Can the manufacturer block the sales of its licensee? Is the licence agreement subject to antitrust law? Some answers from the Hello Kitty, Campari and Grundig case studies.

For decades, the European legislator has had to resolve the potential conflict that exists between competition rules, which oppose any measure that could restrict the free market within the EU, and protecting the owners of intellectual property rights to dispose exclusively of the property they hold.

This raises the question of how and to what extent competition rules and IPR enforcement can limit each other.

The approach that has been adopted by the European legislator from the outset has been to assign a central role to the creation of a large unified economic area[1] and, on the other hand, provide (with theArticle 36 TFEU) that the protection of industrial property may also derogate from the prohibition of restrictions on the import, export and transit of goods, provided that

“such prohibitions or restrictions do not [constitute] a disguised restriction on trade between Member States. "

In the following, an attempt will be made to retrace, in extreme synthesis, what has been the process of regulatory and jurisprudential harmonisation followed by the European institutions, aimed at finding a balance between apparently contradictory rules.

1. Licence agreement and antitrust law from the 1960s to the present.

As far back as the 1960s, the European Court of Justice for the first time took note of this potential conflict between the existence of IPRs (which are certainly not called into question by EU law) and their exercise, which may be limited by the competition rules of the Treaty in Article 101.

This milestone is represented by the case Grundig[2] (already briefly analysed under the aspect of the parallel sales within the EU): a producer (Grundig) had agreed with its French licensee (Costen), to have recourse to an instrument recognised to it by French national law (the registration of a trade mark of the soc. Grundig in favour of Costen), in fact with the one and only purpose of insulating this territory from parallel sales of products Grundig in France, thus ensuring absolute exclusivity for the licensee. The Court held that this agreement was null and void as contrary to European competition law:

"Article 36, which limits the scope of the trade liberalisation rules contained in Chapter 2 of Title I of the Treaty, cannot restrict the scope of Article [101].. "

In practice, although the agreement between the parties did not infringe the rules of domestic industrial law, the Court found it unlawful because it had de facto led to the isolation of the French market, allowing prices to be charged for products that were not subject to effective competition.

In the 1970s, the Court confirmed this principle in the judgment Siren,[3] where it is again confirmed that:

"Articles [101] and [102] of the Treaty do not preclude the existence of a right to exclusive use of a trade mark which has been conferred on it by a Member State. However, the exercise of that right may fall under those articles if the conditions are met. "

Again, with the case Bitter Campari 1977,[4] the Commission found Article 101 applicable to a trade mark licence agreement, through which the manufacturer had granted its licensees the right to manufacture the licensed products in strict compliance with the licensor's instructions, as well as to manage their marketing, albeit with severe export restrictions.

The Commission, considering the contract subject to discipline antitrustgranted the agreement an exemption formerly Article 101 § 3, considering that the limitations imposed by Campari-Milan to their distributors contributed

"to improve the production and distribution of products, [to] refine manufacturing techniques [...], to build new factories, [as well as to] intensify its brand promotion efforts [doubling] its overall sales volume."[5]

Subsequently, in the 1990s and 2000s, the Commission again considered trademark licensing agreements as a distribution agreement in cases Mooesehead/Whitbread[6] e Der Grüne Punkt,[7] thus effectively reinforcing an already established thesis.

This brought us to 2004, the year in which the Commission published the "Guidelines on the Application of Article 101"where she did not fail to reiterate the point she had already made several times,[8] arguing that IPR and competition are both necessary to foster innovations and ensure their competitive exploitation.[9]

In 2010, the Regulation 330/2010which introduced with Art. 2 § 1 the so-called principle of the".universal exemption", according to which all restrictions of competition, which are not expressly prohibited, are permitted. In particular, in Article 2 § 3 the European legislator wanted to "put in black and white" that the exemption also extends to "provisions concerning the assignment to the purchaser or use by the purchaser of intellectual property rights'. which have, however character "accessory[10]. "

The ancillary character of the IPR, as opposed to the commercial element, is a very relevant interpretative tool to understand which IPR licensing contracts fall within the scope of the Block Exemption Regulation. The Orientations of the Commission clarified on this point that:

"the primary object of the agreement should not be the assignment of IPRs or the licensing of IPRs, but rather the purchase, sale or resale of goods or serviceswhile the IPR provisions are aimed at the execution of the vertical agreement.[11]

This implies that the relationship between the parties must have as its object (main) the buying and selling of goods and IPRs, on the other hand, the role (precisely 'accessory') of "facilitate the use, sale or resale of goods or services by the buyer or its customers".[12]

Thus, where a dismissal contract falls within the scope of Art. 101, the contractual limitation clauses on free competition contained therein, will be subject to the strict European discipline on the matter governed precisely by Regulation 330/2010.

This element of 'accessory' was found in a very interesting decision of 2019,[13] by which the Commission fined the Japanese company Sanrio EUR 6.2 million for having entered into licensing agreements for the production and marketing of products (including the well-known trademark 'Hello Kitty") that violated EU competition rules. The operative part of the decision states that Sanrio had introduced a number of direct measures to limit sales outside the territory of competence on the part of licensees, as well as measures to encourage indirectly compliance with restrictions on territories (e.g. the obligation to use a specific language on a product).[14]

2. Licence agreement and trade mark exhaustion.

After having briefly analysed what limits licensors may impose on exports and sales made by their licensees, we will now analyse whether and to what extent an IPR holder may oppose the parallel importation from another Member State of a product previously marketed there by his own licensee.

As has already been analysed, the European legal system guarantees the (fundamental) freedom of movement of goods; the child of this freedom is the principle of Community exhaustionintroduced with European Directive 2008/95/EC in Article 7 and transposed into Italian law by thearticle 5 c.p.i.[15] (on this point see article Online sales by unauthorised distributors. The Amazon, L'Oréal and Sisley cases.)

According to this principle, once the owner of one or more industrial property rights directly or with your consent market a good in the territory of the European Union, he loses the relevant exclusive rights. The exclusivity is thus limited to the first act of marketingwhereas no exclusivity can subsequently be claimed by the proprietor of the trade mark on the circulation of the product bearing the mark.

The decision-making practice of European jurisprudence has made it clear that consent is also given when the marketing is carried out by an undertaking controlled by the holder of the intellectual property right or by an undertaking, as a rule a licenseeauthorised to do so by the owner.[16] It reads,

"may oppose the importation from another Member State of products having the same appearance as the design applied for, provided that the products in question have been put into circulation in the other Member State without the intervention or consent of the holder of the right or of a person bound to him by a relationship of legal or economic dependence. "[17]

The situation would certainly be different, however, if the first placing on the market had been carried out by a third party, or if after the placing on the market there are legitimate reasons for the proprietor to object to the further placing on the market of the products, in particular when the condition of the products is changed or altered after their placing on the market.

In such cases, the legal system provides means of protection, which have already been the subject of a brief analysis (see article "Online sales by unauthorised distributors. The Amazon, L'Oréal and Sisley cases."), to which reference is made.

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[1] The Common European Market (ECM) was born on 25 March 1957 with the signing of the Treaties of Rome, which came into force on 1 January 1958.

[2] Judgment Grundig-Costen, 13.7.1966. In particular, the producer Grundig in order to ensure the isolation of the French market, as well as having imposed numerous contractual prohibitions to its dealer (the soc. Consten), had also resorted to IPR, concluding with Consten an agreement, whereby Grundig would have created a brand Gint (Grundig International) and that this trade mark would be filed in each Member State in the name of the exclusive licensee operating in the country in question (in the case of France, the company Costen); this mark would then be affixed to all equipment produced.

This would have had the de facto aim of hindering parallel imports within the various countries, since the importation (e.g. into France) of products bearing the mark Gintwould have constituted an infringement, since only the exclusive distributor in that country enjoyed the right to use that mark. On this point see PAPPALARDO, The Competition Law of the European Union, p. 870, et seq., 2018, UTET.

[3] Judgment of 18.2.1971.

[4] Decision Bitter Campari, 23.12.1977.

[5] Id. III, A, 1.

[6] Decision 23.3.1990.

[7] Decision 20.4.2001.

[8] Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements, No 7.The fact that intellectual property laws grant exclusive rights of exploitation does not mean that such rights are excluded from the application of the competition rules. Article 101 of the Treaty applies in particular to agreements whereby the holder licenses another undertaking to exploit its intellectual property rights."

[9] Id., n. 7 "In fact, both intangible property and competition law pursue the same general objective, i.e. to increase consumer welfare and to foster an efficient allocation of resources. Innovation is a dynamic and essential component of an open and competitive market economy. Intangible property rights foster dynamic competition by encouraging firms to invest in the development or improvement of new products and processes; competition acts in a similar way by pushing firms to innovate. Therefore, intangible property rights and competition are both necessary to foster innovations and ensure their competitive exploitation. "

[10] PAPPALARDO, op. cit. p. 338.

[11] Guidelines on Vertical Restraints, n. 35.

[12] Id. n. 36.

[13] Decision of 9.7.2019.

[14] https://ec.europa.eu/commission/presscorner/detail/it/IP_19_3950.

[15] Art. 5(1) IPC (Exhaustion), "The exclusive faculties granted by this Code to the owner of an industrial property right are exhausted once the products protected by an industrial property right have been put on the market by the owner or with his consent in the territory of the State or in the territory of a Member State of the European Community or the European Economic Area."

[16] Exhaustion occurs when the protected product has been put on the market by the rightholder "with his consent or by a person bound to him by ties of legal or economic dependence" (Keurkoop, cit., no. 25). On this point See Pappalardo, Il diritto della concorrenza dell'Unione Europea, p. 875, 2018, UTET.

[17] Judgment Keurkoop, 14.9.1982.