1. 

The Joined Cases 15 and 16/74 on which the Hoge Raad of the Netherlands has referred for a preliminary ruling are concerned with similar subjects. The first case deals with patent rights, the second with the right to a trade mark.

The questions from the Dutch court concern the relationship between these two rights and, against the background of a complicated situation, whose salient features are described below, Community rules governing the free movement of products between the Member States and those prohibiting conduct in restraint of competition. These features may be summarized as follows:

With this situation in mind, the national court asks whether the EEC Treaty rules on freedom of movement, having regard to the exemptions allowed under Article 36 from the prohibition of quantitative restrictions and measures having equivalent effect, and the rules forbidding undertakings to act in a manner likely to hinder competition, permit patent rights (Case 15/74) or the right to a trade mark (Case 16/74) to be exercised wholly or at least in part with the object of dividing up the common market on the basis of national territories.

Let us first of all examine the question from the standpoint of the rules governing the free movement of goods: does the prohibition of parallel imports constitute a measure equivalent to a quantitative restriction, contrary to Article 30 et seq. of the EEC Treaty?

2. 

To get to grips with this problem we must first dispose of a preliminary objection, raised in respect of the patent but which, if well-founded, must logically also apply to the trade mark.

In its written observations, the Sterling Drug Company Inc. contends that the provision in the second paragraph of Article 32 that measures having equivalent effect to quotas shall be abolished at the latest by the end of the transitional period does not constitute a directly applicable rules because, in placing the Member States under an obligation to do something, it leaves them some degree of discretion.

While there can be no doubt about the direct applicability of the clear and unconditional prohibition, under Article 31, of measures subsequent to the entry into force of the Treaty, Article 33 (7) provides that the Commission shall establish the procedure and timetable for abolition as between Member States of comparable measures in existence before the Treaty entered into force. In the light of these provisions, is the conclusion to be drawn that, to become operative, the general prohibition in Article 30 requires appropriate directives on the part of the Commission and that, since this means positive action by the States, it can in no way be regarded as directly applicable?

This raises the question whether, even after the end of the transitional period, reference must be made to these provisions in order to establish to what extent the prohibition has become applicable, or, on the other hand, whether it must be recognized that its force is then such as to make it fully applicable.

It must be borne in mind that, under Article 8 (7), ‘the expiry of the transitional period shall constitute the latest date by which all the rules laid down must enter into force… for establishing the common market…’

We have in the judgment in Case 2/74 (Revners) recently seen the significance to be attached to other rules of the Treaty providing for attainment, before the end of the transitional period, of other basic, objectives which, in fact, require a change of national legislations, and the force of the general provision, already mentioned, in Article 8 (7) for conferring on those rules a direct effect.

When, therefore, as in the case of the provision which requires abolition of quantitative restrictions and measures having equivalent effect, the Community rule implies that, with effect from a prescribed date, application of the legislative and administrative provisions and all the other national measures which (subject to the explicit exceptions permitted under Article 36) answer to this description is absolutely prohibited, this rule becomes directly effective from the date laid down by the Treaty, so that internal laws incompatible with it cease to apply. This interpretation is, moreover, consistent with the principle laid down by this Court in Case 9/70 (Grad) and in the analogous cases 20/70, 23/70 and 50/70 (Rec. 1970, p. 825 et seq.). In its judgments in these cases, the Court rules that a decision of the Council which places the States concerned under an obligation to take certain positive action, such as the obligation to introduce specified common arrangements in fiscal matters so as to avoid overlapping of various types of tax (subsequent directives prescribing the timelimit within which the obligation is to be fulfilled) amounts to an absolute instruction, effective from that limit, to the States not to apply the common tax system cumulatively with specific tax systems; as far as individuals are concerned, it means the right, if necessary by an appeal to the courts, to secure the removal of such overlapping, even if the State concerned has done nothing to carry out its obligation.

A similar conclusion suggests itself in the present case.

It is true that this provision is expressly made without prejudice to the exceptions provided for under the Treaty. But it is not possible to recognize any of them in the provision already mentioned under Article 33 (7). That provision is designed merely to ensure that the prohibition to which it refers becomes gradually effective during the transitional period, leaving the Commission full discretion to lay down the procedure and timetable. The Commission was, however, under a duty to do what was necessary to ensure observance of the general provision of Article 8 (7). In fact, after having at various times adopted directives specifying the conditions under which, in certain sectors, the measures referred to were to be abolished, the Commission issued, on 27 December 1969, a general directive for total abolition of all remaining measures having equivalent effect to quotas. It is true that this directive, which was adopted shortly before the expiry of the transitional period, does not specifically cover the restrictions associated with the protection of trade marks and patents and that it does not lay down the latest date by which it should have been put into operation by the States. This was, however, of no importance since such expiry brought the prohibition directly laid down by the Treaty fully and automatically into effect.

Furthermore, this principle appears to have been implicitly accepted in the recent judgment in Dassonville (8/74).

3. 

Consideration must now be given to the question of interpretation concerning Article 30 et seq. in respect first of all of trade marks, in view of the fact that the reply to be given on this particular aspect presents no serious problem. Indeed, it can be regarded as having already been given by the precedents established by this Court.

Since the judgments in Sirena (40/70), Hag (192/73) and, in some respects also, the Dassonville case cited a moment ago, there can be no doubt at all about the incompatibility between the principles of the common market, particularly that on the free movement of goods, and a prohibition which, for the protection of a specific trade mark, prevents importation or sale by a third-party purchaser of products bearing this trade mark, inasmuch as the products come from the same and sole supplier of the owner of the trade mark in the importing State, and who is owner of the identical trade mark under which he has regularly put them on sale in his own State.

This is clearly not a case of the same article being produced by various owners of the trade mark in the same State, as in the examples covered in the Sirena and Hag judgments, but of the same article being produced by a single manufacturer.

As they are genuine products bearing the trade mark legitimately used in his own State by the manufacturer who has put them on sale, and they have the same origin as those sold in the importing State by the local owner of the trade mark, there can be no deceit about the origin or properties of the product and there can be no question of ‘fundamental imitation’ or of unfair competition on the part of the second importer.

In view of this, it is perhaps unnecessary (though it helps to complete the picture) to recall that the undertakings who own the trade mark in the Member State concerned are just off-shoots of a common parent company which has them under its absolute control and is, as has been stated, in each of these States the owner of the patent rights by virtue of which the article is manufactured.

This is, therefore, something very different from a remote common origin of the trade mark and of the manufacturing formula for similar goods!

In these circumstances, application of the principles laid down in decisions of this Court relating to Article 30 et seq. of the Treaty necessarily precludes use of the trade mark to stop parallel imports. The closing in this way of a national market to parallel imports of a product legitimately put on sale in another Member State by the local owner of the trade mark is clearly not permitted by Article 36 of the Treaty since it would serve, not to prevent fraudulent imitation or at least ambivalence regarding the origin and properties of the article put on sale in the State under this trade mark or to ensure that the right which is specific subject-matter of the trade mark is respected, but to facilitate abuse of the trade mark for the sole purpose of stopping the products from being imported from another source and, perpetuating an unfair advantage.

4. 

As regards the Treaty rules on free movement and on competition, are the substantial differences between the two rights, one commercial and the other industrial, sufficient to justify substantially more favourable treatment for the owner of the patent than that recognized in the case of a trade mark? The real essence of the protection conferred on the patent owner is the exclusive right to manufacture and market the patented product, given to compensate him as the inventor of a process and to bring him a financial reward for his efforts and for the commercial risks he runs, and it is recognized on a purely temporary basis, whereas, in the case of the trade mark, there are either no time-limits or it is easy for the right to be renewed.

It must be remembered that, in the present cases, the de facto position as regards ownership of the patent is not the same as in the case of the trade mark. While, in the two countries concerned, the trade mark belongs to subsidiary companies (in the country of origin of the products, to the manufacturing company, and in the importing State, to the company responsible for sales there) the owner of the patent rights in the two countries is the same parent company. It is a typical case of parallel patent rights existing in different Member States, already the subject of examination, with varying results, by learned writers in connexion with the Community rules on competition and freedom of movement. The different ways in which certain aspects of the two rights are treated under the various national legislations (e.g. conditions of grant, and period of validity) are insufficient, on any serious view, to exclude the possibility that patents may also have this parallel character when they relate to an identical product or manufacturing process and are, in the final analysis, owned by the same person.

It might be in the interests of the parent company, as owner of the patent in the various Member States, to prevent parallel imports into one Member State of a product manufactured by one of its subsidiaries in another Member State in order to give another subsidiary which is responsible for its sale in the first Member State an import monopoly for the product. It is to this approach that. apparently, the Dutch court wishes to draw attention in its second question, where the exercise of the right is treated as being mainly designed to partition off the national markets. In terms of Community rules, such a purpose is in clear conflict with the principles on which they are based and as, particularly in Article 3 (a) and 3 (f) of the EEC Treaty, those principles have been laid down on the subject of freedom of movement of goods within the common market and establishment of a system of healthy competition.

5. 

Given, therefore, that the ban on parallel imports, involving the use, on the basis of the law of the country concerned, of the protection afforded to the patent owner, is contrary to Article 30 and to the second paragraph of Article 32, we must now see whether, in the circumstances described by the Supreme Court of the Netherlands, it is allowable under Article 36.

A trading arrangement made by an undertaking which is wholly the property of the parent company cannot be regarded as an arrangement made independently of the parent company. The Sterling Winthrop Company, a subsidiary of Sterling Drug Inc., sold in Great Britain a certain product which it manufactured under licence from the parent company, which owns the patent rights in both Great Britain and the Netherlands. It is reasonable to suppose that the placing of the product on sale in a Member State, which is the normal commercial practice of this manufacturer, took place with the agreement of Sterling Drug, since the parent company usually determines the trading policy of subsidiaries coming wholly under tits control. In fact, during the oral proceedings, one of Sterling Drug's counsel testified in so many words that his company, along with its British and Dutch subsidiaries, constituted a single undertaking. However that may be, in terms of economic reality, this action on the part of a subsidiary connot be without consequence for the parent company.

A product lawfully put on sale in the Community must be able to circulate freely within it unless there is a requirement to the contrary arising from the need to protect a private right or public interest recognized by Community law as being of overriding importance. Under the precedents established by this Court, the special exceptions provided for under Article 36 for the protection of industrial property may be justified only in order to safeguard the rights which form the specific subject-matter of such property.

Although this principle has not yet been expressed in clearly defined terms in respect of patents, there can be no doubt about its implication that Community rules can by their own action curtail the privileges which the national legislations confer on the owner of the patent. Every time a conflict arises between a specific form of protection granted to the patentee under national law and the operational requirements of the Community system, it will be necessary, after carefully balancing the conflicting interests and taking into account the need to respect the substance of legislation whose application is governed exclusively by the law of the country concerned, to ascertain whether the national rules and regulations can be given the benefit of exceptional treatment under Article 36.

Against this background, let us now see, in relation to the particular circumstances of this case, what concrete meaning should be attached to the restrictive condition, already referred to, covered by the expression ‘specific subject-matter’.

An essential constituent of a patent right is the exclusive right both to manufacture the products and to place them on the market for the first time. A legal monopoly of this nature, established in favour of an individual, necessarily means the right to block sale of the product which has been patented when manufactured by third parties or put on sale without the consent of the patent-owner. Accordingly, the national legislations may legitimately make it possible for the owner of the right to prevent importation of products which have been manufactured or put on the market without his consent. But there could be no justification for a ban on imports into a State in order to protect the sole owner of patents in force in different Member States on the basis of the territorial limitation, within the common market, of the consent he has given for their sale. The imposition of such a limitation, which in the circumstances under consideration would be designed solely to enable the owner of the patent to exercise control over the outlets for the product in the Community, cannot be regarded as coming under the specific subject-matter of the patent right. It is certainly not compatible with the basic principle of the Community system governing the circulation of goods for a company, which is the owner of a patent in force in more than one State of the Community and, through a company wholly under its control, joins in putting the said product on sale in a Member State, to block its importation bv third-party purchasers into another Member State for the purpose of ensuring a commercial monopoly there for another of its subsidiary companies.

The circumstances in this case are not substantially different from those which were the subject of the judgment in Deutsche Grammophon Gesellschaft; which, it will be recalled, was concerned with a property right analogous to copyright in relation to sound recordings. In fact, though in the present case the product was manufactured in a Member State other than that in which its importation is opposed and it has, moreover, been put on sale by a party which in law is distinct from the party raising the objection, it must be borne in mind that, in the Deutsche Grammophon Gesellschaft case, too, the product was put on the market in a State other than that wherein the owner of the right, who objected to importation of the product, had his registered office. It must also be noted that, though, in the present case, the product was put on sale by a party which in law is distinct from the patentee, this cannot be regarded as an action wholly independent of the latter. The principle laid down in the case of a right analogous to copyright, such as the Deutsche Grammophon Gesellschaft was claiming, is equally applicable to a patent because, as the Commission, pointed out, in each of these two cases, the specific subject-matter of the two property rights consists of the exclusive right to manufacture, to reproduce and to market for the first time a specific intellectual or industrial product.

In a case such as the one before us, just as in the situation which was the subject of the Court's judgment in Deutsche Grammophon, the purpose of the objection raised by the proprietor of the right to introduction into a State of a given product lies outside the specific subject-matter of the protection provided bv the right concerned. In the case of Deutsche Grammophon, the objection of the owner of the property right to reimportation of one of his products, which had been sold by him or with his consent for the first time in another Member State, went beyond the legitimate scope of protection. In the present case, too, given on one hand the relationship between the party putting the article on the market in another Member State and the owner of the patent, and, on the other, between the owner and the trading company to which he has granted a permit to sell the product in the importing State, the same interpretation must be placed on the patentee's objection to the free circulation of the product.

6. 

Quite apart from the application of Community law, an attempt has been made in certain Member States to reach a compromise between the patent holder's desire to make maximum profit out of it and the public interest in freedom of trade, This has been done by means ot the principle of ‘exhaustion’ of the exclusive right to market a product as a consequence of sale by the owner, or with his consent, of the patented product, even if this latter event occurs outside the territory in respect of which the relevant patent has been granted. It should be made clear that, as it involves a national patent, this principle has no bearing on the position under Community law. In fact, it is of importance only in terms of the system of law in which the patent right has been established and which governs its content and exploitation.

In order to appreciate, in the present case, how Community law is infringed by the ban on imports and on sale in a Member State of products already put on sale in another Member State by the sole patent owner in the two States or with his consent — a fortiori if this involves a company under his control — there is no need to do more than bear in mind that, in such a case, in the absence of an independent manufacturing activity in the importing country, the exclusive right to market the product would not help to protect the essential element of the patent which, as it relates to an industrial product, cannot be divorced from a manufacturing activity, but would be intended purely to obstruct trade between the Member States, This being so, it necessarily follows that the exception provided for under Article 36 of the Treaty does not apply. As I had occasion to point out in my opinion in Dassonville (Case 8/74) there would in such circumstances be an absence, of that essential interest within the sphere reserved for the jurisdiction of the importing State, to protect which that Article of the Treaty allows exceptions to be made from the fundamental principle of free movement of goods within the Community.

There is, of course, nothing to prevent a lawyer from falling back, in terms of the law of his country, on the theory of the exhaustion of a right in order to find a logical place for this situation in the structure of industrial property law. But this theory has nothing to do with application of the Community prohibition and the inapplicability of the exception provided for under Article 36 in respect of industrial property. An exception is made only in order to protect claims which constitute the specific subject-matter of the property right. If the patent were used to protect a local producer who is legally and commercially independent of the manufacturer, in another State, of the article which is the subject of the patent and whose importation is involved, the question would become one of some delicacy. In this case, however, the patent is used purely to protect a trade monopoly of the group constituting an economic whole to which belong both the sole owner of the patent in the various Member States concerned and the manufacturer and marketer of the product in question. In these circumstances the use to which it is intended to put the patent is not substantially different from that which has altready been recognized as prohibited in the case of a trade mark.

For this reason, important as they are, the differences which in principle distinguish the two rights cannot in this case afford ground for providing protection for the patent which differs from that granted in the case of a trade mark, or for using the right in such a way as to close national markets, against the free circulation of a product legally put on sale in a Member State.

Nor is the legal position substantially changed by the argument that it is not the behaviour of Sterling Drug but the legislation in a Member State of which it takes advantage which may conflict with the rules on free movement. The fact remains that the national court may not countenance a claim which is illegal under the Community system, whether this illegality arises from an individual's misuse of the right he is recognized as enjoying under the law of his country or, in the context of the prohibition on measures of equivalent effect to quotas, it can, on an objective view, be blamed on incompatibility between the Community system and the national law on which the right is based.

At this juncture it is necessary only to state that, in the circumstances under consideration, the Member States have, under Article 36 of the Treaty, no authority to permit a patent owner to raise any legal objection to parallel imports on the part of third parties.

7. 

During the present proceedings, the Sterling Drug Company argued that if a patentee were no longer able to prevent importation into a Member State of products put into circulation in another Member State on the basis of a parallel patent, this would defeat the basic purpose of his property right in the importing Member State; and that, consequently, the national laws enabling a patentee to prevent parallel imports cannot be abolished except as part of process of harmonizing the relevant national legislations or by establishing a standard patent throughout the Community. This objection has no substance: the patentee still retains the exclusive right to manufacture the product concerned in the country which granted the patent and to be the first to market his products.

It is true that the meaning of property rights is defined by the national law which creates and enforces them. But the law in force in the individual Member States cannot ignore the existence of the Community system and all this means. The establishment of the common market places economic rights and relationships in a new context: the Community system represents a new set of legal rules capable of regulating such relationships, even if only by circumscribing the freedom of the States and of private parties to exercise control over such relationships or dispose of them.

The ideal solution would of course be comprehensive and effective harmonization of the national industrial and commercial property rights on the basis of the functional requirements of the common market. But, in the absence of such harmonization, the ways in which these rights can be brought into line with each other by direct application of the Treaty cannot be disregarded.

The fact that the proposed convention on the establishment of a European patent for the common market envisages application of the principle that patent rights are exhausted in international terms within the Community only after the expiry of a transitional period has no bearing on the purpose or effect of the Community system and cannot therefore alter the meaning of legislation in force. In any case, the wording of the proposed convention expressly states that it is to be without prejudice to the application of this legislation, Moreover, at the present juncture, the proposal can at most be regarded as an indication of its authors' wishes, and not of a common intention on the part of the States.

It cannot be denied that sometimes, especially when the subject-matter of the patent is one of alternative manufacturing processes, certain difficulties described by Sterling Drug in its statment of defence can arise; for example, those associated with proof of the real identity of so-called parallel patents or of the origin of the products. But, given the rules on onus of proof, there is a solution to any problem arising from substantiation of the facts. Moreover, one can be sure that the national courts, which are not unaware of the valuable help which can be provided by expert witnesses, would receive the fullest cooperation from an interested party in confirming or denying the identity of the patents concerned or, if necessary, testifying to or against a particular origin of the product.

Nor are insoluble problems created by certain specific situations which can arise from the existence of national legislations which have not been brought into line with each other, such as those arising from the shorter duration of the patent in the country of one licensee as compared with that in other States. To begin with, those concerned can allow for these difficulties in defining their future relationships.

Undoubtedly, as Sterling Drug, intervening, pointed out, commercial undertakings are very interested in the possibility of being able to use parallel patents in each State of the Community in order to divide up the common market so as to reserve certain areas for production and, by removing all possibility of parallel imports, to reserve others for exclusive exploitations in purely commercial terms; amongst other things, they would thus have greater freedom of manoeuvre on prices. But the interests of the common market lie in the diametrically opposite direction.

Moreover, it is not possible, merely in order to avoid difficulties which may arise for undertakings from the fact that national laws have not been brought into line with each other, to defer resolution of a state of affairs which is incompatible with the Treaty until national patent legislations have been harmonized. The mandatory nature of the prohibition in Article 30 and the restrictive character of the exceptions provided for under Article 36 do not permit of delaying tactics. If application of the prohibition laid down by the Treaty produces difficulties which can be satisfactorily disposed of only by the process of harmonizing national legislations pursuant to Articles 100 et seq. of the EEC Treaty, this will represent an incentive for early implementation of the hoped-for solution.

8. 

We can now, for trade marks and patents together, consider the other questions, couched in substantially the same terms in the two cases concerned, concerning the Treaty rules governing the freedom of movement of goods in the Community.

The Dutch court asks whether big price variations between the countries concerned, due to intervention by Government authorities in the exporting State, designed to keep prices down, could, in view of the industrial and commercial property rights in question, justify a ban on parallel imports.

First of all, we must bear in mind that in the circumstances which were under review in Deutsche Grammophon, the fact that the level of the producer's selling prices in Germany was threatened by the liberalization of imports of his products put on sale in France, with a resultant lowering of price, at least at the wholesale level, certainly did not represent an obstacle to the opening up of the German market. A mere negative effect on the reward which the patentee is able to obtain for his intellectual product certainly does not put the substance of his right in jeopardy.

Even if primarily due to the intervention of Government agencies designed to keep prices at a lower level than what they would otherwise be, the existence of significantly lower prices in the State where production took place compared with those in the importing State could in no sense justify closing the national markets so as to enable the economic group headed by the patentee to regain equilibrium in its trading balance at the expense of the consumers in other Member States where, because the exclusive right to sell the manufactured product is artificially maintained, substantially higher prices could be realized than in the State where the article is produced. If the Sterling Drug Company found it unprofitable to continue to arrange for the sale of the product patented by it in the State in which prices were artificially maintained at too low a level, there would be nothing to prevent it from transferring this operation to other States of the Community where it could charge higher prices. From another point of view, the artificial division of the Community territory so as to obstruct the free movement of products legitimately placed on sale in a Member State is in conflict with the principle behind the process of merging the national markets in a single market which underlies the Treaty establishing the EEC. The protection which the Community provides for the patent cannot be applied independently of the proper working of economic laws and, consequently, of the effect of demand in the area of the common market.

Finally, quite apart from these considerations, it would be inconsistent with the requirements of the system, and with legal certainty in this matter, to make definition of the scope of the exclusive right enjoyed, at common market level, by trade mark owners and patentees in a country subject to haphazard and variable factors such as Government measures affecting prices.

9. 

The Supreme Court of the Netherlands further asks whether, in the case of pharmaceutical products, the protection of these rights by ensuring that parallel imports do not enter the country may be justified when the holder of the right concerned claims that, in the absence of such protection, he will not be able to control distribution of the product and, in the event of defects appearing, take the necessary measures in the interests of public health.

The first point to be made is that the need to act in the interests of public health can in no way justify measures adopted, in circumstances such as those in the present case, for protection of the trade mark owner's right against importers of the same product. The trade mark established a link between the man who first puts the goods on the market and the purchasing public; this link is of primarily commercial importance. The protection provided by the trade mark is intended solely to protect this essential element of goodwill. The protection of public health is a different matter from protection of the property right of a private party.

The protection of public health, which is a continuing requirement, is similarly something quite separate from the peculiar purpose of the property right in a patent, which, moreover, is the subject of protection only for a limited period. The protection of public health forms no part whatever of the specific objective of the exclusive right which the patent owner is recognized as possessing.

If a certain parallel importer disregards the provisions in the country concerned governing the sale of pharmaceutical products or, at least, behaves in such a way as to compromise or endanger the protection of public health, this will, on the basis of these provisions, justify the competent authorities in intervening to remove the danger. And, by the same token, there may even be justification for restrictive measures directed to the same end. But this will take place independently of the protection of a private party on the basis of an exclusive right associated with a patent or trade mark and will, in circumstances of the kind with which this case is concerned, in no event justify the use of such rights to prevent third parties from importing products, whatever their nature.

10. 

Again against the background of the rules on the free movement of goods, the Dutch court asks whether Article 42 of the Act concerning the conditions of accession of Great Britain to the Community means that, to the extent that goods originating from the United Kingdom are concerned, these rules of the Treaty could not be called in aid in the Netherlands until 1 January 1975. In a case where, standing on their own, the national rules which enable the trade-mark owner and the patentee to object to imports were applicable before the Treaty of Accession came into force, it must necessarily be accepted that they apply up to 1 January 1975 as regards the new Member State. This is because the measure having equivalent effect is the national law itself which, while remaining for the time being in force, as expressly provided under Community law, cannot be rendered de facto inoperative on the ground that an act which merely implements that law, taken by itself, is a prohibited measure having equivalent effect because it postdated the Act of Accession.

It is therefore impossible to accept the Commission's contention to this effect, which would result in preventing the States from exercising a right which, as a transitional measure, they have been expressly accorded by the Treaty of Accession.

11. 

We come now to the question, referred to briefly at an earlier stage, relating to Article 85 of the Treaty. In Case 15/74, the national court refers to a situation in which the grant by the owner of parallel patents of the right to manufacture and sell under licence in one Member State and the right to sell under licence in another Member State the patent is not used for manufacturing purposes, has the overall objective of influencing the conditions of the market, for the product covered by the patent, in a different way in each of the States concerned. The Dutch court asks whether such agreements, considered particularly in the light of the action taken by way of legal proceedings against parallel imports, fall under the prohibition in Article 85, even if they were concluded between undertakings belonging to the same group.

Though couched in different terms, a substantially similar question was put in Case 16/74 about the existence of the same trade mark in various Member States which was used by undertakings belonging to the same group to cover the same product and concerning use of the relevant right for the purpose of preventing parallel imports of the product so covered.

Contracts for the grant of licences to manufacture and to sell a patented product are not necessarily in themselves incompatible with the competition rules of the Treaty. If, however, the conclusion can be drawn from the overall behaviour of the parties and from the economic and legal circumstances in which these agreements are intended to be applied, that these contracts provide the basis for practices likely to partition off national markets without any justification of this on the ground of protecting the rights which are the specific subject-matter of the patent concerned, this could be a factor to be taken into account when the legality of these contracts is under scrutiny, because they make such practices possible, or at least facilitate them.

In these circumstances, even the kind of conduct examined above on the part of the trade-mark owner in the importing State can assume importance in determining the overall picture of the legal relationships and the pattern of behaviour in which it is framed. This pattern of behaviour based on exclusive property rights conveniently shared, geographically and otherwise, between the members of the same group of companies, might possibly be regarded as the blueprint of a monopolistic plan to keep third-party competition out of the market in certain Member States.

The legal instruments and the practices which embody a plan of this kind would therefore fall under the prohibition laid down under Article 85, provided of course they satisfied all the other conditions required for application of this Article.

The question then arises whether these considerations regarding the application of Article 85 also hold good when the aforementioned agreements are concluded exclusively between undertakings forming part of the same group of companies under the control of one parent company. Or, in such circumstances, which include the subsidiaries' lack of independence as regards decisions on marketing policy, should the application of Article 85 be excluded altogether, the only method available to exercise control over the behaviour of the group acting as a body in concert on the market being Article 86, which prohibits abuse of a dominant position?

Declaring that the prohibition in Article 85 did not apply to agreements which regulate the relationships between members of a group, the Commission had from the outset emphasized the fact that, quite apart from any agreement, there can be no competition between undertakings of this kind. It was on the basis of this elementary principle that the Commission justified its line of reasoning, ushered in by the decision of 18 June 1969 giving negative clearance in Christiani and Nielsen (OJ L 165 of 5.7.1969, p. 12). Under this decision, agreements concluded between undertakings in a group effectively subject to the control of a parent company and who confine themselves to playing their allotted roles in the framework of the same economic entity, escape the prohibition under Article 85, precisely because, under such conditions, neither the subject-matter nor the effect of these instruments restricts competition; this is because competition does not, by definition, exist within the group.

Against this background, consideration can reasonably be given to the applicability of the prohibition laid down under Article 85 when, instead of being confined to regulating internal relationships, the agreements between the undertakings in a group are designed to raise barriers against third parties, and to block the avenues open to them for trade and competition.

The precedents established by this Court might be the source of some difficulty because, in holding that, in the case of groups of concerns under the control of a parent company, the prohibition in Article 85 did not apply to contracts subsisting between such concerns, the Court stressed instead their lack of economic independence and the unity of a group forming an economic whole (Case 22/71, Beguelin, Rec. 1971, p. 958, paragraph 8 of Grounds; Cases 48/69, 52/69 and 53/69, ICI and Geigy-Sandoz, Rec. 1972, p. 665, paragraphs 132-140, p. 837, paragraphs 43-45; Joined Cases 6-7/73, Istituto Chemioterapico Italiano and Commercial Solvents Company, [1974] ECR 253-254, paragraphs 36-41).

In my view, however, these precedents do not in principle preclude the applicability of Article 85 to agreements or practices in which the component companies of a group alone participate. Beguelin was concerned with a grant by a parent company of exclusive sales rights to one of its subsidiaries, which was established in another Member State, in respect of the products of an undertaking in a third State. It did not matter to competitors or consumers in the Community whether the parent company had the exclusive right of sale in the two States or whether, in one of these States, a subsidiary took its place.

Having regard to the subject-matter of the agreement, the Court decided that the prerequisite of a restriction on competition was lacking.

The other cases cited were concerned with establishing whether anti-competitive conduct on the part of a company established in the common market could be laid at the door of the parent company which controlled it and which was established in a third country. One can thus appreciate the peculiar significance, in such a context, of the concept of the economic whole represented by a group. And this enables us to rule out the possibility that these precedents, which were designed to meet clearly defined situations, can militate against application of Article 85 in the case of agreements and practices operating between the members of the same group where such instruments and practices have the object or effect of restraining competition from third parties.