Tuesday, 24 November 2009

ECJ upholds ‘compulsory licences’ of Green Dot trade mark

Author: Christopher Stothers (Milbank, Tweed, Hadley & McCloy LLP)

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpp181

Der Grüne Punkt-Duales System Deutschland GmbH v European Commission – ECJ Case C-385/07P, 16 July 2009

The European Commission was justified under competition law in restricting the terms of trade mark licences for the Green Dot trade mark and, contrary to the view of the owner, this did not constitute a ‘compulsory licence’ of the mark.

Legal Context

Under Article 40(2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Members are permitted to take measures to deal with anti-competitive licensing practices so long as such measures are consistent with the other provisions of TRIPS. Under Article 21 of TRIPS, ‘the compulsory licensing of trademarks shall not be permitted’ (by contrast, compulsory licences of patents are permitted under Article 31). This appears to indicate that Members, which include the European Community and its Member States, are not permitted to grant compulsory licences of trade marks even in order to deal with anti-competitive behaviour.

Nevertheless, the European Commission appeared to do exactly that in its Green Dot competition decisions in 2001, without even demonstrating the ‘exceptional circumstances’ required by Magill and IMS Health. The appeals against those decisions have now been rejected by the European Court of Justice (ECJ), sitting as a Grand Chamber of 13 judges, as well as the Court of First Instance (CFI). The CFI judgments were discussed in [2007] JIPLP 653–654.

Facts

In 1991 Germany adopted the Ordinance on the Avoidance of Packaging Waste (‘Verordnung über die Vermeidung von Verpackungsabfällen’). This required manufacturers to recycle their used packaging, either by taking it back at the point of sale or by collecting it from the vicinity of the consumer's home. Manufacturers were permitted to use third parties to meet their obligations.

In 1991, a German company, Der Grüne Punkt—Duales System Deutschland AG (DSD), registered its Green Dot logo as a trade mark and in 1992 it began providing a collection and recycling service for manufacturers throughout Germany. The trade mark is as follows:

Manufacturers who used the DSD system were licensed to use the Green Dot trade mark on their packaging, paying a fee for all packaging so marked. The actual collection was carried out by third parties (‘collectors’) who entered into agreements with DSD.

In 1992 DSD notified its system to the European Commission as involving potentially anti-competitive agreements, seeking either confirmation that these did not breach Article 81(1) of the EC Treaty (negative clearance) or an individual exemption under Article 81(3).

The Commission initially indicated in 1997 that it would take a favourable view of the system. However, issues were raised by a competing waste disposal firm and by certain hair-care product manufacturers, which in 2001 led to the Commission giving two decisions that certain aspects of DSD's system were anti-competitive (Decision 2001/463 [2001] OJ L166/1 and Decision 2001/837 [2001] OJ L391/1).

DSD appealed against both decisions to the CFI, but its application for interim relief in the first case was rejected for lack of urgency in November 2001 (Case T-151/01 R [2001] ECR II-3295); in May 2007, both substantive appeals were rejected (Case T-151/01 and Case T-289/01). DSD brought a further appeal to the ECJ in the first case, but this was also rejected in July 2009. DSD did not bring a further appeal in the second case and so only the first case is considered here.

Analysis

The Commission found that DSD held a dominant position in the relevant market for the supply of collection and recycling services to manufacturers. It also found that DSD had abused that position by basing the fee payable on the volume of packaging bearing the Green Dot trade mark rather than on the volume of packaging collected and recycled by DSD's system. The Commission held that it would ‘in a not inconsiderable number of cases, be economically unrealistic’ for manufacturers to restrict their use of the Green Dot trade mark to packaging which would be collected and recycled by DSD. The abuse was held to be both exploitative, by imposing unfair terms and prices on the users of its system, and obstructive, by effectively preventing DSD's customers from using alternatives to DSD's system: this could not be objectively justified under trade mark law because DSD's system went beyond what was necessary to fulfil the essential function of the trade mark right, which in this case was to indicate to consumers that they could dispose of the packaging through DSD's system. DSD was therefore required not to charge a licence fee for packaging which the manufacturer collected and recycled in some other way.

In its appeal to the CFI, DSD argued (among other things) that the Commission had wrongly imposed a compulsory licence of the Green Dot trade mark, claiming that this breached TRIPS, that the Commission had mischaracterized the essential function of the mark, that the Commission's remedy would impair the distinctive function of the mark and that the Commission had imposed a compulsory licence without any fee.

The CFI disagreed, holding that the Commission had not imposed a compulsory licence, but merely restricted the terms of the licences offered by DSD. The essential function of this particular trade mark was not ‘to guarantee the identity of the origin of the marked goods to the final consumer’, as argued by DSD, but rather that the mark ‘says no more than that the product thus identified may be collected via the DSD system’ or ‘that the [collecting] facility concerned is part of the DSD system’. On this basis, the Commission's decision did not constitute ‘a disproportionate impairment of the trade mark right or, in any event, an impairment which is not justified by the need to prevent an abuse of a dominant position’. Finally, the Commission decision did not preclude a fee for the use of the trade mark but simply prohibited charging the full fee for use of DSD's system where only the trade mark was used.

As a consequence, the CFI made no finding on the argument advanced by the Commission at the interim measures stage that ‘Articles 21 and 40(2) of TRIPS, read in conjunction, permit a balance to be sought between the interests of the owner of the trade mark and the public interest, which means competition free of distortion.’ (Case T-151/01 R, para 132).

In appealing to the ECJ, DSD raised a total of eight grounds of appeal, all of which were rejected by the ECJ.

As the first ground, DSD claimed that the CFI's reasoning was internally contradictory in recognizing at para 194 that DSD might still be entitled to charge a fee for the use of the trade mark. Unsurprisingly, this was rejected by the ECJ, which noted that the CFI had distinguished between such a fee and any fee corresponding to the price of the collection and recovery service.

As the second ground, DSD claimed that the CFI had distorted the meaning of its trade mark licence by finding that it included a ‘separate licence’ for the use of the Green Dot trade mark on packaging where the collection and recovery service was not used. Again, the ECJ rejected this ground of appeal. It held that DSD's trade mark licence required users to affix the Green Dot trade mark to all packaging notified to DSD and intended for domestic consumption in Germany, regardless of whether it was ultimately collected and recovered by DSD, the competition issue arising because a fee for the collection and recovery service was payable in any event.

As part of the third ground and as the fourth ground, DSD claimed that permitting the use of its logo on packaging which it did not collect and recover would deprive its trade mark of its exclusive character. The ECJ began by rejecting the suggestion by one of DSD's competitors that ‘the logo is not a trade mark in the classical sense’ and confirming that DSD was still entitled to assert its trade mark rights against third parties. However, the ECJ noted that the use of the Green Dot trade mark on all packaging notified to DSD was not only permitted but actually required by DSD's trade mark licence. Accordingly, the ECJ held that the trade mark retained its exclusive character.

As the fifth ground, DSD claimed that the CFI had failed to recognize that it was in effect requiring DSD to grant a licence to use the Green Dot trade mark independently of use of DSD's collection and recovery services and had failed to consider whether the conditions for granting such a compulsory licence were met. In the light of the ECJ's interpretation of the trade mark licence described above, the ECJ saw no merit in this argument.

As the sixth ground, DSD again claimed that it was being forced to grant a licence and also that it should be entitled to require its customers to include an explanatory notice on packaging which included the Green Dot trade mark but which would not ultimately be processed by DSD's system. The ECJ referred back to its earlier findings in rejecting the first part of this ground and held that the second part was unfounded given it would not be possible to determine the route taken by a particular item of packaging in advance.

Finally, DSD raised procedural issues as the seventh and eighth grounds, claiming that the CFI had not given it a chance to be heard on certain issues and that the time taken for the proceedings was excessively long. These also were rejected. Interestingly, the ECJ accepted that the CFI's proceedings took too long but held that, as this did not affect the outcome of the case, it should not lead to the judgment being set aside but might give rise to an action by DSD against the Community for damages.

Practical Significance

Even by the standards of competition law, which is rarely the quickest off the blocks, this has been a long-running case. DSD notified its system to the Commission in 1992, the Commission decided that certain aspects were unlawful in 2001 and the final judgment of the ECJ confirming those decisions has now appeared in 2009. The ECJ's comments on these delays, although directed at the CFI, may have broader impact and may encourage damages actions by those who consider themselves damaged by such delays.

However, even then the judgment of the ECJ is unlikely to prevent further disputes in relation to use of the Green Dot logo. In seeking to avoid the grant of a ‘compulsory licence’, the ECJ has relied heavily on the terms of DSD's current trade mark licence, noting that it grants a licence for all packaging materials notified to DSD and therefore finding the anti-competitive behaviour in the size of the fee payable for those packaging materials which are not ultimately collected and recovered by the DSD system. While resolving the matter immediately before it, it does not take an enormous leap of imagination to suspect that DSD will change its trade mark licence in the future. Indeed, in August 2008, DSD announced that from 2009 it would decouple its trade mark licence from its recovery service, allowing third parties to use the Green Dot trade mark provided they undertake to comply with the Ordinance on the Avoidance of Packaging Waste. The terms of such licences, or future licences adopted on the basis of the ECJ's judgment, are likely to come before the competition authorities or courts in due course, in particular in relation to the fees.

More broadly, the ECJ's judgment should be of some comfort to trade mark owners fearing the imposition of a ‘compulsory licence’. Although DSD was unsuccessful in this particular case, the ECJ's formalistic approach based on the terms of the trade mark licence give trade mark owners greater scope to avoid any compulsory licensing of their trade marks in the future by careful drafting. However, compulsory licensing should not be viewed in isolation—other aspects of trade mark licences may still be regarded as anticompetitive, raising risks of fines by the competition authorities and claims for damages by third parties. Modern competition scrutiny in the European Community is driven by economic analysis rather than legal formalism, meaning that trade mark owners cannot simply rely on clever drafting of contractual terms but must also ensure that the substance of their licensing arrangements is not anticompetitive.

No comments:

Post a Comment