EMI Records Limited v CBS Grammofon A/S (86/75)

A —Written observations submitted by EMI Records Limited

EMI Records recalls that the trade-mark relied upon in Case 86/75 is based upon a Danish trade-mark registered in 1960 and explains that none of the assignments which took place in 1917 and in 1923 concerned a Danish registration of this mark.The rights of EMI in Denmark prior to 1960 comprised, inter alia, the registration in 1922 of a device-mark containing the name ‘Columbia’. In the present case it is unnecessary to settle the question whether EMI had in Denmark an exclusive right to the ‘Columbia’ word-mark.Furthermore, with regard to the Columbia marks relied on in Case 96/75, that is to say, the marks registered in Germany in 1924 and in 1931, EMI was not aware that at the time another mark existed in Germany under No 101.424 This mark was registered on 6 August 1907 by the Columbia Phonograph Co. GmbH, Berlin, and expired definitively on 10 December 1937. The existence of this mark has no effect on the main action. The questions put, taking account of their wording, may also cover the assignment of this mark.After setting out those statements of fact EMI Records observes on the hand that there is no identity between CBS and the original assignor of the American Columbia marks, and on the other hand that the European marks in dispute have been used exclusively by the EMI group in all the Member States of the Community for many years so that thereafter consumers have come to associate them with a specific line of products.The function of a mark is precisely to enable customers to distinguish amongst competing products the products to which it is affixed and in this connexion it is not essential that the customers know the name of the proprietor of the mark.To refuse EMI the right to prohibit the imports in dispute amounts not only to restricting the exercise of the trade-mark rights which it owns in the Community but also to denying the very existence of those rights which can no longer fulfil their specific purpose.EMI and CBS ane engaged in fierce competition both on the European and American markets. The exercise by EMI of its trade-mark rights does not impede CBS' right to exploit in Europe the market which it has created using the mark under which it is known there (in the majority of cases the CBS mark). In reality CBS seeks to be released from the obligation to apply an adhesive label to records produced in the United States and sent to Europe to cover the demand which cannot be immediately met through local production, or indirectly, to be in a position to limit such production by substituting for it imports from the United States.It is thus incorrect and exaggerated to state that the exercise by EMI of its trade-mark rights affects CBS adversely so far as competition is concerned. Any trader using trade-marks to which he has no tide in the market to which he exports his products can also complain that he does not have free access to this market. Furthermore, although it is true that EMI distributes inter alia American CBS records it is none the less true that for the purposes of such distribution EMI ensures that the Columbia mark is obliterated and that the records in question are sold under another mark. Cases in which an indirect subsidiary has distributed records under the Columbia mark applied by CBS in the United States are rare and were contrary to the instructions of the management. Besides, under German law they do not entail an ‘exhaustion’ of the rights of EMI. Likewise, the very fact that EMI could for its part win an important part of the American market, by obliterating the Columbia mark on its own records and using other marks, proves that such an argument is far-fetched.Finally, it is incorrect to state that the use by EMI of Columbia marks is liable to mislead consumers. First, this is a problem falling within the scope of national law and does not concern the present dispute. Secondly the argument, according to which the name ‘Columbia’ also forms part of the name or style ‘Columbia Broadcasting System’, abbreviated to ‘CBS’ and also conjures up for consumers the idea of an American product, fails to take account of the fact that CBS had the said name or style even before it acquired the rights to the mark in question.EMI Records then considers the legal aspects of the questions put in the light of the provisions of the Treaty on the free movement of goods and on competition, interpreted with regard to the case-law of the Court and of the various decisions of the Commission. In particular it makes the following observations:

B —Written observations submitted by CBS United Kingdom Limited, CBS Grammofon A/S and CBS Schallplatten GmbH

CBS UK considers first of all the history relating to the transfers of the ownership of the various companies which, before the companies which are presently the proprietors of the disputed marks in the United States and in the common market, owned after 1877 the Columbia device — and word-marks. After describing the situation currently obtaining in this sphere it produces a series of agreements made between 1917 and 1967 between American and English Columbia undertakings, in order to prove the existence of technical and economic links between those undertakings.CBS UK observes furthermore that whilst the two relevant marks were never actually owned by an American Columbia company, none the less, when they were registered (in 1920 and 1928), there was a close relationship between the English Columbia company which carried out the registration (Columbia Graphophone Company Limited) and the American Columbia companies (the Columbia Graphophone Company in 1920 and the Columbia Phonograph Company Inc. in 1928).CBS Grammofon for its part recalls that on 15 June 1922, that is to say, at a time before the Constructive Finance Limited acquired the shares in Columbia Graphophone Company Limited (16 November 1922) the letter company registered another Columbia device-mark for records. This registration is still valid today. The mark in question was assigned on 7 February 1966 to EMI Records, which is thus the proprietor of it.In 1960 EMI Records finally registered the ‘Columbia’ word-mark relied on in the present proceedings. The registration of this mark, however, required previous use of it since the word ‘Columbia’ is also the name of a state. Owing to the employment of the device-mark of 1922 including the word ‘Columbia’ such use has in fact taken place.This indicates the interdependence between the disputed mark and the said device-mark, the proprietor of which (the Columbia Graphophone Company Limited) was at the time owned by the American company, the Columbia Graphophone Company.CBS Grammofon states in addition that according to the information it obtained in 1972 the varions EMI subsidiaries sold on a number of occasions CBS records bearing the Columbia mark without covering this mark by an adhesive label within the common market (in Denmark, one instance in 1972; in the Federal Republic of Germany, five instances in 1972 and 11 instances in 1973). However, since EMI on the one hand claims that CBS should respect its trade-mark whilst on the other it permits its own subsidiaries to sell CBS records bearing the Columbia mark without adhesive labels over it, it is clear that the subsidiaries of EMI enjoy a competitive advantage in marketing. These subsidiaries are in fact able to be the first to distribute new CBS issues originating from the United States without, however, being obliged in their capacity as proprietors of the Columbia mark to apply an adhesive label.CBS Schallplatten also provides information on the marks referred to in this dispute. The two marks registered in Germany in 1924 by the Columbia Graphophone Company Limited are identical with those which were registered in 1906 and 1910 in England in the name of the Columbia Phonograph Company General (subsequently named ‘the Columbia Graphophone Company’) and assigned in 1917 to the Columbia Graphophone Company Limited. Those marks, including the mark in dispute, which was also registered in Germany in 1931 by the Columbia Graphophone Company Limited, were assigned in 1965 by the latter company to the English company now named EMI Records Limited.CBS UK then recalls that the CBS group possesses factories in various Member States of the Community and that the records produced by those factories are sold in the common market under marks other than the Columbia mark, the majority under the CBS mark. A substantial number of those records are produced from American CBS recordings, very often bearing the Columbia mark but for economic reasons they are only produced if the demand for them exceeds 2000 copies of each recording.Furthermore, within the Community there is also a substantial and often very urgent demand for American CBS records which do not appear in European catalogues. To meet this demand many record importers import such records directly from the United States where they are mostly marketed under the Columbia mark. EMI Limited itself has for some years participated in the distribution of those records through its subsidiaries and retail dealers. It is neither technically possible nor commercially conceivable, for those relatively modest sales within the common market, to print stickers designed to obliterate the name ‘Columbia’ appearing on those records, or record sleeves which do not bear this name.If it were held that EMI is entitled to prohibit CBS from importing such records into the common market and distributing them under the Columbia mark CBS would no longer be in a position to satisfy the demand for American records on the said market.Such a disadvantage is all the more serious in the field of quadraphonic recording which represents a new and very recent stage in the technical development of sound recordings. At present two basic systems are used for such recordings: the system known under the ‘SQ’ mark employed by CBS and EMI and that named ‘CD-4’ developed by RCA. Records manufactured in accordance with one of those systems cannot be used on reproducing equipment designed for the other system so that owners of reproducing equipment are obliged to buy only recordings manufactures by a particular system. CBS has manufactured such quadraphonic records for approximately three years essentially for the American market but some months ago it also began to produce them in the Netherlands for the common market. Nevertheless for practical reasons they are only produced if the demand in the Member States amounts to 1200 copies at least for each record although the pressing of 1200 copies does not cover the costs of the operation. Since in most cases the demand in the Community for CBS quadraphonic records does not attain this minimum figure the persons concerned are obliged to rely for those records too on imports from the United States. If, following the actions by EMI records, CBS were required to cease such imports to the common market owners of SQ reproducers in the common market would in future only be able to obtain records manufactured by EMI.This would considerably impair the competitive capacity of CBS in the Community as compared to EMI. The disapearance within the common market of an important producer of SQ records would also appreciably reduce the supply there of such records: it thus would endanger the commercial and technical development of the system in question and could confer a decisive competitive advantage on the CD-4 system employed by RCA.Furthermore the use by EMI of its Columbia trade-marks is, as is clear from an opinion poll carried out in Germany by CBS, capable of misleading consumers. By reason of the word ‘Columbia’ also appearing in the title ‘Columbia Broadcasting System Inc’, nowadays abbreviated to ‘CBS Inc.’, those marks tend to conjure up a vision of an American product rather than a product of EMI. They have lost their particular function which is to indicate the specific origin of the product. This is further borne out because the quality of CBS recordings by all accounts meets the highest standards.Having set out this information the three CBS companies consider the legal aspect of the problem on the basis of the provisions of the Treaty on the free movement of goods and competition interpreted in the light of the case-law of the Court and the various decisions of the Commission. In particular they make the following observations:

C —Written observations submitted by the Belgian Government (Case 96/75)

The Belgian Government takes the view that in the present case the exercise of the trade-mark right is not restricted and that the imports in dispute may be prohibited by means of national procedures for the infringement of trade-marks. In support of its view it states that according to the order making the reference there is no legal, economic, financial or technical link between the two groups, one within the Community the other in certain third countries, which own the Columbia mark. These companies each hold separately in various countries the same trade-mark in respect of similar products. In those circumstances to deprive the Common Market group of the use of the trade-mark right for the benefit of the American group without reciprocity would not only be inequitable but would also result in a complete distortion of competition in the territory of the Community since this constitutes a unilateral advantage improperly bestowed upon the nationals of third countries. Any other view amounts to discriminatory conditions on all proprietors of trade-marks in the Community since the enormous expenses which they incur to launch, promote and develop their marks would benefit their direct competitors.Moreover, it is mistaken to claim that in the circumstances of the case there is an unjustified barrier in the sense of Articles 30 to 36, 85 and 86 of the Treaty. By laying down rules designed to ensure the free movement of goods and free competition, the Treaty also made provision for a reservation, contained in Article 36, whereby prohibitions or restrictions on imports are permissible in relation to the normal exercise of industrial and commercial property rights, including the case of infringement of trade-marks. It is thus impossible to reserve privileged treatment for imports of products manufactured in a country where another company enjoys the right to use the mark since, in the absence of a means of preventing such infringement, the protection afforded by the mark would be purely illusory.

D —Written observations submitted by the Danish Government

The Danish Government observes that the mark can no longer fulfil its purpose, which is to differentiate products of different origins, once the proprietor cannot prevent imports of spurious products originating from a producer with whom he has no legal or economic connexion. The case-law of the Court in this sphere, on the barrier which trade-marks create to trade between States, is inspired by the need to protect the principal objective of the common market that is to say, the abolition of obstacles to the free movement of goods within the Community. Since the Treaty does not pursue a similar objective to that indicated above in the Community's external relations, this case-law cannot be transposed to imports from a third country. Furthermore it must not be forgotten that, according to the express wording of the orders for reference, for many years there has been no link between the two companies in question. In those circumstances the application to import from a third country of the principles laid down by the Court, in particular in Sirena judgment [1971] ECR 69) and the Hag judgment [1974] ECR 731), would result in unfairness to the proprietor of a mark in the Community since Community law does not provide for the latter a system of ‘reciprocity’ on the market of the relevant third country and would imply the sacrifice of the interests of European consumers because of the risk of confusion thereby created as to the origin of the goods.Having set out these general considerations the Danish government considers more particularly the meaning of the provisions of the Treaty on the free movement of goods and on competition. With regard to Articles 30 to 36 it notes that those provisions refer solely to trade between Member States and that Article 85 is not applicable in the present case by reason of the fact that, as has been found by the national court, there is no legal, financial, technical or economic link between the two proprietors of the mark in dispute. This latter article, even supposing moreover that agreements in restriction of trade are capable of affecting trade between Member States, is not applicable to trade with third countries.Similarly, for the purposes of its application, Article 86 assumes two conditions which are absent in the present case, that is to say, that the dominant position affects trade between Member States and that the dominant position is abused. However, the proprietor of a trade-mark who takes action against imports of goods bearing the same mark is merely making normal use of his right and is not abusing it.Furthermore, the Court held in its judgment in the Sirena case that the proprietor of a trade-mark does not enjoy a dominant position within the meaning of Article 86 of the Treaty by the mere fact of his exclusive right.On the basis of those considerations the Danish Government concludes that a negative reply must be given to the questions put in the three cases.

E —Written observations submitted by the Government of the Federal Republic of Germany

The Government of the Federal Republic of Germany makes inter alia the following observations:— Although it is true that in principle Article 85 of the Treaty also applies to restrictions on competition arising from the actions of undertakings established outside the common market it is none the less true that the present case does not disclose the necessary conditions for its application, that is to say, the existence of an agreement or a concerted practice restricting competition. In fact it is clear from the statement of the facts in the order making the reference that since 1931 there has no longer been any legal or economic link between the proprietors of the Columbia marks;— Article 86 of the Treaty cannot apply in this case since there is nothing to indicate an abuse of the trade-mark;— Article 30 of the Treaty only refers to quantitative restrictions and measures having equivalent effect ‘between Member States’ Likewise Articles 31 to 37 show that the object of the free movement of goods is restricted to abolishing commercial barriers between the Member States;— Article 110 et seq. on trade with third countries contains no express prohibition of quantitative restrictions and measures having equivalent effect and the existence of such a prohibition cannot be inferred even indirectly. This is borne out not only by the manner in which the Treaty provides for the establishment of the common commercial policy with regard to third countries but also by the agricultural regulations and the policy regarding commercial agreements hitherto implemented by the Community. Finally the Court itself has recognized that, as regards trade with third countries, the Treaty does not require the abolition of quantitative restrictions and measures having equivalent effect;— If in relations with third countries there is no general prohibition of quantitative restrictions and measures having equivalent effect there cannot be any prohibition limited to a specific sector. Under Article XX (d) of GATT the Member States are not obliged to prohibit as an obstacle to trade the exercise of trade-mark rights in the sphere of Community external trade.— Since the exercise of trade-mark rights within the framework of international trade is not prohibited in any third country, to admit such a prohibition in the Community system would result in infringing the trade-mark law of the Member States and the future European law on trade-marks;— In those circumstances it is of little importance to know whether the trade-marks at issue in the present case have ‘the same origin’ within the meaning of the Hag judgment ([1974] ECR 731), the more so since the application of the principles propounded on this point in the judgment raises other problems which are difficult to resolve.The German Government consequently concludes that the following reply should be given to the first question in Case 51/75:‘Articles 110 et seq. and 30 et seq. of the EEC Treaty are to be interpreted as meaning that the proprietor of a trade-mark registered in one Member State of the Community may oppose the importation of goods bearing the same mark from a country outside the Community in so far as the conditions for the application of Article 85 et seq. of the EEC Treaty do not apply’.With regard to the second question in the same case the German Government states that the trade-mark does not entitle its proprietor to prohibit others from manufacturing a specific product but merely entitles him to prohibit the use of a certain appellation or sign identifying it. The question put must thus be read as asking whether, in certain circumstances, A may prevent B from applying to certain goods the mark which A holds in a Member State and from distributing such goods under this mark in the same State. In replying to such a question it must be considered:— that, according to the facts set out in the order making the reference A is the proprietor of the mark in dispute in all the Member States, so that under the national law of the relevant Member State B is infringing A's rights, irrespective of the State on the territory of which he uses this mark and markets the products bearing it. In this respect it is of little importance that the use of the mark and the marketing of the products bearing it in the Member State are regarded as effected directly by B or through a subsidiary established in that State:— In the present case the mark is not used by A in order to partition national markets within the Community;— Even assuming that Article 30 could apply to the present case, the exercise by A of his trade-mark rights would be covered by the derogation contained in Article 36 of the Treaty. Community law does not prohibit the right of the proprietor of a mark in a Member State to prohibit third parties, even if in another Member State they are proprietors of an identical mark having the same origin, from affixing this mark to a product and from marketing it on the territory of the first State;— On the other hand Community law prohibits the proprietor of a trade-mark from preventing the importation of products bearing the same mark, coming from another Member State and manufactured by a third party who is the proprietor in the latter State of an identical mark having the same origin. However, this is not so in the present case since in all the Member States in the Community the mark in dispute belongs to one and the same proprietor (the plaintiff in the main action).The German Government ends by suggesting the following reply to the second question:‘The owner of a trade-mark right in a Member State of the Community is not disentitled by the provisions of Community law from prohibiting, on the basis of his trade-mark right, goods, in respect of which the trade-mark is protected, from being marked with the trade-mark in this Member State and from being put into circulation when so marked.’

F —Written observations submitted by the French Government

The French Government reviews the essential characteristics of the national legal system of the Member States regarding trade-mark law, considers the scope of the provisions of the EEC Treaty in this sphere and then points out that in its case-law the Court has endeavoured to control the exercise of trade-mark rights without affecting the existence as such of this right, as is defined and protected by national legislation. The solution adopted by the Court in particular in the Sirena judgment ([1971] ECR 69) and the Hag judgment ([1974] ECR 731) essentially consists in refusing to consider the competing marks as territorially independent and in re-establishing, in the person of the current proprietors, the community of interests which originally existed. However, in order to define the scope of this solution it must be borne in mind— that the marks considered by the Court in those two judgments were purely national marks of Member States;— that the aim of the Treaty consists in merging the national markets of the Member States into a single market and not to assist under abnormal or illegal conditions the penetration of those markets by persons from third countries;— that in the present case the exercise by A of his trade-mark right against B does not affect trade between Member States. Furthermore, the present disputes do not originate in an open conflict between the national systems of trade-mark law and Community legislation but from a conflict arising between those systems and the action of a third party from outside the common market.After setting out those general considerations the French Government in addition observes— that the provisions of the Treaty on the free movement of goods (Article 30 et seq.) are not applicable to the present case: the present proceedings relate on the one hand to trade between a Member State and a third country and, on the other hand, to the dispute existing between a local manufacturer and the proprietor of a local trade-mark;— the rules on competition are likewise inapplicable. In fact in the said judgments in the Hag and Sirena cases the Court acknowledged that Article 85 of the Treaty does not apply where there exists between the two present proprietors of the mark ‘no legal, financial, technical or economic link’. The Court also stated that the proprietor of a mark does not enjoy a dominant position within the meaning of Article 86 merely because he is in a position to prohibit third parties from putting into circulation, on the territory of a Member State, products bearing the same trademark. Such a position only comes about if, inter alia, the proprietor exercises his right in such a way as to impede the maintenance of effective competition over a considerable part of the relevant market;— it is clear from the statement of facts in the orders for reference that those conditions are wholly lacking in the present case;— in addition an affirmative reply to the questions put would without any justification favour B at the expense of A since the latter would be unable to call Community law in aid in the third country where B has registered the mark in dispute and he would be regarded as infringing the mark in that latter country if he were to use the relevant mark there. Furthermore an affirmative reply would be all the more harmful to the nationals of the Community in that the Paris Convention did not adopt the principle of reciprocity and merely recognized the principle of treating foreigners as equivalent to nationals.For these reasons the French Government considers that a negative reply must be given to the questions put in the three cases.

G —Written observations submitted by the Irish Government

The Irish Government finds first of all that the trade-mark legislation of theMember States does not create rights the exercise of which in general conflicts with the provisions of Article 2 of the Treaty. On the contrary unless the proprietor of a mark infringes other provisions of the Treaty the exercise of those rights contributes to the attainment of the objectives referred to by Article 2.In the present case the economic unit referred to as B in the orders for reference has no right to use the disputed mark within the Community. In those circumstances to grant B the protection which it claims would not only result in allowing it to use the disputed mark within the Community but would also permit this to be done by any undertaking other than A. Such an outcome is not justified under Article 2: it cannot be reconciled with the task of the Community and is contrary to the principles on which the customs union is based.Having made this point the Irish Government considers the implications of the provisions of the Treaty on the free movement of goods (Article 30 et seq.) and on competition (Article 85).(a) The Irish Government considers that since the provisions on the free movement of goods refer exclusively to trade between Member States in this case they cannot restrict B's exercise of its exclusive right. Furthermore, when A prohibits B from using the mark in dispute within the Community it is merely exercising its right normally without effecting any arbitrary discrimination or disguised restriction on trade between Member States within the meaning of Article 36 of the Treaty.The contrary argument is not supported by a number of decisions of the Court, since— in the Hag judgment ([1974] ECR 731) the facts on which the Court adjudicated differ from those in this case. In the Hag case the undertaking alleged to have used the disputed mark was also the proprietor of that mark within the Community whereas in the present case neither B nor any part of B has any legal right to use the mark in dispute within the Community. Likewise in the Hag case the products which it was sought to prohibit from being marketed in a Member State, to the extent that they bore the mark in dispute, were lawfully marketed in another Member State whereas in the present case B has not lawfully marketed them in any part of the Community. It is futile for B to endeavour to seek to rely on Article 9 (2) of the Treaty. This provision does not accord to products imported into a Member State from a third country more favourable treatment than that reserved for products originating in a Member State: both are subject to the national laws of each Member State, including trade-mark law.— Furthermore, in the Hag case the relevant mark had a common origin in an undertaking established in the Community whereas in the present case the mark has a common origin in an undertaking established in a third country. Finally, in this case the transfer of the mark did not play a part in partitioning markets within the Community since a single proprietor holds the trade-mark in every Member State;— it should furthermore be noted, as regards the judgment in the Centrafarm case ([1974] ECR 1183), that the products in dispute in that case had been marketed in a Member State under the relevant mark with the consent of its proprietor and that, because of the links existing between the two proprietors of the mark (parent company and subsidiary) in two Member States of the Community the exercise of the trade-mark right resulted in partitioning the markets. In the present case neither have the products in dispute been marketed in a Member State with the consent of the proprietor of the mark nor has the exercise of the trade-mark right by its proprietor in the Community partitioned national markets within the common market.(b) With regard to the rules on competition the Irish Government considers that the conditions for the application of Article 85 of the Treaty are likewise absent in the present case. The only undertaking which is entitled to use the mark in dispute in the Community has neither concluded an agreement nor participated in any concerted practice regarding this mark with another undertaking ‘within’ the Community. Furthermore there does not presently exist and never has existed any legal, financial, technical or economic link between the proprietor of the mark in the Community and the proprietor of the mark in a third country; nor is there any indication of concerted action between those two undertakings. The only agreements which can have any importance, those dated 27 April 1917, do not come within the category prohibited by Article 85 (cf. the abovementioned Centrafarm judgment). Consideration of the provisions of those agreements, as reproduced in the order making the reference, leads to the conclusion that they do not have as their object or effect the prevention, restriction or distortion of competition within the common market. Furthermore they do not affect trade between Member States.Taking account of those considerations the Irish Government proposes that the following replies should be given to the questions put in Case 51/75:(1) The provisions of the Treaty establishing the European Economic Community and in particular the provisions laying down the principles of Community law and the rules relating to the free movement of goods and to competition should not be interpreted as to disentitle A from exercising its rights in the trade-mark under the appropriate national law in every Member State to prevent:(i) the sale by B in each Member State of goods bearing the mark X manufactured and marked with the mark X by B outside the Community in a territory where he is entitled to apply the mark X, or(ii) the manufacture by B in any Member State of goods bearing the mark X.In addition the Irish Government further suggests that a negative reply should be given in Cases 86/75 and 96/75.

H —Written observations submitted by the Netherlands Government

The Netherlands Government considers the problem in dispute in the light of the provisions of the Treaty on competition (Articles 85 and 86) and on the free movement of goods (Articles 30 to 36). It makes the following particular observations:— In its judgment in the Hag case ([1974] ECR 731) the Court found that the application of Article 85 of the Treaty was excluded on the grounds that there, existed no legal, financial, technical or economic link between the two proprietors of the mark. As is' clear from the statement of facts in the order making the reference this is precisely the situation in the present case.— With regard to Article 86 the Court found in its judgment in the Sirena case ([1971] ECR 69) that the proprietor of a mark does not enjoy a dominant position merely because he is in a position to prevent third parties from putting into circulation in a Member State products bearing the same mark. The proprietor of the mark enjoys a dominant position if he has the power to impede the maintenance of effective competition over a considerable part of the relevant market It does not appear that this condition is fulfilled in the present case.— It is undisputed that Article 36 of the Treaty allows derogations from the prohibition on quantitative restrictions and measures having equivalent effect set out in Articles 30 and 34 of the Treaty to the extent that inter alia such derogations are justified on ground of protecting rights which constitute the specific subject-matter of the industrial and commercial property. In the abovementioned Hag case the Court found, however, that such derogations are not justified if the exercise of the trade-mark right tends to contribute to the partitioning of the markets and if the right is asserted in order to prohibit the marketing in a Member State of goods legally produced in another Member State under an identical trade-mark having the same origin. Those conditions are absent in this case. Furthermore the fact that the relevant marks had the same origin would have been taken into consideration by the Court if the point at issue had been barriers to the free movement of goods between Member States whereas the present case relates to barriers to trade between a Member State and a third country.— An affirmative reply to the questions put would result in discrimination against the proprietors of a mark in the Member States to the advantage of those owning the same mark in a third country. It would be detrimental to consumers who are accustomed to associate a mark with a specific product and would deprive the mark itself of its particular function.On those grounds the Netherlands Government suggests that a negative reply should be given in the three cases.It finally adds that it must not be forgotten that the restriction imposed by A on B in the present case solely involves the prohibition on the latter from importing or manufacturing in the Community records bearing the mark in dispute. It does not prevent B from importing or manufacturing records under another mark if it does not infringe the trade-mark owned by third parties.

I —Written observations submitted by the Government of the United Kingdom

The Government of the United Kingdom considers that any restriction on the exercise of trade-mark rights must not be imposed lightly. Consumers and users gradually establish a connexion between products bearing a mark and the trader who holds such a mark. The purpose of the trade-mark is thus both to protect the interests of the trade and of consumers.Furthermore, in the absence of express provision to the contrary, and there is no such provision in the present case, the EEC Treaty must not be interpreted so as to favour the proprietors of trade-marks in a third country as compared to those who own trade-mark rights recognized by Member States. Likewise, in the absence of provisions to the contrary in Community law, it is permissible for Member States to subject spurious products from third countries to restrictions on imports for reasons similar to those set out by Article 36 of the Treaty.Having made the above points the Government of the United Kingdom considers the implications of the provisions of the Treaty on competition and on the free movement of goods and in particular makes the following observations:(a) On the rules on competition:— Article 85 refers exclusively to agreements, practices or decisions which may affect trade between Member States and consequently does not apply to trade with third countries.— Furthermore, at the time of the assignment of trade-mark X the predecessors in title of A and of B, as parent company and subsidiary, formed part of the same economic unit so that no agreement, decision or concerted practice within the meaning of Article 85, existed. In fact, according to the decisions of the Court, Article 85 does not refer to agreements or practices existing between undertakings, such as a parent company and its subsidiary, which form an economic unit within which the subsidiary does not enjoy any real independence.— The assignment took place long before the Treaty entered into force; the ownership of the mark now held by B has changed hands on a number of occasions and there has never been any legal, financial, technical or economic link between A and B as now constituted. Although the Sirena judgment ([1971] ECR 69) greatly extended the scope of the provisions of the Treaty on competition it must not be forgotten that a mere assignment does not of itself suffice to tender applicable Article 85 of the Treaty. For this there must exist other factors indicating in particular that the assignment was effected in accordance with an agreement the purpose of which is to partition the common market or which for another reason is contrary to the the provisions of Article 85 (1) or of Article 86.— Whilst it is true that an agreement concluded before the entry into force of the Treaty may fall under Article 85 it is nevertheless necessary that the parties should have concluded such an agreement with the purpose of evading the prohibitions of the Treaty.— A is entitled to mark X in all the Member States of the Community. In the absence of any prior agreement indicating an intention to abuse this right it is thus impossible to state that the assignment made between the predecessors in title of A and of B had as its effect the prevention, restriction or distortion of competition within the, common market within the meaning of Article 85 (1) of the Treaty.(b) The provisions of Articles 30 to 36, which make it possible to terminate the restrictions on imports created by means other than those prohibited by Articles 85 and 86 of the Treaty, also apply solely to trade between Member States. The fact that in the present case undertaking B owns a subsidiary within the Community is irrelevant since Article 30 of the Treaty relates exclusively to the fact of importation and does not take into consideration connexions which may exist between the importer and his supplier who is established in a third country. Moreover the principle of the ‘exhaustion’ of the right, which the Court has already recognized, is inapplicable to the present case since the relevant products were not marketed for the first time in a Member State of the Community either by the proprietor of the exclusive right in that State or with his consent.The British Government indicates the differences existing between this dispute and the situation referred to in the Hag judgment ([1974] ECR 731), emphasizes the special and restricted scope of this judgment and goes on to propose that the Court should answer the questions referred to it as follows:(1) that Articles 85 and JO and 36 do not apply to the present case; and(2) that, as a result, A is not disentitled to exercise its rights under the appropriate national law to prevent either:(i) the sale thereby of goods bearing the mark X manufactured and marked with the mark X by B outside the Community in a territory where he is entitled to apply the mark X, or(ii) the manufacture by B in any Member State of goods bearing the mark X.’

J —Written observations submitted by the Commission of the European Communities

The Commission sets out first of all general considerations on the conditions for the application of the rules of Community law on competition and on the free movement of goods. This body of rules is intended to protect the unity of the common market by prohibiting two different methods of partitioning the market.Article 85 applies to restrictions on competition which constitute the subject, the means or the consequence of an agreement, or concerted practice or, less frequently, of a decision by an association. On the other hand Articles 30 to 36 apply to cases where there is no agreement or concerted practice between the relevant undertakings. In many situations it may be said that it is irrelevant whether an assignment of a mark falls under Article 85 because it has restrictive effects on trade between Member States since in any event Articles 30 to 37 of the Treaty prevent the use of the trade-mark to partition the common market. On the other hand this question retains its importance in other specific situations, in particular when, in a case of imports coming directly from third countries and not of trade between Member States, Articles 30 to 37 of the Treaty cannot be applied. On the other hand Article 85 remains applicable to an agreement even if one of the parties is not established in the Community.Having set out these general considerations the Commission considers whether and to what extent the abovementioned rules are applicable to the present case.

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