Exclusive licence agreement between a US Company (licensor) and a French Company (licensee) / French law applicable to the contract / Validity of contract, yes / Violation of Article 85(1) of the Treaty of Rome, no

'Validity of the 1981 Agreement-EC Competition Rules

The legal arguments submitted by Defendant on the invalidity of the 1981 agreement under article 85 of the EEC Treaty strongly rely on Defendant's allegations and are linked up with these allegations according to which "Claimant did not own the intellectual property rights and the valuable technological information on which the agreement was based, so that the contract had been entered into on the basis of misrepresentations and was therefore invalid". Before stating my conclusions on the legal arguments relating to Article 85, I must therefore indicate the conclusions I have reached regarding the alleged facts.

According to Defendant, Claimant owned no relevant industrial property rights in any of the countries in which Claimant was supposed to grant Defendant product manufacturing licences under the 1981 agreement. Therefore the manufacturing of the products by Defendant could never have been a counterfeiting infringement of the Claimant's patents/designs and models, and the sale of these products did not entitle Claimant to any payment of royalties.

. . .

After having carefully considered the parties' very numerous conclusions regarding this dispute, and after having examined the documentation I was given as an illustration of the arguments of each party, I feel that to deal with the issue of the validity of the contract itself there is no need to take a decision on the validity or relevance of any particular patent, invention, design or model, or any other element of technological information.

. . .

In the world of trade it is not indispensable for the value and usefulness of technological information that the latter should be covered by a currently valid patent, nor that the information and know-how should actually be confidential and out of the reach of all competitors. A considerable commercial advantage may result from the simple fact that the information is directly available to the manufacturer who is thus spared the delay and expenditure of the research and development work he would have had to carry out in order to reach the same results.

Lastly, it is clearly relevant to an assessment of the merits of the defending party's claim to note that no question relating to the ownership or value of the patents and other proprietary rights was raised before the date of expiry of the agreement. On the contrary, Defendant's claims during the 1981/1985 period went the other way, i.e.: that the agreement was valid and Claimant was therefore committed to uphold the Defendant's sole rights by curbing the activities of his agent.

On these grounds I draw the conclusion, on the question of the invalidity of the 1981 agreement, that the contract was not entered into on the basis of misrepresentations by Claimant of the latter's ownership of a particular patent or another intellectual property right.

My conclusion is that Defendant effectively drew major commercial benefits and valuable privileges from the rights he was granted under Article 1 of the 1981 agreement, and that the availability of trademarks and their continued utilisation by the defending party were in themselves sufficient to warrant the substance and validity of the contract. In any case it would clearly be inconsistent with a fundamental sense of justice to allow a Defendant having drawn an effective profit from a contractual right related to the exercise of intellectual property rights such as those drawn from trademarks, to claim, once the agreement ended, that the contract had been null and void from the start.

Rules on competition-Article 85:

The defence's argument regarding Article 85 was in fact twofold. According to the Defendant, the 1981 contract was null and void ab initio since its provisions violated the prohibition of Article 85(1) and could not be exempted by reference to any appropriate regulation of the European Commission relating to block exemptions. More generally, the Defendant maintained that the 1981 contract constituted only one of the elements of a network of similar agreements concluded by the Claimant with various licensees throughout the whole of the European Community so as to create a "classic cartel" and divide up the market territories appropriated to the various licensees. Defendant's general allegation was summed up as follows in Defendant's pleading of 23 October 1991:

Claimant has established and policed a classic cartel, involving numerous companies, which cooperate with, or are controlled by, Claimant so as to control and restrict competition in the container market, and in the relevant research and development. This cartel masks its activities under the guise of industrial property "licences" which are, in fact, not based on any real industrial property rights, but are rather agreements not to compete, either in the container market per se, or in regard to research and development. Claimant collects technical and commercial information from members of the cartel, distributes this information to other members, and collects a fee for this service, which fee Claimant simply characterizes as a "royalty".

When assessing the merits of this defence, it is important in my opinion to remember that all contentions concerning the invalidity of the 1981 contract were raised a long time after the expiry date of the agreement itself and after the final breaking of the contractual relationship existing between the parties. This is in my opinion an important consideration since at the time the argument based on Article 85 was put forward, it had become impossible for either party-and especially for Claimant-to protect its position by confirming the validity of the agreement through a notification to the European Commission in order to obtain either a confirmation of its validity by a negative attestation, or an exemption under Article 85.3.

Moreover, as already noted above, Defendant supported the exactly opposite view during the lifetime of the agreement, namely that the contract was valid and binding on Claimant and gave Defendant certain territorial sole rights that Claimant had to guarantee. Under these circumstances it would be contrary to the fundamental principles of justice to allow a Defendant who began by claiming that the contract was valid, who obtained from the other party the carrying out of its obligations and drew considerable commercial privileges from this performance, to claim, once the contract ended, that it had been null and void from the start.

The conclusion I have reached on this question is however not based on this principle only. In my opinion, the Defendant's viewpoint on the effect of the 1981 contract was erroneous. It was advanced in the name of the Defendant that the 1981 contract violated Article 85(1) because its exclusivity provisions restricted competition by preventing the Defendant from selling the products concerned outside the territories identified in Articles 1 and 4, and in addition prohibited the Defendant from entering into competition on the level of research and development or from continuing to compete in the manufacturing of the products concerned after the termination of the contract, termed a "post-term use ban".

To my mind, if one examines its terms correctly, the 1981 contract did not imply such restrictions. Articles 1 and 4, by granting the Defendant party the right to manufacture and sell products in certain territories on an exclusive basis, imposed an obligation on the Claimant not to appoint a second licensee in the said territories. However, nothing in the 1981 contract restricted the Defendant from seeking customers exclusively in these territories for the products it manufactured under the said licence.

In fact, in this connection, the 1981 contract was probably less restrictive than it might have been. Thus, for example, if one treats this contract, by analogy, as a dealership or distributorship agreement, it would have benefited from a block exemption in the context of the 1983/84 Regulation, even if it had contained a clause preventing the Defendant from creating an agency or a warehouse outside the territory of exclusivity and prohibiting it from seeking customers outside that territory.

Similarly, no provision in the contract prohibited the Defendant from competing at the level of research and development. What Article 3 stipulated was that the Defendant would provide technical assistance to the Claimant's other European licensees so as to help such licensees resolve particular problems if they so requested. According to witness statements provided by both parties at the hearing, this is in fact what occurred. To my mind, such a practice did not restrict competition, but helped the products to compete with other manufacturers' products on a Europe-wide basis.

Lastly, the contract did not in fact contain a "post-term use ban". The obligations provided by Article 6 in the event of termination for various reasons merely required the return to the Claimant of the goods belonging to it. Nothing in Article 6 prohibited the Defendant from continuing to manufacture and selling its own products and competing on the market. However that may be, Mr. X's testimony on the Defendant's considerable success and expansion during the years 1981-1989 clearly shows that the defending party was highly successful as a competitor in the market and was in no way affected by any restriction, genuine or fancied, proceeding from the 1981 agreement.

In its argument regarding Article 85, the Defendant very strongly maintained a position to the effect that the 1981 contract would never have benefited from a block exemption in the context of Commission Regulation No. 556/89 in relation to know-how exploitation licence agreements. In my opinion, any attempt to rely on this Regulation is erroneous, as this Regulation did not come into force until 1989, long after the expiry of the contract.

The mere fact that a commercial contract grants exclusive rights to an enterprise in a part and even in a significant part of the Common Market is not in itself sufficient to invalidate the said contract in the context of Article 85(1). Before being able to reach this conclusion, certain evidence must be shown of an appreciable impact on competition within the market for the products concerned, as well as certain evidence of an effect on trade in these products between the Member States. To my mind, the evidence produced in this case did not establish any of these essential facts. Apart from a number of very approximate estimates of market shares and of the products concerned held by the Defendant and one or two other European manufacturers, neither of the parties produced evidence leading to the conclusion that the licence agreements concluded by the Claimant in the United Kingdom, Austria and in the other territories attributed to the Defendant had an impact in one sense or another on competition in the trade in these products.

In consequence, I determine the questions . . . by concluding that the 1981 contract was valid and binding on the parties, and that it did not violate Community competition regulations, either on its own or in conjunction with the Claimant's other licence agreements.'