CJEC, February 1, 1978, No 19-77

COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

1. By an application which was received at the Court on 4 February 1977 the undertaking Miller international Schallplatten GmbH (hereinafter referred to as 'Miller'), having its head office in Quickborn near Hamburg, instituted proceedings against the Commission decision of 1 December 1976 relating to a proceeding under Article 85 of the EEC treaty (Official Journal, L 357-40) in which it was found that the prohibitions on the export of records, tapes and cassettes inserted by Miller in an exclusive dealing agreement and in its terms and conditions of sale constituted infringements of Article 85 (1) of the treaty and a fine of 70 000 U.A. (being dm 256 200) was imposed upon the undertaking.

The applicant claims that this decision should be annulled or alternatively that the fine should be annulled or reduced.

2. The file indicates that the applicant produces sound recordings (records, cassettes and tapes) which it sells chiefly on the German market, exporting only a limited proportion of its production, partly to Community countries and partly to third countries.

Its production consists chiefly of bargain-range sound recordings and a considerable proportion, more than 40%, is made up of records for children and young persons.

It sells its products to wholesalers, newsagents and rack-jobbers, department stores, retailers and supermarkets and, in the case of exports, either to exclusive importers established abroad or to German exporters.

3. The applicant's behaviour, which resulted in the contested decision, is not disputed as to the facts but the parties differ as to the appraisal of the effects of that behaviour and, consequently, of its gravity.

4. It is common ground that on 11 June 1971 the applicant concluded an exclusive dealing agreement with the undertaking Sopholest of Strasbourg for the distribution of all of its products under the 'Europa' and 'somerset' labels within Alsace-Lorraine, which agreement included at clause 5 the following provision : ' no Miller products shall as a rule be exported from Alsace-Lorraine to other countries '.

It is also common ground that the applicant, in its commercial relations with customers established in the Federal Republic of Germany, applied until 31 July 1974 terms and conditions of sale containing in clause 9 (exports) the following provision : 'no records on our labels may be exported. If this provision is not complied with, we may cease supplying the seller and may hold him liable for any claims in damages brought against us in foreign countries in respect of such exports'.

After 1 August 1974 the applicant applied new terms and conditions of sale and payment to its foreign and German customers, clause IX (exports) of which was worded as follows : 'the customer shall as a rule refrain from exporting goods supplied to him by us. In case of breach of this provision we may cease supplying the customer who is in breach and may seek from him an indemnity in respect of any claim for damages brought against us in foreign countries'.

5. Further, it has been established that Miller charged its German customers prices differing sharply from the export prices, the latter being lower than the prices charged to wholesalers and much lower than the prices of products supplied to department stores, retail trade organizations, retailers and private consumers.

6. Although the applicant does not dispute that these facts are substantially correct it nevertheless maintains that they cannot have appreciably affected trade between Member States in view of the insignificance of the undertaking on the market in sound recordings, the nature of its products, which are chiefly intended for the German-speaking public, and the nature of its customers.

It concludes from these factors that, whilst it is true that the prohibitions on exports are not compatible with the nature of a common market, it cannot be charged with infringement of the provisions of Article 85 (1) of the treaty.

Furthermore, it maintains that in its particular case those prohibitions on exports did not correspond to a blameworthy objective but were merely adopted at the wish of its co-contractors, their purpose being 'purely visual and psychological'.

7. In this connexion it must be held that, by its very nature, a clause prohibiting exports constitutes a restriction on competition, whether it is adopted at the instigation of the supplier or of the customer since the agreed purpose of the contracting parties is the endeavour to isolate a part of the market.

Thus the fact that the supplier is not strict in enforcing such prohibitions cannot establish that they had no effect since their very existence may create a ' visual and psychological ' background which satisfies customers and contributes to a more or less rigorous division of the markets.

The market strategy adopted by a producer is frequently adapted to the more or less general preferences of his customers.

Consequently Miller's statement that the disputed prohibitions originated in the wishes of its co-contractors rather than its own unilateral and premeditated strategy, even if it is correct, cannot allow its behaviour to escape the prohibitions contained in Article 85 (1) of the treaty.

The adoption by Miller of a prohibition on exports both in its contract with the undertaking Sopholest and in its terms and conditions of sale must be assessed in this light.

The incidence of the prohibition of exports on intra-Community trade

8. First, Miller relies upon its weak position on the market in question and the 'derisory' proportion of the total market formed by its production in order to maintain that its behaviour cannot have affected intra-Community trade.

9. However, according to the data produced by it in the course of the administrative procedure its share of the total market in sound recordings in the Federal Republic of Germany was assessed for 1970 at 5.19%, for 1971 at 5.05%, for 1972 at 4.91%, for 1973 at 5.87%, for 1974 at 5.05% and for 1975 at 6.07% in terms of volume of sales.

It is not disputed that it specializes in the production of bargain-range long-playing records and music cassettes and, within that category, in particular in the production of sound recordings for children and young persons, so that its share of the market in bargain-range recordings and those for children may be expressed as appreciably higher percentages.

Finally, it is not disputed that for 1975 Miller's sales amounted to a total of dm 34 376 167 for the domestic market and exports.

In the course of the procedure, during lengthy debates concerning the percentages, the applicant maintained that it was impossible to obtain accurate statistical data concerning the market in question, that the figures must accordingly be treated with caution and that they give an excessively favourable impression of its position on the market, but this argument cannot affect the substance of the said data.

10. In assessing Miller ' s position on the market it is necessary to pay particular attention to the market of the Federal Republic of Germany, if only because, as Miller itself has stated, its production programme is directed principally at a German-speaking public.

The parties disagree as to whether, in determining the relevant market, reference must be made, as the applicant maintains, to the whole market in sound recordings, or whether, as the Commission suggests, it is necessary to distinguish first a market for full-price recordings on the one hand and a market for bargain-range recordings on the other and, further, to distinguish a separate market for children and young persons.

Within the context of the present dispute this point need not be settled because it is evident that Miller ' s sales constitute a not inconsiderable proportion of the market and that it specializes in the production of certain distinct categories for which it occupies a position on the market which, if not strong, is at any rate important.

In this connexion it must accordingly be concluded that Miller, far from being comparable to the undertakings concerned in the judgments of 30 June 1966 (Technique Minière V Maschinenbau Ulm, case 56-65 (1966) ecr 235), of 9 July 1969 (volk V vervaecke, case 5-69 (1969) ECR 295) and of 6 may 1971 (Cadillon V Hoss, case 1-71 (1971) ECR 351), is an undertaking of sufficient importance for its behaviour to be, in principle, capable of affecting trade.

11. Miller adds that, nevertheless, its behaviour cannot affect intra-Community trade because its programme is largely intended for a German-speaking public and can be of only marginal interest to the public in other Member States.

12. It is unnecessary to establish the extent to which this statement is accurate since it is sufficient to find that Miller has concluded contracts for exports to other Member States and has in fact exported a part, albeit a relatively minor part, of its production to those States.

Nevertheless, such exports appeared to Miller and to certain of its customers as being of sufficient importance to justify adopting the clauses in dispute.

Furthermore, the importance of Miller's German market led it to protect that market against the re-importation of products exported at low prices.

13. Finally, Miller continues to maintain that neither its German customers nor its exporters or foreign customers were interested in intra-Community trade, so that the prohibitions on exports did not interfere with their freedom of competition.

Furthermore, the higher prices charged to resellers resident in the Federal Republic of Germany in themselves rendered exports to the other Member States unprofitable.

14. Arguments based on the current situation cannot sufficiently establish that clauses prohibiting exports are not such as to affect trade between Member States, even if it were possible to establish beyond reasonable doubt the accuracy of such general statements, since that situation may vary from one year to the next in terms of changes in the conditions or composition of the market, both in the common market as a whole and on the various national markets.

Furthermore, as has already been observed above, the fact that resellers, as customers of the applicant, prefer to limit their commercial operations to more restricted markets, whether regional or national, cannot justify the formal adoption of clauses prohibiting exports, either in particular contracts or in conditions of sale, any more than the desire of the producer to wall off sections of the common market.

Finally, the existence of the clauses in dispute has at least assisted Miller in maintaining its policy of lowering export prices.

15. It is clear from the foregoing as a whole that the clauses in dispute were such as to affect trade between Member States.

Miller indeed alleges that the Commission should have established that those clauses had an appreciable effect on intra-Community trade but that argument cannot be accepted.

In prohibiting agreements which may affect trade between Member States and which have as their object or effect the restriction of competition Article 85 (1) of the treaty does not require proof that such agreements have in fact appreciably affected such trade, which would moreover be difficult in the majority of cases to establish for legal purposes, but merely requires that it be established that such agreements are capable of having that effect.

The Commission, basing its assessment on Miller's position on the market, its scale of production, ascertainable exports and price policy, has provided appropriate proof that in fact there was a danger that trade between Member States would be appreciably affected.

16. The contested decision was thus justified in its finding that in the contested clauses prohibiting exports Miller infringed the provisions of the said Article.

Consequently, the application must be dismissed in so far as it is directed against Article 1 of that decision.

The fine

17. The applicant has requested in the alternative that the fine of 70 000 U.A. should be annulled or reduced.

It has maintained that it did not intentionally commit the infringements of which it is accused and furthermore that those infringements were not serious.

It claims that in adopting the clauses prohibiting exports it did not intentionally infringe the prohibitions contained in Article 85 (1) of the treaty.

This lack of awareness is said to be demonstrated by the opinion of a legal adviser consulted by the applicant concerning the drafting of its terms and conditions of sale, which opinion, produced as an Annex to its reply, does not mention the fact that a clause prohibiting exports might be incompatible with Community law.

18. As is clear from the foregoing as a whole, the clauses in question were adopted or accepted by the applicant and the latter could not have been unaware that they had as their object the restriction of competition between its customers.

Consequently, it is of little relevance to establish whether the applicant knew that it was infringing the prohibition contained in Article 85.

In this connexion the opinion of a legal adviser, on which it relies, is not a mitigating factor.

It must thus be held that the acts prohibited by the treaty were undertaken intentionally and in disregard of the provisions of the treaty.

19. With regard to the gravity of the infringement, the clauses prohibiting exports constitute a form of restriction on competition which by its very nature jeopardizes trade between Member States.

Consequently, the Commission was entitled to consider that the infringements which it found were of a certain gravity and to take this into account with regard to the provisions of Article 15 of Regulation no 17.

20. The applicant has further maintained that the amount of the fine is extremely burdensome for an undertaking of its nature.

21. Nevertheless, by its refusal to produce its accounts, which the Court requested, it has prevented verification of this statement.

22. It follows that the application in respect of Article 2 of the contested decision is not well founded and accordingly must also be dismissed.

Costs

23. Under 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.

The applicant has failed in its submissions.

It must accordingly be ordered to pay the costs.

On those grounds,

THE COURT,

Hereby :

1. Dismisses the application as unfounded ;

2. Orders the applicant to pay the costs.