CJEC, July 13, 1966, No 32-65

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

1. On questions of competition the Council of the EEC may decide whether a particular Regulation is appropriate and adopt it on the basis of a specific principle contained in Article 85 and 86 of the EEC treaty. There is no obligation on it to deal exhaustively with all the principles set out in these Articles nor is it required to adopt rules simultaneously for applying the other provisions of the said Articles.

2. To define a category of agreements is only to make a classification, and means only that the agreements which come within it may be prohibited by Article 85(1). Therefore to grant exemptions under Article 85(3) by categories of agreements cannot amount, even by implication, to passing any pre-conceived judgement on any agreement considered individually.

3. Neither the wording of Article 85 nor that of Article 86 justifies interpreting either of these Articles with reference to the level in the economy at which undertakings carry on business.

4. The competition mentioned in Article 85(1) means not only any possible competition between the parties to the agreement, but also any possible competition between one of them and third parties.

5. Even if it does not involve an abuse of a dominant position, an exclusive dealing agreement may affect trade between Member States and at the same time have as its object or effect the prevention, restriction or distortion of competition, and thus fall under the prohibition in Article 85(1).

6. The intention of Article 184 of the EEC treaty is not to allow a party to contest at will the applicability of any Regulations in support of any application. The Regulation of which the legality is called in question must be applicable, directly or indirectly, to the issue with which the application is concerned.

In Case 32/65

Government of the Italian Republic, represented by Adolfo Maresca, minister plenipotentiary, and Deputy head of the Legal Department of the Ministry of Foreign Affairs, acting as agent assisted by Pietro Peronaci, Deputy State Advocate General, with an address for service in Luxembourg at the Italian embassy,

Applicant,

1. Council of the European economic Community, represented by Dr Raffaello Fornasier, legal adviser, acting as agent, with an address for service in Luxembourg at the offices of Jacques Leclerc, secretary of the Councils of the European Communities,

Defendant,

2. Commission of the European economic Community, represented by Alberto Sciolla- Lagrange, legal adviser, acting as agent, with an address for service at the offices of Mr Henri Manzanares, secretary of the Legal Department of the European Executives,

Defendant,

Application for:

1. The annulment of the first and subsequent Articles of Regulation No 19-65-EEC of the Council of the EEC, dates 2 march 1965 (Official Journal No 36 of 6 march 1965, P. 533-65) (English special edition, 1965-1966, P. 35), concerning the application of Article 85(3) of the treaty to categories of agreements and concerted practices;

2. A declaration that the following are inapplicable (under Article 184 of the EEC treaty): Subparagraph (2)(A) and (B) of Article 4(2) and Article 5(2) of Regulation No 17-62 of the Council of the EEC, dates 6 February 1962 (Official Journal No 13 of 21 February 1962, (1962) ECR 204) (English special edition (1959-1962) ECR 87); and

3. In addition a declaration that the following is inapplicable (under Article 184 of the EEC treaty): Regulation No 153-62 of the commission of the EEC, dated 21 December 1962 (Official Journal No 139 of 24 December 1962 (1962) ECR 2918);

The Italian Government has brought an application against the Council of the EEC and, in so far as necessary, against the Commission. The application is mainly for the annulment of Regulation No 19-65 of the Council, dated 2 March 1965, Relating to the application of Article 85(3) of the treaty establishing the EEC to categories of agreements and concerted practices.

The application also asks, in reliance on Article 184 of the said treaty, for a declaration that the following measures are inapplicable : subparagraph (2)(A) and (B) of Article 4(2) and Article 5(2) of Regulation No 17-62 of the Council, dated 6 February 1962, providing for the notification of agreements in favour of which interested parties wish to claim the benefit of Article 85(3).

Finally, and again relying on Article 184 of the EEC treaty, the application asks for a declaration that Regulation No 153-62 of the Commission, dated 21 December 1962, introducing simplifies methods for notifying certain agreements known as exclusive dealing agreements, is inapplicable.

The main relief asked for : that Regulation No 19-65 of the Council be annulled

under Regulation No 19-65, adopted by virtue of Article 87 of the treaty, the Council conferred upon the commission the power to grant, by means of Regulations and subject to certain conditions, the benefit of the exemption contained in Article 85(3) to certain categories of agreements to which only two undertakings are parties.

The application for the annulment of the said Regulation, which is made in due form, claims that the Regulation was adopted in breach of Articles 2, 3(F), 85, 86, 87 and 222 of the treaty, and that it amounts to a misuse of powers.

The first submission, that Article 87 has been infringed

The first argument used against Regulation No 19-65 is that it lays down provisions concerning the exemptions in Article 85(3) without having first defined the scope of the prohibition imposed by Article 85(1) and that in defining the exception before having explicitly stated the rule to which the exception is made, the said Regulation has disregarded Article 87 and infringed the principle according to which everything is permitted which has not been forbidden, and replaced it by the converse principle under which everything is forbidden which has not been authorized.

By Article 87 of the treaty the Council 'Shall... adopt any appropriate Regulations or directives to give effect to the principles set out in Articles 85 and 86'.

It is for the Council to decide whether a particular Regulation is 'appropriate' and it may come to such a decision on a given point without having to deal exhaustively with the whole of Articles 85 and 86; it may therefore apply the exemption set out in Article 85(3) by means of a Regulation if it thinks fit. it does not follow from this that everything which has not been exempted is to be presumed to be forbidden.

Furthermore Article 85(3) of the treaty provides that the exemption in question may be granted to categories of agreements. the need of undertakings to know their legal position with certainty could justify giving priority to the use of this power, which does not require the Council to adopt rules simultaneously for applying the other provisions of the said Article. Thus, without disregarding Article 87, the Council was entitled to rely on Article 85(3) as its authority for adopting a Regulation covering the exemption of categories of agreements. it was in a position to do this without bringing about any alteration in the principles set out in Article 85(1) and without foregoing its right to make any further Regulation applying any other provision of the said Article 85 to agreements not provided for by the Regulation at issue.

The second submission, that there has been both an infringement of Article 85 and a misuse of powers

It is argued against Regulation No 19-65 first that it infringes Article 85(1) and (3) and at the same time Articles 2 and 3(F) of the treaty; secondly that the Regulation constitutes a misuse of powers in assuming that all the agreements coming within the exempted categories properly fall within the absolute prohibition in Article 85(1), and thus in regarding the descriptions set out in Article 85(1) as properly met not only by the categories exempted by the said Regulation, but also by all agreements of the kind mentioned in the said categories made between more than two undertakings, or between two undertakings but without fitting one of the descriptions laid down in Article 1 of the said Regulation.

Article 85 lays down the rules on competition applicable to undertakings in part three of the treaty which covers the 'policy of the Community'. It aims at bringing about the 'activities of the Community' mentioned in Article 3 and in particular 'the institution of a system ensuring that competition in the common market is not distorted', and this is in order to arrive at' establishing a common market' which is one of the fundamental objectives set out in Article 2.

Article 85 as a whole should be read in the context of the provisions of the preamble to the treaty which clarify it and reference should particularly be made to those relating to 'the elimination of barriers' and to 'fair competition' both of which are necessary for bringing about a single market.

Article 85 is arranged in the form of a rule imposing a prohibition (Paragraph (1)) with a statement of its effects (Paragraph (2)) mitigated by the declaration of the power to grant exceptions to this rule, with provision for exemptions for categories of agreements (Paragraph (3)).

Whether an agreement is caught by Article 85(1) and whether it benefits from the exemption in Article 85(3) are questions which do not depend on the same conditions or have the same consequences. It is therefore of interest to undertakings to see limits set to the scope of each of these two provisions by such Regulations as may be made.

Whilst it is true that to grant the benefit of Article 85(3) to a given agreement presupposes that this agreement falls within the prohibition imposed by Article 85(1), the authorization in Article 85(3) to grant this same benefit to categories of agreements does not imply that because a particular agreement comes within these categories it necessarily fits the descriptions set out in Article 85(1).

In empowering the Council to authorize exemptions to categories of agreements, Article 85(3) only requires it to exercise this power as regards categories of agreements which fit descriptions in Article 85(1). A Council Regulation would indeed have no purpose if the agreements in the categories defined by it could not fit the said descriptions. However, to define a category is only to make a classification and it does not mean that the agreements which come within it all fall within the prohibition. Nor does it mean that an agreement within the exempted category, but not exhibiting all the features of the said definition, must necessarily fall within the prohibition. Therefore to grant exemptions by categories cannot amount, even by implication, to passing any pre-conceived judgment on any agreement considered individually.

Regulation No 19-65 does not contravene these principles. Article 1(1) of the said Regulation provides that the commission may 'by Regulation declare that Article 85(1) shall not apply to categories of agreements to which only two undertakings are party' and which contain certain provisions found in exclusive dealing agreements. By Paragraph (2) of the same Article the Regulation which the commission is to adopt 'shall define the categories of agreements to which it applies and shall specify in particular: (A) the restrictions or clauses which must not be contained in the agreements; (B) the clauses which must be contained in the agreements, or the other conditions which must be satisfied.

Thus the said Regulation limits itself to outlining the action which the commission is to take, while leaving it to the latter to make clear what conditions an agreement must fulfil in order to benefit from an exemption given to a category of agreements.

The Regulation is made under Article 85(3) and not Article 85(1) as appears from the heading and the recitals in the preamble. Therefore it does not create any presumption of law concerning the interpretation to be given to Article 85(1). Since the intention of the said Regulation is to exempt from prohibition categories of agreements and concerted practices, it cannot have the effect, even by implication, of bringing under the prohibition in Article 85(1) categories for which it proposes favoured treatment or of assuming to the detriment of any particular agreement that the terms of the said Article are properly applicable. Thus the Regulation in dispute could not alter the requirements to be satisfied before there can be a finding in each case, considered separately, that the characteristics leading to the prohibition in Article 85(1) are present. Thus the doubts, expressed by the applicant, which might arise from the drafting of Regulation No 19-65 are not such as to establish that the system set up by Article 85 has been wrongly applied.

Regulation No 19-65 limits itself to authorizing the commission to lift the prohibition from the agreements described therein in advance and by categories. it does so only in so far as the said agreements may possibly fall within the prohibition contained in Article 85(1), and in doing so it neither infringes Article 85(2) nor Article 3(F) of the treaty, nor does it give rise to a misuse of powers.

The third submission, that Articles 86 and 222 of the treaty have been infringed

A first series of complaints is brought against the contested Regulation in that by Article 1(1)(A) thereof it treats exclusive dealing agreements as falling not under Article 86 on the abuse of a dominant position, but under Article 85, this latter Article being applicable only to agreements between businesses acting at the same level ('horizontal agreements') whilst agreements between businesses operating at successive levels ('vertical agreements') come only under Article 86, which has thus been disregarded along with Article 85.

Neither the wording of Article 85 nor that of Article 86 justifies interpretation either of these Articles with reference to the level in the economy at which the undertakings carry on business.

Neither of these provisions makes a distinction between businesses operating in competition with each other at the same level or between businesses not competing with each other and operating at different levels.

It is not possible to make a distinction where the treaty does not make one.

It is not possible either to argue that Article 85 can never apply to an exclusive dealing agreement on the ground that the grantor and grantee thereof do not compete with each other.

For the competition mentioned in Article 85(1) means not only any possible competition between the parties to the agreement, but also any possible competition between one of them and third parties.

This must all the more be the case since the parties to such an agreement could attempt, by preventing or limiting the competition of third parties in the product, to set up or preserve to their gain an unjustified advantage detrimental to the consumer or the user, contrary to the general objectives of Article 85.

Therefore even if it does not involve an abuse of a dominant position, an agreement between businesses operating at different levels may affect trade between Member States and at the same time have as its object or effect the prevention, restriction or distortion of competition and thus fall under the prohibition in Article 85(1).

Thus each of Articles 85 and 86 has its own objective and so soon as the particular features of either of them are present they apply indifferently to various types of agreements.

Finally, there is no point in making a comparison between the situation, falling under Article 85, of the producer linked by an exclusive dealing agreement to the distributor of his products and the situation of the producer incorporating by some means the distribution of his products in his own organization, for example by means of commercial agents and so circumventing Article 85. These situations are legally distinct. Furthermore they give different results, for two methods of distribution, one of which is incorporated into the producer's business whereas the other is not, are not necessarily equally efficient.

It is admittedly true that the wording of Article 85 makes the prohibition applicable, subject to the presence of the other factors described, to an agreement between a number of undertakings, and therefore excludes the case of a single undertaking which incorporates as part of its activities its own distribution network. However this does not mean that by a mere business analogy, which anyhow is incomplete and contradicts the wording in question, the contractual situation arising from an agreement between a producer undertaking and a distributor undertaking must be considered legal. Undertaking must be considered legal.

Moreover, as regards the position of a single undertaking as described above, the intention in Article 85 of the treaty is to respect the internal organization of an undertaking and only to question it, by way of Article 86, if it reaches a point where it amounts to an abuse of a dominant position. But the treaty cannot have the same reservations about barriers to competition resulting from an agreement made between two different undertakings, which is normally sufficient to prohibit.

Thus it cannot be denied that an agreement between a producer undertaking and a distributor undertaking is an example of ' agreements between undertakings'.

An agreement between producer and distributor intended to restore national partitioning in trade between Member States could be such as to run counter to the most fundamental objectives of the Community. The preamble to and the body of the treaty are aimed at removing barriers between states and in many provisions the treaty firmly opposes their reappearance. it could not allow undertakings to recreate such barriers.

Article 85(1) is in accord with this objective even where undertakings situated at different levels in the economic process are concerned.

Thus none of the provisions mentioned in this first set of complaints has been infringed.

In a second set of complaints the Italian Republic claims that Article 1(1)(B) of the contested Regulation has infringed Article 222 of the treaty, inasmuch as it has improperly interfered with the exercise of industrial property rights.

Article 222 provides only that the ' treaty shall in no way prejudice the rules in Member States governing the system of property ownership'.

Article 1(1)(B) of Regulation No 19-65 authorizes the commission to grant exemptions from the prohibition by categories to agreements coming within the said categories 'which include restrictions imposed in relation to the acquisition or use of industrial property rights'. In doing so, in so far as Article 222 might be concerned, the Regulation has not prejudiced in any way the rules in Member States governing the system of property ownership.

In making the provisions therein contained the disputed measures has, without infringing Article 222, correctly relied on the generality of the wording of Article 85 which covers 'all agreements between undertakings' to enable it to exempt from the prohibition agreements containing restrictions relating to industrial property rights.

It follows from all the above considerations that the application for the annulment of Regulation No 19-65 must be dismissed.

The subsidiary heads of the application, concerning the arguments that Regulations Nos 17-62 of the Council and 153-62 of the commission are inapplicable

Relying on Article 184 of the treaty, the Government of the Italian Republic has, in the same application, requested that certain provisions of Regulations Nos 17-62 of the Council and 153- 62 of the commission be declared inapplicable.

The Council and the commission have raised an objection of inadmissibility against this part of the application, arguing in particular that these Regulations do not constitute the legal basis for Regulation No 19-65, the annulment of which is requested under the principal head of the application and cannot therefore be the subject of proceedings as provided for in Article 184 of the treaty.

This Article provides that any party may, in proceedings in which a Regulation is in issue, plead the grounds specified in the first Paragraph of Article 173, in order to invoke the inapplicability of that Regulation. The intention of the said Article is not to allow a party to contest at will the applicability of any Regulation in support of an application. The Regulation of which the legality is called in question must be applicable, directly or indirectly, to the issue with which the application is concerned.

There is no necessary connexion between Regulation No 19-65 and the contested provisions of the two Regulations the inapplicability of which is invoked because Regulation No 19-65 is directed towards exempting certain categories of agreements from the prohibition in Article 85(1), whereas Regulation No 17-62 imposes an obligation to notify and Regulation No 153-62 introduced a simplified notification procedure in certain circumstances.

As far as the present dispute is concerned Regulation No 19-65 is not sufficiently related to the other two Regulations for the possible inapplicability of the latter to have any repercussions on its legality furthermore if the said Regulation which is the subject of the main application were annulled, this would not necessarily involve the inapplicability of the others.

Finally, since the main application has been declared unfounded, the requests for declarations of inapplicability which are based on it have no purpose.

Therefore the said requests are inadmissible.

The applicant has failed in its application.

Under Article 69(2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs.

The COURT

Hereby :

1. Dismisses application 32-65;

2. Orders the applicant to bear the costs of the proceedings.