The Gazette 1976

GAZETTE

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

January-February 1976

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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