CJEC, June 20, 1978, No 28-77

THE COURT OF JUSTUCE OF THE EUROPEAN COMMUNITIES

1. The Commission on 21 December 1976 took a Decision, which was published in Official Journal L 39 of 10 February 1977, p. 19, concerning the undertakings Theal NV and Cecil E. Watts, nowthind calculated to prevent the importation into or resale in the Netherlands of any watts products.

2. Finally a fine of 10 000 UA was imposed on each of the undertakings, that is HFL 36 200 on Theal and pounds 4 166 on watts, for infringement of Article 85 (1).

3. In addition a fine of 5 000 UA, that is HFL 18 100, was imposed on Theal for supplying incorrect and misleading information in a notification made under Article 5 of Regulation No 17.

4. According to the information supplied by the Commission at the hearing watts has complied with the Commission's Decision.

5. In its application which reached the registry on 24 February 1977 Theal has claimed that the court should:

(a) Annul the Decision;

(b) Cancel the fines imposed by the Commission.

6. The previous history and the facts of the Case in so far as they are not disputed may be summarized as follows:

7. After setting up in 1954 the undertaking which was to manufacture and sell the cleaning appliances which he had invented for gramophone records watts entered into oral agreements with a single distributor in each of the Netherlands, Belgium, Denmark, France, Ireland and Italy to the effect that the person concerned would act as exclusive distributor within the national territory allotted to him.

8. Watts was the sole supplier of about 20 wholesalers in the United Kingdom whom he had forbidden - at least since may 1972 - to export his products, the packaging of which was marked "not for export".

9. In 1972, export prices which had been the same as or similar to prices on the home market began to rise compared with the latter.

10. In July 1974 the export price of the same product exceeded the domestic price by as much as 32%, the price differences being further widened by currency disparities especially between the currencies of the United Kingdom and the Netherlands and encouraging Netherlands traders to obtain their supplies of watts's products direct from England rather than apply to Theal the sole concessionnaire in the Netherlands.

11. On 24 January 1963 Theal had notified to the Commission an exclusive distribution agreement for cleaning appliances for gramophone records relating to deliveries within a single member state which had not been put in writing - entered into with watts on 8 September 1956 - of indefinite duration, under the terms of which "the factory undertakes to supply only Theal NV in Netherlands territory and to pass on all orders originating in that territory to NV".

12. The notification expressly stated that the agreement did not exclude free competition within the member state concerned since the agreement applied only to one trade-mark.

13. According to Theal there was a large number of competing trade-marks, the consumer's freedom to purchase remained unfettered and the sole purpose of the agreement was to make available to the said consumer a specialist organization in order to provide him with the best possible service and especially an after-sales service in the event of any defects in appliances supplied.

14. Theal answered in the negative the question whether sharing markets or sources of supply was one of the ways specified in the agreement for attainment of its objectives.

15. The Commission informed Theal with reference to this notification, by a letter of 18 April 1969, that since a provisional examination of the agreement notified showed that it did not provide for any absolute territorial protection, it could therefore benefit from the exemption provided for in Regulation No 67-67; nevertheless, if in fact the agreement did not comply with the conditions for exemption laid down in the Regulation, it should be amended accordingly, in which event the agreement would be exempted only from the date of such amendment.

16. Theal did not reply and accordingly the Commission had no reason to doubt that the agreement complied with the provisions of Article 1 (1) of Regulation No 67-67-EEC.

Application of Article 85 (1) of the EEC Treaty

17. The applicant states that, although an oral exclusive distribution agreement between watts and itself has certainly been in existence since 1956, on the other hand an agreement relating to the use and registration of trade-marks has at no time been entered into by the two undertakings.

18. It claims that the Commission is wrong in maintaining that the applicant has used watts's trade-mark rights in the Netherlands with the consent of watts.

19. It asserts that it is the applicant which established the trade-marks Dust Bug, Disc Preener and Parastat after the conclusion of the exclusive agency agreement for cleaning appliances for gramophone records manufactured by watts in the United Kingdom.

20. It states further that Theal's trade-marks in the Netherlands and those of watts in England are completely independent of each other and were established separately, the English trade-marks having originated without Theal's knowledge.

21. Theal claims to have had an exclusive and independent right, vested in no one else, to use these trade-marks, but it never intended to use its rights in such a way as to prevent either in fact or in law parallel imports.

22. It states that it only enforced its trade-mark rights against goods which were not genuine, but manufactured neither by watts in the United Kingdom nor by itself.

23. Theal states that it obtained several court Decisions from November 1972 to may 1975 ordering the Netherlands traders to cease within 24 hours to sell Articles bearing those trade- marks which had not been supplied by Theal.

24. In these circumstances the applicant does not "clearly" understand in reliance on what facts or statements the Commission reached the conclusion that it has infringed Article 85 (1) of the Treaty and that the notification of the agreement on 24 January 1963 contains incorrect and misleading information.

25. The Commission fined Theal Inter Alia for not having notified it that the agreement concluded with watts "included the grant of the exclusive right to the trade-marks in the Netherlands", a clause of the agreement which the Commission discovered only on 11 July 1975 at a meeting with Theal and watts.

26. It points out in support of this argument that it was watts who first used the words "Dust Bug", "Parastat" and "Disc Preener", and moreover had the first two registered as trade-marks in the United Kingdom on 11 February 1958 and the third a little later.

27. The defendant states that watts consented, at the request of Theal, with the words "do as you like" to the use by Theal of the designation "Dust Bug" in its own name in the Netherlands.

28. The specific consent in respect of Dust Bug was also granted in respect of the trade-marks Disc Preener and Parastat.

29. In a letter of 10 October 1973 signed by the applicant's two directors, the applicant wrote to watts and said "we acknowledge that your company is the proprietor of the trade-marks Dust Bug, Disc Preener, Parastat and watts. If you agree to withdraw the registration of these trade-marks in your name on the Benelux register or your application for registration, as the Case may be, we undertake to take at any time, at your request, the necessary steps to assign any rights which we may have to your company, or to the company... Designated by you...".

30. The Commission considers that the content of that letter which are in keeping with the history of the relations between the parties, their statements and their conduct correctly represents the legal situation arising out of their agreements.

31. Moreover, the Commission contends, this situation found specific expression when watts, after having its trade-marks registered in the Benelux register on 23 December 1971, had them struck out on 23 October 1973 at the request of Theal in order to facilitate the progress of the proceedings instituted by the latter against parallel importers.

32. The Commission finds that the applicant's statements to the effect that a further letter of 18 October 1973 superseded that of 10 October 1973 are irrelevant whereas watts asserts that it never received the text of this letter of 18 October 1973 and that furthermore it emerges from the report of one of watt's authorized agents and from correspondence placed on the court's file that the letter of 10 October 1973, written following very detailed discussions between the parties concerned and their advisers, was intended to assist Theal's Case in its proceedings against the intervener Mr Wilkes.

33. According to the Commission these exclusive distribution agreements and agreements granting the exclusive right to use the watts trade-marks were in fact designed to ensure that Theal had absolute territorial protection excluding all parallel imports of authentic products and for this reason they are subject to Article 85 (1) of the Treaty.

34. In the court's view the file as a whole shows that applicant's conduct on the market for cleaning appliances for gramophone records in the Netherlands has been as described by the Commission.

35. As far as concerns the grant of the exclusive right to use the trade-marks in the Netherlands it may be added that the distinctiveness of the words "Dust Bug" which originated in the bringing together of the words "dust" and "bug" is indisputably to be ascribed to the inventor of the cleaning appliance for gramophone records.

36. It is clear from an Article which appeared in an English periodical that this wording has been used by watts since 1955.

37. It was therefore possible for the registration of this specifically English designation as a trade-mark in the Netherlands to be effected by Theal only with the consent of its inventor, just as watts consented to the registration of this trade-mark subsequently in Belgium, Luxembourg, France, Italy and Germany.

38. This consent given to Theal in the most general way with the words "do as you like" inevitably covered the use of all watts's trade-marks.

39. Their long-standing relations and the confidence and support provided by Theal, a distributor having a large infrastructure, for watts after his first inventions, explain how their relations came into being and then developed without the two parties ' having thought it necessary to set them down in writing.

40. There are grounds for accepting that as far back as 1956 the watts and Theal undertakings were bound by two oral agreements, one appointing Theal as the sole distributor of watts's products in the Netherlands whereby watts undertook to supply Theal exclusively in the Netherlands and to pass on to it all orders received by watts for the Netherlands, the other consisting of the grant of the exclusive right to use in the Netherlands the trade-marks affixed to these products.

41. These oral agreements mutually binding two undertakings were agreement within the meaning of Article 85 (1) the consequence of which was to give Theal absolute territorial protection in the Netherlands.

42. Furthermore this protection was ensured in 1956 by the applicable national law and strengthened later by the prohibition on exports imposed by watts on wholesalers in the United Kingdom and by the affixing of a label "EEN Theal-Produkt" to products supplied by watts to Theal which enabled the latter to ascertain whether watts products which did not come from its own undertaking were being offered for sale in the Netherlands.

43. This system taken as a whole provided Theal with the means of preventing all parallel imports from the United Kingdom or from any other member state into the Netherlands and thus of eliminating all competition; it consequently left Theal completely free to fix in the Netherlands prices for these products protected from any effective competition from products of the same brand.

44. The skilful use of trade-mark law has in this way strengthened the territorial protection given by the exclusive distribution agreement, the existence of which is admitted, the combined effect of these two techniques securing absolute and permanent protection.

45. The original agreement cannot therefore be examined without taking into account the concerted practice which ensured its efficacy.

46. For an agreement to be incompatible with the common market and prohibited under Article 85 it must in the first place be one "which may affect trade between Member States".

47. Although the Case-law of the court lays down (judgment of 25 november 1971 in Case 22-71, Beguelin Import co. And others v SAGL Import Export and others (1971) ECR at p. 959) that the fact that one of the undertakings which are parties to the agreement is situate in a non-member country does not prevent the application of Article 85 since the agreement is operative on the territory of the common market, the fact must also be taken into consideration that such an agreement does not fall within the prohibition contained in Article 85 if it affects trade between Member States only to an extent which is not appreciable.

48. As long as the United Kingdom was not a member state the restrictions on competition arising out of the implementation of the Watts/Theal agreements only in fact affected trade within the Netherlands and nothing in the court's file justifies the assertion that the partitioning of this domestic market appreciably interfered with the pattern of trade between Member States in watts products before 1 January 1973, the date of the United Kingdom's accession to the common market.

49. Theal continued to operate these agreements to its advantage after that date since it obtained judgments on 16 January and 5 June 1973 and 30 may 1975 against three undertakings which were forbidden to import watts products directly into the Netherlands and it continued to write to retailers in the Netherlands who had bought watts products directly or indirectly from wholesalers in the United Kingdom, pointing out that these dealings infringed its trade-mark rights in the Netherlands.

50. Consideration of the specific effects of these agreements shows that they restricted intra-community trade appreciably since the sale of appliances of the watts brand in the Netherlands accounted for 15 % of the market for appliances for cleaning gramophone records.

51. In view of these findings it is established that since 1 January 1973 the agreement between Theal and watts affected trade between Member States.

52. A second condition must be fulfilled before the prohibition in Article 85 (1) can apply, namely that the agreement has as its object or effect the prevention, restriction or distortion of competition within the common market.

53. The agreements between Theal and watts had as their main object and effect the prevention of competition in the protected area within the common market.

54. It is apparent from the practices of the parallel importers and the risks to which they exposed themselves by engaging in them that there was a specific demand for watts's products in the Netherlands.

55. Theal's conduct shows that the latter feared the competition of traders who obtained their supplies elsewhere since watts's products accounted for more than 25 % of its turnover.

56. It follows from all these findings that, since the agreements in question have as from 1 January 1973 affected trade between Member States in cleaning appliances for gramophone records and their effect has been to deprive consumers of the benefits flowing from effective competition between products of the same brand which might spring from a large number of outlets and sources of supply and from lower prices, they are incompatible with the common market and fall within the prohibition in Article 85 (1).

57. Furthermore these agreements, which by preventing parallel imports secured for Theal absolute territorial protection which was made still more effective by the prohibition on exports imposed by watts, did not contribute either to improving the production or distribution of goods or to promoting technical or economic progress and could not therefore - even if they had been duly notified or exempted from notification - be exempted as provided for in Article 85 (3) since the requisite conditions for the application of that Article do not exist.

The application of Article 15 (2) of RegulationN°17

58. Under Article 15 (2) of RegulationN°17 the Commission may impose fines of one thousand units of account or more, but not exceeding 10 % of the turnover in the preceding business year of the undertaking committing the infringment where, either intentionally or negligently, the undertaking infringes Article 85 (1).

59. The acts complained of in the Case of Theal fall within Article 85 (1).

60. In fixing the amount of the fine to be imposed upon it regard must be had to the duration and gravity of the infringement.

61. As far the duration is concerned the Commission stated in the grounds of the Decision that it did not "propose to take account of infringements subsisting before may 1972, the date on which the export prohibition was clearly in force and having effect." With reference more particularly to Theal the Commission took as the relevant date September 1972, which was the date on which the applicant first exercised its trade-mark rights to prevent parallel imports.

62. Although it is true that the facts date from 24 January 1963 the infringement only materialized as from 1 January 1973, the date of the accession of the United Kingdom to the common market.

63. As far as concerns the duration, the inconsiderable difference between September 1972, the date taken by the Commission, and 1 January 1973, the date when the infringement actually began, leads to the view that it should have no effect on the fixing of the amount of the fine.

64. As far as concerns its gravity it must be borne in mind that the applicant continued afterwards to engage in this course of conduct by making applications on three other occasions to the Netherlands courts, even though its attention had been drawn to the rules of competition laid down by the Treaty of Rome.

65. Furthermore Theal's actions have led to clear restrictions of competition which contravene one of the fundamental objectives of the Treaty, namely to establish a single market in the community.

66. However, account must be taken of the fact that the products in question, owing to their nature, represent only a small item of consumers ' expenditure.

67. Although Theal's conduct has contributed to eliminating competition between products of the same brand, the loss to the consumer has not been serious in view of the price of the product in question and its relatively small importance to the ordinary consumer.

68. In the light of these considerations the fine of 10 000 UA Imposed by the Commission for the infringement of Article 85 (1) by Theal does not seem to be out of proportion to its gravity and duration.

Application of Article 15 (1) (a) of Regulation n° 17

69. Under Article 15 (1) of RegulationN°17 the Commission may by Decision impose on undertakings fines of from 100 to 5 000 UA Where, intentionally or negligently, they supply incorrect or misleading information in a notification pursuant to Articles 4 and 5 of the said Regulation.

70. The infraction committed by Theal in supplying incorrect and misleading information was, if not intentional at least negligent, since the notification form clearly drew its attention to the duty to inform the Commission of the provisions of the agreement and to state whether it involved a sharing of the markets or a restriction of freedom to purchase from or sell to third parties or might in any other way have as its object or effect the restriction or distortion of competition and since the applicant in its notification to the Commission did not disclose the agreement granting the exclusive right to make use of the trade-marks registered in the Netherlands and of the effects of the absolute territorial protection in that country, the joint effect of these two agreements being to prevent parallel imports and distort competition within the common market.

71. Consequently the Commission was deceived as to the actual provisions of the agreements which bound watts and Theal as from 24 January 1963, the date of the notification, until Wilkes drew its attention to the latter in his application of 30 January 1974.

72. Having regard to the gravity of this infraction which led to the misapprehension under which the Commission laboured for 11 years, the fine of 5 000 U. A. Imposed on Tepea appears to be completely justified.

Costs

73. Under the terms of Article 69 (2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party's pleading.

74. The applicant has failed on all the heads of its application.

75. It must therefore bear the costs including those of the intervention.

On those grounds,

THE COURT

Hereby:

1. Dismisses the application;

2. Orders the applicant to bear the whole of the costs including those of the intervention.