The Gazette 1976

GAZETTE

January-February 1976

territorial protection if the Italian patent had run out. This means that to be safe an inventor should obtain patent protection in all the EEC Member States. There are still differences of opinion over whether e g. a British company which has been given a licence of a UK patent may sell directly into the territory of the Irish patentee. It is clear that a company which buys from the licensee may export the goods to Ireland, so that the patentee has no absolute territorial protec- tion, but only a margin of protection equal to the minimum profit margin which the potential exporter would accept, plus royalty and transport costs. In the case of a direct export by the licensee the patentee has agreed to the sale and obtains his royalty, but he did not agree to the licensee selling in Ireland. Terri- torial protection against one's own licensee is not, how- ever, part of the "specific subject matter'' of the patent, as described by the Court: the right to confine a licensee to a part of the Common Market is not comparable to the right to prevent infringements by unauthorised imitators. The more conservative view is that the prin- ciples stated by the Court apply to patented goods only after they have been sold initially: this is based on the view that Community law merely extends the principle of exhaustion of patent rights to sales of goods in other member states. The view which in the long run seems likely to be adopted is that the patentee cannot use his rights under national law to prevent direct sales by his licensee out- side the territory licensed. If the patentee needs terri- torial protection against his licensee, the appropriate contractual export prohibition would have to be ap- proved by the Commission under Art. 85 (3). This view seems more consistent with the Court's decisions. It is accepted that licensees cannot use national patent rights to prevent direct sales in their territories by the patentee (or by other licensees). This is because the protection of the territorial rights of a licensee against intra-brand competition can hardly be regarded as part of the essence of a patent. It would therefore be unfair if licensees had not corresponding rights to sell in the territory of the patentee, and it would be unfair if companies in Member States which are not importers of technology were not free to export to the more highly industrialised Member States if companies in the latter could export into the technology-importing States. To allow licensors automatic territorial protection would involve several inconsistencies. First, this would treat differently patents and unpatented knowhow (for which territorial protection can only be by contract, which would not normally be permissable). This would not always correspond to a difference of substance. Secondly, since a patent licence fixing the price at which the licensee could sell in the licensor's territory would be illegal ,it would be illogical automatically to permit the licensee to be prohibited from selling there. Thirdly, automatic territorial protection could only apply to simple patent licences and not to cross licences. But this distinction would be hard to maintain or apply, especially when grant-back occurs. If there was automatic territorial protection for licensors, the Commission could not prevent the Com- mon Market being divided, because the Commission cannot determine and has no power to challenge the validity of national patents. Companies therefore could use invalid patents to divide up the market. Even if territorial protection for patent licensors is not automatic under EEC law, territorial protection could be obtained by contract where it is genuinely in- dispensable, for the benefit of licensor or licensee. This

would require the approval of the Commission under Art. 85 (3). This should be clearly understood, so that potential parties to licence agreements are not wrongly deterred from signing by the fear of competition from the other parties. To sum up, I personally consider that all patented or trade marked goods, or goods made with secret know- how, sold or to be sold in any part of the EEC with the consent express or implied of the present or former owner of the patent or trade mark, may be sold directly anywhere in the Common Market without territorial restrictions unless these are embodied in a contract approved by the Commission. Consent is express when embodied in a licence. It is implied inter alia where the user is a company associated with the owner of the patent, trade mark or knowhow. But it is possible that the law may not go as far as this. Clauses in patent and knowhow licences Fhe use of patent or trade mark rights to exclude goods produced and sold elsewhere in the EEC may now be unsuccessful, but it involves no risk of fines. Illegal clauses in a patent licence, however, such as most export prohibitions within the EEC, may involve the parties in fines under Art. 85 EEC Treaty. Broadly, partial or incomplete licences of a patent, and licensee restrictions which are within the scope of the patent, are permissable. However, this is merely a rule of thumb: a patentee is normally free not to use his patent, but if he agrees with a competitor never to use it, that agreement is an illegal restriction on com- petition even though the restriction is within the scope of the patent. But in every case all the surrounding circumstances must be considered. Most licences (except those given by one competitor to another) tend to encourage competition. Licences

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