Hoffmann-la Roche & Co. AG and Hoffmann-la Roche AG v. Centrafarm

Vertriebsgesellschaft Pharmazeutischer Erzeugnisse mbH

(Case 102/77)

Before the Court of Justice of the European Communities

ECJ

( The President, Kutscher C.J.; Sorensen and Bosco

PP.C.; Mertens de Wilmars, Lord Mackenzie Stuart, O'Keeffe and Touffait JJ.) Sig.

Franceso Capotorti, Advocate General.

23 May 1978.

Reference from the Landgericht Freiburg under Article 177.

Trade marks. For the purposes of Articles 30 and 36 EEC the specific subject-matter of trade mark rights is in particular to guarantee to the proprietor of the mark that he has the exclusive right to use it for the purpose of putting a product into circulation for the first time and therefore to protect him against competitors wishing to take advantage of the status and reputation of the trade mark by selling products illegally bearing that mark. The essential function of a trade mark is to guarantee the identity of the origin of the trade-marked product to the consumer or ultimate user by enabling him without any possibility of confusion to distinguish that product from products which have another origin; this function forms part of the subject-matter of the trade mark right. [7] Trade marks. Repackaging. It is permissible, under Article 36 (1) EEC, for the proprietor of a trade mark to prevent an importer of a trade-marked product, following repackaging of the imported goods, re-affixing the original trade mark to the new packaging without the authorisation of the proprietor. [8]

Trade marks. Inter-State trade. Repackaging. It is permissible under Article 36 (2) EEC for an importer of trade-marked goods from one member-State to another to repackage them and then re-affix the original trade mark without the permission of the holder of the mark in the State of import if (a) it is established that the use of the trade mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between member-States, and (b) it is shown that the repackaging cannot adversely affect the original condition of the product, and (c) the proprietor of the mark receives prior notice of the marketing of the repackaged product, and (d) it is stated on the new packaging by whom the product has been repackaged. [10]-[14] Restrictive practices. Trade marks. Abuse of dominant position. *218 To the extent to which the exercise of a trade mark right is lawful under Article 36 EEC, such exercise is not contrary to Article 86 EEC merely because it is the act of an undertaking which holds a dominant position on the market, if the trade mark right has not been used as an instrument for the abuse of such position. [16] The Court interpreted Article 36 EEC in the context of the import into Germany of pills manufactured in Britain, their repackaging into larger packs on which the original British trade mark was re-affixed, and their marketing in Germany without the authorisation of the holder of the German rights in the trade mark to the effect that the German trade mark holder was prima facie entitled to object on the basis of German trade mark law to the marketing of such goods but that in certain circumstances such objection would be a disguised restriction on trade between member-States and so prohibited. The Court also reiterated the principle that the lawful (under Article 36 EEC) exercise of a trade mark right was not per se contrary to Article 86 EEC; a specific abuse of the dominant position had to be proved. Representation O. C. Brändel, P. Selbherr and M. Beier for the plaintiffs. A. F. de Savornin Lohmann and K. Huber for the defendant. M. Seidel, Ministerialrat at the Federal Ministry for Economic Affairs, and E. Bülow, Ministerialdirigent at the Federal Ministry of Justice, for the German Government as amicus curiae. M. Beschel, legal adviser to the E.C. Commission, for the Commission as amicus curiae. The United Kingdom Government also submitted a written amicus brief. The following cases were referred to by the Advocate General: 1. Hoffmann-la Roche AG v. Centrafarm Vertriebsgesellschaft Pharmazeutischer

Erzeugnisse mbH (107/76), 24 May 1977: [1977] E.C.R. 957, [1977] 2 C.M.L.R. 334. 2. Deutsche Grammophon Gesellschaft mbH v. Metro-SB-Gross-Märkte GmbH & Co. KG (78/70), 8 June 1971: [1971] E.C.R. 487, [1971] C.M.L.R. 631. 3. Van Zuylen Freres v. Hag AG (192/73), 3 July 1974: [1974] E.C.R. 731, [1974] 2 C.M.L.R. 127. 4. Centrafarm BV v. Sterling Drug Co. Inc. (15/74), 31 October 1974: [1974] E.C.R. 1147, [1974] 2 C.M.L.R. 480. 5. Centrafarm BV v. Winthrop BV (16/74), 31 October 1974: [1974] E.C.R. 1183, [1974] 2 C.M.L.R. 480. 6. Terrapin (Overseas) Ltd. v. Terranova Industrie C. A. Kapferer & Co. (119/75), 22 June 1976: [1976] E.C.R. 1039, [1976] 2 C.M.L.R. 482. 7. Pfizer v. Centrafarm BV (Arrondissementsrechtbank Rotterdam--241/76), 28 September 1976. 8. Singer (Reischsgericht), 161 RGZ 29. *219 9. SIRENA Srl v. Eda Srl (40/70), 18 February 1971: [1971] E.C.R. 69, [1971] C.M.L.R. 260. The following additional cases were referred to in argument: 10. Francesco Cinzano & Cie GmbH v. Java Kaffeegeschafte GmbH & Co. (Bundesgerichtshof--I ZR 85/71), 2 February 1973: [1974] 2 C.M.L.R. 21, 60 BGHZ 185, [1973] N.J.W. 24. 11. Re German Sparkling Wines and Brandies: E.C. Commission v. Germany (12/74), 20 February 1975: [1975] E.C.R. 181, [1975] 1 C.M.L.R. 340. 12. Procureur du Roi v. Dassonville (8/74), 11 July 1974: [1974] E.C.R. 837, [1974] 2 C.M.L.R. 436. 13. Parke, Davis & Co. v. Probel (24/67), 29 February 1968: [1968] E.C.R. 55, [1968] C.M.L.R. 47. 14. Europemballage Corp. and Continental Can Co. Inc. v. E.C. Commission (6/72), 21 February 1973: [1973] E.C.R. 215, [1973] C.M.L.R. 199. 15. Re Continental Can Co. Inc. (E.C. Commission), 9 December 1971: [1972] C.M.L.R. D11, [1972] J.O. L7/25. 16. Belgische Radio en Televisie v. SABAM (127/73), 27 March 1974: [1974] E.C.R. 313, [1974] 1 C.M.L.R. 295. 17. Iannelli & Volpi SpA v. Meroni (74/76), 22 March 1977: [1977] E.C.R. 557, [1977] 2 C.M.L.R. 688. 18. Geitling Ruhrkohlen-Verkaufsgesellschaft mbH v. High Authority (13/60), 18 May 1962: [1962] E.C.R. 83, [1962] C.M.L.R. 113. 19. Istituto Chemioterapico Italiano SpA and Commercial Solvents Corp. v. E.C. Commission (6-7/73), 6 March 1974: [1974] E.C.R. 223, [1974] 1 C.M.L.R. 309. TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE Facts

The second plaintiff in the main action (hereinafter called "Roche-Germany ") is a legally independent undertaking forming part of the worldwide organisation known as Roche-SAPAC. The Roche-SAPAC group has developed inter alia the psychopharmacological drug "Valium", the chemical abbreviation for which is "Diazepam". Roche-Germany manufactures Valium under a licence which it obtained from the first plaintiff (hereinafter called "Roche-Basel"), and sells it in the Federal Republic of Germany under the name "Valium Roche". Valium and Roche are trade marks protected by international *220 registration in favour of Roche-Basel. The proprietary medicinal product has, in accordance with the provisions of the Arzneimittelgesetz (German Medicines Act) been registered in the register of proprietary medicines of the Bundesgesundheitsamt (Federal Public Health Office). Roche-Germany sells Valium in packets of 20 or 50 tablets, which in this form are intended for the use of individuals and which are further packaged, five small packets at a time, in quantities of 100 or 250 tablets for the use of hospitals. A British subsidiary of the Roche-SAPAC organisation also makes Valium Roche which it markets in Great Britain in packages containing 100 and 500 tablets at prices which are considerably lower than those charged in Germany. The defendant in the main action is the legally independent German marketing company of the Dutch medicaments manufacturer Centrafarm BV, whose company objects include, among others, international trade in pharmaceutical products. The cause of the present action is the practice of the defendant of purchasing Valium Roche from its Dutch parent company which in turn had purchased it in Great Britain in the original packages of the British subsidiary of Roche and then repackaged it in the Netherlands, under the surveillance of a pharmacist, in batches of 1,000 tablets. On the new bottles and packets were affixed (albeit in an outward presentation different from the presentation of the original package) the names Valium and Roche, the number of the entry on the register of the Bundesgesundheitsamt, together with the name "Centrafarm" and the words "Marketed by Centrafarm GmbH, 4444 Bentheim-1, Telephone: 05922-2525 ". Each packet also came with an information leaflet in German, signed Hoffmann-La Roche, repeating the notice that the medicinal preparation was marketed by Centrafarm. It should be observed that the latter has notified its intention of repackaging the tablets in smaller packets intended for sale to individuals, and that it also manufactures a Diazepam preparation. Roche-Germany regards the conduct of Centrafarm as an infringement of the trade mark rights of the undertaking from which it has obtained a licence. On 31 December 1975 it obtained from the First Chamber for Commercial Matters of the Landgericht Freiburg, an interim injunction prohibiting Centrafarm: "from using in the course of its business dealings in medicinal preparations the names Valium and/or Roche as a trade mark, except where the user consists of placing on the market or offering for sale the product in the original presentation in which it was put on to the market in a member-State of the Community by a third party with the consent of Hoffmann-La Roche and Co. AG, Basel."

That injunction was confirmed by judgment of 16 February 1976. Centrafarm lodged an appeal against that judgment before the Civil Senate of the Oberlandesgericht Karlsruhe sitting at Freiburg. *221 By order dated 14 October 1976, that court referred to the Court of Justice for a preliminary ruling three questions, two of which were almost identical to those with which the present proceedings are concerned. In its judgment of 24 May 1977 in Case 107/76, [FN1] the Court in answer to the first question put by the Oberlandesgericht ruled that that court was not required by the third paragraph of Article 177 of the EEC Treaty to make a reference in interlocutory proceedings for an interim order. As a result the two other questions remained unanswered. FN1 [1977] E.C.R. 957, [1977] 2 C.M.L.R. 334. Since January 1976 the parties have been contesting the substance of the action at first instance before the Landgericht Freiburg. On 20 June 1977 the Landgericht Freiburg in turn ordered that the proceedings should be stayed and that the following questions should be referred to the Court of Justice under Article 177 of the EEC Treaty for a preliminary ruling: 1. "Is the person entitled to a trade mark right protected for his benefit both in member-State A and in member-State B empowered under Article 36 of the EEC Treaty, in reliance on this right, to prevent a parallel importer from buying from the proprietor of the mark or with his consent in member-State A of the Community medicinal preparations which have been put on the market with his trade mark lawfully affixed thereto and packaged under this trade mark, from providing them with new packaging, affixing to such packaging the proprietor's trade mark and importing the preparations distinguished in this manner into member-State B? 2. Is the proprietor of the trade mark entitled to do this or does he thereby infringe provisions of the EEC Treaty--in particular those contained in Article 86 thereof--even if he acquires a dominant position within the market in member-State B with regard to the medicinal preparation in question, when prohibition on imports of a repacked product to which the proprietor's trade mark has been affixed has in actual fact a restrictive effect on the market, because different sizes of packages are used in countries A and B and because the importation of the product in another manner has not yet in fact made any appreciable progress on the market, and when the actual effect of the prohibition is that between the member-States there is maintained a substantial--in certain circumstances disproportionate-- price differential, without its being possible to prove that the owner of the mark is using the prohibition solely or mainly to maintain this price differential?" It appears from the order making the reference that the Landgericht Freiburg is of the opinion that the conduct of Centrafarm which is in issue constitutes an infringement of the provisions of German trade mark law and that Community law does not preclude Roche-Basel from relying upon its trade mark rights. It refers to its judgment of 16 February 1976 and to the observations made in the *222

order containing the reference from the Oberlandesgericht of 14 October 1976. In that order the Oberlandesgericht stated that under domestic German trade mark law Hoffmann-La Roche could, within the limits set out in the interim order, require Centrafarm to refrain from using the designations Valium and Roche as trade marks. Only Roche-Germany, therefore, is entitled under section 15 (1) of the German Trade Marks Act (Warenzeichengesetz) inter alia to affix the trade mark to the package or container of its products and to put them, so designated, on the market. Anyone else who acts in this way without the consent of the proprietor of the mark does so unlawfully. In the same way the established legal view is that to fill with the genuine product a container to which the mark has been affixed also infringes the exclusive right of the proprietor of the trade mark [FN2]. FN2 Cf. Singer, 103 RGZ 359, 363-364; Stellin, 124 RGZ 273, 275-276. Referring to the case law of the Court on Article 36 of the EEC Treaty the Oberlandesgericht observed in particular that Centrafarm had adversely affected the function of the mark as an indication of origin and therefore its specific subject-matter. Since medicinal preparations are concerned the relevant legal provisions should indicate the requirements as to proof of origin and accordingly show to what extent the function of the trade mark as an indicator of origin provides protection. According to Section 4 (14) of the new German Pharmaceuticals Act (Arzneimittelgesetz) in its version of 24 August 1976, [FN3] which enters into force in 1978, production includes transfer into other containers, repacking and marking. Transfer into other containers and repacking of a medicinal preparation involves such interference with the substance of the product that legislative measures of protection of the same scope as those applying to the original manufacture appeared necessary. Transfer into other containers therefore adversely affects not only the function of the trade mark as an indication of origin but also its consequent function as a guarantee. FN3 [1976] I BGB1. 2445, Digested In [1976] European Law Digest 544. As regards Article 86 of the Treaty, the Oberlandesgericht relied on the findings reached by the Kammergericht in its decision of 5 January 1976 delivered on an administrative action in a cartel case between Roche-Germany and the Bundeskartellamt (Federal Cartel Office), and was of the opinion that Roche-Germany occupied a dominant position on the German market in tranquillisers. Centrafarm had also established the likelihood that Roche-Germany abusively maintains that position to keep prices at an excessively high level. This nevertheless does not mean that the assertion of its trade mark rights by Roche-Germany infringes Article 86 of the Treaty. It is not an abuse for an undertaking to avail itself of the subject-matter of a right to which it is entitled in the same manner *223 as any other person entitled to a similar right and which is justified by objectives unconnected with the abuse of a dominant position on the market. The Landgericht Freiburg adds to those observations of the Oberlandesgericht

as follows: "The Chamber is not able to follow the view adopted by the plaintiffs that, with the decision of the Bundesgerichtshof of 16 December 1976 (KVR 2/76), which quashed the decision of the Kammergericht Berlin of 5 January 1976, there is no longer any basis for the present second question referred for a preliminary ruling. It is impossible to equate a finding that there has been an infringement under section 22 (5) of the Restraint of Competition Act (Gesetz gegen Wettbewerbsbeschränkungen) with the content of the second question referred to the Court of Justice for a preliminary ruling. Of the criteria laid down in the above-mentioned provision the question referred for a preliminary ruling adopts only the concept of a "dominant position". However, in this respect the findings of the Kammergericht were finally upheld in the decision of the Bundesgerichtshof of 16 December 1976 (p. 19)."

Opinion of the Advocate General (Sig. Francesco Capotorti) 1. It is of the very essence of the industrial and commercial property rights recognised by the legal systems of the various member-States that their exclusive and territorial nature should impede the free movement of goods in the Community and the proper functioning of the rules of competition. It was therefore necessary to provide in Article 36 of the EEC Treaty a provision protecting such rights; but we know how delicate and difficult the balance is that Article 36 seeks to establish when it states that prohibitions or restrictions on imports, exports or goods in transit justified on the grounds of the protection of industrial and commercial property shall not be precluded and then immediately adds that "such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between member-States". Accordingly, on several occasions in the exercise of its jurisdiction to interpret the Treaty the Court has had to determine the exact point at which the fundamental Community principles of the free movement of goods and freedom of competition are actually to be reconciled with the recognition accorded to the rights in question by the various national laws. In particular, the case law of the Court has contributed to the gradual definition of the limits to the protection of individual claims based on a trade mark right, which are undoubtedly lawful from the point of view of a particular national legal system but which are incompatible with the Community system. It is clear as regards trade marks that the national legal systems, which were conceived and developed independently before the EEC Treaty *224 entered into force, quite independently of the phenomenon of economic and legal integration which took place with the establishment of the Common Market, but which continued to govern independently that important sector of law, are, from the point of view of their application and effect, henceforward restricted in many respects by the effect of Community law. The present case which presents certain new aspects in relation to the previous cases considered by the Court in the sphere of industrial and commercial property offers a further opportunity to develop the case law. 2. I have already summarised the facts which are at the origin of the present

case in my opinion of 5 May 1977 in Case 107/76 between the same parties. [FN4] It will be recalled that by order dated 14 October 1976 the Oberlandesgericht Karlsruhe had referred to this Court the two questions of interpretation which are today raised by the Landgericht Freiburg in the same circumstances; those questions at the time were subject to a procedural question concerning the third paragraph of Article 177 of the EEC Treaty and the Court restricted itself in its judgment of 24 May 1977 to answering that preliminary question. For the sake of clarity I cannot avoid today referring briefly to certain facts which I mentioned at the time, supplementing them with other matters which appear to me appropriate. FN4 [1977] E.C.R. 957, [1977] 2 C.M.L.R. 334. Since 1963 the undertakings of the multi-national pharmaceutical group Roche-SAPAC have been manufacturing and selling in all countries a tranquilliser called "Valium". This is a psycho-therapeutic medicinal product coming within the class of products called "benzo-diazepine". In Germany this medicinal product is manufactured by the German company Hoffmann-La Roche under a licence given it by Hoffmann-La Roche, Basel, and it is sold under the name "Valium-Roche". Both these names are internationally protected by means of registered trade marks, the proprietor of which is the parent company in Basel. The German company puts Valium on the market in the Federal Republic of Germany exclusively in packages of 20 and 50 tablets; further, it sells to hospitals as one single package five of such packages of 50 tablets in one wrapping. The British subsidiary of the same Roche-SAPAC group also makes Valium which it markets in Great Britain in packages containing 100 and 500 tablets at prices which are considerably lower than those charged by the German subsidiary. The German undertaking Centrafarm GmbH, a subsidiary of the Dutch company Centrafarm BV, which is engaged in the manufacture and sale of pharmaceutical products, receives from Great Britain, through the parent company which purchases it there, Valium manufactured and marketed by Roche in Great Britain. The Dutch *225 company buys the product in Great Britain in bottles of 500 tablets, each of which bears the trade mark Roche, and repackages it in the Netherlands in bottles of 1,000 tablets. The operation is carried out under the surveillance of a pharmacist and in conformity with the Dutch health laws. The new bottles and the external wrapping have printed on them, albeit in a slightly different form from the original packaging of the British producer, the names "Valium" and "Roche". Included also on the new packages, for the purpose of the sale of the product on the German market, is the registration number of the medicinal product on the register of the Federal public health office, the name "Centrafarm" and finally the legend "marketed by Centrafarm GmbH" together with the address and telephone number of that undertaking in the Federal Republic of Germany. Each wrapping carries a notice in German, basically identical to that which is affixed by Hoffmann-La Roche Germany on the packaging of its original product.

That notice also includes the trade mark Hoffmann-La Roche and states that the preparation is distributed by Centrafarm GmbH. The product was introduced to the market of the Federal Republic of Germany in this new presentation for sale in particular to hospitals, clinics and other medical establishments. It should be observed that Centrafarm had notified its intention of putting the same product of British origin on sale in Germany in smaller packages, as is done by the German subsidiary of Roche, for sale in chemists' shops to individual consumers, but so far it does not seem that effect has been given to such intention. Acting in the name of the Swiss parent company, the German company Hoffmann-La Roche has brought legal proceedings against Centrafarm before the Landgericht Freiburg on the grounds that under the German Trade Marks Act (Warenzeichengesetz), and in particular its section 15, there has been an infringement of the trade mark right, of which the Swiss company is the proprietor. By interlocutory order dated 31 December 1975 the Landgericht Freiburg found in favour of the plaintiff and issued an injunction against Centrafarm restraining it from using the names Valium and Roche either together or separately in its own trade in medicinal products, subject to being able to market the product in the original presentation in which it was marketed in a member-State of the Community by an undertaking licensed by Hoffmann-La Roche & Co. AG of Basel. That order was confirmed by an interim judgment of the same court dated 16 February 1976. At a subsequent stage of the dispute, when it was possible to give closer examination to the matter during ordinary proceedings, the Swiss parent company, the proprietor of the trade mark, intervened in the proceedings in support of the claims of the German subsidiary. *226 By order dated 20 June 1977 the Landgericht Freiburg referred the following questions for a preliminary ruling under the second paragraph of Article 177 of the EEC Treaty: The Advocate General repeated the questions, and continued: 3. The problems raised in these questions are, as I have already said, the same as those put to the Court by the Oberlandesgericht Karlsruhe in Case 107/76. The Landgericht Freiburg seems to share the opinion in respect of them already expressed by the Oberlandesgericht Karlsruhe in its order of reference and it recalls the grounds contained in that order. It accordingly seems to me necessary to take account of that statement, especially as in my view it seems correctly to reflect the rules and legal concepts of German law on the subject as applicable to this particular case. According to the court at Karlsruhe, a medicinal product which has been repackaged can no longer be attributed to the original manufacturer. This view is based mainly on section 15 (1) of the Trade Marks Act (Warenzeichengesetz), which gives the proprietor of the trade mark designating a product the exclusive right of affixing the trade mark to packages containing that product. The Oberlandesgericht also referred to the German Pharmaceuticals Act

(Arzneimittelgesetz) of 16 May 1961, which provides that "production" includes the packing of medicinal preparations into packages for sale to the consumer, and to the new Act of 24 August 1976 (due to enter into force in 1978), which provides that "production" also includes transfer into other containers, repacking and marking and renders those operations subject to the grant of a licence, as is the case with production in the strict sense. That is why the Oberlandesgericht Karlsruhe, whilst accepting that the defendant and its parent company had fulfilled all the requirements of health legislation in repacking the product, reached the conclusion that the application of the mark of the original manufacturer to the new containers by an unauthorised third party was at variance with the function of indicating the origin of the product. Since in Community case law that function has also been recognised as the essence of the trade mark right, section 15 (1) of the Trade Marks Act is compatible with Community law: in other words, it forms part of that area of trade mark law which is protected by Article 36 of the EEC Treaty. The German court subsequently justified that conclusion by stating that if the undertaking distributing the product applied the manufacturer's mark to a new container the consumer might be led falsely to believe that the product had been marketed in that packaging by the manufacturer himself whereas, since the manufacturer has had no part in the repackaging, he cannot be responsible for the condition of the product thereafter. The other function of the mark, which is to provide the consumer with an assurance as to quality, would also be jeopardised. In short, in the present *227 case Centrafarm, by applying the plaintiff's trade name, even at the foot of the notice affixed to the medicine, has given the impression that Hoffmann-La Roche has authorised it to print and sign that notice; it has thereby infringed the right conferred upon the plaintiff by section 16 of the Trade Marks Act. 4. Let us now consider the case law of the Court of Justice concerning industrial and commercial property rights. Of the judgments treating the question of the compatibility of such rights with the Community system having regard to Article 36 of the EEC Treaty, I shall recall in particular the judgments of 8 June 1971 in Case 78/70 Deutsche Grammophon [FN5] of 3 July 1974 in Case 192/73 Hag [FN6] of 31 October 1974 in Cases 15/74 and 16/74 Centrafarm v. Sterling Drug [FN7] and Centrafarm v. Winthrop, [FN8] and of 22 June 1976 in Case 119/75 Terrapin. [FN9] FN5 [1971] E.C.R. 487, [1971] C.M.L.R. 631. FN6 [1974] E.C.R. 731, [1974] 2 C.M.L.R. 127. FN7 [1974] E.C.R. 1147, [1974] 2 C.M.L.R. 480. FN8 [1974] E.C.R. 1183, [1974] 2 C.M.L.R. 480. FN9 [1976] E.C.R. 1039, [1976] 2 C.M.L.R. 482.

The basic concept which all those decisions confirm is that, whilst the EEC Treaty does not prejudice the existence of industrial and commercial property rights conferred by the legislation of each member-State, nevertheless it may be that the Community prohibitions intended to ensure the free movement of goods impinge on the exercise of those rights. The Court of Justice has considered that Article 36 of the Treaty is a provision which is in the nature of a derogation from one of the basic principles of the Common Market. Accordingly, the exceptions which that Article establishes to the free movement of goods in order to permit the exercise of the rights which are conferred upon the proprietor of a mark under national law are allowed only where they are essential to the safeguarding of rights which constitute the "specific subject-matter" of the mark, that is, to enable the latter to perform its essential function. In the above-mentioned judgment in the Terrapin case the Court of Justice defined that essential function as being to guarantee to consumers the identity of the origin of the product (para. 6 of the decision). Indeed, as an expert in trade mark law has observed, despite the differences which exist between the trade mark laws of the various member-States the national legal systems are at one in recognising that the characteristic function of the trade mark is to identify the products of a manufacturer or trader and therefore to indicate the origin of such products. [FN10] FN10 F. K. Beier, "la Territorialité du Droit des Marques et des Echanges Internationaux" In [1971] Journal du Droit International 19. That is why the Court of Justice conceded in the Terrapin case that an industrial or commercial property right which has been lawfully acquired in a member-State may be relied upon for the purposes of Article 36 of the Treaty if, in the case of similar *228 products coming from different member-States and bearing similar marks belonging to legally and economically independent persons, there is a risk of confusion between such marks. [FN11] FN11 [1976] E.C.R. at pp. 1061-1062, [1976] 2 C.M.L.R. at p. 506 (Para. [7]). Previously, in the Centrafarm v. Winthrop case, the Court went some way towards defining the specific subject-matter of commercial property, perceiving this to be inter alia "the guarantee that the owner of the trade mark has the exclusive right to use that trade mark, for the purpose of putting products protected by the trade mark into circulation for the first time, [it being] therefore intended to protect him against competitors wishing to take advantage of the status and reputation of the trade mark by selling products illegally bearing that trade mark" (para. 8 of the decision). Nevertheless, as the Court has further stated, it must be considered that such specific subject-matter does not cover either a claim by the proprietor of the mark to prohibit the importation of a product which has already been put on to the market by him or with his consent (cf. para. 10 of the judgment in the Centrafarm v. Winthrop case) or the claim of such proprietor to prohibit the marketing in a member-State of a product legally

bearing a trade mark registered in another member-state for the sole reason that an identical trade mark having the same origin exists in the first State (para. 15 of the decision in Hag). These two important statements of principle were prompted by the desire to eliminate any risk of the use of trade marks to establish artifical divisions within the Common Market. On the other hand, they confirm that the Court of Justice holds Article 36 to be a provision which must be strictly interpreted and has accordingly restricted the safeguarding of national provisions for the protection of trade marks to the minimum which appears inseparably linked with the raison d'être of that legal institution. 5. I must now consider the present case in the light of these decisions, whose main points I have recalled. This case does not turn purely and simply on a matter of parallel imports: the plaintiffs have stated that they would have no objection whatever to the importation by any person of Valium in the form in which it is produced in Great Britain by their subsidiary and that they challenge only the repackaging of the product. Nor does it present a problem of identical marks having the same origin: the only mark in question is "Valium Roche" and the plaintiffs complain that the defendant has applied it to new containers without their consent, and not that it has used a competing mark. With regard to passing off, this point could be raised only if the application to the new packaging of the name Centrafarm in addition to the name Valium Roche were considered as such: this is an aspect of the problem to which I shall turn later. However, the problem does not concern similar trade marks covering like products on the *229 same basis: in fact the mark "Valium Roche" denotes the product and its manufacturer whilst the name "Centrafarm " has been added together with the words "marketed by Centrafarm". It thus seems to me that the case law of the Court of Justice provides us in particular with the following assistance in the present case: it must be established whether there is a necessary connection between the essential function of the mark and the right which German law appears to attribute to the plaintiff undertakings to prohibit the defendant from marketing in Germany a pharmaceutical product manufactured and sold in Great Britain by an undertaking of the Roche group on the sole ground that Centrafarm has altered the packaging of that product and subsequently re-applied the trade mark without authorisation. I would observe that it appears that the proprietor of the mark in question is relying on his trade mark right against the importer of the British product much as he could do against a re-seller of the same product if it had been manufactured in Germany and the re-seller had, without authorisation, repackaged it. In purely formal terms, such an exercise of a trade mark right may be envisaged regardless of whether the goods in question constitute a domestic product or a product coming from another member-State. Nevertheless, in practice a proprietor of a mark will chiefly claim to exercise his right in respect of products coming from other States, in that third parties have an interest in altering the original packaging only in so far as it is more advantageous to acquire the product in another member-State but it is not obtainable packed (or bottled) in the quantities usually in demand in the State in which it is intended to re-sell that

product. The fact that the prohibition which Hoffmann-La Roche is applying to Centrafarm on the basis of its trade mark right is not discriminatory does not, however, of itself place it outside the limits which Article 36 lays down with regard to the protection of industrial and commercial property rights. Indeed, viewed objectively, that prohibition entails a restriction on the free movement of goods which in practice has much more serious effects on trade in imported products than on trade in domestic products. In the present case it is clear that a decision condemning the alteration of the packaging of the medicaments in question would entail a restriction on the free movement of such medicaments within the Community. This is shown in particular by the fact, which is not in dispute, that for the purposes of public sale it would be difficult to distribute the goods in the form in which they were packed by the British producer through chemists in the Federal Republic of Germany where it is prohibited for chemists to distribute in small quantities medicaments which are originally packed in large quantities. It is true that up to the time to which the facts in question before the German court relate Centrafarm *230 had marketed in Germany only packages intended for hospitals. Nevertheless, as I have stated, Centrafarm had announced its intention of marketing the product in smaller quantities, intended for sale by chemists. The wording of the question submitted by the German court leaves no doubt on this point, which was also mentioned in the order of the Oberlandesgericht Karlsruhe to which reference was made by the court requesting the preliminary ruling; it is principally from this angle, it appears to me, that one can see the barrier to the free movement of goods which is entailed in the claim of the proprietor of the mark to prohibit the distributor from altering the packaging. 6. Before broaching the substance of the problem it is necessary to dispose of two arguments which have been sustained by the plaintiff undertakings and by certain of the governments which submitted observations in this case but which in my view cannot affect the answers to be given to the first question of the Landgericht Freiburg. The first argument concerns the alleged connection between the prohibition on the repackaging of pharmaceutical products (which, it is maintained, is based on the trade mark right) and the requirement of safeguarding consumers and protecting public health. In reality, even if such a connection exists, it cannot be used to show that that prohibition stems from the specific function of the trade mark. The Court of Justice has already had occasion to state in its judgment of 31 October 1974 in Case 16/74 Centrafarm v. Winthrop [FN12] that measures necessary for the protection of consumers against risks arising from defective pharmaceutical products must be adopted in the field proper to health control. Measures for the protection of the health and life of humans and animals may in fact be adopted by the member-States in pursuance of Article 36 of the Treaty, even if such measures derogate from the rules on the free circulation of goods. The safeguarding of such lawful requirements cannot however be undertaken by means of trade mark rights since, as the Court itself stated in the same judgment, "the specific considerations underlying the protection of industrial and

commercial property are distinct from the considerations underlying the protection of the public and any responsibilities which that may imply" (cf. para. 22 of the decision). FN12 [1974] E.C.R. at p. 1196, [1974] 2 C.M.L.R. at p. 509 (Para. [21]). Secondly, reliance has been placed on the actual function of a trade mark in arousing the expectations of consumers as to a specific and constant quality in the product. However, this function cannot be considered as an essential element in the trade mark right. As Professor Beier stated in his above-mentioned article, [FN13] *231 the economic functions of the mark, such as the provision of publicity and the generation of a certain confidence in the quality of the product, are not covered by the protection afforded by the trade mark right. Professor Beier, concurring with the outcome of the research undertaken by another authority in this field, [FN14] stated that "the sole function obtaining protection under trade mark law is, even today, that of the guarantee of origin which stems from the distinguishing function of the mark ". [FN15] The expectation of consumers that a product with a specific mark will have a constant and specific standard of quality "is not protected under trade mark law. Protection against fraud in matters of quality pertains to the law on unfair competition and to the criminal law". [FN16] FN13 See fn. 10. FN14 Vanzetti, "la Funzione E la Natura Giuridica del Marchio";, [1961] I Rivista del Diritto Commerciale 16. FN15 At p. 21. FN16 At p. 22. In any event, even if one or more domestic legal systems provide protection for certain ancillary functions of a trade mark it nevertheless remains true that in the Community system such protection can be held permissible only in so far as it is not at variance with the full observance of the principle of the free movement of goods (as well as the principle of freedom of competition). National legislation, learned writing and case law which, before the establishment of the Community, and at all events leaving out of account the fact of the Community, emphasised, in different ways and within various limits, ancillary aspects of trade mark law, clearly proceeded from the specific requirements of their respective national markets; in the present case, however, regard must be had for the dictates of the Common Market and for the legal requirements of the EEC Treaty. 7. For reasons of completeness, however, I cannot omit a rapid analysis of the tendencies displayed by the domestic legal systems of the member-States in so far as they concern the problem arising when a distributor carries out an unauthorised alteration of the packaging of products bearing a manufacturer's

mark. From the information on the file in the present case it is clear that the laws of the member-States recognise generally the right of the proprietor of a mark to prevent any alteration to the original packaging of the product which is intended for re-sale by a third party in the new package. Nevertheless, it does not seem that this prohibition is as unconditional as the applicants think. It applies with certainty only in so far as the unauthorised intervention of third parties could cause confusion as to the origin of the product and thus harm the reputation of the mark. In certain countries (Great Britain, Ireland and Denmark) chemists are entitled to remove medicaments, no matter how they have been packed, from their original containers and to supply to the consumer the quantity requested in a new package which the *232 chemist himself prepares and to which he applies the mark which appeared on the product in its original packaging. Further, in Denmark--according to what the Commission stated in its observations on the report of the plaintiffs' expert witness--case law has established that third parties may interfere with a product bearing a mark if they do not alter its basic characteristics, provided that provision is made for informing consumers of the nature of such interference. The significance of the Uniform Benelux Law on Trade Marks is by no means clear on the relevant point, and this applies in particular to Article 13 A (3) thereof, which provides: "le droit exclusif à la marque n'inclut cependant pas le droit de s'opposer à l'utilisation de la marque pour des marchandises que le titulaire de cette marque ou son preneur de licence a mis en circulation sous la marque intéressée, à moins que l'état des marchandises n'ait été modifié". [FN17] FN17 The exclusive right to the mark does not, however, include the right to object to the utilisation of the mark for goods which the holder of the mark or his licensee has put into circulation under that mark, so long as the condition of the goods has not been altered. According to the statement of reasons contained in that Uniform Law, which the Commission quoted, only alterations of a product capable of adversely affecting the repute of the mark constitute passing off under that mark. In a recent decision, the Arrondissementsrechtbank (District Court), Rotterdam, ruled, on the basis of that provision of the Uniform Law, that, since the product itself had not been altered, the alteration of the outer or inner packaging of a pharmaceutical product in the form of pills did not constitute passing off (Decision No. 241/76 of 28 September 1976, Pfizer v. Centrafarm, cited by the Commission). The foregoing is at variance with the argument of the plaintiffs that the concept of alteration of the condition of the goods, embodied in Article 13 A (3) in fine, in any case also covers alterations to the packaging or container of such goods. German case law has indeed recognised the right of the proprietor of a trade mark to prohibit the re-application of the mark by third parties after the latter have interfered with the product. Nevertheless, the Commission has observed that

such decisions related to cases differing from the present proceedings. The Commission maintains that such case law, which was developed in connection with cases in which the intervention of third parties might entail a serious alteration in the product, does not preclude a different result in cases in which there is only a change in the packaging, which does not affect the specific characteristics of the product itself. On various occasions the German courts have ruled that a trade mark right cannot be relied upon against the intervention of third parties which leaves intact those characteristics of the product *233 which indicate that the latter originates from the proprietor of the mark. [FN18] The Commission emphasises that in the Singer judgment itself, [FN19] which the plaintiffs have in fact cited in support of their view, the Reichsgericht stated that the alteration of a product distinguished by a mark often affects its economic characteristics so slightly that such alteration does not constitute an infringement of the proprietor's trade mark right. FN18 Cf. the case law cited by Hefermehl in Bambach-Hefermehl, Kommentar zum Warenzeichengesetz (1969) Article 15, Note 36. FN19 161 RGZ 29. The plaintiffs naturally dispute this view of German case law. Nevertheless, in my view, there is at least good reason to state that the right of the proprietor of a trade mark to prevent alterations to the packaging by third parties is not as uniformly recognised in the member-States of the Community as the plaintiffs maintain. In any event, it should be emphasised that the position on this point in the domestic legal systems is not of decisive importance. Even if the above-mentioned subjective right were in large measure conceded in all the member-States in such a way as to justify the prohibition by the proprietor of a mark of all repackaging, regardless of whether there is evidence of actual injury or at least of an ascertainable risk, it would not thereby be established that under Community law it is necessary to accept that the same right with the same extensive scope exists on the basis of Article 36 of the Treaty. In fact Article 36 does not automatically protect all the rights which proprietors of trade marks enjoy in the national legal systems but, as we have seen, only those rights which are closely connected with the essential function of the mark, that is the identification of the origin of the product. 8. We must now broach the main problem in the present case, that is, to consider whether the right of the proprietor of a mark to prohibit the repackaging of the product, even though bearing the same mark, may be held to be justified by the requirement of avoiding confusion as to the origin of the product. In general, it cannot be denied that the substitution of the packaging of the product may entail risks regarding the identification of the origin, even though the mark has been re-affixed: one need only consider, for example, cases in which the new packaging provides a much-reduced space for the manufacturer's mark or shows in addition to that mark further names or information which might

induce doubt or hesitation in the consumer. The characteristics of the original packaging and those of the product will also have individual significance: in particular, if the mark has been applied by the manufacturer not only to the exterior of the original packaging but also to an internal container which the third party does not replace, or if the product itself has been stamped with the manufacturer's mark, the risk of confusion as to the origin of the product will be reduced or eliminated entirely. In order completely *234 to eliminate all risks of this kind it would, it is true, be necessary to deny any third party who was not authorised by the proprietor of the mark the possibility of interfering with the packaging of the product. However, this would entail sanctioning restrictions on the movement of goods which seem incommensurate with the objective pursued by Article 36 of the Treaty, that is to protect the essential function of the trade mark. Since, however, the restrictions on the free movement of goods permitted under that provision, which is a derogatory and exceptional provision, must be contained within the limits strictly necessary for that objective, I consider that it is incompatible with Community law to concede a general power to the proprietor of the mark to prohibit the repackaging of the product even where the attainment of the essential objective of the mark is not in fact jeopardised. At the most, the right of the proprietor of a trade mark to prohibit alterations to the original packaging could be recognised when, having regard to the type of product, any change in the container thereof entails an actual risk of a modification of the essential characteristics of the product itself such as to affect its identity. Apart from such cases, I consider that it would be in breach of Article 36 of the Treaty to recognise the right of the proprietor of a mark to object in general to any alteration whatever in the packaging in order to ensure that the identity of the product is not misrepresented, without the need to establish whether in a given case there is an actual danger of this nature, having regard to the conditions under which the repackaging is carried out. It is important not to pass over the links between the situation involved in the present case and that in connection with which the Court of Justice has developed in its case law the criterion of the prohibition on the suppression of parallel imports. The present case also concerns a product bearing a trade mark, manufactured and put on the market in a regular manner in a member-State with the consent of the proprietor of the mark and subsequently imported by an independent undertaking in another member-State in which the same proprietor owns the trade mark which is characteristic of the product in question. Since the importation of the product is profitable only in so far as it is possible to repack it, and since the proprietor wishes to rely on his mark in order to preclude such repackaging, his behaviour results in the prevention of parallel imports. In those circumstances I consider that a general risk of confusion as to the origin of the product as the result of the alteration to the packaging is not sufficient to justify the exercise of a power recognised under national law, entailing the right to prevent repackaging; having regard to the exceptional nature of the derogation provided for in Article 36 it is necessary for there to be at least a specific risk, the existence of which may *235 be established only in connection with the particular type of product in question.

Returning to the present case, Valium is a solid product in the form of pills, to each of which the manufacturer's mark had originally been applied. An alteration to the packaging of a product thus distinguished does not appear to entail an appreciable risk of an alteration in its basic characteristics. With regard to a product of this kind I think it impossible to concede the right of the proprietor of the mark to prevent repackaging without regard for the circumstances distinguishing the repackaging in question in the particular case. Viewed in this light it becomes important, in a specific case, to ascertain whether the repackaging was effected under conditions which do not provide a sufficient guarantee that the identity, and thus the basic character, of the product will be preserved. In the present case it appears that this can be ruled out. The Oberlandesgericht Karlsruhe accepted that the alteration of the packaging undertaken by Centrafarm under the supervision of a chemist fulfilled all the requirements in this matter in accordance with the relevant national legislation. However, we are dealing at this point with the appraisal of matters of fact, which is the exclusive sphere of the national court which is required to rule on the substance of the main action. 9. In the course of these proceedings the parties have frequently referred to the preparatory work on the regulation which is to establish the Community trade mark. I do not consider that the view which I have put forward is invalidated by the fact that in the course of those preparations provision has recently been made, in derogation from the principle of the exhaustion of the proprietor's right, for a clause whereby that principle shall apply only to products which retain the form in which they were originally put on the market. In this connection, it should be decided from the outset whether the "form of the product" always includes the packaging or whether it may refer only to the product contained in such packaging. Apart from the foregoing it is perfectly conceivable that the proprietor of a mark covered by a single system for the entire Community should enjoy rights which are not restricted to the protection of the essential function of distinguishing the product defined above but which extend also to certain ancillary functions of the mark itself. This would in fact be an exclusive right subject to the Community rules and thus uniformly applicable throughout the entire Community; in that context the protection of further rights does not entail those risks of abuse, with adverse effects on the principle of the free movement of goods, which would on the other hand follow from the indiscriminate protection of such rights for the benefit of proprietors whose marks are recognised on the basis of the national territory. *236 The plaintiffs, with reference to the point of view put forward by the French Government in its observations in Case 107/76, then state that the unauthorised alteration of the packaging of proprietary medicinal products is contrary to the provisions of the Council Directive of 26 January 1965 on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products, and especially to its Articles 4 and 13. Article 4 lays down the procedure which must be followed in order to obtain an authorisation to place a proprietary medicinal product on the market; in accordance with Article 3 that authorisation must be issued by the competent

authority in each member-State. Article 13 establishes what information must appear on containers and outer packages of medicinal products. I do not, then, understand how it can be held that these provisions forbid any alteration to the packaging; the important point is that the new packaging should meet the requirements laid down in Article 13 and that the proprietary medicinal product therein contained should be identical with that in respect of which the appropriate authorisation was issued pursuant to Article 4. In any event, it does not appear to me that compliance or otherwise with those provisions is relevant to the problem of the protection of the trade mark right which has been raised in the questions from the Landgericht Freiburg which we have hitherto considered. 10. Finally, brief consideration should be given to an argument of another nature put forward by the plaintiff undertakings: namely that, since the original proprietor of the mark is responsible for the quality of the product, he must for that purpose be able to check both the manufacture and packaging of the product and he can no longer be answerable for the quality of a product which has been repacked by third parties. It seems to me in fact that this argument was effectively rejected in the judgment of the Court in Centrafarm v. Winthrop, from which I have already quoted the passage which emphasises the distinction between the specific subject-matter of industrial and commercial property and the objective of the protection of consumers and any responsibilities which may be entailed thereby. I should like to add that it is always possible to establish the liability of a person who, in repacking a product, has altered its quality; where has it ever been laid down that a manufacturer is also liable for events taking place after production and over which he has no control? However, in order to assist in establishing any fault on the part of an importer who has altered a product in the course of repackaging it, it appears to me possible to concede, along the lines of the Danish case law to which I have earlier referred, the right of the proprietor of the mark to require that there should appear on the new packaging *237 a statement to the effect that the repackaging was carried out by the importer. 11. Let us now turn to a consideration of the second question, by which the Court of Justice is asked whether an undertaking which enjoys a dominant position on the market for a specific pharmaceutical product in a member-State infringes Article 86 of the Treaty by prohibiting on the basis of its trade mark the importation of the above-mentioned product on the ground that it has been repacked without authorisation in a new container to which the importer has re-affixed the original mark. According to the statement of the court making the reference, in making that appraisal it is necessary to take account of the fact that such prohibition has in actual fact a "restrictive effect on the market" because the individual quantities marketed and generally used in the importing country are different from those of the producing country and therefore the imported product, in its original packaging, does not make any appreciable progress on the market so that a substantial difference in the selling price to consumers of the product in question is maintained between the member-States, without its being possible to prove that the proprietor of the mark is maintaining the prohibition solely or principally for the purpose of maintaining that price differential.

In my view the solution which I have advocated above for the problem raised by the first question renders the second question irrelevant in practical as well as in theoretical terms; nevertheless, I shall submit some short considerations on this point for the Court. It cannot be held that the exercise of a trade mark right by an undertaking enjoying a dominant position in itself constitutes an abuse within the meaning of Article 86 of the EEC Treaty. It is indeed true that in the context of the provisions on competition the same behaviour can present differing aspects and accordingly be appraised differently for the purposes of Articles 85 and 86, depending on whether such behaviour is attributable to a small or medium-sized undertaking operating in an extremely competitive market or to an undertaking which dominates the market in the products in question. Nevertheless, the foregoing cannot justify a concept of the specific subject-matter of the mark which varies depending on the market position of the undertaking which uses that mark. The exercise of a trade mark within the limits which are necessary to protect its essential function, as has been set out above, cannot be precluded for a given undertaking merely because it occupies a dominant position. With regard to the protection of the trade mark, the treatment accorded to undertakings cannot vary. However, where the exercise of the trade mark right by an undertaking which occupies a dominant position exceeds the limits within which such exercise is justified by Article 36 of the Treaty it may constitute a *238 relevant factor in ascertaining whether there has been an infringement of Article 86, in so far as it promotes behaviour by the undertaking on the market which may be contrary to that Article. I have aready observed that an endeavour to rely on the trade mark right, with regard to a product of the kind in question in the present proceedings, in order to achieve a general and complete prohibition on imports solely on the basis of an alteration in the packaging is not justified under Aricle 36. Such unjustified exercise of a trade mark right by an undertaking occupying a dominant position may accordingly, together with other factors, constitute an infringement of Article 86 of the Treaty if it is instrumental in allowing that undertaking to exploit the market in which it operates. This seems to me precisely the situation described in the second question, since the undertaking in a dominant position has relied on the different dimensions of the packaging of the product marketed in the member-States in question to exercise its rights as proprietor of the mark in order to shield itself against "parallel" imports, which enables it to maintain on the German market prices which are appreciably higher than those charged by its British subsidiary. The abuse prohibited under Article 86 does not therefore consist merely in restraining competition by the prevention of parallel imports on the basis of the trade mark. Rather, such an exercise of the mark constitutes a factor in a more complex behaviour-pattern, the decisive factor in which with regard to the infringement of Article 86 consists, in the case described by the court making the reference, in the substantial or even disproportionate difference in the prices charged by the undertaking in the dominant position and those charged for the same product by the related undertaking in another member-State, it being understood, naturally, that there is no objective justification for the

higher price prevailing on the German market. It should further be noted that for the purposes of the application of the prohibition laid down in Article 86 of the Treaty proof that the above-described behaviour was intentional is not decisive. The concept of abuse of Article 86 is generally considered to be objective in character. In the SIRENA case (40/70) [FN20] the Court of Justice sanctioned this objective concept where it states (para. 17 of the decision): "As regards the abuse of a dominant position, although the price level of the product may not of itself necessarily suffice to disclose such an abuse, it may, however, if unjustified by any objective criteria, and if it is particularly high, be a determining factor." Accordingly, in the circumstances outlined by the German court it is unnecessary for the purposes of Article 86 to establish that the proprietor of the mark relies thereon exclusively or principally with the specific intention of maintaining artificially an *239 excessive price differential between the various national markets. It is sufficient that his conduct in fact produces that result. FN20 [1971] E.C.R. 69, [1971] C.M.L.R. 260 (1971). Finally, I should like to observe that it is not for the Court of Justice in the context of a preliminary ruling to consider whether there are present in this case all the conditions necessary to establish that Article 86 has been infringed. This applies in particular to the question whether the prices maintained by Hoffmann-La Roche on the German market are or are not excessive. 12. In conclusion, I suggest that the Court of Justice should reply as follows to the preliminary questions submitted by the Landgericht Freiburg im Breisgau by its order of 20 June 1977: 1 " (a) In principle, the provisions of the EEC Treaty on the free movement of goods do not permit the proprietor of a trade mark which is protected in two countries of the Community to rely on that mark to prevent third parties who have acquired in one of those States pharmaceutical products to which the mark has lawfully been affixed and which have been marketed by the proprietor himself or with his consent from importing such products into the other member-State and transferring them into new packages to which the manufacturer's mark is reapplied. (b) Such exercise of the trade mark right is permitted by Article 36 of the EEC Treaty only in so far as the alteration to the packaging carried out by unauthorised third parties is liable adversely to affect the basic function of the mark, namely to specify the origin, and thus the identity of the product. This would be so in the present case if the alteration to the packaging, having regard to the characteristics of the product in question and to the conditions of law and of fact pertaining to its repackaging, entailed a serious risk of alteration of the essential characteristics of the product. (c) The proprietor of the mark may lawfully require the importer to indicate clearly on the new packaging, and where appropriate on any container therein, that the importer and not the manufacturer repacked and, where such is the case,

transferred the product to the new container. 2 The exercise of a trade mark right which, while it is unnecessary in order to protect the specific subject-matter of that right, hinders parallel imports of the product in respect of which the proprietor of the mark occupies a dominant position contributes, in particular where such measures have the effect of permitting the proprietor to maintain excessive prices for that product on his national market, to an abuse of a dominant position and accordingly falls under the prohibition contained in Article 86." JUDGMENT [1] By order dated 20 June 1977 received at the Court on 2 August 1977 the Landgericht Freiburg referred to the Court under Article 177 of the EEC Treaty two questions concerning the effect of certain provisions of the Treaty on the exercise of the rights appertaining to the proprietor of a trade mark. Those questions *240 have arisen in proceedings between two undertakings in the pharmaceuticals sector, one of which, the plaintiff in the main action (hereinafter referred to as "Hoffmann-La Roche"), which is the proprietor of a certain trade mark in several member-States, has taken issue over the fact that the other, the defendant in the main action (hereinafter referred to as "Centrafarm"), which had purchased a product covered by that trade mark marketed in a member-State, distributes that product in another member-State after repackaging it and re-affixing the proprietor's trade mark to the new packet. [2] The product in question, Valium, is marketed in Germany by Hoffmann-La Roche for individual buyers in packages of 20 or 50 tablets and for hospitals in batches of five packages containing 100 or 250 tablets, while the British subsidiary of the Hoffmann-La Roche group, which manufactures the same product, markets it in packages of 100 or 500 tablets at considerably lower prices than those obtaining in Germany. Centrafarm marketed in Germany Valium purchased in Great Britain in the original packages which it put up into new packages of 1,000 tablets, to which it affixed the trade mark of Hoffmann-La Roche together with a notice that the product had been marketed by Centrafarm. Centrafarm also gave notice of its intention to repack the tablets into smaller packages intended for sale to individuals. [3] In its order making the reference the Landgericht held, in accordance with an opinion expressed by the superior court in a previous procedural stage of the same case, that what Centrafarm has done constitutes an infringement of the rights of Hoffmann-La Roche according to the German law on trade marks. [4] The question whether the laws of the other member-States in the matter are the same has been discussed before the Court but has not received a clear answer. The first question [5] The first question is worded as follows: "Is the person entitled to a trade mark right protected for his benefit both in

member-State A and in member-State B empowered under Article 36 of the EEC Treaty, in reliance on this right, to prevent a parallel importer from buying from the proprietor of the mark or with his consent in member-State A of the Community medicinal preparations which have been put on the market with his trade mark lawfully affixed thereto and packaged under this trade mark, from providing them with new packaging, affixing to such packaging the proprietor's trade mark and importing the preparations distinguished in this manner into member-State B?" [6] As a result of the provisions in the Treaty relating to the free movement of goods, and in particular Article 30, quantitative restrictions on imports and all measures having equivalent effect are prohibited between member-States. Pursuant to Article 36 those *241 provisions nevertheless do not preclude prohibitions or restrictions on imports justified on grounds of the protection of industrial and commercial property. However, it is clear from that same Article, in particular its second sentence, as well as from the context, that whilst the Treaty does not affect the existence of rights recognised by the laws of a member-State in matters of industrial and commercial property, yet the exercise of those rights may nevertheless, depending on the circumstances, be restricted by the prohibitions contained in the Treaty. Inasmuch as it creates an exception to one of the fundamental principles of the Common Market, Article 36 in fact admits of derogations from the free movement of goods only to the extent to which such exceptions are justified for the purpose of safeguarding the rights which constitute the specific subject-matter of that property. [7] In relation to trade marks, the specific subject-matter is in particular to guarantee to the proprietor of the trade mark that he has the exclusive right to use that trade mark for the purpose of putting a product into circulation for the first time and therefore to protect him against competitors wishing to take advantage of the status and reputation of the trade mark by selling products illegally bearing that trade mark. In order to answer the question whether that exclusive right involves the right to prevent the trade mark being affixed by a third person after the product has been repackaged, regard must be had to the essential function of the trade mark, which is to guarantee the identity of the origin of the trade-marked product to the consumer or ultimate user, by enabling him without any possibility of confusion to distinguish that product from products which have another origin. This guarantee of origin means that the consumer or ultimate user can be certain that a trade-marked product which is sold to him has not been subject at a previous stage of marketing to interference by a third person, without the authorisation of the proprietor of the trade mark, such as to affect the original condition of the product. The right attributed to the proprietor of preventing any use of the trade mark which is likely to impair the guarantee of origin so understood is therefore part of the specific subject-matter of the trade mark right. [8] It is accordingly justified under the first sentence of Article 36 to recognise that the proprietor of a trade mark is entitled to prevent an importer of a trade-marked product, following repackaging of that product, from affixing the trade mark to the new packaging without the authorisation of the proprietor.

[9] It is, however, necessary to consider whether the exercise of such a right may constitute a "disguised restriction on trade between member-States " within the meaning of the second sentence of Article 36. Such a restriction might arise, inter alia, from the proprietor of the trade mark putting on to the market in various member-States an identical product in various packages while *242 availing himself of the rights inherent in the trade mark to prevent repackaging by a third person even if it were done in such a way that the identity of origin of the trade-marked product and its original condition could not be affected. The question, therefore, in the present case is whether the repackaging of a trade-marked product such as that undertaken by Centrafarm is capable of affecting the original condition of the product. [10] In this respect the answer must vary according to the circumstances and in particular according to the nature of the product and the method of repackaging. Depending on the nature of the product, repackaging in many cases inevitably affects its condition, while in others repackaging involves a more or less obvious risk that the product might be interfered with or its original condition otherwise affected. Nevertheless, it is possible to conceive of the repackaging being undertaken in such a way that the original condition of the product cannot be affected. This may be so where, for example, the proprietor of the trade mark has marketed the product in a double packaging and the repackaging affects only the external packaging, leaving the internal packaging intact, or where the repackaging is inspected by a public authority for the purpose of ensuring that the product is not adversely affected. Where the essential function of the trade mark to guarantee the origin of the product is thus protected, the exercise of his rights by the proprietor of the trade mark in order to fetter the free movement of goods between member-States may constitute a disguised restriction within the meaning of the second sentence of Article 36 of the Treaty if it is established that the use of the trade mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between member-States. [11] Although this conclusion is unavoidable in the interests of freedom of trade, it amounts to giving the trader who sells the imported product with the trade mark affixed to the new packaging without the authorisation of the proprietor a certain licence which in normal circumstances is reserved to the proprietor himself. In the interests of the proprietor as trade mark owner and to protect him against any abuse it is therefore right to allow such licence only where it is shown that the repackaging cannot adversely affect the original condition of the product. [12] Since it is in the proprietor's interest that the consumer should not be misled as to the origin of the product, it is moreover right to allow the trader to sell the imported product with the trade mark affixed to the new packaging only on condition that he gives the proprietor of the mark prior notice and that he states on the new packaging that the product has been repackaged by him. [13] It follows from what has been stated above that, subject to consideration of the facts of a particular case, it is irrelevant in *243 answering the legal question raised regarding the substance of trade mark law that the question referred by the national court is exclusively concerned with medicinal products.

[14] The first question must therefore be answered to the effect that: (a) The proprietor of a trade mark right which is protected in two member-States at the same time is justified pursuant to the first sentence of Article 36 of the EEC Treaty in preventing a product to which the trade mark has lawfully been applied in one of those States from being marketed in the other member-State after it has been repacked in new packaging to which the trade mark has been affixed by a third party. (b) However, such prevention of marketing constitutes a disguised restriction on trade between member-States within the meaning of the second sentence of Article 36 where: it is established that the use of the trade mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between member-States; it is shown that the repackaging cannot adversely affect the original condition of the product; the proprietor of the mark receives prior notice of the marketing of the repackaged product; and it is stated on the new packaging by whom the product has been repackaged. The second question [15] The second question is worded as follows: "Is the proprietor of the trade mark entitled to do this or does he thereby infringe provisions of the EEC Treaty--in particular those contained in Article 86 thereof--even if he acquires a dominant position within the market in member-State B with regard to the medicinal preparation in question, when prohibition on imports of a repacked product to which the proprietor's trade mark has been affixed has in actual fact a restrictive effect on the market, because different sizes of packages are used in countries A and B and because the importation of the product in another manner has not yet in fact made any appreciable progress on the market, and when the actual effect of the prohibition is that between member-States there is maintained a substantial--in certain circumstances disproportionate--price differential, without its being possible to prove that the owner of the mark is using the prohibition solely or mainly to maintain this price differential?" [16] It is sufficient to observe that to the extent to which the exercise of a trade mark right is lawful in accordance with the provisions of Article 36 of the Treaty, such exercise is not contrary to Article 86 of the Treaty on the sole ground that it is the act of an undertaking occupying a dominant position on the market if the *244 trade mark right has not been used as an instrument for the abuse of such a position. Costs [17] The costs incurred by the Government of the United Kingdom, the Government of the Federal Republic of Germany and the Commission, which

have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision of costs is a matter for that court. Order On those grounds, THE COURT, in answer to the questions referred to it by the Landgericht Freiburg by order of 20 June 1977, HEREBY RULES: 1. (a) The proprietor of a trade mark right which is protected in two member-States at the same time is justified pursuant to the first sentence of Article 36 of the EEC Treaty in preventing a product to which the trade mark has lawfully been applied in one of those States from being marketed in the other member-State after it has been repacked in new packaging to which the trade mark has been affixed by a third party. (b) However, such prevention of marketing constitutes a disguised restriction on trade between member-States within the meaning of the second sentence of Article 36 where: it is established that the use of the trade mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between member-States; it is shown that the repackaging cannot adversely affect the original condition of the product; the proprietor of the mark receives prior notice of the marketing of the repackaged product; and it is stated on the new packaging by whom the product has been repackaged. 2. To the extent to which the exercise of a trade mark right is lawful in accordance with the provisions of Article 36 of the Treaty, such exercise is not contrary to Article 86 of the Treaty on the sole ground that is the act of an undertaking occupying a dominant position on the market if the trade mark right has not been used as an instrument for the abuse of such a position.

(c) Sweet & Maxwell Limited [1978] 3 C.M.L.R. 217 END OF DOCUMENT