CJEC, March 3, 1988, No 434-85

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES,

1. By a judgment of 12 December 1985 which was received at the Court on 20 December 1985, the House of Lords referred to the Court of Justice under Article 177 of the EEC treaty a number of questions for a preliminary ruling on the interpretation of Articles 30 and 36 of the treaty with a view to determining the compatibility with the rules on the free movement of goods of certain provisions of United Kingdom patent law, in particular the rules concerning licences of right.

2. Those questions were raised in proceedings between Allen and Hanburys Limited (hereinafter referred to as "Allen and Hanburys "), the holder of a United Kingdom patent for the pharmaceutical product known as "Salbutamol", and Generics (UK) Ltd (hereinafter referred to as "Generics ") concerning the latter's intention to import into the United Kingdom Salbutamol from Italy where it was manufactured by an undertaking having no financial or contractual links with Allen and Hanburys.

3. Pursuant to the patents act 1977, the patent held by Allen and Hanburys was endorsed "licences of right" as from 15 September 1983.

4. According to the House of Lords, under the patents act 1977, in particular section 46, the effects of the endorsement "licences of right" are inter alia as follows:

(1) Any person is entitled as of right to a licence under the patent on such terms as may be settled by agreement or, in default of agreement, by the comptroller-general of patents. One of the terms which may be imposed on the applicant is a prohibition on importing the product covered by the patent with the result that while an undertaking which manufactures the product in the national territory is certain of obtaining a licence, the same is not true of an importer.

(2) In proceedings for infringement of the patent, no injunction or interdict will be granted against an infringer who manufactures the product in the national territory provided that he undertakes to take a licence on the terms referred to above, while the same is not the case for an undertaking which infringes those exclusive rights by means of imports. Moreover the amount of any damages which may be awarded against an infringer who manufactures the product in the national territory may not exceed double the amount which would have been payable by him as licensee whereas no such limit applies in the case of an undertaking which infringes the exclusive rights by means of imports.

5. Pursuant to the applicable national provisions, Generics requested a licence under that patent, first from Allen and Hanburys and subsequently from the Comptroller-General of patents, in particular in order to import Salbutamol into the United Kingdom. However, without awaiting the decision of the Comptroller-General of patents, Generics informed Allen and Hanburys of its intention to import the product in question.

6. The proceedings brought by Allen and Hanburys with a view in particular to preventing Generics from infringing its patent reached the House of Lords which referred the following questions to the Court of Justice for a preliminary ruling:

"(1) Is it contrary to the provisions of Articles 30 and 36 of the EEC treaty for the holder of a patent, granted to him by the law of a Member State, to be granted under that law an injunction or interdict from the Courts of that Member State, preventing the importation of goods which would infringe the patent (" the goods ") from another Member State pending the adjudication of the competent authorities referred to in (c) below, in the following circumstances:

(a) The goods were not marketed in the Member State of origin by the patentee or with his consent or with the consent of anyone connected with him;

(b) Any applicant could by due diligence obtain a licence of right at the time of the endorsement referred to in (c) below and subject to question 2 such a licence might or might not preclude importation;

(c) Without any consent or initiative on the part of the patentee, the patent has been or is deemed to have been endorsed "licences of right" by national legislation introduced subsequent to the grant of the patent, with the consequence that under domestic law no injunction can be granted against a person who infringes the patent by domestic manufacture or sale of domestically produced goods if he gives an undertaking to the Courts in infringement proceedings to take a licence on such terms as may be settled by agreement or, after examination of the application and hearing the parties, by the competent authorities in the Member State;

(d) The importer has undertaken in infringement proceedings to take, but has not obtained, a licence from the patentee on such terms?

(2) Where such a licence is sought in a Member State do the provisions of Articles 30 and 36 of the EEC treaty require the competent authorities in such circumstances invariably to include in the licence terms which permit importation from another Member State?

(3) Is the answer to the first or second question affected, and if so how, by the fact that the goods are pharmaceutical products and importation is to take place from a Member State where such products are not patentable?

(4) If the answers to questions 1, 2 and 3 above are to the effect that Articles 30 and 36 of the EEC treaty do not authorize the grant to the holder of such a patent of an injunction or interdict to restrain such importation may such an injunction or interdict nevertheless be granted under the jurisprudence of the Court of Justice and in particular the jurisprudence relating to unfair competition and for the protection of the consumer?

7. Reference is made to the report for the hearing for a fuller account of the facts of the main proceedings, the relevant national provisions and the observations submitted to the Court which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

Question 1

8. The first question asks essentially whether Articles 30 and 36 of the treaty must be interpreted as precluding the courts of a Member State from granting an injunction prohibiting the importation from another Member State of a product which infringes a patent endorsed "licences of right" against an importer who has undertaken to take a licence on the terms prescribed by law while no such injunction can be granted in the same circumstances against an infringer who manufactures the product in the national territory.

9. It should be noted that the effect of the provisions of the treaty on the free movement of goods, in particular Article 30, is to prohibit as between Member States restrictions on imports and all measures having equivalent effect. According to Article 36, however, those provisions do not preclude prohibitions or restrictions on imports justified on grounds of the protection of industrial and commercial property. However, such prohibitions or restrictions must not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

10. The Court has consistently held (see, in particular, the judgment of 14 July 1981 in Case 187/80 Merck V Stephar and Exler ((1981)) ECR 2063) that inasmuch as it provides an exception to one of the fundamental principles of the common market, Article 36 admits of derogations from the free movement of goods only in so far as they are justified for the purpose of safeguarding rights which constitute the specific subject-matter of that property.

11. In general terms the specific subject-matter of industrial and commercial property includes the exclusive right for the patent proprietor to use an invention with a view to manufacturing industrial products and putting them into circulation for the first time, either directly or by the grant of licences to third parties, as well as the right to oppose infringements (see the aforementioned judgment in Merck).

12. However it should be stated that in the particular case where a patent is endorsed "licences of right", the substance of the exclusive rights of the patent proprietor is appreciably altered.

13. It is clear from the national court's analysis of the patents act 1977 that in the United Kingdom, in contrast to the proprietor of an ordinary patent, the proprietor of a patent endorsed "licences of right" cannot oppose the grant of such a licence to a third party who applies for a licence in order to manufacture and market the product in question in that Member State but he retains the right merely to obtain a fair return.

14. In those circumstances it must be considered that the power of national courts to prohibit the importation of the product in question may be justified under the provisions of Article 36 on the protection of industrial and commercial property only if that prohibition is necessary in order to ensure that the proprietor of such a patent has, vis-a-vis importers, the same rights as he enjoys as against producers who manufacture the product in the national territory, that is to say the right to a fair return from his patent.

15. That is therefore the test which must be applied in examining the merits of a number of arguments raised before the Court, both by Allen and Hanburys and by the United Kingdom, in order to justify an injunction prohibiting imports granted against an importer-infringer.

16. It has been observed in the first place that an importer may have no substantial presence in the importing Member State, in particular where his assets and employees are not subject to the jurisdiction of that State. An injunction prohibiting him from importing the product is then justified until the patent proprietor has been guaranteed actual payment of the sums due to him.

17. However, that argument cannot be accepted in the case of a Member State where, under the relevant legislation, the fact that manufacturers based in its territory do not have adequate assets cannot justify the grant of an injunction against them until they have offered guarantees of payment. For a manufacturer based in the territory of a Member State as well as for an importer such guarantees of payment can only be included among the terms fixed in the licensing agreement or, in default of an agreement, by the competent national authority.

18. It has also been maintained that an injunction prohibiting imports may be justified by the difficulty of carrying out checks on the origin and quantities of goods imported, on the basis of which the royalties payable to the patent proprietor must be calculated.

19. However, it should be pointed out that it may also be difficult to check the quantity of goods marketed even where they are manufactured within the national territory and yet no injunction or interdict is possible in those circumstances. It is therefore a matter for the licensing agreement alone or, in default of agreement, for the competent national authority, to lay down detailed rules to enable the patent proprietor to check the supporting documents produced by the importer regarding the purchase, import and sale of the product.

20. Finally, it has been maintained that an injunction prohibiting imports may be justified in order to enable the patent proprietor to check on the quality of an imported medicine in the interests of public health.

21. It must be observed, however, that that consideration has nothing to do with protection of the exclusive rights of the patent proprietor and, therefore, may not be relied on in order to justify, on grounds of protection of industrial and commercial property, a restriction on trade between Member States.

22. It must therefore be concluded that an injunction issued against an importer-infringer in the circumstances described by the national court would constitute arbitrary discrimination prohibited by Article 36 of the treaty and could not be justified on grounds of the protection of industrial and commercial property.

23. The reply to the first question must therefore be that Articles 30 and 36 of the treaty must be interpreted as precluding the courts of a Member State from issuing an injunction prohibiting the importation from another Member State of a product which infringes a patent endorsed "licences of right" against an importer who has undertaken to take a licence on the terms prescribed by law where no such injunction may be issued in the same circumstances against an infringer who manufactures the product in the national territory.

Question 2

24. The second question asks essentially whether Articles 30 and 36 of the treaty must be interpreted as prohibiting the competent administrative authorities from imposing on a licensee terms preventing the importation from other Member States of a product covered by a patent endorsed "licences of right" if those authorities cannot refuse to grant a licence to an undertaking which would manufacture the product in the national territory and market it there.

25. It should be observed that the requirements laid down by the treaty regarding the free movement of goods apply equally to all the authorities of a Member State, whether they are judicial or administrative bodies.

26. Moreover, no consideration other than those which have been rejected in the examination of the first question has been raised before the Court in order to justify the creation of impediments to imports from other Member States when terms are fixed for the grant of a licence.

27. The reply to the second question must therefore be that Articles 30 and 36 of the treaty must be interpreted as prohibiting the competent administrative authorities from imposing on a licensee terms impeding the importation from other Member States of a product covered by a patent endorsed "licences of right" where those authorities may not refuse to grant a licence to an undertaking which would manufacture the product in the national territory and market it there.

Question 3

28. The third question asks whether the answers to the first and second questions are affected by the fact that the Article in question is a pharmaceutical product imported from a Member State where such products are not patentable.

29. It is clear from the foregoing that in a system of obligatory licences such as that described by the national court the protection of patent rights must be confined to guaranteeing the patent proprietor a fair return in respect of both imported products and products manufactured and marketed in the Member State in question.

30. It has, however, been maintained in the proceedings before the Court that manufacturers in a Member State where pharmaceutical products are not patentable do not have to bear the cost of research, unlike manufacturers in other Member States, and can therefore manufacture in conditions which distort competition. A prohibition on imports is the only means of remedying that situation.

31. That argument cannot be accepted. It is sufficient to point out, without there even being any need to consider whether the facts on which it is based are actually correct, that the right to a fair return granted to the proprietor of a patent subject to a system of licences of right is intended precisely to afford the proprietor recompense for the research costs he has incurred. There are therefore no grounds for drawing a distinction according to whether the product marketed by the third party was manufactured in the national territory or in the territory of a Member State where the product was not patentable.

32. In answer to the national court it should therefore be ruled that the replies to the first and second questions are not affected by the fact that the product in question is a pharmaceutical product and comes from a Member State where it is not patentable.

Question 4

33. The fourth question asks essentially whether, if the prohibition on imports cannot be justified under Article 36 of the treaty, it may nevertheless be justified on the grounds of imperative requirements relating to consumer protection and fair trading, as recognized by the Court in interpreting Article 30 of the treaty.

34. From the findings set out above it is clear that the national legislation relating to licences of right is not applicable without distinction to manufacturers established in the national territory and to importers.

35. The Court has consistently held (see, in particular, the judgment of 17 June 1981 in Case 113-80 Commission V Ireland ((1981)) ECR 1625) that it is only where national rules apply without distinction to both domestic and imported products that they do not fall under the prohibition laid down by Article 30 of the treaty if they are necessary in order to satisfy imperative requirements relating in particular to consumer protection or fair trading.

36. The reply to the fourth question must therefore be that a prohibition on importation cannot be justified on grounds of imperative requirements relating to consumer protection or fair trading where the national legislation on which it is based is not applicable without distinction to domestic and imported products.

Costs

37. The costs incurred by the United Kingdom and the Commission of the European Communities, which have submitted written observations, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action before the national court, the decision on costs is a matter for that Court.

THE COURT

In reply to the questions submitted to it by the House of Lords, hereby rules :

(1) Articles 30 and 36 of the treaty must be interpreted as precluding the courts of a Member State from issuing an injunction prohibiting the importation from another Member State of a product which infringes a patent endorsed "licences of right" against an importer who has undertaken to take a licence on the terms prescribed by law where no such injunction may be issued in the same circumstances against an infringer who manufactures the product in the national territory.

(2) Articles 30 and 36 of the treaty must be interpreted as prohibiting the competent administrative authorities from imposing on a licensee terms impeding the importation from other Member States of a product covered by a patent endorsed "licences of right" where those authorities may not refuse to grant a licence to an undertaking which would manufacture the product in the national territory and market it there.

(3) The replies to the first and second questions are not affected by the fact that the product in question is a pharmaceutical product and comes from a Member State where it is not patentable.

(4) A prohibition on importation cannot be justified on grounds of imperative requirements relating to consumer protection or fair trading where the national legislation on which it is based is not applicable without distinction to domestic and imported products.