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BRUXELLES FRANKFURT LONDON MADRID MILANO MÜNCHEN NEW DELHI NEW YORK PARIS SINGAPORE TOKYO

What restraints can firms place on the reimportation of products?

November 16, 2004

Nigel Parr, Ashurst

ABA Antitrust Section

Gray Markets:

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Gray Markets – key issues in the EU

• EU Treaty provisions to promote the free movement of goods within the EU (Articles 28-30)

• The IPR exhaustion doctrine• Application of Article 81 to agreements between

undertakings which contain export bans or restrictions having similar effect

• Application of Article 82 to dominant undertakings which engage in abusive conduct

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Free movement of goods

• Article 28 prohibits quantitative restrictions on imports between Member States and all measures having equivalent effect

• Article 29 – similar provisions re exports• Article 30 - the prohibitions in Articles 28 and 29 may be

justified on a number of specified grounds• ECJ case law has established that certain "mandatory

requirements" not specified in Article 30 may also be protected in certain circumstances

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• Aimed at measures taken by Member States• Interpreted widely to include:

– Actions of all forms of government - central, regional, local;

– Actions of public bodies - executive, legislative or judicial– Professional bodies exercising regulatory powers– Actions/inactions of the police/state agencies

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• Measures having equivalent effect interpreted very broadly: "all trading rules enacted by Member States which are

capable of hindering, directly or indirectly, actually or potentially, intra-Community trade …" (case 8/74 Procureur du Roi v Dassonville)

• Principle of mutual recognition –– there is no valid reason why "provided that [goods] have

been lawfully produced and marketed in one of the Member States, [they] should not be introduced into any other Member State". (case 120/78 Cassis de Dijon)

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• Limitation for "selling arrangements"– "necessary to re-examine and clarify … case law".– "the application to products from other Member States

of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder, directly or indirectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgment, provided that those provisions apply to all affected traders operating within the national territory and provided that they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States" (cases C-287 and 268/91 Keck and Mithouard).

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• Article 30 – permits restrictions on grounds of:– public morality, public policy or public security;– protection of health and life of humans, animals or

plants;– protection of national treasures having artistic, historic

or archaeological value;– the protection of industrial and commercial property;

Provided not arbitrary discrimination or disguised restriction on trade

• Article 295 – "This Treaty shall in no way prejudice the rules in Member States governing the system of property ownership"

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• Cassis de Dijon – protection of mandatory requirements:– national rules which do not discriminate between

domestic and imported products but which create "obstacles to [free] movement within the Community resulting from disparities between national laws relating to the marketing of the products in question must be accepted … [if they are] necessary … to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health the fairness of commercial transactions and the defence of the consumer"

• Subsequently extended to include the protection of the environment, (Case 302/86, Commission v Denmark)

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Exhaustion: specific subject matter of IPRs

• Article 296 : existence/exercise distinction• Patents

– "recompense creative effort of inventor"– "exclusive right to utilise an invention with a view to

manufacture and first putting into circulation … directly or by … grant of licences …"

– Centrafarm v Sterling Drug (Case 15/74)

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Exhaustion: specific subject matter of IPRs• Copyright

– the right to decide on first placing of a work on the market (Musik-vertribe v GEMA, cases 55 & 57/80)

– the right to require fees for public performance (Coditel, Case 262/81)

– the right to rent out a work (Warner Brothers, Case 158/86)• Trademarks

– "to ensure to the holder the exclusive right to utilise the mark for the first putting into circulation of a product"

– "to protect [the holder] against competitors … selling goods improperly bearing [the] mark" (Centrafarm v Winthrop, Case 16/74))

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Exhaustion doctrine

• A holder (H) of IPRs in Member State A cannot oppose the import of a product protected by those IPRs into that Member State, where that product was put on the market of Member State B by H or with H's consent.

• "The exhaustion principle is … designed to prevent the trade mark proprietor's rights of control from unjustifiably fettering commerce" (AG Stix-Hackl in Levi Strauss v Tesco, (Case C-414/99)

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Exhaustion doctrine

• International exhaustion– Micro Leader v Commission (Case T–198/98) – the

marketing of Microsoft software in Canada would not exhaust its copyright in the EC

– Silhouette (Case C-355/96) no EC doctrine of international exhaustion of trade marks, and national doctrines of international exhaustion are contrary to Article 7(1) of the Trade Mark Directive

– Davidoff (Case C-414/99) – any express/implied consent that the trade mark owner consented to parallel imports from third countries must be unequivocal, and is for the trader alleging consent to prove.

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Article 81: Key elements

• Article 81(1) prohibits agreements/concerted practices between undertakings which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market

• Prohibited agreements/restrictions are void and fines can be imposed

• Prohibition may be declared inapplicable if the agreement has countervailing benefits

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Article 81: direct export bans

• Express export bans will infringe by their object, exemption will only exceptionally be available, and fines will be imposed

• Bans on passive sales are hardcore restrictions under the VABE and are blacklisted by Article 4(b)

• High fines have been imposed– Volkswagen €102 million, reduced to €90 million on

appeal– Nintendo - €167 million (subject to appeal)

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Article 81: indirect export bans

• Indirect export bans are also condemned:"… indirect measures aimed at inducing the distributor not to sell to … customers, such as refusal or reduction of bonuses or discounts, refusal to supply, reduction of supplied volumes or limitation of supplied volumes to the demand within the allocated territory or customer group, threat of contract termination or profit pass over obligations" (para 49 Vertical Guidelines)

• Limitation of consumer guarantees (Zanussi, 1978)• Withdrawal of discounts on export (Gosmé/Martell, 1991)• Buying up supplies of product (Konica, 1988)• Payment of deposit by foreign customers (Daimler Chrysler,

2002)

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Article 81: Agreement/concerted practice

• Bayer/Adalat: unilateral refusal to supply is not prohibited by Article 81(1). There must be: "a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market…" ) (Case T-41/96)

• "[The CFI]… sought to determine whether, in the absence of an export ban, the wholesalers nevertheless shared the intention of Bayer to prevent parallel imports … the [CFI] did not make any error of law by referring to the genuine wishes of the wholesalers [to continue to export]" (Cases C-2/01 & C-3/01)

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Article 81: Effect on trade

• Javico v Yves Saint Laurent:Export bans on distributors in Ukraine and Russia did not have as their object the restriction of competition in the EC. Necessary to explore whether there is a risk of "an appreciable effect on the pattern of trade between the Member States such as to undermine attainment of the objectives of the common market" (Case C-306/96)

• Tretorn (1994): a ban on exports from the Community into Switzerland affected trade between Member States.

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Article 82 – Abuse of a dominant position

• Prohibits unilateral conduct which is abusive and has no objective justification

• A refusal by a dominant pharmaceutical company to meet all orders of its customers so as to restrict parallel trade does not automatically constitute an abuse of a dominant position even when its intention is to limit parallel trade (opinion of 28 October 2004 of AG Jacobs in case C-53/03, Syfait v Glaxo Smithkline)

• AG Jacobs: a parallel trade restriction may exceptionally be capable of objective justification within the context of the pharmaceutical industry

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