of imported medicines in order materials — often representing less than to achieve a more effective policy on 5 % of the final price — was not subject prices. to the restriction laid down, in the case of imported medicines the formation of prices, including the price charged for goods delivered to the importer's Article 30 of the EEC Treaty premises, fell wholly outside the restrictions imposed by the public auth- orities. The plaintiffs in the main action observe that the facts relied upon by the Since the production and the sale of Netherlands State in order to justify the medicines are preponderantly in the contested decree have not been hands of multinational undertakings, established on the basis of objective which also include the supplier and the reasons in accordance with a proper importer, it is impossible to speak, in this procedure in the course of which the field, of normal price formation in the trade interests concerned would have sense in which this takes place on the been given an opportunity to make free market between independent parties. known their views. The facts relied upon Where the importer does not form part by the Netherlands are fundamentally of a multinational undertaking, he acts incorrect. as an exclusive representative, with the result that in this case, too, normal price formation does not exist. The prices are In seeking to prevent by means of the fixed by a foreign supplier in a situation contested decree, on a national basis, the in which the decisive factor in the artificial partitioning of the Community formation of the price is not the trend in market in medicines, the Netherlands production or distribution costs but the State is acting primarily in the interests degree of competition on the market for of the Community with a view to which the product is intended and the countering unilaterally and on a national "countervailing power" which exists basis alleged defects of the Community there. On the Netherlands market in market in medicines. In a Community medicines, there is no price competition market in which directives have achieved or "countervailing power" — or a degree of harmonization of national practically none — in view of the fact laws, the Member States are not that the final consumer as a rule has no empowered to redress, by means of influence on the choice of medicine and national measures, situations which they has no direct financial interest in using regard as contrary to the Community cheap medicines. principle of the free movement of goods. The power to determine whether a situation is contrary to the Community Since approximately 80 % of the total interest and to adopt remedial measures quantity of medicines used in the is vested exclusively in the Community. Netherlands is imported, the pricing policy pursued before the contested decree entered into force affected only In any event, a Member State may not 20 °/o of domestic consumption. by its own actions bring about a situation in which a remedial measure itself comes In those circumstances, the Netherlands into conflict with Article 30 of the EEC Government considered it necessary to treaty or with another rule of Com-

munity law. The Prices of Registered Accordingly, the relocation of centres of Medicines Decree is contrary to Article production of medicines in other 30 because it is capable of influencing Member States would serve no purpose trade between Member States and of in the case of medicines intended for the affecting trade within the Community Netherlands market. For that reason, the and because it does not apply to contested decree is in contradiction with domestic products and to imported the very existence of a common market. medicines without distinction. Moreover, any increase in the Netherlands resale price for medicines imported into the Netherlands from countries with relatively high price levels is ruled out in advance by Article 2 (3) of the Prices of Registered Medicines Even on the assumption that the Member Decree. States may adopt pricing measures which restrict trade, the national authorities are in any event obliged to fix the maximum price of the imported product at a level which does not make the sale of the product impossible or more difficult than Variations in the prices of medicines the sale of the domestic product (see within the Community are attributable judgments of the Court of 26 February not exclusively or primarily to subjective 1976 in Case 65/75 Tasca [1976] ECR and arbitrary criteria applied by the 291 and of 6 November 1979 in Joined suppliers concerned but to objective Cases 16 to 20/79 Danis [1979] ECR factors beyond their control. In any 3327). The maximum price which the event, even if the price variations importer may charge under the contested involved were regarded as arbitrary, that decree in the event of the resale of would be because certain Member States medicines imported from so-called cheap often adopt measures the effect of which countries does not satisfy that criterion. is to fix and to maintain artificially prices Although the importation and sale in the of medicines in their States at a level Netherlands of proprietary medicinal different from what it would be if the products from Belgium, France or Italy mechanism of price formation were are not rendered impossible, these allowed to function normally. Artificial operations are rendered at least far more intervention of that kind naturally has an difficult than the marketing of impact on the prices of medicines in corresponding domestic products which other Member States. The distortion is are governed only by the Netherlands "exported" from one Member State to pricing system embodied in the all the others. In a common market, the Prijzenbeschikking Goederen en Member States should refrain from any Diensten. unilateral inteference with the mech- anism of price formation where such interference would probably generate additional distortions within the Community.

virtue of what is known as the "rule of the measures involved in the fight against reason" (judgment of the Court of 20 inflation under the general conjunctural February 1979 in Case 120/78 Rewe policy pursued by the Netherlands [1979] ECR 649) since in this instance Government. There is no Community there is a Community system for the legislation governing the prices of marketing of medicines which was medicines. Coordination between the introduced by certain directives, the Commission and the Member States with contested decree does not apply to a view to achieving greater transparency imported and to domestic products in the formation of prices on the market without distinction and it does not seek in medicines has not so far yielded any to attain an objective which is in the results. general interest and prevails over the free movement of goods.

There are sufficient reasons for decree has obviously not been adopted subjecting imported medicines to distinct for the protection of health but provisions, adopted to take account of constitutes an economic measure taken the specific features of those medicines. by the public authorities. Accordingly, the mere fact that the contested decree is concerned solely with imported medicines does not mean that it The Netherlands Government contends constitutes a measure having an effect that, according to the case-law of the equivalent to a quantitative restriction on Court (see judgment of 9 December imports. 1981 in Case 193/80 Commission v Italy [1981] ECR 3019), in the absence of The contested decree does not make it relevant Community legislation the impossible to sell imported products.

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profit margin remains the same as it was decree allows the importer to obtain before, with the result that there is no supplies on the market of the country of difference in treatment between imported origin at prices charged to wholesalers products and domestic products. If the and to pass on those prices. A refusal to price of the imported medicine falls as a supply the medicines at that price cannot result of the contested decree, the be regarded as a consequence of the wholesaler and the importer can none Prices of Registered Medicines Decree the less retain their profit margin in but is the result of a decision freely taken absolute terms, with the result that by the supplier. Accordingly, a fall in imports are not affected by a fall in the trade resulting from such a refusal is not purchase price imposed by the contested an effect which is contrary to Article 30.

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product. In such a case, the effect of products of the Netherlands policy on linking the maximum price in the prices is that medicines which are importing country to the price charged comparable in every respect, are, as far in the country of origin is to compel the as the price is concerned, treated undertaking to sell its products also in differently according to whether they are the importing country at a price which imported from abroad or manufactured does not properly reflect the actual cost in the Netherlands. The criterion used to price, which would be absurd in terms of discriminate in this way between

Initially, the charged in Italy and to the liberalization general rules embodied in the Prijzen- of prices in France. The Commission, beschikking Goederen en Diensten however, is not in a position to state that relating to the calculation of prices the level of prices of pharmaceutical differed in their effect on imported and products in all the Member States is, at domestic products and it was therefore present, an accurate reflection of the real justifiable not to subject the two cate- cost price of those products. gories of product to absolutely identical

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those raised under Article 30. Since stitutes an infringement of Article 3 (f) Article 30 contains more specific rules it and of Article 5, in conjunction with is unnecessary to consider separately Articles 85 and 86 of the Treaty. A whether the contested decree is national of a Member State of the compatible with Article 7. Furthermore, Community who considers that his rights discrimination occurs only if similar under the Treaty or under secondary situations are treated differently or if Community legislation are infringed by different situations are treated in the such national legislation may seek same way. It is, where appropriate, for protection from the competent national the national court to ascertain the extent court in respect of those rights where to which price legislation relating to they have been so infringed. The direct imported products and price legislation effect of the provisions in question relating to domestic products are should be recognized. concerned with similar situations.

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JUDGMENT OF 29. 11. 1983 — CASE 181/82

given ¡provision of Community law is Ill — Oral procedure directly at issue or where the general principle of law is directly or indirectly At the sitting on 2 March 1983 oral incorporated in a provision of Com- argument was presented by the munity law. A measure adopted by a following: B. H. ter Kuile, of The Hague Member State in relation to its nationals Bar, for the plaintiffs in the main action; is incompatible with the general A. Bos, acting as Agent, for the principles of Community law only if it is Netherlands Government; R. Wägenbaur based on a binding provision of and J. F. Verstrynge, acting as Agents, Community law or if general principles for the Commission of the European of law are incorporated in such a Communities. provision. In the present case, therefore, the general principles of Community law The Advocate General delivered his are not applicable. opinion at the sitting on 11 May 1983.

Decision

1 By judgment of 14 July 1982, which was received at the Court on 20 July 1982, the President of the Arrondissementsrechtbank [District Court], The Hague, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty several questions concerning the interpretation of Articles 3 (f), 5, 7, 30,-85 and 86 of the. EEC T r e a t y arid of certain principles, of Community law in order to enable him to determine the compatibility with Community law of national legislation on prices for imported medicines.

2 Those questions were raised in interlocutory proceedings instituted against the Netherlands by 10 pharmaceutical undertakings and by the Nederlandse Associatie van de Farmaceutische Industrie ("Nefarma") [Netherlands Phar- maceutical Industry Association] for an order rendering inoperative the Prijzenbeschikking Registergeneesmiddelen 1982 [Prices of Registered Medicines Decree 1982, hereinafter referred to as "the Prices of Registered Medicines Decree"] of 8 June 1982 (Staatscourant N o 107 of 9 June 1982, p. 7) adopted on the basis of the Prijzenwet [Prices Law] which authorizes the competent ministers to fix maximum prices if they consider that the public interest, both social and economic, so requires.

4 The Prices of Registered Medicine Decree introduced specific rules for imported medicines. It is clear from the explanatory memorandum to that decree, which is set out in the judgment making the reference, that the competent ministers took the view that the legislation formerly applicable provided only limited possibilities of controlling prices of imported medicines since the import prices of those products were often higher than the prices charged in certain countries of origin in which the level of medicine prices was lower and those high import prices might be passed on under the Prijzenbeschikking Goederen en Diensten. The Prices of Registered Medicines Decree therefore prohibited the sale of an imported medicine at a price higher than the manufacturer's basic price last applicable in the country of origin before 15 May 1982 in a similar case for an identical medicine in the same package size, plus or minus the amount by which the manufac- turer's basic price has risen or fallen since that date, further increased by the direct costs and by the profit margin applied before the reference date of 15 May 1982 or by the maximum profit margin allowed under the Prijzenbeschikking Goederen en Diensten, and including turnover tax.

s In the main proceedings, the plaintiffs claimed, in particular, that the legislation in question is contrary to Articles 30, 7, 3 (f), 85 and 86 of the EEC Treaty and to the general principles of Community law in regard to equality, proportionality, legal certainty and proper and exact preparation of legislation. In its defence of the contested Prices of Registered Medicines Decree, the Netherlands contended, in particular, that intra-Community trade was not affected where the national authorities adopted measures against an artificial division of the common market by a dual pricing system, as operated by certain pharmaceutical undertakings.

5. If Question 4 is answered in the affirmative, has the Netherlands by adopting the Prices of Registered Medicines Decree 1982 contravened one or more of those principles?"

T h e N e t h e r l a n d s m a r k e t in m e d i c i n e s

7 Before those questions are answered, it is appropriate to consider, in connection with the main proceedings, certain characteristics of the Netherlands market in medicines to which the national legislation at issue refers.

s It is common ground that the prices of medicines differ appreciably between one Member State and another. Whilst in certain Member States, including Belgium, France and Italy, the level of prices is low, the Netherlands is one of those Member States in which the level of prices of both domestic and

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imponed medicines is high. Those differences in prices are attributable, in particular, to legislation which allows certain Member States to intervene, either directly or by the adoption of measures in the field of social security' in the formation of prices.

A p p l i c a t i o n of A r t i c l e 30

12 The first part of the first question submitted by the President of the Arron- dissementsrechtbank seeks in substance to ascertain whether Article 30 of the EEC Treaty must be interpreted as precluding the adoption of national legislation on the price of imported goods of the kind described above.

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,3 According to the plaintiffs in the main proceedings, Article 30 must be interpreted as meaning that legislation such as that contested in the present case constitutes a measure having an effect equivalent to a quantitative restriction because it restricts trade by preventing a supplier of medicines from selling his products at profitable prices, since the artificial intervention of certain Member States aimed at restricting the price of medicines makes it impossible in those Member States to charge prices which cover the real costs.

i4 The Netherlands Government observes that in the absence of Community legislation in this area, the Member States may adopt rules regulating the prices of goods. The contested Prices of Registered Medicines Decree forms part of a general system concerning the prices of medicines. It does not treat imported medicines less favourably since importers can pass on the manufac- turer's basic prices charged in respect of products intended for consumption within the territory of the Member State of manufacture and they can obtain the same trading margins. A Member State is entitled to combat differences in prices from one Member State to another resulting from the detective functioning of the common market and from the operation by certain manu- facturers of a dual pricing system.

is In circumstances such as those referred to in the question raised in the present case, the legislation in question does not apply to domestic products and imported products alike but consists of different sets of rules for the two groups of products, laid down by different decrees and different also as regards their substantive content. Whilst the legislation concerning domestic products freezes prices at a certain date, subject to increases which are permitted on certain conditions, the legislation concerning imported products fixes prices at the level of the selling prices charged by producers in the country of manufacture.

i9 Legislation of that kind, which differentiates between the two groups of products, must be regarded as a measure having an effect equivalent to a quantitative restriction where it is capable of making more difficult, in any manner whatever, the sale of imported products.

20 It is in the light of the conditions prevailing on the market of the Member State of importation that it is necessary to assess the compatibility with the rules set out above of legislation such as that at issue in the present case.

2i It is true that legislation freezing prices at a certain date takes account, in substance, as regards domestic products, of the manufacturer's basic price for those products charged at that date to purchasers in the country of manu­ facture and that that price, in this case, is also the criterion for fixing the price of the imported products. However, the significance of the manufac-

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24 That finding leaves intact the possibility which the Member States have of combating inflation and adopting measures intended to control increases in the price of medicines, whatever their origin, on condition that they do so by means of measures which do not place imported medicines at a disadvantage.

25 Accordingly, the answer t o the first p a r t of the first question should be that Article 30 of the EEC Treaty precludes a Member State from introducing specific legislation in respect of imported pharmaceutical products which refers to the manufacturer's basic prices usually charged for products intended for consumption within the territory of the Member State in which they are produced, where the legislation applicable to domestic production is based solely on a freeze of the level of prices at a given reference date.

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26 In view of the answer given to the first part of the first question, it is no longer necessary to answer the other questions submitted by the President of the Arrondissementsrechtbank.

Costs

27 The costs incurred by the Netherlands Government and by the Commission or the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

Delivered in open court in Luxembourg on 29 November 1983.

P. Heim J. Mertens de Wilmars Registrar President