CJEC, February 18, 1992, No C-30/90

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

1. By application lodged at the Court Registry on 30 January 1990, the Commission of the European Communities brought an action under Article 169 of the EEC Treaty for a declaration that by providing for the grant of compulsory licences where a patent is not worked in the United Kingdom to the fullest extent that is reasonably practicable or where demand for the patented product in the United Kingdom is being met to a substantial extent through importation, the United Kingdom has failed to comply with its obligations under Article 30 of the EEC Treaty.

2. In the United Kingdom patents are governed by the Patents Act 1977. Section 48 provides that the Comptroller-General of Patents may order the grant of compulsory patent licences at any time after the expiration of three years from the date of the grant of the patent on the grounds set out in section 48 (3), namely:

"(a) where the patented invention is capable of being commercially worked in the United Kingdom, that it is not being so worked or is not being so worked to the fullest extent that is reasonably practicable;

(b) where the patented invention is a product, that a demand for the product in the United Kingdom

...

(II) is being met to a substantial extent by importation;

(c) where the patented invention is capable of being commercially worked in the United Kingdom, that it is being prevented or hindered from being so worked,

(I) where the invention is a product, by the importation of the product,

(II) where the invention is a process, by the importation of a product obtained directly by means of the process or to which the process has been applied;

..."

3. Section 50 (1) of the Patents Act provides that the Comptroller may exercise his powers inter alia to ensure that inventions which can be worked on a commercial scale in the United Kingdom and which should in the public interest be so worked are worked there without undue delay and to the fullest extent that is reasonably practicable.

4. The Commission took the view that those national provisions constituted measures having an effect equivalent to quantitative restrictions on imports within the meaning of Article 30 of the Treaty and therefore brought the present Treaty infringement proceedings.

5. Reference is made to the Report for the Hearing for a fuller account of the Community and national provisions, the course of the procedure and the pleas in law and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

The subject-matter of the application

6. The Commission makes it clear in its arguments in the application that it is not challenging in principle the patentee's obligation to work the patent and satisfy domestic demand for the patented product or the right of the competent authorities of a Member State to grant a compulsory licence where that obligation is not complied with. It is solely contesting the aforementioned provisions of the Patents Act in so far as they distinguish between the manufacture of the patented product on national territory and the importation of the product from the territory of another Member State and place imports at a disadvantage by virtue of the conditions on which they allow the competent authorities to grant a compulsory licence where the patent is being worked by importation. It is on the application as so defined that the Court must rule.

7. The Commission also points to the incompatibility with Article 30 of the Treaty of national provisions which limit the exercise of rights conferred by a compulsory licence to the national territory. Such incompatibility constitutes a separate complaint and since it is not included in the form of order sought it will not be examined by the Court in these proceedings.

The merits of the action

8. In order to rule on the merits of the action it is necessary to specify the scope of the rules established by the national provisions in question and then to determine whether those rules are compatible with Article 30 of the Treaty.

The scope of the rules established by the national provisions in question

9. The United Kingdom points out that the provisions in question are only part of the Patents Act, which was drafted in such a way as to give full effect to the provisions of Community law. Section 53 (1) of the Patents Act provides that sections 48 to 51 are to have effect subject to the provisions of the Community Patent Convention as from the entry into force of that Convention.

10. The defendant further maintains that the fact that demand for a patented product on the domestic market is being met by importation is not sufficient in itself to justify grant of a compulsory licence. In granting such a licence the Comptroller must take account of other factors such as the public interest or the economic interest in the manufacture of the product in the national territory.

11. That argument can have no effect upon the outcome of the dispute.

12. In the first place the reference in the Patents Act to the Community Patent Convention is, in any event, devoid of legal significance so long as that Convention has not entered into force. Neither the Community Patent Convention signed at Luxembourg on 15 December 1975 (hereinafter referred to as "the First CPC"), which was not ratified by all Member States, nor the Convention annexed to the Agreement signed at Luxembourg on 15 December 1989 (hereinafter referred to as "the Second CPC"), which is intended to replace the First CPC and is in the process of being ratified, has yet entered into force.

13. In the second place, even accepting, as the United Kingdom claims, that the Comptroller is not bound to grant a compulsory licence in all cases where demand for the patented product on the domestic market is satisfied by imports from other Member States, it nevertheless follows from the aforementioned provisions of section 48 (3) (b) and (c) of the Patents Act that whenever the needs of the domestic market are being satisfied wholly or in part by importation the patentee runs the risk of losing his exclusive right as a result of the possible grant of a compulsory licence. It is the existence of that risk and the influence it has upon the conduct of patentees which the Commission is challenging.

The compatibility of the national provisions at issue with Article 30 of the Treaty

14. According to the Commission the aforementioned national provisions encourage domestic production by discriminating against the working of the patent by importation into the national territory. Such provisions have the effect of encouraging the patentee to manufacture in the national territory rather than to import from the territory of other Member States and constitute measures having equivalent effect to quantitative restrictions on imports. Since the Court has already recognized that a mere publicity campaign organized by the authorities of a Member State to promote domestic products constitutes a measure having equivalent effect (Case 249-81 Commission v Ireland [1982] ECR 4005), it ought, a fortiori, in view of the seriousness of the legal consequences attaching to the grant of a compulsory licence, to find that the contested provisions are incompatible with the Treaty. Those provisions cannot be justified by the derogating provision of Article 36 of the Treaty since the object of the contested rules is not to ensure the protection of industrial and commercial property but, on the contrary, to limit the rights conferred by such property. Furthermore, the objective sought, namely to encourage domestic production, is diametrically opposed to the objectives of the Treaty. Finally, the measures adopted are, in any event, disproportionate to that objective.

15. The United Kingdom, the defendant, and the Kingdom of Spain, intervening, ask the Court to reject the application and, to that end, put forward various submissions. In the first place, they say, the conditions under which a system of compulsory licences may be set up in relation to industrial and commercial property fall, pursuant to Articles 222 and 36 of the Treaty, within the exclusive competence of the national legislature. Secondly, the contested provisions are in accordance with Article 5 of the Paris Convention for the Protection of Industrial Property of 20 March 1883, last amended at Stockholm on 14 July 1967 (hereinafter referred to as "the Paris Convention"). Thirdly, the contested provisions do not prevent or restrict imports. Fourthly, the Commission's argument is aimed not at ensuring free movement of goods but at reinforcing the rights of the patentee in circumstances which disregard the requirements of free competition between the economic operators in the various Member States. Fifthly, the objection to the provisions in question is essentially academic since in practice they are seldom applied. Sixthly, it is only in the context of Community harmonization directed at the laws of all the Member States that the Commission's object in bringing the present action could be achieved without creating fresh disparities. Finally the Commission's reasoning would lead to certain provisions of the Community Patent Conventions being regarded as contrary to the Treaty.

16. As Community law stands, the provisions on patents have not yet been the subject of unification at Community level or in the context of approximation of laws. In that respect, it must be pointed out that, as stated above, the Community Patent Convention has not yet entered into force.

17. In those circumstances it is for the national legislature to determine the conditions and rules regarding the protection conferred by patents.

18. However, the provisions of the Treaty, and in particular Article 222 according to which the Treaty in no way prejudices the rules in Member States governing the system of property ownership, cannot be interpreted as reserving to the national legislature, in relation to industrial and commercial property, the power to adopt measures which would adversely affect the principle of free movement of goods within the common market as provided for and regulated by the Treaty.

19. First, the prohibitions and restrictions on imports justified on grounds of the protection of industrial and commercial property are allowed by Article 36 of the Treaty only subject to the express proviso that they do not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

20. Secondly, as the Court has consistently held, Article 36 only admits derogations from the fundamental principle of the free movement of goods within the common market to the extent to which such derogations are justified for the purpose of safeguarding rights which constitute the specific subject-matter of such property (Case C-10-89 CNL-SUCAL v HAG [1990] ECR I-3711, paragraph 12).

21. In the case of patents, the specific subject-matter of the industrial property is, in particular, 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 (Case 434-85 Allen and Hanburys v Generics [1988] ECR 1245, paragraph 11).

22. Those principles must be applied in assessing whether the national provisions at issue are compatible with Articles 30 and 36 of the Treaty.

23. Under the national provisions the benefit constituted by the exclusive right conferred by a patent may, in the framework of the grant of compulsory licences, be adversely affected where the patent is worked by importation into the national territory.

24. To avoid any risk of loss of his exclusive right, which could not, in his view, be duly compensated by the payment by the licencee of the reasonable remuneration provided for by section 50 (1) (b) of the Patents Act, the patentee is thus encouraged to manufacture on the territory of the State where the patent has been granted rather than to import the patented product from the territory of other Member States.

25. Irrespective of the number of compulsory licences granted, such provisions are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade.

26. Moreover, as the Advocate General pointed out in his Opinion (point 10), the application of such provisions, when it leads to the grant of a compulsory licence to a national manufacturer, necessarily reduces imports of the patented product from other Member States and thus affects intra-Community trade.

27. In that respect such provisions constitute measures having an effect equivalent to quantitative restrictions on imports within the meaning of Article 30 of the Treaty (Case 8-74 Procureur du Roi v Dassonville [1974] ECR 837, paragraph 5).

28. Although the penalty for lack or insufficiency of exploitation of a patent may be regarded as the necessary counterpart to the territorial exclusivity conferred by the patent, there is no reason relating to the specific subject-matter of the patent to justify the discrimination inherent in the contested provisions between exploiting the patent in the form of production on the national territory and exploiting it by importation from the territory of other Member States.

29. Such discrimination is in fact motivated not by the specific requirements of industrial and commercial property but, as the defendant State moreover recognizes, by the national legislature's concern to encourage domestic production.

30. Such a consideration, the effect of which is to frustrate the objectives of the Community as laid down in particular in Article 2 and specified in Article 3 of the Treaty, cannot be accepted as a justification for a restriction on trade between Member States.

31. Neither the provisions of Article 5 of the Paris Convention, which merely allow signatory States the option of providing for the grant of compulsory licences to prevent abuses which might arise from the exercise of the exclusive right conferred by the patent, such as failure to work it, nor concern to promote competition between the various economic operators by restricting the exclusive rights conferred by patents can, in any event, justify measures which, by virtue of their discriminatory nature, are contrary to the Treaty.

32. Those rules have been taken into account by the signatories to the two Community Patent Conventions. Article 82 of the First CPC and Article 77 of the Second CPC provide for the application to national patents of rules relating to Community patents which do not allow for the grant of compulsory licences on the territory of a Member State where the needs of that State are satisfied by imports of the product from another Member State. It is true that Article 89 of the First CPC and Article 83 of the Second CPC provide that Member States may, in certain circumstances, make reservations as regards the application of the aforementioned provisions and that such reservations may prove to be incompatible with Article 30 of the Treaty as herein interpreted by the Court. However, the possibility of such incompatibility was expressly envisaged in Article 93 of the First CPC and Article 2 (1) of the Luxembourg Agreement of 15 December 1989 according to which no provision of the Convention may be invoked against the application of any provision of the Treaty.

33. In consequence it must be held that by treating a case where demand for the patented product is satisfied on the domestic market by imports from other Member States as a case where a compulsory licence may be granted for insufficiency of exploitation of the patent the United Kingdom has failed to fulfil its obligations under Article 30 of the EEC Treaty.

Costs

34. Under Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the United Kingdom has failed in its submissions, it must be ordered to pay the costs.

35. The Kingdom of Spain, which intervened in support of the United Kingdom, must, in accordance with Article 69 (4) of the Rules of Procedure, pay its own costs.

On those grounds,

THE COURT

Hereby:

1. Declares that by treating a case where demand for the patented product is satisfied on the domestic market by imports from other Member States as a case where a compulsory licence may be granted for insufficiency of exploitation of the patent the United Kingdom has failed to fulfil its obligations under Article 30 of the EEC Treaty;

2. Orders the United Kingdom to pay the costs;

3. Orders the Kingdom of Spain to bear its own costs.

United Kingdom of Great Britain and Northern Ireland, represented by Rosemary Caudwell, of the Treasury Solicitor' s Department, acting as Agent, assisted by Nicholas Pumfrey QC, of the Bar of England and Wales, with an address for service in Luxembourg at the British Embassy, 14 Boulevard Roosevelt,