Sirena S.r.l. v Eda S.r.l. and others (40/70)

I —Facts

According to the order referring the matter, the facts on which this request is based may be summarized as follows: Sirena, the applicant in the main action, accuses the defendants of having infringed its trade-marks Nos 186046, 121719 and 112603, constituted by the words ‘Prep’ and ‘Prep Good Morning’ and by other words or symbols. In fact, the defendants imported into Italy pots of medicinal cosmetic cream on which the said trade-marks had been appended at the outset and which had been supplied by a German undertaking holding a licence from the American firm Mark Allen, the producer of ‘Prep’.Sirena based its claim:— on a contract concluded in 1937 with the firm Mark Allen in which the latter assigned to it the trademark ‘Prep’;— on the quiet and exclusive enjoyment of the trade-mark ‘Prep’ since 1937;— on enjoyment of this same trademark since 21 October 1944, the date from which the trade-mark which was originally registered in Italy by the firm Mark Allen began to lose its commercial validity and was not thereafter renewed or used by that firm;— on its status as proprietor of the trade-marks Nos 121719 and 112603, which it registered in Italy in 1952 at a time when the commercial validity of the trade-mark ‘Prep’ as the mark of the products of Mark Allen had already diminished.Novimpex, one of the defendants in the main action, contested the validity of the abovementioned contract. It states that the contract infringes Articles 85 and 86 of the EEC Treaty since it allows Sirena to prevent the importation from other Community countries of products to which the trade-mark ‘Prep’ had been lawfully attached in their place of origin. Furthermore, Novimpex claims that Italian law is incompatible with the Community rule in so far as it supports the claims made by Sirena.

II —Wording and grounds of the order referring the questions

By order of 12 June 1970 the Tribunale Civile e Penale, Milan, decided to refer to the Court the following questions:1. Are Articles 85 and 86 applicable to the effects of a contract of assignment of a trade-mark made before the Treaty entered into force?2. Must the said Articles 85 and 86 be interpreted as preventing the proprietor of a trade-mark lawfully registered in one Member State from exercising the absolute right derived from the trade-mark to prohibit third parties from importing from other countries of the Community products bearing the same trade-mark, lawfully attached to them in their place of origin?’The order referring the matter is accompanied by the following reasoning:— The measures adopted by the Commission of the European Communities, and in particular Article 3 (b) of Regulation No 67/67 of 22 March 1967 (OJ English Special Edition 1967, p. 10) reveal a tendency to consider as incompatible with Community law agreements on the registration and use of trade-marks intended to create monopolies and dominant positions within a country of the Community;— the abovementioned provision pronounces a general principle, valid even apart from any appraisal of the validity of exclusive agreements and making clear the need to coordinate Community law on competition and national law on industrial property rights, in so far as the latter allows the proprietor of a trade-mark to enjoy an absolute territorial protection;— this coordination is rendered necessary even if the right in the trademark was acquired through a contract concluded before the entry into force of the EEC Treaty where the proprietor continues to use the trademark which he holds in order to bring about a partition of territory within the Community for the distribution of a particular product;— in this case, the exercise of the national court's ‘discretionary power’ to refer the matter to the Court is rendered necessary ‘in view of the seriousness of the consequences which might result from the proposed interpretation of the Community rules and the need to submit appraisal of them to the court which is the best qualified to ascertain the spirit of the rules in the context of the politico-economic interests which led to their adoption’.

III —Procedure

The procedure followed the normal course.In pursuance of Article 20 of the Protocol on the Statute of the Court of Justice of the EEC written observations were submitted by Sirena, Novimpex, the Government of the Kingdom of the Netherlands and the Commission of the European Communities.After hearing the report of the Judge-Rapporteur and the views of the Advocate-General, the Court decided to open the oral procedure without any preparatory inquiry.The oral observations of Sirena and Novimpex and of the Commission were presented at the hearing on 15 December 1970.The Advocate-General delivered his opinion at the hearing on 21 January 1971.In the procedure before the Court Sirena was represented by Mario Rotondi and Erminio Parini of the Milan Bar and Ernest Arendt of the Luxembourg Bar, Novimpex by Giuseppe Celona and Rosario Nolasco of the Milan Bar, the Government of the Kingdom of the Netherlands by W. Riphagen, Legal Adviser to the Ministry for Foreign Affairs and the Commission of the European Communities by its Legal Adviser, Giuseppe Marchesini.

IV —Observations submitted to the Court

The observations submitted to the Court may be summarized as follows:Sirena puts forward the following arguments:1. With regard to the facts, it must be made clear that:— Sirena is the proprietor of the following trade-marks entered in the Italian Register:— No 186 646 registered on 2 April 1963 (renewal of trade-marks registered in 1931 and 1943 respectively) and covering the name ‘Prep’;— No 121719 registered on 26 April 1952 and relating to the words ‘Prep’ and ‘Good Morning’ as well as to symbols;— No 112603 registered on 26 September 1952 and relating to an entry containing the word ‘Prep’ as well as symbols;— For some time the Italian market has been flooded by a product imported from abroad and bearing the name ‘Prep’ and the legend ‘Good Morning’, all on labels entirely identical to those of trade-mark Nos 121719 and 112603 held by Sirena;— Sirena has obtained a sequestration order on the products bearing the trade-marks infringed; this order was made on traders who are all supplied by Novimpex; consequently, Sirena brought the main action against that company and against a number of re-sellers.2. As regards the first question raised by the national court, it must be pointed out that two of the trade-marks in dispute were registered in Italy by Sirena for the first time in 1952. Consequently, Sirena did not use these trade-marks in pursuance of a contract but on the basis ‘of a personal, original and absolute right’; the reference to the EEC Treaty is therefore relevant.The same applies to trade-mark No 186 646. Here again, use is not based on a contractual relationship but on an absolute right. Even if the present right of Sirena derives from the contract concluded with Mark Allen and this contract was not valid, it nevertheless remains the case that the latter company did not register the trade-mark on its date of expiry, whereas Sirena, having always used the name ‘Prep’, made the later registrations. In any case, Sirena is therefore the exclusive proprietor of this trade-mark.3. As regards the second question, the rules of the EEC Treaty on competition have not extinguished trade-mark rights.Novimpex is wrong in invoking the case-law of the Court (Judgment in Joined Cases 56 and 58/64, Consten-Grundig, [1966] ECR 299) and of national courts on parallel imports into exclusive areas since such a phenomenon is quite different. In fact, in these cases account must be taken of the effects of agreements whereby the sole proprietor of a distinctive mark seeks to limit legal trading in a product bearing his trade-mark by creating autonomous national areas which are closed to the importation of products to which that trade-mark has been legally attached in the country of origin. On the other hand, in cases like the present one, there ‘exists in one country the trade-mark of a producer who has therefore an original and autonomous right valid throughout the whole territory of such country. In this case the manufacture or the importation by third parties of products bearing this trade-mark is a commonplace act of infringement’.It is impossible to speak of a ‘derived right’ in respect of two trade-marks having the same content where the proprietors in different countries are themselves different. It is a question in fact in such a case of ‘two completely independent rights’. The prohibition on importation from one of these countries into the other does not depend on the intuition of the proprietor established in the exporting country but on the subjective right of the holder established in the importing country.The expression ‘trade-mark legally attached in another country’ is equivocal, since the legal appending, along with the exclusive rights flowing from it, is limited to the country which has granted the trade-mark.Moreover, Article 36 of the Treaty safeguards the exclusive rights of the proprietors of trade-marks.The judgment of the Court in Case 24/67 (Parke, Davis and Co., [1968] ECR 55) constitutes the precedent to be followed in this case since what applies to patents is also valid in the case of trade-marks. However, the statement contained in that judgment according to which ‘a higher sale price of the patented product as compared with that of the unpatented product coming from another Member State does not necessarily constitute an abuse’ is of no importance in a case like the present where Novimpex is selling products at almost half the price of the product developed in Italy by Sirena ‘on the basis of almost forty years' research and experience’.In conclusion, Sirena maintains that the Court should therefore reply as follows to the questions raised by the national court:— the right to the exclusive use of a trade-mark properly registered is perfectly compatible with Articles 85 and 86 and expressly recognized by Article 36 of the EEC Treaty and, in consequence, an agreement transferring this exclusive right to third parties in accordance with the rules in force in each country is perfectly compatible with those same rules; it is therefore of no consequence whether this transfer took place before or after the entry into force of the Treaty;— the proprietor of a right to a trademark in a particular country has the right to prevent the production and sale of products bearing his distinctive mark, manufactured or placed on the market without his consent by a producer organization which has in another country, and by virtue of an original title or of a licence from a third party, the right to use in that country a similar distinctive mark.The company Novimprex observes in particular that:1. As regards the facts:— it has imported into Italy a certain quantity of medicinal cosmetic cream ‘Prep—Good Morning’ manufactured in Germany under a licence granted by the firm Mark Allen, the owner of the formula and holder of the trade-mark;— In doing so, Novimpex took into account the fact that, in Italy, whereas the same product was sold exclusively by Sirena at lit. 500 per jar it was possible to sell it for lit. 250 in spite of the cost of transport from Germany and still make a reasonable profit;— before the national court, Novimpex asserted that since ‘parallel imports’ had been accepted as permissible by the Italian courts, the same principle must apply in respect of the proprietor of a national trade-mark, provided that the trade-mark appearing on the imported product had been legally attached at its place of origin;— Novimpex requested that the matter be referred to the Court, in particular in order to obtain a declaration that agreements designed to transfer the right to a trade-mark in a restrictive manner in respect of one or more States of the Community and not in respect of the whole territory of the Community, are void.2. The questions raised by the national court should therefore be answered as follows:— Articles 85 and 86 of the EEC Treaty apply to contracts of assignment of trade-marks concluded either before or after the entry into force of the Treaty and having the effect, either direct or indirect, of partitioning the markets within the Community.— The said articles must be interpreted as prohibiting the assertion of rights deriving from a trade-mark legally registered in a Member State in order to prevent the importation, from other Community countries, of products on which the same trademark has been legally attached at its place of origin.In support of these propositions, Novimpex puts forward, inter alia, the following arguments:(a) The view which it advocates does not adversely affect the protection granted by national laws since the penalties which such laws provide for the illegal attaching of a trade-mark continue to exist; similarly, the rule laid down by Article 222 of the Treaty—assuming it applies to industrial property—is observed.On the other hand, Sirena's argument would result in the disappearance of the Common Market. It would suffice for any commercial operator to acquire any trade-mark whatsoever in order to prevent imports into the protected territory and this would apply to any product at all, and even semi-finished products or raw materials. The barriers thus erected would be even more effective than those resulting from customs duties since the latter obstacle can be surmounted through economic sacrifice. Competition would exist only to the extent to which an equivalent product was offered on the national market; modern consumer psychology has shown how restricted these limits are.(b) The protection claimed by Sirena is contrary to Articles 2, 3(a) and (j), 5 and even 36 of the Treaty.(c) Novimpex invokes the case-law of the Court in Cases Grundig-Consten (loc. cit.), Parke, Davis and Co. (loc. cit.) and Volk (Case 5/69, [1969] ECR 296).It next deals with the question of determining what the proprietor's right consists of, in other words, what the function of the trade-mark is. Relying on the case-law of the Member States and the opinion of various authors, it makes, inter alia, the following points:— the trade-mark is intended to guarantee the origin of the product and to distinguish it from other goods; however, the product sold by the parallel importer is always the authentic product;— the legislation on trade-marks has the aim, not of creating a monopoly in favour of the holder (unlike the law on patents) and of thereby restricting competition, but of preventing the public from being deceived by misleading names;— today, many undertakings, the production of which is not protected by a patent, seek, however, to procure for themselves a dominant position through the expedient of trademarks; however, that is an abuse and not a proper use;— the absolute protection of the trademark is incompatible with the permissibility of parallel imports.(d) It is not different in cases where there exist no economic links between the assignor and the assignee of trademark rights. This situation is moreover difficult to imagine, for, with the exception of French law—which stipulates however that ‘only licences for use may create a territorial limitation’—the laws of Member States prohibit any assignment of a trade-mark right unaccompanied by the transfer of the business or a part of it.It follows therefore that under every system of legislation, the absence of economic links between the contracting parties results in the nullity of the contract.As regards contracts assigning “know-how”, they are only recognised as valid where they provide for the temporal continuity of technical assistance and communication of all information concerning changes in and modernization of the product.(e) For the purposes of the application of Article 85 of the Treaty, no distinction should be drawn between contracts assigning the trade-mark absolutely and contracts granting a temporary licence relating to the exercise of rights inherent in it. Otherwise, it would be simple to evade the principles laid down by the Court in its judgment in Grundig-Consten; it would suffice to make an absolute transfer or to allow for the registration de novo in the name of another undertaking, without fixing expressly the contractual and economic links between the producer and the authorized re-seller.A person who acquires the absolute right to a trade-mark has no interest which warrants protection. In fact, such a person, by the fact of having chosen a trade-mark corresponding to that registered in another country, has waived the use of a name which, in relation to customers, may be capable of serving as an independent indication of origin and of guarantee. In such a case, it is not the established quality of the purchaser's product, but only that of the product of the original proprietor, which constitutes the subject-matter of the legitimate interest of the consumer.(f) Citing again various authors whose argument it adopts, Novimpex points out that the fact of limiting the guarantee of the trade-mark to the territory in respect of which it is granted is incompatible with the very concept of a common market. This thesis does not stop the trade-mark from playing its proper role; on the contrary, if the seller wishes to prevent the public which demands the product from being deceived, he must ensure that the products of the person acquiring the trademark possess the same quality and the same characteristics, for otherwise the trade-mark would suffer throughout the entire Common Market.(g) Some consider that the prohibition laid down in Article 85(1) only operates in so far as the effects set out therein are “appreciable”. In reality, however, this provision introduces no quantitative criterion. It suffices that the agreement or practice should be capable of affecting trade and competition, which is the case under the conditions described by the Court in its judgment in Case 56/65 (Technique minière v Maschinenbau Ulm), [1966] ECR 235).In each case the appraisal must be restricted to products subject to the agreement or the practice, in other words, those which are the direct subject-matter of such agreement or practice or which are in fact capable of being substituted for the latter. The product characterized by a trade-mark should not, however, be considered as capable of substitution since the function of a trade-mark is precisely that of creating a distinction.(h) The above considerations have shown in particular:— that the contract concluded between the original proprietor of the trademark and an assignee constitutes an instrument for the partitioning of markets;— that, in any case, the fact that the original proprietor fails to assert his rights within the territory granted to his assignee amounts to a concerted practice;— a recognition that the proprietor has the right to prohibit imports from other Member States would amount to giving any natural or legal person, whether a Community national or a foreign national, the power to prevent the free movement of goods within the Common Market, and through the mere fact of registration of a trade-mark;— it should therefore be declared that Article 85 prohibits the assignment of a trade-mark having as its object or effect to impede free trade between Member States in the product in question.(i) Maving on to Article 86 of the Treaty, Novimpex points out the difficulty in defining generally the expression “any abuse … of a dominant position within the Common Market or in a substantial part of it”. On the other hand, the Court, when it gives a preliminary ruling, cannot act as an administrative authority for which it may possibly be permissible to exempt a certain number of trade-marks from the application of Article 86 and then to bring the exemptions to an end when it appears that they threaten to prevent freedom of trade. On the contrary, the Court must establish a uniform case-law which, in this case, can consist only in the applicability of Article 86 to all trade-marks.The actual power to limit competition is always, and necessarily, the consequence of a dominant position.Returning to the question of the boundaries of the actual market, which must in each case be taken into account, Novimpex cites several American economists who, justifiably, have emphasized the essentially heterogeneous character of any product as compared with any other, even though similar in appearance, and that this is so, even taking account of the mental attitude of buyers.As one of those authors has stated, ‘A monopoly is simply a product controlled from a single source and significantly different from others in the incalculable series of substitute products’. That is the only legally valid criterion for defining the degree of ‘domination’ attaching to a particular economic position. On the other hand, to adopt the criterion of the dominant position of the undertaking as such, would be to get trapped in a ‘diabolical situation’, since the concept of ‘dominant position’ eludes any definition applicable to all cases. In fact, every undertaking occupies such a position at least as regards its preferred market.(j) For all these reasons, writers on the subject have accepted that a monopoly based on a trade-mark right may give rise to the creation of a dominant position within the meaning of Article 86 since industrial property is not, moreover, exempt from the application of the Treaty.The proprietor of the trade-mark therefore enjoys by definition an absolute dominant position in relation to his product. The Treaty does not prohibit him from making use of this power, but prohibits him from abusing it, in other words, from using it for purposes incompatible with the function of the trade-mark.Furthermore, in interpreting Article 86 one cannot disregard the content of Article 85. However, if the latter provision refers only to conduct which may affect trade and restrict competition, it is difficult to accept that Article 86 requires the domination of the whole Common Market or a sector of it. This is all the more true in that a person who is in a position to influence the market through his own position is obviously more powerful than a person who, to attain this object, must enter into agreements with others.Finally, use of the quantitative criterion in the interpretation of the concept ‘dominant position’ may lead to the injustice, for example, of granting to the first ten or one hundred proprietors of trade-marks the right to prohibit parallel imports, whereas producers of competing goods, who later resorted to similar measures, would have applied against them the prohibitions of Articles 85 and 86, on the ground that their action leads to a total block on trade in the products in question.The Government of the Kingdom of the Netherlands makes, inter alia the following observations:On the first questionThe question must be answered in the affirmative if, at the time when the trade-mark right in question was used, the contract, by virtue of which this right may have been created or transferred, could still be considered as subsisting.However, the mere fact that the acquisition or the creation of trademark rights which are used, inter alia, in order to prevent goods from being imported under the same trade-marks from other Member States, is the consequence of contracts concluded before or after the entry into force of the Treaty, does not suffice to bring into operation the prohibition of Article 85(1).4. On the second questionThe following conclusions may be drawn from the judgments in Grundig-Consten and Parke Davis and Co.:Articles 85 and 86 of the Treaty do not affect the existence of the right to the exclusive use of a trade-mark granted to its proprietor by a Member State. However, the exercise of this right may fall within the ambit of these articles when the conditions necessary for their application are satisfied.The dispute in the main action concerns the importation of goods to which a trade-mark, which is the same as that held by Sirena in Italy, has been legally attached in another country by an undertaking established there. It is possible that Sirena and the undertaking established in the other country have concluded an agreement or that their practices have been concerted with regard to the marketing of the said goods in Italy. In this case, the matter must be examined in the light of Article 85. If, however, the two firms acted independently, Article 85 cannot be applied. It must therefore be examined whether circumstances exist justifying the application of Article 86.In this connexion, the following observations must be made: when the proprietor of the trade-mark exercises the exclusive right granted to him in the importing country in order to keep off the market products bearing the same trade-mark as that of which he is the proprietor, this exercise cannot, by itself, constitute an abuse of a dominant position; any other point of view is contrary to the principles of national law on trade-marks and affects the very essence of such law. It may, however, happen that the exclusive right is exercised in circumstances such as are tantamount to abuse of a dominant position; but in this case, it is only by reason of these circumstances that Article 86 is applied. This, moreover, was how the Court decided, with regard to patents, in its judgment in Parke, Davis and Co.The Commission of the European Communities, makes, inter alia, the following observations:1. FactsIt emerges from the file that the following facts are established beyond dispute:— trade-mark No 186646 derives from a trade-mark which was initially registered (in 1933) by Mark Allen and then transferred to Sirena which regularly renewed it on its own account and in its own name;— the two other trade-marks in question were registered ab initio by Sirena;— in consequence, the claims of this undertaking appear to be founded:— on a derivative title as regards the trade-mark ‘Prep’ (this trade-mark is also claimed, in the alternative, on the basis of a direct acquisition of title, namely by quiet and exclusive enjoyment since 1937; quiet and exclusive enjoyment, in any case, since 1944, the date when the trade-mark of the original proprietor, Mark Allen, expired, owing to the latter's failure to renew and use it;— on an original acquisition of title as regards the ‘Good Morning’ and the other names or symbols for which protection is requested.Since Novimpex alleges the nullity of the contract of assignment concluded between Mark Allen and Sirena owing to the absence of a transfer at the same time of the business or a part of the business, and since Sirena replies that such a condition was not required by the Italian law in force at the time, the dispute can only be settled by the national court. The latter, however, appears to assume that the assignment is valid under national law but raises the question of its conformity to the provisions of Community law on competition.In addition, the parties to the main action disagree on the point whether the formulae for the manufacture of the products covered by the trade-mark ‘Prep’ were transferred. In any case, what is certain is that Sirena itself manufactured and placed on the Italian market the products identified by that trade-mark, a circumstance which is related to the fact that, as from the date when the transfer was concluded, Mark Allen refrained from exporting to Italy, as it had previously done, the ‘Prep’ products which it manufactured directly in America.It seems certain that the parties to the contract of assignment sought no other consequences than those flowing, by virtue of the law, from the transfer of the trade-mark. The contract seems to have been executed immediately and with absolute legal effects, unqualified by any conditions or limitations as to time. No link continued to exist after 1937 between Mark Allen and Sirena either on the organizational level or of an economic or legal nature.The manufacture of the respective products of these two firms developed independently, so that it is impossible to say what differences may exist at the present time between the products of Mark Allen and those manufactured by Sirena.2. The relevance of the questionThe Commission raises no objection in this connexion; it does however observe in relation to the relevance of the interpretation requested that ‘if it were found that there were no agreement, a finding especially likely in the case of an original acquisition of title, this would automatically preclude the application of Article 85’.3. On the first questionThe simple transfer of ownership in a trade-mark is not among the effects of a contract of assignment which may fall within the sphere of application of Articles 85 and 86. In fact, the case-law of the Court has affirmed that these provisions may have an effect on the exercise but not on the entitlement to such a right. On the other hand, as regards exercise of that right, the Court has stated that it is only the improper use of the rights flowing from national legislation on trade-marks which should be prevented. In these circumstances, the absolute assignment of a trade-mark can fall under the abovementioned provisions only if it has, even if only indirectly, objectives extraneous to the contract, or if it was used to obtain a result similar to that sought by prohibited restrictive practices.The present case differs from the Grundig-Consten case in which there co-existed a sole distributorship contract and an ancillary contract concerning rights in the trade-mark and having as its sole object to guarantee absolute territorial protection. On the other hand, in the present case, it is a question of a single transfer of an intangible asset which took place prior to the entry into force of the Treaty.As regards the applicability of Article 86, the Commission recalls the judgment in Parke, Davis and Co. from which it follows that the difference between the prices demanded by Sirena, on the one hand, and Novimpex, on the other hand, ‘does not necessarily constitute an abuse’.In conclusion, this question should be answered in the following manner:‘Article 85 and 86 of the EEC Treaty do not apply to the effects of a contract of absolute assignment of a trade-mark (in this case, of a contract made before the entry into force of the Treaty) in so far as such contract seeks no result and produces no effects extraneous to its specific purpose’.4. On the second questionThis question is closely linked to the first; if the latter receives the reply suggested above, it is impossible to see how the assignee's right to protect himself against imports made by third parties can be excluded, even where the competing products legally bear the same trade-mark.‘Territorial protection undoubtedly constitutes the most worrying effect—from the point of view of the Community rules on competition—of the contract of assignment of a trade-mark, as is shown both by the case-law of the Court and by that of the national courts. However, it is not possible in the context of a contract which fulfils the function proper to it (namely, to guarantee the origin of a particular product) and which establishes no obligation or link between the parties apart from those flowing directly from the transfer of the ownership in the trade-mark to sever the legal consequences which the national law attaches to the status of proprietor’. The position of Sirena and Mark Allen corresponds in practice to that which would have ensued had they registered the trade-mark ‘Prep’ independently and ab origine and in Italy respectively.Consequently, the present question should be answered in the following manner:‘Articles 85 and 86 of the EEC Treaty do not prohibit the proprietor of a trade-mark, which is legally registered in a Member State in the circumstances mentioned above, from using the right, granted to him by national law, to prevent imports from another Member State of products to which the same trade-mark was legally attached in its place of origin’.

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