European Common Market and Canada and United State

Smit, Hans

English

Case Western Reserve University School of Law

Canada-United States Law JournalVolume 12 | Issue Article 30January 1987The Role of Antitrust in Establishing a EuropeanCommon Market and Its Relation to the Canada/U.S. ContextHans SmitFollow this and additional works at: https://scholarlycommons.law.case.edu/cusljPart of the Transnational Law CommonsThis Article is brought to you for free and open access by the Student Journals at Case Western Reserve University School of Law Scholarly Commons.It has been accepted for inclusion in Canada-United States Law Journal by an authorized administrator of Case Western Reserve University School ofLaw Scholarly Commons.Recommended CitationHans Smit, The Role of Antitrust in Establishing a European Common Market and Its Relation to the Canada/U.S. Context, 12 Can.-U.S.L.J. 257 (1987)Available at: https://scholarlycommons.law.case.edu/cuslj/vol12/iss/30The Role of Antitrust in Establishing a European CommonMarket and its Relation to the Canada/U.S. Contextby Hans Smit *I. THE NATURE OF THE EECThe European Economic Community (EEC) is not just a customs unionin which all internal tariffs have been abolished and a common exter-nal tariff on goods imported from nonmember states has been imposed.It is much more. The EEC Treaty aims at total economic integrationand contains a large number of provisions that are designed to achievethis.' The foundation on which the EEC is built comprises freedoms ofmovement of goods, of persons, and of capital. The grand design is tomake the EEC into one entity for all economic purposes.2II. THE EEC ANTITRUST REGIMEA. Competition as the Basic RegulatorThe drafters of the EEC Treaty were confronted with the task ofdetermining how the economic entity, once established, would be gov-erned. Provision for extensive regulation by EEC institutions wouldhave created obvious political difficulties. It would have encroached toosignificantly upon the sovereign prerogatives of the member states. Prin-cipal reliance was, therefore, placed upon the forces of the market. Com-petition was to be the principal regulator. But if the competition was toplay the role assigned to it, proper measures should have been taken thatit would not be disturbed by private anticompetitive conduct. The EECTreaty introduced, as part of the EEC, a set of antitrust rules which pro-tect competition.B. The Scheme of the TreatyThe basic antitrust provisions in the EEC Treaty are Articles 85 and• Fuld Professor of Law and Director of the Parker School of Foreign and Comparative Law,Columbia University. (Due to adverse weather conditions, Professor Smit was unable to deliver thispaper personally.)I For an article-by-article commentary on the EEC Treaty, see SMIT & HERZOGG, THE LAWOF THE EUROPEAN ECONOMIC COMMUNITY (6 vol. loose-leaf).2 In further implementation of this design, the member states, on February 17 and 28, 1986,signed a Single European Act, Supp. 286 to the EC Bulletin. This Act, which provides for a numberof important amendments to the Treaty, has been ratified by all member states except Ireland, wherethe method of ratification has led to a successful court challenge.1Smit: The Role of Antitrust in Establishing a European Common Market anPublished by Case Western Reserve University School of Law Scholarly Commons, 1987CANADA-UNITED STATES LAW JOURNAL86.' They outlaw, respectively, agreements and concerted practiceswhich affect interstate commerce in restraint of competition, and abuseof a dominant position which affects interstate commerce in the CommonMarket. Paragraph 1 of Article 85 prohibits these agreements and con-certed practices; paragraph 2 declares these agreements null and void;and paragraph 3 provides for exemption from the prohibition containedin paragraph 1 if certain conditions are met. The provision for adminis-trative exemption by the EEC Commission marks a drastic differencefrom American antitrust law, under which escape from statutoryprohibitions is possible only by recourse to a rule of reason.The provision for administrative exemption led to difficulties whenthe Commission appeared unable to deal with the large number of re-quests for such exemption registered with it. In order to cope with thisproblem, the EC Council issued a number of regulations which authorizegroup exemptions.4 On the basis of these regulations, the Commissionhas issued a number of group exemptions. The two most important onesdeal with distributorships and patent licensing agreements.' In addition,the Commission has published a number of Communications that are infact blanket rulings which declare Article 85(1) inapplicable to specifiedgroups of agreements.6Notwithstanding these implementing measures, a great deal of un-certainty has continued to prevail. It has been the task of the Court ofJustice to address some of the major problems.III. THE CASE LAW OF THE EEC COURT OF JUSTICEThe unqualified language of Article 85(1) and (2) and Article 86 ofthe Treaty, and Article 1 of Regulation No. 17/62, which declares Arti-cles 85 and 86 to be directly applicable and provides for registration ofagreements covered by Article 85,7 gave considerable support to the view3 For a more elaborate discussion of these Articles, as well as Articles 87-90 dealing with im-plementation by the Community and the special position of public monopolies, see 2 SMIT &HERZOGG, THE LAW OF THE EUROPEAN ECONOMIC COMMUNITY, at §§ 85-90.4 The following group exemptions regulations have been issued: Council Regulations No.19/65, Mar. 2, 1965, 8 0.J. 533 (1965); Council Regulation No. 2821/71, Dec. 20, 1971, O.J. No.L 285/46 (1971).5 Commission Regulation No. 67/67, eff. May 1, 1967, 10 O.J. 849 (1967), (distribution agree-ments); Commission Regulations No. 2779/72, eff. Jan. 1, 1973, 15 O.J. No. L 292/23 (1972), (spe-cialization agreements); Commission Regulation No. 1983/83, eff. July 1, 1983, O.J. No. L 193/1(1983), (exclusive distribution agreements); Commission Regulation No. 2349/84, eff. Jan. 1, 1985,27 O.J. No. L 219/15 (1984), (patent licensing agreements); Commission Regulation No. 417/85, ef.Mar. 1, 1985 02 O.J. No. L 53/5 (1985) (specialization agreements); Commission Regulation No.418/85, eff. Mar. 1, 1985, O.J. (1985), (research and development agreements).6 See, eg., Communication of May 27, 1970, 1968 A.J. No. C 75, at 3, as corrected in 1968 A.J.No C. 84 (Aug. 28, 1968) (agreements of minor importance are not within Art. 85(1).7 Regulation No. 17/62, Feb. 6, 1962, 1962 O.J. 204, became effective on Mar. 13, 1962. Itprovides a comprehensive set of rules which implement the Treaty's antitrust provisions. Apartfrom the provision cited in the text, it provides for registration of agreements covered by Article 85with the Commission. Registration is a prerequisite to the issuance of an individual exemption pur-Vol. 12:257 19872Canada-United States Law Journal, Vol. 12 [1987], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol12/iss/30Smit-ROLE OF ANTITRUSTthat these provisions were self-executing. The Court resolved this ques-tion differently depending on whether duly registered old or new agree-ments (i.e., agreements concluded after March 13, 1962) were involved.Old agreements, the Court ruled in the Bosch case,8 were provisionallyvalid until an appropriate authority ruled on their invalidity. New agree-ments, however, the Court ruled in Haecht II, 9 if forbidden by Article85(1), were invalid ab initio. The latter ruling, since affirmed by theCourt,"0 added to the stress for authoritative rulings on the substantivereach of Articles 85(1) and 86.In leading cases on those issues, like Bosch" and Grundig,12 theCourt has stressed the role of antitrust in eliminating barriers at the fron-tiers of the member states. In Bosch, it ruled that an exclusive distribu-torship was granted by a German manufacturer to a French distributor.In Grundig, the Court specifically upheld the Commission's ruling thatan absolute prohibition against parallel imports (i.e., imports into Franceby others who had purchased the goods from German distributors) wasboth prohibited by Article 85(1) and ineligible for exemption under Arti-cle 85(3).The basic rule that private action that seeks to partition the Com-munity into national markets is forbidden was also extended to Article86, which forbids abuse of a dominant position. In Sirena,'3 the Courtruled that it could be abuse of a dominant position to use an industrialproperty right to forbid imports of goods that had been put on the mar-ket of another member state by the owner of the right or with his con-sent. Indeed, in Deutsche Gramophon,"4 the Court closed a potentialloophole when it ruled that the owner of an intellectual property rightcould not prevent the importation of records it had put on the market inanother member state, even though it had acted unilaterally and did nothave a dominant position. Reliance on intellectual property rights forsuant to Article 85(3) of the Treaty, determines the date to which an exemption may be declared tohave retroactive effect, and marks the beginning of a period during which no administrative sanc-tions may be imposed. Arts. 4-7, 15(b)(5)). Certain agreements of minor importance are exemptfrom registration. (Art. 4(2)). The Commission is granted exclusive authority to rule upon applica-tions for exemption. Sanctions for violation of Articles 85 and 86 and decisions rendered by theCommission are prescribed. Arts. 15-16. The Commission is given extensive investigatory powers.Arts. 11-14, 20. The Court of Justice is given plenary power of review of decisions by the Commis-sion. Art. 17.8 De Geus en Uitenbogerd v. Robert Bosch GmbH, Case No. 13/61, Apr. 6, 1962, 8 E.C.R. 89(1962), 1 C.M.L.R. 1 (1962).9 S.A. Brasserie de Haecht v. Wilkin-Janssen, Case No. 48/72, Feb. 6, 1973, 19 E.C.R. 77(1973), 12 C.M.L.R. 287 (1973).10 19 E.C.R. 89-90 (1973); 12 C.M.L.R. 287 at 304 (1973).11 8 E.C.R. 89, 106-7 (1962); 1 C.M.L.R. 1, 29-30 (1962).12 Consten SARL and Grundig Verkaufs-GmbH v. Commission, Case No. 56 & 58, 12 E.C.R.429 (1966), 5 C.M.L.R. 418 (1966).13 Sirena S.v.1. v. Eda S.v.l., Case No. 40/70, 17 E.C.R. 69 (1971), 10 C.M.L.R. 260 (1971).14 Deutsche Gramophon v. Metro-Grossmarkte, Case No. 78/70, 17 E.C.R. 487 (1971), 10C.M.L.R. 631 (1971).3Smit: The Role of Antitrust in Establishing a European Common Market anPublished by Case Western Reserve University School of Law Scholarly Commons, 1987CANADA-UNITED STATES LAW JOURNALthis purpose, the Court ruled, would be incompatible with the freedom ofmovement of goods as assured by the Treaty."5As demonstrated by its Grundig, Sirena, and Deutsche Gramophondecisions, the Court has consistently brushed aside private attempts topartition the Community into national markets by preventing importa-tion through reliance on intellectual or industrial property rights. How-ever, these decisions dealt with attempts to prevent importation from onemember state into another. The question remains as to what the Courtshould do if an attempt was made to import goods from a nonmemberstate into a member state.In E.M.. 6 and Polydor,7 the Court made clear that in that contextmore liberal rules applied. In E.ML, the Court upheld the right of theowner of a trademark in a member state to prevent imports of goodswhich had the same trademark from a nonmember state. In Polydor, theCourt gave the same ruling, even though the goods had clearly been puton the market of the nonmember state (Portugal) with the consent of theowner of the intellectual property right and even though there was, atthat time, a treaty between Portugal and the Community which, in termsidentical to those of the EEC Treaty, provided for freedom of movementof goods.Even in a case of intra-Community commerce, the rule against par-titioning the Community into national parts is not ironclad. In Maize-Seed, 8 the Court ruled that what it called an open licensing agreement,under which a French licensor licensed the grower's right to hybrid cornto a German licensee, could be relied on by the German licensee to pre-vent imports from France. The decision was based on the peculiar char-acteristics of the grower's right and hinged on the licensee's being"open"; i.e., not preventing parallel imports.IV. LESSONS FOR THE CANADA/U.S. CONTEXTThus far, under American antitrust laws, restraints on competitionby private arrangement or conduct that remains within the scope of intel-lectual or industrial property rights have been upheld as permissible.Even restraints that go beyond the scope of such rights have been counte-nanced when the courts judged them reasonably ancillary to a main law-ful purpose. 9 Under present law, these restraints, since intellectual and15 For a more extensive discussion of the relationship between the Treaty's antitrust provisionsand intellectual and industrial property right, see also Smit, The Relation of Intellectual PropertyRights to Cross-Border Trade in the EEC, 11 CAN.-U.S.L.J. 69 (1986).16 E.M.I. Records Limited v. CBS United Kindgom Limited, Case No. 51/75, 1976 E.C.R.811d, 18 C.M.L.R. 235 (1976).17 Polydor Limited and RSO Records Inc. v. Harlequin Record Shops Limited, Case No.270/80, 1982 E.C.R. 329, 33 C.M.L.R. 677 (1982).18 L.C. Nungesser KG & Kurt Eisele v. Commission of European Communities, Case No.258/78, 1982 E.C.R. 2015, 36 C.M.L.R. 278 (1982).19 Sperry Products, Inc. v. Aluminum Company of America, 171 F. Supp. 901, 938 (N.D. Oh.260 Vol. 12:257 19874Canada-United States Law Journal, Vol. 12 [1987], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol12/iss/30Smit-ROLE OF ANTITRUSTindustrial property laws typically operate territorially, may be used toprevent imports from foreign countries, including Canada, when suchimports would violate the intellectual or industrial property rights of alicensor or licensee or would constitute a breach of contract or wouldbenefit from tortious inducement of a breach of contract. Thus, for ex-ample, an American licensee or a patent owner may prevent the importa-tion into the United States of products manufactured in Canada by a thepatent owner's Canadian licensee.2 0 An exclusive American distributorunder a closed distribution system of a Canadian manufacturer couldprevent parallel imports from Canada by either the Canadian manufac-turer or someone who purchased from a Canadian distributor who soldthem to the parallel importer in breach of his obligations.2 1If Canada and the United States are truly to liberalize trade betweenthem, and even more, if they are to establish a union for trading pur-poses, presently prevailing law would have to be changed in order tosuppress private arrangements or conduct that would continue to main-tain barriers at the national borders.The developments in the EEC provide, to that end, proper guide-lines for appropriate regulation to be adopted between Canada and theUnited States. Adoption of the rules developed in the EEC would insurethat private action would be unable to reinstitute barriers that truly liber-alized trade while leaving appropriate freedom of action in regard totrade with nonmember states.1959), aff'd in relevant part, 285 F.2d 911, 926-27 (6th Cir. 1970), cert. denied, 368 U.S. 890 (1961).See also Chicago Board of Trade v. United States, 246 U.S. 231, at 238 (1918); National Soc'y ofProfessional Engineers v. United States, 435 U.S. 679, at 692 (1978). See generally BREWSTER &ATWOOD, ANTITRUST AND AMERICAN BUSINESS ABROAD (1981 2d ed.) §§ 7.27 & 11.01; FUL-GATE, FOREIGN COMMERCE AND THE ANTITRUST LAW § 5.5 (3d ed. 1982).20 Brownize v. Ketcham Wire & Mfg. Co., 211 F.2d 121, 128-9 (9th Cir. 1954); Dunlop Co. v.Kelsey-Hayes Co., 484 F.2d 407, 417 (6th Cir. 1973), cert. denied, 415 U.S. 917 (1974). See gener-ally BREWSTER & ATWOOD, supra note 19, at § 11.10, and FULGATE, supra note 19 at § 8.2.21 See U.S. v. Wilson & Geo. Meyer & Co. [Canadian Peat Moss Case], 1961 Trade Cas.(CCH) ? 70,020 (N.D. Ca. 1961). See generally BREWSTER & ATWOOD, supra note 19, at §§ 10.14,17.10; FULGATE, supra note 19, at § 2.20.5Smit: The Role of Antitrust in Establishing a European Common Market anPublished by Case Western Reserve University School of Law Scholarly Commons, 19876Canada-United States Law Journal, Vol. 12 [1987], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol12/iss/30

The Role of Antitrust in Establishing a European Common Market and Its Relation to the Canada/U.S. Context

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The Role of Antitrust in Establishing a European Common Market and Its Relation to the Canada/U.S. Context

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