EUR-Lex - 31977D0129 - EN

In the United Kingdom wholesalers who are or have been restricted in their outlets for the products in question by the prohibition on exports imposed on them by Watts, are further restricted as a result of Theal's conduct in opposing parallel imports into the Netherlands from the United Kingdom by the exercise of trade mark rights.

Competition is distorted within the common market as a result of the conduct of both Watts and Theal in the performance of the agreement, which has both as its object and effect the isolation of the Netherlands from the United Kingdom for these products and which makes it possible for Theal to be unaffected by the lower prices obtaining in the United Kingdom and therefore free to charge such prices for the products in the Netherlands as are completely sheltered from all effective intra-brand competition.

Furthermore, the exercise by a trade mark owner of a right he enjoys under the legislation of one Member State to prohibit the sale, in that State, of a product that has been marketed under the same trade mark in another Member State by the original trade mark owner or with his consent, is incompatible with the rules of the EEC Treaty concerning the free movement of goods within the common market where such trade marks have a common origin.

The agreement affects both competition and the free flow of trade between the Netherlands and the United Kingdom and between the Netherlands and the other Member States thereby interfering with the objective of establishing a single market between Member States. The exercise of trade mark rights and the prohibition on exports have a direct effect on market conditions and appreciably modify the market position of both non-participating undertakings and of consumers with regard to their outlets and sources of supply respectively. This is so even though the known quantities of parallel imports in this case were small, because the restriction on potential competition is considerable. In such circumstances therefore the exercise of trade mark rights and the use of export prohibitions to suppress actual or potential competition directly affect trade between Member States to an appreciable extent and consequently come within the prohibition of Article 85 (1) of the Treaty.

Article 85 (1) of the EEC Treaty accordingly applies to the agreement.

B. Article 85 (3)

By virtue of Article 85 (3) of the Treaty, the provisions of Article 85 (1) may be declared inapplicable in the case of any agreement which contributes to improving the production or distribution of goods, or to promoting technical or economic progress while allowing consumers a fair share of the resulting benefit, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

For the benefit of exemption under Article 85 (3) to apply, however, such an agreement must first have been notified to the Commission in accordance with the provisions of either Article 4 (1) or 5 (1) of Regulation No 17, except where the requirement to make such notification is removed by the terms of Article 5 (2) or 4 (2) of that Regulation.

The agreement is not exempt from notification under Article 5 (2) or 4 (2) (b) of Regulation No 17 because its effect is not limited to imposing restrictions on the exercise of the rights of the assignee or user of trade mark rights, since third parties are prevented from freely exporting the products from the United Kingdom and importing them into the Netherlands.

In this case, although an oral agreement was notified to the Commission in accordance with Article 5 (1) of Regulation No 17, within the time limit prescribed by Article 7 (2) of that Regulation, the information supplied in the notification was incorrect and misleading. No mention was made therein of the grant by Watts to Theal of the right to use the trade marks of Watts or that the agreement, in effect, conferred upon Theal absolute territorial protection.

The agreement as notified, therefore, did not include the entire arrangement made by the parties and the actual agreement was accordingly not properly notified.

Even if the entire arrangement had been properly notified or was not required to be notified, exemption would still be unavailable as the requirements of Article 85 (3) are not satisfied. The agreement between the parties under which Theal obtained the right to use trade marks and thereby achieve absolute territorial protection by preventing parallel imports, which protection was further strengthened by the imposition of an export prohibition by Watts, does not contribute to improving the production or distribution of goods or to promoting technical or economic progress. Any benefit accruing from such absolute territorial protection is conferred only on the parties themselves and not on the consumer who is thereby deprived of the advantages deriving from effective intra-brand competition which might arise from increased outlets and lower prices. In the circumstances of this case where no objective justification exists for restrictions enabling the parties to suppress parallel imports, such restrictions cannot be regarded as indispensable to the attainment of the objectives referred to in Article 85 (3).

C. Regulation No 67/67/EEC

Since there is expressly excluded from the exemption provided for by Regulation No 67/67/EEC both in the preamble and under the terms of Article 3 (b) thereof, any agreement under which either party makes it difficult for intermediaries or consumers to obtain the goods to which the agreement relates from other dealers within the common market, particularly by the exercise of industrial property rights, the agreement cannot benefit from this Regulation. The letter from the Commission dated 18 April 1969 could not reasonably have led Theal to believe that the agreement came within that class of agreement to which exemption was automatically granted by Regulation No 67/67/EEC because the views expressed by the Commission were based, as at least Theal well knew, on the information contained in the notification which was, for the reasons stated above, incorrect and misleading. In any event, the conclusions of the Commission were stated expressly to be subject to the condition that the agreement contained no restrictive provisions other than those notified.

D. Article 25 of Regulation No 17

Even in 1963 the agreement restricted competition within the common market since it was intended to prevent Watts products from being imported into the Netherlands, other than by Theal, either direct from the United Kingdom or via other Member States. The Court of Justice, in its ruling in the case of Béguelin Import Co. v. G.L. Import Export S.A. (Case No 22/71, 25 November 1971, Recueil Vol. XVII, 1971-6, page 949), held that "An exclusive distribution agreement between a producer domiciled in a third country and a distributor established in the common market is subject to the prohibition of Article 85 of the Treaty where, in law or in fact, it prevents … these products from being imported from other Member States into the protected territory and distributed in that territory by persons other than the licensee or its customers". The agreement is not therefore covered by Article 25 of Regulation No 17 as amended by Article 29 of the Act concerning the conditions of accession and the adjustments to the Treaties, since it does not fall within the scope of Article 85 by virtue of accession but was in fact covered by this Article even before accession.

E. Article 15 of Regulation No 17

The infringement by Theal in exercising trade mark rights to prevent the parallel imports of the products in question can only have been the result of deliberate and intentional conduct. Apart from the fact that Theal was clearly aware of the existence of the rules on competition laid down by the EEC Treaty from the very fact of notification, the contents of the letter dated 18 April 1969, which Theal admits receiving, stated in the clearest terms that exclusive distribution agreements could not obtain the benefit of exemption under Article 85 (3) of the Treaty if, in particular, the agreement in any way permitted the parties to achieve absolute territorial protection whether by formal agreement or by any other means. In the light of that full explanation, any subsequent action to prevent parallel imports into the contractual territory must be regarded as involving a deliberate and intentional infringement of the provisions of Article 85 of the Treaty.

The infringement by Watts in imposing an export prohibition was intentional. Watts must have been aware of the restrictions on competition resulting from this prohibition, particularly having regard to the fact that prices of the products in question on the home market were lower than the prices of such products for export. The export prohibition combined with the exclusivity enjoyed by most of its distributors within the other Member States, could only result in the effective prevention of the free movement of the products concerned between Member States and the suppression of parallel imports.

In assessing the amount of the fines to be imposed for an infringement of Article 85 (1), the Commission must have regard both to the gravity and duration of the infringement. With regard therefore to the duration of the infringements of Article 85 (1) the Commission takes the following facts into account:

(a) on the evidence available Theal first exercised its trade mark rights to prevent parallel imports in September 1972 and has continued to claim that right;

(b) in respect of Watts, the export prohibition was imposed from at least May 1972 onwards during a time when its effect was likely to be most felt having regard to the widening differences between prices obtaining in the United Kingdom and prices elsewhere. The Commission is satisfied that, notwithstanding the assertions of Watts, the products were still being sold in the United Kingdom bearing a printed prohibition on export in June 1976.

In so far as the gravity of the infringements of Article 85 (1) is concerned the Commission takes into account the following facts:

(a) only two undertakings are involved, neither of which enjoys a large share of the market for the products in question within the Community as a whole or within any single Member State;

(b) the nature of the product is not such that it can be regarded as necessary for the consumer or to form an essential part of his expenditure;

(c) the conduct of the parties, on the other hand, has resulted in clear restrictions on competition such as conflict with one of the basic aims of the EEC Treaty which is to establish a single market within the Community in which the undistorted forces of competition may act to the benefit of the consumer;

(d) the conduct of Watts, in imposing a prohibition on exports, clearly contributed to the establishment of absolute territorial protection for Theal in the Netherlands. The conduct of Watts in this respect is aggravated by the fact that notwithstanding repeated assurances given by Watts to the Commission that the prohibition had been discontinued, certain products were still distributed thereafter by Watts to wholesalers in the United Kingdom with a prohibition on export contained on the leaflet enclosed with each article;

(e) the loss to the consumer, although apparent has not been extreme, having regard to the type of product, its price and its lack of importance in the scale of priorities for the average consumer. Nevertheless the conduct of the parties has effectively contributed to the suppression of intra-brand competition and the potential effect that this competition could have on the level of prices for the products;

(f) Theal has consistently and repeatedly claimed to have the right to use the trade marks attaching to Watts products and has exercised those rights before the Dutch Courts on at least four occasions, continuing to do so notwithstanding that its attention had been drawn to the rules laid down by the Treaty of Rome.

Having regard to the above considerations the Commission proposes to impose the fines totalling 15000 units of account, amounting to 54300 Dutch guilders on Theal and the fine of 10000 units of account, amounting to 4166 pounds sterling on Watts, as set out in Article 4 of this Decision.

F. Article 3 (1) of Regulation No 17

The Commission proposes, therefore, to find that the undertakings party to the agreement have infringed Article 85 (1) of the Treaty establishing the European Economic Community and, in accordance with Article 3 of Regulation No 17, by decision to require such undertakings to bring the infringements to an end without further delay by refraining from any further action towards any person or undertaking calculated to prevent the sale of Watts products imported into the Netherlands.

G. Article 192 of the EEC Treaty

This Decision shall be enforceable in accordance with the provisions of Article 192 of the EEC Treaty,

HAS ADOPTED THIS DECISION: